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Gland Pharma Ltd
Earnings Call Analysis
Q2-2024 Analysis
Gland Pharma Ltd
Gland Pharma recently held their Q2 FY '24 earnings call, presenting a stable growth trajectory and solid financial performance. The company reported revenue growth fueled by product launches and market share retention, with the managing director and CEO, Mr. Srinivas Sadu, and CFO, Mr. Ravi Shekhar Mitra, leading the presentation.
Gland Pharma's revenue witnessed a 14% quarter-on-quarter and a notable 32% year-on-year increase, reaching INR 13,734 million in Q2 FY '24. The expansion is attributed to new launches and consistent performance of their top products across B2B partners, further bolstered by the inclusion of Cenexi’s revenues.
Despite the variance in residual markets, the pricing environment remained stable, supporting an increase in sales volumes for both new and existing products, particularly in the U.S., Europe, and Australia. The Indian market, accounting for 6% of Q2 revenue, grew by 21% compared to the same quarter last year. The EBITDA identified was INR 3,205 million with a profitability ratio presented through a net profit of INR 1,941 million in Q2 FY '24.
Gland Pharma's profitability metrics reflect a mixed picture, with a 20% decrease in net profit for the quarter (INR 1,941 million), translating into a 14% PAT margin. The company's overall PAT for the first half of the fiscal year stood at INR 3,882 million, showcasing a 15% margin, compared to a higher EBITDA margin of 23% in the same quarter of the previous year.
Emphasizing operational efficiency and productivity, the company completed a successful EU audit and invested in research and development with INR 351 million expended in the quarter. Gland Pharma filed one ANDA and received approval for five ANDAs, signaling a strong foothold in regulatory compliance. The company also outlined a plan to submit at least three complex products in the next 5 to 6 months, demonstrating commitment to innovation and growth.
A total of INR 971 million in capital expenditure was incurred during the quarter, with strategic investments planned for the next 18 months, including approximately EUR 60 million earmarked for enhancements at Cenexi. These investments are poised to increase operational efficiencies and adhere to the envisioned capacity enhancements necessary for prospective product volumes anticipated by the end of next year or early 2025.
Gland Pharma's financial position remains strong, with INR 22,627 million in cash and equivalents on their balance sheet and a net cash position of INR 19,500 million. A calculated reduction in working capital to INR 22,904 million as of September 30, 2023, demonstrates the company's prudent financial management and operational cash flow generation of INR 4,218 million during the six-month period.
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Ladies and gentlemen, good day, and welcome to the Gland Pharma Limited Q2 FY 2023, '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee. Thank you, and over to you, sir.
Thank you. A warm welcome to Gland Pharma's Earnings Conference Call for Second Quarter of Financial Year '24. I have with me Mr. Srinivas Sadu, Managing Director and CEO; Mr. Ravi Shekhar Mitra, our CFO, to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview by Mr. Srinivas Sadu, followed by financial overview by Mr. Ravi Shekhar Mitra. After opening remarks from the management, operator will open the bridge for Q&A session.
Our earnings presentation has been submitted to the stock exchanges and is also available on our website. Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and are based on management estimates, and this must be viewed in conjunction with risks and uncertainties involved in our business. The safe harbor language contained in our press release also pertains to this conference call. This call is being recorded, and the playback shall be made available on our website shortly after the call. The transcript of this call will be submitted to the stock exchanges and made available on our website.
I will now hand over the call to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr. Sadu.
Thank you, Sumanta. Good evening, everyone. Welcome to our second quarter fiscal year 2024 Earnings Call. I want to begin this call by wishing you and your family good health, happiness and prosperity. As the end of 2023 gets closer and this will be our final call for the year, I will also take this opportunity to extend season and festive greetings on behalf of Gland. Let us discuss the quarter's financial performance and business highlights.
Like the previous quarter, we have provided updates on the stand-alone planned entity and the group performance, including the financial data from our recently acquired CDMO business operating under Cenexi. We're delighted to report a consistent performance in line with our expectations for the quarter. The revenue growth trajectory has been steady across key markets and products, mainly driven by new launches and consistent market share of our top products across our B2B partners. We reported a revenue of INR 13,734 million in Q2 FY '24 as compared to INR 12,087 million in Q1 FY '24 and INR 10,444 million in Q2 FY '23 demonstrating a quarter-on-quarter and year-on-year growth of 14% and 32%, respectively.
In Q2 FY '24, our core markets of the U.S., Europe, Canada, Australia and New Zealand contributed 74% of revenue, up from 72% in Q2 FY '23. Total sales for the United States, the company's largest market, increased by 22% quarter-over-quarter and 9% year-over-year. During the quarter, 15 molecules, 14 in the U.S. were launched or reintroduced in these markets. The new introduction to the market also included some niche products such as Calcitriol, Fluphenazine, and Desmopressin, for which our partners have begun to see traction, and we remain optimistic about the future growth in volumes.
During the quarter, the pricing environment for most of our products remains stable. And we saw an increase in volume for some of our older products, including Ketorolac, Rocuronium, Fluorouracil, and Esmolol. In addition to the U.S. market, we also see increased sales in Europe and Australia. Maximizing the reach of our U.S. portfolio will be a key factor in our continued growth and market expansion. Residual markets contributed 19% of our revenue in Q2 FY '24 compared with 21% in Q2 FY '23. These markets experienced a 9% decrease on a quarter-on-quarter basis mainly due to the uneven procurement schedule of the Rest of the World business and lower sales of a key partner in Cenexi. We expect the residual demand to remain stable as we align strength to expand our market reach and establish new partnerships.
The Indian market accounts for 6% of our Q2 FY '24 revenue and has seen growth of 21% as compared to same quarter last year. We continue to operate within the realm of opportunities in which the portfolio holds the potential to improve the overall health of patients significantly. From a margin and profitability standpoint, we reported an EBITDA of INR 3,205 million with a net profit of INR 1,941 million in Q2 FY '24.
Moving on to operations. The company emphasized efficiency in operations and productivity enhancements while delivering consistently high-quality products. We continue to put first regulatory compliance with the agencies and our partners. We also concluded a successful audit by EU authorities at the Pashamylaram site. On the R&D front, total R&D expenses for Q2 FY '24 were INR 351 million or 3% of our operating revenue. We filed 1 ANDA in the quarter and received approval for 5 ANDAs. We have also made progress with the complex portfolio and in the next 5 to 6 months, at least 3 products are ready for submission. As of 30th September 2023, Gland and its partners filed 336 ANDAs in the U.S., 275 of which were approved and 61 unresolved. The company has 1,641 product registrations worldwide.
Now coming to Cenexi business. Due to the annual summer closure, our Cenexi business in France and Belgium only operated for 2 months, resulting in only partial revenue bookings for the quarter while incurring fixed costs for the entire quarter, resulting in a negative EBITDA margin. Cenexi's revenue for the 2 months was INR 3,588 million, with a gross contribution margin of 77%, an improvement over last quarter and EBITDA of negative INR 268 million. The revenues and performance are consistent with the historical trend after normalizing the shutdown impact.
The post-integration activities have commenced and 1 brand family initiative is advancing. While we see great traction for new business opportunities, the focus is to streamline deliveries and operational efficiencies to cater to the current demand to improve [indiscernible] completion of the technology transfer projects on hand. Some of the present low-margin businesses will be phased out to make way for newly secured businesses.
The lag will primarily be due to technology transfer activity before the commercial batches are shipped out. Until then, we'll have modest growth in revenues. Improved capacity and operational efficiencies, we will invest approximately EUR 60 million in CapEx and working capital over the next 12 to 18 months. In the medium term, we anticipate Cenexi to begin churning results consistent with acquisition pieces. While the investments bear fruit and near-term issues influencing Cenexi's profitability result, we remain confident that the company will generate long-term value. Overall, we have been satisfied with the quarter and remain optimistic about Gland's long-term prospects as we head into the second half of the financial year 2024.
I now pass over the call to our CFO, Ravi Mitra, who'll share more insights about our financial performance for the quarter. Thank you very much. Over to you, Mr. Mitra.
Thank you, Mr. Sadu. Good evening, everyone. Thank you very much for attending our second quarter earnings call. Let me begin by sharing the financial performance of the second quarter and first half of the financial year of '23, '24. Revenue from operations for quarter 2 FY '24 stood at INR 13,734 million, an increase of 32% on a year-on-year basis. The growth was driven by the inclusion of revenue from Cenexi and improvement of U.S. markets in the base business. We have witnessed a 14% increase in revenue as compared to the previous quarter. Revenue from operations for the first 6 months of fiscal '24 stood at INR 25,821 million, a year-on-year increase of 36%, primarily due to Cenexi. Other income for the second quarter was INR 532 million, which includes interest on fixed deposit of INR 325 million, and foreign exchange gains and operations of INR 82 million. For H1 FY '24, the other income was INR 907 million, of which interest on fixed deposit was INR 676 million and foreign exchange gains on operations were INR 82 million.
The gross margin for Q2 FY '24 was 62%, a significant improvement as compared to 50% in Q2 FY '23 due to the high gross margin of Cenexi. On the positive side, our base business has also witnessed an improvement in the gross margin on a yearly basis due to improved margins in the U.S. market.
We have reported an EBITDA of INR 3,205 million in Q2 FY '24 compared to INR 2,969 million, which is an increase of 8% compared to the same period last financial year. The EBITDA margin for Q2 FY '24 stood at 23% as compared to 28% for the same period of the previous financial year. For the base business, which is Cenexi, we have reported the EBITDA margin for Q2 FY '24 at 34%, up from 28% in the same period of previous financial year.
On our base business operation, we managed to reduce the power cost by 5% during this quarter as compared to the same period of previous year and maintained manpower cost at the same level. The EBITDA for the 6 months ended September '23 was INR 6,187 million compared to INR 5,668 million for the same period last year, an increase of 9%. We have reported EBITDA margin for H1 FY '24 at 24% for group and 32% for the base business.
Our net profit for the second quarter decreased by 20% and stood at INR 1,941 million compared to Q2 FY '23, and remains similar as compared to the previous quarter of the current financial year. During the quarter, we recorded a PAT margin of 14%. During the 6-month period of the current financial year, our PAT was INR 3,882 million at 15% margin. The total R&D expense for the second quarter were INR 351 million compared to INR 414 million for the same period of the previous financial year and stood at 3.5% of the revenue from operations on an ex Cenexi basis. The total R&D expense for the 6-month period were INR 808 million, which is 4.3% of our revenue. On a stand-alone basis, our effective tax rate was 26% in the second quarter, and similar 26% for the first half of the current financial year.
Total CapEx incurred during the quarter was INR 971 million, largely spent on Combi-line and an additional bag line in the Pashamylaram in Hyderabad. At Cenexi, we have concluded our assessment of CapEx and working capital needs. As part of our strategic plan, we are preparing to make investments of approximately EUR 60 million over the next 18 months. These investments will be instrumental in enhancing our capacity and operational efficiencies. We have already initiated investments in the PFS line and high-speed MP lines, along with procurement of essential inventory spares.
As of September 30, 2023, on a group level, we had a total of INR 22,627 million in cash and equivalents, an increase of INR 2,209 million over the previous quarter of June 30, 2023. Due to loans on Cenexi books to the tune of INR 3,127 million as on September 30, our net cash position was INR 19,500 million. Cash flow from operations during the 6-month period was INR 4,218 million. Working capital reduced and stood at INR 22,904 million as on 30th September 2023 as compared to INR 24,010 million as on 31st March 2023 due to a decrease in inventory levels. Average cash conversion cycle stood at 196 days for the 6 months ended September '23 as compared to 226 days of same period last financial year.
With this, I would request the moderator to open the line for questions. Thank you.
[Operator Instructions] The first question is from the line of Saion Mukherjee from Nomura Securities.
Mr. Ravi, can you share the milestone income for this year -- this quarter in terms of percentage of revenues ex Cenexi?
So ex Cenexi milestone revenue was 5% of the revenue for this quarter.
And it was 11% in the previous quarter. Am I correct on that?
Yes, that's correct.
Okay. And what are your expectations? Like this is a normalized level going forward?
In terms of milestone or...
Yes, milestone.
While it could be up and down in the quarter, but it will be between what we have achieved this quarter and last quarter, so between 5% to 10%.
Okay. And another question on Cenexi, just to get some clarification. So you mentioned there is a shutdown that you take every year. So what is the impact on revenue? So you reported around INR 360 crores of revenue. So is it that once the plant started, there is some shipments. So how should we think about the normalized revenue run rate for Cenexi? And also around Cenexi, if you can talk about how should we think about in general margins going forward. I think last call, you mentioned about 15%, 16% margin over time. So if you can guide around the margins going forward, please?
If you look at the annual basis, which is a steady business for Cenexi, it's around EUR 190 million to EUR 200 million. And if you look at last year, it's around 10% of EBITDA. And just looking at the next few quarters, I think the trend is similar. So on a quarterly basis, it should be around EUR 50 million, EUR 55 million, if it's a full quarter revenue. And the EBITDA margins will be around the same around maybe 10%, 11%. But on an annual basis, it should be 10%, but we have seen -- we are putting efforts to improve the efficiencies and deliveries to improve the EBITDA margins.
Okay. And just one more question, if I can. We have seen recovery in the U.S. market from the lows that we had in fourth quarter. So what are the trends that you're seeing in terms of new launches and price competition? And what are your expectations for the next couple of quarters?
Price overall is stable. If you look at from the previous quarter to current, the relaunches what we have done out of 14 products in the U.S. what we launched, 4 are entirely new and about 10 are relaunches what we have explained last quarter. And new launches have contributed about 10% of growth quarter-on-quarter. And the quantity increased about 11% growth over the quarter. So we're generating more volumes. We are a little aggressive on pricing. With the new lines coming on track, we are able to absorb a bit more fixed costs. That way, we are able to be more competitive, I would say, in some while maintaining the margins. So some of the products like Ketorolac and Rocuronium, we were more aggressive, and that's why you see an uptick in the volumes. Yes. So overall, I think the older products focused more on volume increase because of the new capacities which got added post FDA approval, line approvals last quarter. And we're able to compete better, I would say, because of better cost.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just one on the core business margins. We have come back to around 34%, close to the mid 30s that we have guided in the recent past, right? So how should we look at margins on the core business going forward? And what are some of the levers that we have? Is it just operating leverage? Or do you think there is the pricing environment. If you could also comment on whether there is a deceleration in the erosion. You talked about being a little aggressive on pricing. So I just want to connect those 2 comments.
So I would say 32%, if you look at the products that we sold, still it has not come back. As told, it will start coming from next quarter a bit and the last quarter of the fiscal with no volumes, so normally, the margins are a little lower. Once that comes, probably the EBITDA margins might slide a little bit. So I still consider 30%, 32%. That could be the targeted EBITDA margin because the [indiscernible] compared with lower-margin product. This will start ticking in from next quarter and subsequent quarter. .
In terms of price erosions, I would say, if you look at the growth, I was talking about volumes and new products, price variance is almost not increased, it's almost like flat. There's no price erosion happening. And some of the new products are doing well. I mentioned about few niche products including [indiscernible], so some products are doing well. Some of the older products, like I said, because of better cost efficiencies were able to aggressively sell. So we're able to sell more volumes. So 11% volumes at the base, what we have is quite substantial, and we continue to see which other products, which can increase in terms of volumes and maintain similar kind of EBITDA margin.
Sir, just trying to disaggregate just the U.S. Y-o-Y growth of 9%, right? So you're saying volumes are 11%, and minus 2% is price, I'm just -- and this 11% includes new products, right? So how will we look at volume growth for base products? And what is being contributed by new, for example, as a geography, say U.S.?
So for U.S., our business, new launches compared to the previous quarter, the growth is our new launches contributed 15% and also quantity actually has contributed 15%. So both are high. The price variance is around, I think, about 1% lower. So it's almost like flat. And if you see milestone was higher last quarter because we have licensed more products. It all depends on how many approvals you get and how much licensing we do, it is a factor of approval timing. So if say more products approved and then we can -- that will increase again. So that's normally between 5% to 10%, like I said.
Second question on are we reinstating or bringing back some kind of a revenue guidance, you seem to have given a 30% to 32% on EBITDA. But anything on the revenue guidance, say, the second half or for medium term?
We're still staying away from giving guidance, but the idea is to give us steady growth quarter-on-quarter. That's what we're seeing in the next few quarters. So yes.
Yes, sir. So I'm referring to your point number 2 in the qualitative comments you mentioned in the presentation, which talks about improved prospects for growth. So what does that mean?
So basically, we're saying we're going to give a growth. We don't want to give a number to it, but it will be a steady growth.
Understood. Then last question, just quickly, 60 million in CapEx for the -- EUR 60 million, sorry, in CapEx for Cenexi. Is this previously envisaged or something that once you have looked at the facility you have put in place, and what is it predominantly for?
So the EUR 60 million is not only CapEx, but also building the working capital inventory level, et cetera, because we're putting capacity there. So out of that, EUR 30 million to EUR 35 million would be the CapEx, and that would -- we have anticipated during our reevaluation because we needed to change the lines to high-speed lines what we have here. and also put high-end like PFS lines there. So it was all early estimated yes.
So if you look at the operational cost of Cenexi, the manpower and all that is pretty high, while the gross margins are pretty good. And while -- during the evaluation, the diligence itself, we knew that if we can replace with some better lines, we can improve the efficiencies and also cost structuring better. That was as per the previous plan. And if you see we look at so many [indiscernible] products happening to that side, it's about 25-odd projects are happening. So we are envisaging these volumes coming end of next year or beginning of '25. So that needs additional capacity also. So while like Ravi said, the increased capacity was envisaged there, but they are also areas where we need to invest into the short-term improvements.
The next question is from the line of Bino Pathiparampil from Elara Capital.
Congrats on a good set of numbers. I was just working out given your ex Cenexi EBITDA margins of 34%. It seems Cenexi has made an EBITDA loss in the quarter. Am I getting it right? Or is there something wrong?
Yes, it is an EBITDA loss. It is -- and that's what is explained. It's a 3 months revenue and 3 months expenses. That is a negative when you're having an asset with 10%, 11% EBITDA margin. So 1 month is substantial. So it's in line with our estimates. On an annual basis, Cenexi going to come back to the normal levels here.
Okay. So next quarter, we can expect 50% higher revenue that will cover up the EBITDA?
Yes. Like I said, we're around 50 -- between 50%, 55% is the normal run rate in terms of revenue. Yes.
Okay. And just a bookkeeping. The tax rate for the quarter was higher. Any change in full year tax rate, expected tax rate?
Yes. So this is again because of Cenexi because if you see stand-alone, we are at the same tax rate level. But in Cenexi, there are different entities. Some have negative EBITDA and some has positive. So it is on that basis on a consolidated basis which add up to that.
Does it change anything as of now for the full year expected tax rate?
No, no, no. Full year basis, it will normalize.
The next question is from the line of Pramod Dangi from Unify Investment Management.
And sir, the question is on the working capital. We have seen the drastic increase the inventory in March of this year, especially led by the packaging material. In half year also, we have seen the increase in the inventory. So is it because of acquisitions or the inventory actually went up [indiscernible] and is this led by again the secondary goods or something else.
Clearly we have seen the increase in the [indiscernible]. You're referring to the consolidated inventory or ex Cenexi business?
Both the numbers consolidated. [indiscernible] went from INR 900 crores to almost INR 1,400 crores in this first half.
Yes. So you have to consider that March was not Cenexi consolidated. So today, the consolidated inventory is about INR 20 billion. But if you look at stand-alone results, it is INR 17 billion, which has come down from INR 19 billion. So that is the inventory reduction which has happened at a planned base. But since we acquired Cenexi, we need to also consolidate their inventory. So the difference from INR 17 billion to INR 20 billion is inventory lying at Cenexi.
Okay. And in terms of the debt also, which went up from all almost INR 900 crores to a INR 500 increase.
Sorry to interrupt, but the line for you is not very clear. May I request you to please use the handset while speaking.
Is it better now?
Yes, slightly better. So please go ahead.
Yes. Yes. So I'm saying that the debtor has also went up almost by INR 500 crores. So is it the same case in the debtor also?
Yes, debtor is similar. But in stand-alone, also debtors has gone up by about 200, and that is because our revenue has gone up as compared to March -- March quarter.
Okay. On a standalone basis?
Yes, yes.
Does that answer your question, Pramod?
Yes, yes.
The next question is from the line of Neha Manpuria from Bank of America.
Just one clarification. What would be the profit share? You mentioned in the milestone by 5%, what would be the profit share in the quarter?
About 11%.
Okay. So that's similar to the last quarter.
Yes.
Okay. And sir, could you give us an update on our complex pipeline? I think I missed your comment in the opening remarks. How many products have we filed? When can we see approval of these products? And what sort of pipeline that we have there?
We have -- we're going to file another 3 in this fiscal year. We have already filed 7. So total pipeline, we have about 19, so 7 filed and another 3 getting filed this year. Approvals will be next year. Yes, I think it's next year.
So next year, we should start seeing. And are they -- would they be meaningful in terms of revenue contribution? Or do you think the larger products probably come later?
Some are meaningful, about $1 billion products and some probably smaller.
The next question is from the line of Nithya from Bernstein.
[Technical Difficulty]
Sorry to interrupt, but the line for you is not very clear. It's breaking up in between.
Better?
No, it's not audible, still.
I'm sorry about this. Maybe I will reach out later.
[Operator Instructions] The next question is from the line of Nithya with Bernstein.
Is the line any better now?
This is much better, ma'am.
Yes, yes, it's better.
Yes. So the employees have shut down and therefore, the impact on the revenues, it seems like something -- is this something you could potentially plan for as we manufacture additional batches early on? So can we expect some improvement next year? Or is this something that we should expect year after year?
I think it's expected every year. That's how they work. So on an annual basis, it's considered every year, that 1 month, they don't work. So unfortunately, that's the reality.
Okay, understood. In terms of Europe and ROW, if you can help us understand what explains the contraction in revenues on a Y-o-Y basis?
I think it is more to do with because Europe is mostly [indiscernible] Europe to other countries. And most of our ROW business is around enoxaparin and heparin. So that's -- and also [indiscernible] which is a high-value product. I would say it's more of the timing which quarter it goes rather than anything else. And of course, the pricing of enoxaparin.
Understood, but I thought you had supply issues last year with enoxaparin and heparin and therefore there is [indiscernible].
No, that was for the U.S. market, but ROW still, the volumes actually still reduced. The demand has gone down overall, and also the competition is high in other markets. And the pricing also we are seeing it is really very, very low margins, that kind of thing combination. The market is expected to come back a bit from next quarter onwards.
The next question is from the line of Chintan Sheth from Girik Capital.
Congrats on great recovery in the margins in the base. A couple of questions. First on the base part. You mentioned that outlook seems to recovery. Does that mean -- and you are kind of not alluding to the numbers, but if you -- if one has to triangulate in terms of the new supplies to start from next quarter for the [indiscernible] business. And that will incrementally one can expect the sequential revenue growth will be positive directionally, not asking on the specific numbers. But can we expect that sequential numbers will start to improve from the base of, say, INR 1,000 crores we reported this year, will look like a steady state going -- upward trajectory going forward?
Yes, that's under control, yes. We will -- that's the statement I made. We will grow it steadily while we're not able to -- what that number is. Yes, it will go up steadily, yes.
Okay. And second, on the margin front. I understand the lower margin part and lower value product, you will be supplying -- start supplying from next quarter. But as the base -- the revenue base will improve, there will be some significant leverage, which you can derive from? And your guidance of 30% to 32%, is it more conservative? Or do you see more pricing pressure in the coming quarters, which gives you a caution outlook in terms of giving out the margin guidance at 30%, 32%.
I would say it's a cautious approach also while the price erosion has stopped and is pretty stable. And new products are added depending on which product we are able to sell. At least we're making sure we'll not go below the 30% number which we didn't contemplate. So we said probably 30%, 32% will be a good bet.
And lastly, on -- you mentioned about the CapEx plans at Cenexi. Any numbers you want to guide in terms of our base business, how much CapEx we have been planning? And lastly, in the China, if you can give some outlook there, one of the -- sought after market earlier we were looking, anything to call out for, say, expect from FY '25 onwards?
So on the CapEx for the base business, for FY '22 -- '24, we'll be doing INR 250 crores to INR 300 crores, largely in the same projects, which I mentioned in my speech. And for next year, it should be around INR 300 crores.
Okay. And on the [indiscernible]?
So the product that we launched, it's still not into the VBP agenda. So probably, we are hoping that next year if it gets into that and the volume is substantial. Currently, it's being sold only in the private sector and trying to -- waiting for the agenda to open.
Any plans for additional products to be launched over there? Or we will be...
No product is expected to launch next quarter.
The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund.
Can you share what could be approximately inventory levels in Cenexi?
So it should be around INR 300 crores.
Okay. So approximately somewhere around a turnover of $200 million that could be more than -- so they have asset fund of INR 1,700 crores -- INR 1,800 crores, right?
So 20% -- more than 20%. Why I'm asking is you had this 4 weeks of shutdown, maybe next year or if it's a recurring thing, would it be better -- you can manage it better because of -- by doing a better inventory management in terms of so that the eventual impact on revenue would be lesser. Is that a possible thing?
No. In fact, we are looking at -- because we mentioned like we are putting new lines and there are many tech transfer projects going on. So probably build up the inventory there.
Yes, yes. My point was the impact on financials and revenue would be lesser if you have higher -- if you inched up your inventory at a higher level so that you can -- it doesn't impact your sales?
Yes. So shutdown was in month of August, actually, but the September was running operation. So end of September kind of normalized.
Yes, I'm not asking last one. I'm asking on a recurring basis going forward, could you manage this impact, which happened in this year, and there won't be any loss of sales because of that?
So actually, the shutdown means there is no sales also, not dispatch also. But we need to plan that in a full year basis.
Maybe it's too early to comment, maybe I'd evaluate the inventory and the sales that work is going on, what is the optimum inventory to be kept so that the dispatches will not get hampered, probably...
Okay. Second, you mentioned in the press release, EUR 60 million kind of investment in Cenexi. I presume this is CapEx, OpEx altogether. So what could be asset turn from this investment? Like anything you can guide us, what could be with the current capacity plus this capacity, which turns out in next 18 months? What kind of asset turn could be planned or what kind of peak revenue it would be possible in Cenexi?
Yes, Ritesh. So today, the asset turn is about 2 because the revenue EUR 200 million and fixed asset base is about EUR 100 million. After we invest this in the next 18 months, which is about EUR 30 million, EUR 35 million, the peak revenue which we can achieve on this CapEx is about going up from EUR 200 million to EUR 240 million.
Okay. Okay. So approximately 20% kind of -- and there would be existing capacity also on the current base that you can take it up, right? The utilization could be at lower levels. So even that could be possible that we would not have taken in your calculation.
Sure.
My last question on the margin side, in the past, you highlighted Cenexi can have a peak margin of 13% to 15%. So do you stay with that number? Or is there a possibility of that number on the higher side, given you would have looked at the asset in detail and you would have looked at the cost structure in detail. Is that possible?
I think we can't comment. It's too early. Maybe end of next year would be better off. Currently, we want to stick to that number. In the near term, if we can get to 13%, 15% that's a good achievement. And once we have this new CapEx implemented, and then the revenue starts generating then there be an improvement on that.
But with the current level of gross margins which Cenexi enjoys, in a medium term basis, there is a possibility of this operating margins moving up from the current range of 12% to 14% to a higher range?
So we are currently analyzing that, Ritesh, so as of now, in the near term, it is not. But we'll see how the efficiency increases, like also we mentioned that [indiscernible] improvement is one of the key areas we are focusing on.
We have the next question from the line of Dheeresh from WhiteOak.
Sir, just to understand, this 1 month shutdown, this is necessitated by the complexity of the plant or this is like a cultural 1-month break because I don't see Indian companies talking about 1 month plant shutdowns.
It's annual French holiday that month, yes.
So it's only related to the 3 French plants and -- or is it also in the Belgium.
Even Belgium has that I think, 1 month holiday thing. 3 weeks in Belgium and 4 weeks in France.
Okay. And this is like a across industry thing in France, or this is just specific...
Across industry, yes.
The next question is from the line of Alankar Garude from Kotak Institutional Equities.
Sir, within ROW, you made that point on the timing issue and lower enoxaparin and Heparin sales in this quarter. But in general, can you please highlight which markets are doing well for us, which are the focus markets? Has Brazil recovered fully, something on that, please?
Yes. So Asia, MENA and these markets are doing pretty okay. LatAm has now recovered 100%. Brazil, like you said, starts coming back from next quarter. It's not recovered 100%. Some products are moving, but not enoxa and heparin. But other markets are in line with what our estimates are.
So earlier, sir, we used to have this target, and this was just maybe a year or so back. You should have a target of 30% contribution from ROW. Now with Cenexi coming on board, currently, it's about 19% for us. And there have been some changes in the way the business has moved in the last 1 year or so as well. So keeping all these factors in mind, how should we look at the ROW contribution for us maybe in the next 3 to 5 years?
So as a group, I know the dynamics are changed now. As a group, we have to see when the partners at Cenexi business, they also have some sales in ROW. So we have to see if they are willing to take our products to those markets. So the dynamic has changed, I would say, after the acquisition compared to before. So the discussions are on how we can actually leverage those partnerships to grow our business in those markets because this business not only sells products within Europe and U.S., but in other markets also. So if you can add our products to that pipeline, that will again start growing.
But would it be fair to say that ROW will grow at a much faster pace compared to, say, U.S. and Europe for us?
Well, the base is lower. So hopefully, it should grow faster than other markets here.
Fair enough, sir. And one final question. Can you throw some light on the B2B and B2C competitive intensity, which we have faced in the past in the U.S. particularly? And how is the situation now?
I would say it's still there. Now it all depends on how our products are positioned. So specialty products, like I said, which are very aggressive in pricing, we are able to compete with a better cost now. So focus is on those products. But again, even all the B2C players don't have the entire portfolio. We continue to source products. So those products have been supplied by us. So I won't say the intensity is less. I mean the players are still there and they are selling. Just that how you position your products depending on the competitive intensity.
The next question is from the line of Nitin Agarwal from DAM Capital.
My question is regards to the new relaunches that you talked about. I mean two questions. One is, a, what prompted this largest number of the relaunches in the quarter? And two, I mean typically, how does the relaunch process work? Do you end up shipping in a reasonable amount of inventory along with the relaunch?
Okay. The answer to one is, as you know, the [indiscernible] products that went to bankruptcy and those products have been acquired. So the acquired company have to liquidate the stocks what they got from the previous entity and then they continue the business. So when we say relaunch some of the products went to this new entity, which acquired this. So the business continued. So there was a lag, I would say, between maybe 2 months where they have used the inventory and then we started shipping to continue the business. So that is the most part of the business. Now there's 3 products where the companies were not doing well in terms of they have their own margin requirements. So we have taken back those products from these companies and then offered to others who are willing to sell this product. So it's a combination of both, but mostly products that you got back from the bankruptcy company.
And sir, on the second part, when you relaunched the product, does it imply a lot of channel filling which also comes -- some amount of channel filling of inventory which also comes through?
I'm sorry, can you repeat that?
I mean do we -- does a relaunch typically come with a reasonable -- some amount of inventory as far as the launch process?
Not that much because normally, when we are taking a product and somebody is trying out to sell, normally, they go with a lower inventory so that they will not end up with huge. Not too much channel inventory will be there. Actually, a few products which we launched even the previous quarter. So those being again, we supplied a few of those products as well. So now these products also will continue. So I think it is a combination of both.
Then sir lastly, your outlook on the U.S. generics market, I mean, have you seen any meaningful reduction in comparative density? Have you seen any meaningful reduction in the pricing pressure overall on a basket level?
I would say, I mean, the drop has stopped. I mean, earlier every quarter we used to see fall in prices, at least that's not happening now. So it's basically a bit stable. So I think that way, we are able to project better than before.
And sir, have you seen people withdrawing from foreign products? Has that increased in last 2 quarters?
Yes, it did. It also depends on the regulatory issues, [indiscernible] and also people are looking at it, it's not really wise to sell some products and there is no margins. So there are withdrawal of those products as well.
The next question is from the line of Karthik, an Individual Investor.
Actually, I would like to find out -- at present the return on net worth is approximately 10%. Is there any consideration wherein a buyback has been thought of, sir?
No, currently, this is under evaluation, so we cannot comment.
Okay. And second point, one more follow-up question. Like during the last conference call, it was told that there are a few [indiscernible] where the commercialization with the customer is in the process. Is there any update on new like agreements with the customers for the new products like on biosimilar especially?
On the China market -- during the last conference, it was told that the customers [indiscernible] and some commercialization is going on, like commercial terms finalization is going on. Is there any advancement of it, sir?
Yes, the plasma project, what we have taken up, that's happening. So those batches are currently under the manufacturing. So that move forward. But nothing new on any other agreements.
And one more thing. The technology transfer, whatever is taking on the Cenexi, how long is it expected for completion totally, the EUR 60 million, whichever you are committed.
So there are several projects. I mean the timing wise, it varies from next year mid to end of next year. And commercialization, some will probably start end of next year and in '25.
Sir, and one more point additional to this. This is my final question. Like is the -- like previous got some loss due to the loss of sales due to nonavailability of syringes and [indiscernible] in this any other sales is accounted or is there still any loss due to this, sir?
No, no, there are no issues in terms of supplies anymore. From supply side, it's all smooth.
The next question is from the line of Harsh from Bandhan Asset Management.
Sir, just on this 20% sequential growth in the U.S. market ex of Cenexi. I think this has already been answered, but if you could reiterate the breakup in terms of the 20% growth, I think, so you mentioned 15% to 16% through new launches, including the relaunches. And then the remaining is coming from price erosion and base business volumes. Is that a fair assumption?
So new launches from previous quarter, 15%, and the quantity -- increase in quantity is about 15%. And price variance negative about 1%, 1.5%. But otherwise -- milestone revenue went down, like I said, but it made up in volumes and new launches.
And if we are disclosing us understand the nature of the distribution partners or the commercialization partners in the U.S. market, primarily for these relaunches -- last quarter, I think so we had almost more than 15 products relaunched and this quarter as well, the number is similar. So what is the nature of these customers? Like are these large customers like [indiscernible] as such? Or is it a mixed batch on an overall basis?
Yes, it's a mix of Pfizer, Fresenius agent and also I think some from U.S. So a combination of everything, but mostly from the large customers.
We have no further questions. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments. Over to you, sir.
Thank you, everyone, for joining us today. We appreciate your participation during the call. Request you to contact with us if there is any questions which remain unanswered during the call. Thank you. Good night.
Thank you. On behalf of Gland Pharma Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.