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Granules India Ltd
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Good morning, everyone. I am Ashish Chovatia from Orient Capital and we are Investor Relations adviser to the company. I hope that all of you and your families are safe and healthy. On behalf of Granules India Limited, I extend a very warm welcome to all participants on Q1 FY '23 Financial Results Discussion Call. Today on the call I'm joined by Dr. Krishna Prasad sir, CMD; Dr. K.V.S. Ram Rao sir, Joint MD and CEO; Ms. Priyanka ma'am, Executive Director, GPI; and Mr. Sandip sir, Chief Financial Officer.
I hope everyone had an opportunity to go through our investor deck and press release that we have uploaded yesterday on exchanges and on our company website. I would like to give a short disclaimer before we start this call. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinions and expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risk and uncertainties.
With this, I hand over the call to CMD sir for his opening remarks. Over to you, sir.
Thank you, Ashish. A very good morning to all of you, ladies and gentlemen, and thank you very much for joining us today. I'm happy to inform you that we had a decent performance in Q1 and see positivity going forward. Our revenues for the quarter were INR 1,020 crores with EBITDA of INR 212 crores and PAT at INR 128 crores. Compared to Q1 of the previous fiscal year, we had a 20% growth in revenue, 10% growth in gross margin, 5% growth in EBITDA and 6% growth in PAT. We had recorded a sequential growth in terms of absolute values in gross margin, EBITDA and PAT for the last 4 quarters. Our gross margin percentage, EBITDA margin and PAT as percentage of sales have also grown sequentially for the last 3 quarters. This performance was despite the pricing and logistics pressures we continue to face in the U.S.
However, on the positive side, the prices of all our input material and international freight rates have stabilized and we see a slow downward trend. Though we do not see the prices returning to pre-COVID levels, we are confident that the downward trend will continue for a while. While we had faced challenges around the availability of PAP, the key raw material for paracetamol during the past few years, the situation has now improved with the largest manufacturer in China resuming production and a few new manufacturers coming up in India. We now have adequate supply of PAP for manufacturing paracetamol from the month of June '22 and the plant has started running with full capacity. This stability in the PAP supplies is expected to continue in future. With the environment around us improving, we are confident of improving our performance quarter-on-quarter.
Due to the supply chain disruptions during the past, our inventory and working capital had increased considerably. Now our focus has shifted to free cash generation along with profitability. As you can see from our investor presentation, our operational cash flow has increased to INR 180 crores as compared to INR 75 crores in the last quarter. Our free cash after CapEx expenditure of INR 82 crores was INR 98 crores and we expect this to improve going forward due to various measures which are in process. During the quarter, we had filed 5 and 2 U.S. DMFs. We have received 1 U.S., 1 and 1 Canadian approval. We have received an approval from the Department of Pharmaceuticals under PLI scheme to manufacture DCDA, which is the key starting material for metformin.
Our European business had seen good traction and contributed 22.5% to our Q1 revenue. The growth for Europe in upcoming years will be driven majorly by partnership business model as this offers value-add to our partners and strengthens Granules' footprint across Europe. The Board of Directors have approved a buyback at INR 400 per share at a total value of INR 250 crores. After the earmarked amount of INR 300 crores for CapEx during the year, we are confident of ending this year with a much improved cash flow and lower net debt position compared to FY '22 and thought it is prudent to reward our shareholders. While the current business model continues to grow, we are all excited about our journey toward Granules 2.0.
And I request Dr. Ram Rao, JMD and CEO, to take you through this journey.
Thank you, Mr. Chairman. Hello, everyone. As a part of Granules' long-term strategy; science, technology and innovation has been identified as an important strategic lever and key to our success by enabling us to offer differentiation and global cost leadership position in the market. Our strategy aims at creating technology platforms in chemistry and biotransformation through partnerships and internal innovations. We'll continue to build the organization aligned to that definition. We are doubling down our R&D technology and sustainability, building strong R&D capability for API and formulation thereby enhancing the scale and quality of our pipeline. Towards this goal, we have recently inaugurated a new state-of-the-art integrated product research and development center at Genome Valley, Hyderabad. The R&D setup in 20,000 square feet will function with an initial strength of more than 150 scientists across both the divisions of API and formulation.
The new facility brings API R&D and formulation R&D teams together under 1 umbrella. This will enable seamless coordination between the teams leading to agile product development processes and collaborative problem solving. The common analytical resources will help us bring the efficiency. Our vision is to develop integrated R&D products and with this vertical integration, we see Granules getting transformed into a technology and R&D driven organization. The company has acquired a small biotech company to bring fermentation and biotransformation capabilities as a part of our strategy and there's a lab in the pilot scale that we can utilize for enzyme led projects biotransformation with our partners. On the business development front, we are currently working with several customers to provide CMO services for our oncology block. We are evaluating opportunities for offering product process and related services to the customers in the area of oncology.
With this, I hand over to Sandip for taking us through a detailed financial performance.
Thank you, sir. Let me now take you through the top financial performance for the quarter. Revenue: the first quarter revenue was INR 1,020 crores as compared to INR 850 crores in Q1 of FY '22, a growth of 20%. This growth is mainly caused by increase in the business across all regions and by our new launches in the U.S. region. Revenue share of noncore molecules stood at 18%, which is a percentage high than the last year, which emphasizes our long-term strategy. The sales breakup as per the business verticals and regions are presented in our investor presentation, which is available on the website. Gross margin: our gross margin as a percentage for Q1 contracted by 4.6% year-on-year mainly due to pricing pressure in the U.S. and also increase in the cost of key starting materials, solvents and logistics.
EBITDA and EBITDA margin: EBITDA for the quarter was INR 212 crores as compared to INR 201 crores in the previous year same quarter. Increase 5% over the previous year is mainly on account of increase in business across various geographies. Our R&D spend for the quarter was INR 32 crores as compared to INR 27 crores in the same quarter of the previous year. We have taken a new premises for our R&D setup in Genome Valley and have moved into that new premises. With an increased focus in the R&D under Granules 2.0 strategy, our efforts around R&D would increase for sure. We have also just concluded purchase of certain assets of a small biotech company, which would increase our focus on fermentation and allied technologies. The purchase will increase our research capabilities around our technologies to the next launch.
Net debt: our net debt was INR 613 crores as compared to INR 697 crores a quarter ago, which is a reduction of 2%. Mainly reduction is on account of the short-term debt. Cash-to-cash cycle: our cash-to-cash cycle was at 144 days as compared to 138 days in the previous quarter. The increase of 6 days is mainly attributed to the planned inventory increase which was required for new launches. Also restatement of trade receivables has resulted in sudden increase in the debtors also. Operating cash flow: operational cash flow for the quarter was INR 181 crores as compared to INR 132 crores in the previous quarter. Higher operating profit and focus on working capital management contributed to the higher operating cash flow in the current year. CapEx spend during the quarter was at INR 853 crores and the free cash flow that we generated was at INR 98 crores. Our endeavor for the whole of the balance year quarter-by-quarter will be to make sure that we generate more cash and bring the debt situation down.
With this, I will open the floor for questions.
[Operator Instructions] The first question is from the line of Krish Mehta from Enam Holdings.
I just had 2 questions. One was on paracetamol, if you could provide an update on the pricing and more on the end user pricing in terms of customers and how you see this trend actually going forward?
First of all, let me explain that our customers are all the top brands in the country and we also sell not only APIs and PFIs to the top brand, we also sell our tablets also to these people and we also have our GCH Granules Consumer Health in the U.S. through which we sell different types of paracetamol tablets to all the chain stores like Walmart and Target and other people. Prices I don't think we can share with you. But overall I can say the selling prices are likely to come down slowly along with reduction in costs mainly due to the possible reduction in price of PAP. There will be a downward trend based on the price of PAP. However, there will always be a lag, it will not be in the same quarter. So we see that we'll be able to maintain our margins on all paracetamol products.
Okay. And my next question was on peptides, if you could provide like a similar guidance or outlook on how you see the pricing evolving going forward?
On peptides, I think it's good that Ram Rao answers this question.
Sorry, can you just elaborate which peptides you're talking about?
I was asking more from a broader perspective in terms of the raw materials and input prices?
I thought it was peptides I was wondering. On raw material pricing. Yes, raw material pricing at least the increase has stopped and they have stabilized and we see some slow downward trend. And going forward if nothing else unexpected happens in the world, we definitely see prices coming down quarter-on-quarter and overall there will be an improvement. And availability is no problem right now.
[Operator Instructions] The next question is from the line of Yogesh Tiwari from Arihant Capital.
One question on DCDA. If you can share some details regarding what would be the capacity for the DCDA and how will it contribute to the financials? So what would be the cost savings and what is the requirement per unit of metformin? So if you can share some details and the timelines basically.
The cost -- let me start with capacity. We have the PLI sanction for 8,000 tonnes per annum and we will start production at that level and based on the overall situation in the international market, we will possibly double that production going forward. And pricing and the outlook with the imports coming in from China, we definitely believe we have a slightly better differentiated technology unlike what the Chinese use and we think we will be slightly cost competitive. But the main thing here is supply security rather than cost, definitely there'll be a little advantage which will add to the margins. And consumption efficiency, I think that's what you have asked. It's less than 1:1 -- much less than 1:1.
So it is around 0.6% some back of the envelope calculation?
Let's not go into those details. I don't think that it's the right forum to talk about that. By the way you're talking, I'm sure you know the answer.
Sure, sir. And what would be like the contribution to the financials? What will be the savings like? Any quantification can be given on those lines? What will be the quantification on the financials? What would be the savings on the cost basically because of this?
See, quite decent, that's all I can say. And I mean definitely costs will be more than INR 10 crores a year, but it will be quite decent. We will not be able to put a number today because the Chinese import prices also will keep changing. They may drop the prices or they may maintain the prices. It's a little uncertain, but overall there will be an improvement.
And lastly, sir, what would be the timeline like when can we expect this and what would be the CapEx involved in this?
CapEx would be possibly around INR 100 crores. The pilot studies are almost getting completed now and after that we'll be able to put an exact number. So I can say around INR 100 crores and timelines could be 2 years from today -- less than 2 years from today.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Just extending on this CapEx question so this will be the part of our INR 300 crores CapEx for '23, right?
It'll be a part of that, yes.
Okay, great. Secondly, sir, on the noncore business, it has been largely stable for 3 quarters and we have good number of ANDAs which are already approved. So if you could throw some color on that aspect. When do we see the noncore business picking up?
It is because up slowly, Tushar. We have seen that. Okay, it's just a 1% increase, but it's picking up. But what is also happening is on launches, you see that there will be few pricing pressures that are happening. But going forward, we are working on cost optimization of all these products and as you keep producing, the cost can be optimized. So we will see a better market share as we go by. So I cannot put any number on the table today, but definitely over the next 4 quarters, we will see a very positive improvement.
Got you. And if you could just elaborate on this biotech asset in terms of the thought process and how do we see this over next 4 to 5 years?
Okay. I think this is a question for Dr. Ram Rao. He will answer.
The way we are looking at it and as I told in my previous calls and the current call, 1 of the biggest focuses will be on the biotransformation in that and we have to build this basic capability of enzyme characterization and then scale up and that is where I think the assets that we have purchased will help us to get the competency and the capability into the organization. So as a part of our strategy, I think this is a good synergy in terms of looking at products with biotransformation and chemistry innovation and it is exactly in line with what we have been speaking about earlier.
How much do you intend to invest maybe like over the next 12 months in this segment?
Yes. In this segment, there are 2 types of investment and we are working out on that. One is definitely the entire laboratory pilot scale and all and the second one is the fermentation which is required to build. Right now we are working on it, but definitely it will be north of INR 75 crores on the overall bio fermentation.
And out of that, how much you would have spent already on this?
A little over INR 20 crores.
And again this would be also part of your overall CapEx guidance of INR 300 crores?
Yes.
[Operator Instructions] The next question is from the line of Pujan Shah from Congruence Advisers.
Yes. Am I audible?
You're audible, Mr. Shah.
Sir, I just wanted to ask from the previous one. So on a broader picture, are we seeing the demand coming up for fermentation because if China is seeing some issues related to permission or intake and how will be the demand ramping up for the fermentation process in India on a broader picture?
I would not like to comment on the broader picture. But the kind of strategy that we chose on the fermentation, I think there will be a definite need for organizations to build their own capability because this is not available and even if it is available, only in the form of the end product. So Granules looks at this as a strategic area of focus on the fermentation and its impact on global cost leadership of the molecules that we are looking at rather than looking at this as a broader fermentation platform.
Okay, sir. My second question would be on the EBITDA margin. As we have seen that the EBITDA margin remains around 20%, 21%-odd. So are we seeing the same trajectory going forward or like we are seeing any volume growth and that would be contributing to EBITDA margin? Like we are seeing the price erosion, but are we seeing any volume growth over there?
Yes, we do see some growth and we are also fairly confident that the EBITDA margin will be creeping up quarter-on-quarter. They may not be -- I mean they may not go to 30% like we did 2 years ago, but definitely the margin will creep up and there will be an improvement quarter-on-quarter.
Okay, sir. And my last question would be you can say on a historical basis, like are we seeing a volume trajectory growth as U.S. like now has been destocking and like a stabilizing market and we have been seeing a good traction in the coming quarters. Are we seeing a volume growth of 5% to 6% or like less than it could be?
There will definitely be a volume growth led by different geographies. U.S. there is a challenge, but Europe also we are launching a few products in Europe. Overall we will see a volume growth.
[Operator Instructions] The next question is from the line of Shri Shankar from Incred. The current participant has moved out of the queue. [Operator Instructions] The next question is from the line of Ashish Kabra, individual investor.
Sir, regarding the buyback, just wanted to know that will the promoters will also be participating in it or will it be only for the non-promoters?
Yes, promoters also are going to participate. The option is for the promoters to participate. It's the decision of the promoters that we'll have to wait and see. But overall I'll say promoters will be participating.
And sir, can you just give like a road map for like FY '24-'25 regarding our revenue growth? Can we be around 15% to 20% like year-on-year?
You have seen our past record, we have been growing at a CAGR of 20% and I don't see any issue in continuing that growth. But the most important thing today, Ashish, is more than revenue growth and profit growth, we are focusing on cash. And if you have seen what has happened in this last quarter, we had a positive cash of INR 98 crores after our CapEx. And we see this focus on cash yielding better results in the coming quarters and we definitely see a cash buildup as we go by. So while revenues and profits grow at a certain rate, but we see cash growing up in a little higher growth rate.
Yes, sir. And 1 follow-up on this cash one. Since our cash is also increasing, sir, can we see any future M&A from Granules like not just for the next 2 quarters. But like for 1, 2 years, can we see some significant M&A activity?
Definitely if there's a good opportunity that comes along where there's synergies with our business and which fit into our overall plans of Granules 2.0, we will be very, very hard working getting to that. But as of today, we are concentrating on all organic growth and we don't want to do an M&A just for the sake of M&A. But if something comes along, we definitely would like to do that. And also I'd like to assure you cash may not be a big issue if we have to do some M&As.
[Operator Instructions] The next question is from the line of Harith Ahamed from Spark Capital.
Sir, my first question is on the MUPS facility. Can you give an update on the current status of this facility and the CapEx that we spent here? Also some color on the number of filings and the timelines for commencement of commercial supplies?
The first one on the MUPS facility, I think we have already commercialized a couple of products and the revenue started coming in some products and I think this is exactly in line with our capital expenditure budget on the MUPS. Regarding the approvals, I think we have a few products lined up and they are at different stages of approval and we hope to see that the regulatory review and other things happen quickly and we should be in a position to see the launches of these products.
All right. On the new DCDA capacity under the PLI scheme so how much of -- I missed the capacity that you mentioned earlier and how much of this will be for captive requirement and how much of this will be for external supplies?
I think we did not get your question. The capacity utilization is more than 50% and we are already having an asset turn of 1x on the investment today.
No, I'm talking about the DCDA facility on account of the PLI scheme, what is the capacity? You mentioned a figure previously, I missed that, and how much of this will be used for our own requirement versus supplying externally?
I got you. Today the 8,000 tonne capacity is for our own internal requirements and if we increase the capacity, maybe we'll offer the product outside.
The next question is from the line of Shri Shankar from Incred.
Sorry, earlier when I asked the question, my line got disconnected so I couldn't hear the answer. I have a couple of more questions. Earlier you had spoken about, I think a year back also, your 3-year CapEx program of around INR 1,000 crores. Where do you stand right now under all these turmoil, changes, et cetera that we have seen? You have given the number for FY '23. What is the expectations over the next 36 months?
Last year we said it's INR 2,000 crores. We spent INR 400 crores last year and we said INR 1,000 crores over 3 years so there's still INR 600 crores to go and the first quarter we spent about INR 84 crores or INR 82 crores. And I think we will be doing the INR 600 crores in end of FY '24.
Okay. And the question that I asked earlier was you had mentioned about a steep increase in the freight charges apart from the raw material price increases, which had risen to a margin pressures over the last 2 quarters. Now to what extent is the correction that we have seen in raw material prices? I'm not asking for exact number and the price charges. And do you think the price pressure for -- the selling price pressure that you may see going forward will more than
[Audio Gap]
the correction in the freight charges as well as raw material charges?
The freight charges have stabilized and have seen a slight downward trend. It's not gone down drastically, but a slight trend. But the good news is it's stopped increasing. And all the raw materials prices are coming down slowly and we'll see about I mean a few percentage points every quarter. We cannot anticipate anything, but definitely there's a downward trend and the margin should definitely improve a bit. While the price of raw materials are the same for competition so there will be a competitive approach to the customer, but definitely I see margin slightly improving.
Okay. The final question is for Sandip. Sandip, in your remarks you did mention about roughly 2% reduction in borrowings or something, I couldn't really catch that. But when I look at the net debt, net debt probably has come down to 0.72 or something from 1. So if you can also give in the investor presentation your balance sheet, you're not required to give it every quarter but if you can give it in the presentation, it will be great.
Okay. I will look into the suggestion very positively and definitely we'll provide some of the excerpts of the balance sheet if that makes better sense. No problem.
The next question is from the line of Punit Mittal from Global Core Capital HK Limited.
Just 1 question. You have highlighted that you will focus more on cash flow and free cash flow. From your presentation if you look at the last 6 years though the revenue has increased, the cumulative free cash flow is negative INR 200 crores and even though your profits have been about INR 1,800 crores plus your cash conversion cycle has kind of deteriorated or at the same level as March 2017. So can you give some more color on when you say you'll focus on cash conversion or free cash flows going forward. If you can give some numbers also, how much cash flows are you targeting for the next 2, 3 years or what is the optimal conversion cycle that you're looking at?
So I will take this. So you're right that our focus was always to get into a situation where we balance between the debt and the cash that we are generating and the debt decision was always backed up by the competitive rate that we were able to give and the interest cost it was always under control. Having said that, now the entire world is seeing upward trend in the interest rate so therefore the conservation of cash is becoming more important and we have picked that as our strategy for this year onwards.
So therefore, the endeavor that will be there is to make sure that we are utilizing the debt in a very, very judicious way and we will keep on reducing our long-term debt year-by-year and there will be an endeavor to generate enough cash by various inventory controlling measures, then some of the decisions and some of the negotiations that we have to do with our customers and vendors to ensure that there is a little bit of more cash that is getting generated in the system. So that is what is important is that. I will be able to give you a frame that in every quarter now onwards you will see that there will be a positive cash buildup in the system.
[Operator Instructions] The next question is from the line of Deepan Sankara Narayanan from Trustline.
Sir firstly, I wanted to understand are we planning to source more PAP from Indian suppliers? Are we foreseeing supply stability and the prices of PAP going down for us?
Yes, we do. Our decision to buy depends on who's giving us the best price, who can give us better supply security. Definitely we want to distribute it within all the manufacturers and subject to price, a better share can be given to some of these people. We are already procuring from Indian manufacturers and we'll continue to do so.
Okay. So are we satisfied with the quality of current PAP prices in India or you think it will take some more time for them to ramp up the capacity with adequate quality?
I can tell you very confidently at least with 1 of the suppliers, we have worked closely together helped them improve the quality and the quality is quite satisfactory right now.
The next question is from the line of Tushar Bohra from MK Ventures.
And congratulations to the management for a good set of numbers. Sir, firstly, I just want to understand. We mentioned the strategic buildup of inventory earlier in the call. If you can help us understand whether it is for an existing product, whether it is for a potential new launch and what kind of buildup have we seen over and above normal?
It's for all products, Tushar. For existing and also new launches, we need to file a plan of inventory before they launch the product. And all the supply chain disruptions have caused us this buildup. One is the freighting time from here to the U.S., which used to be 23 days, 24 days have gone up to 45 days, 50 days. That itself doubles the quantity on water and uncertainties of material arrival in ports. And once the material arrives in the U.S. port, the problem is getting it to the distribution warehouse. There's a shortage of containers even today in the U.S. Although international trades and the availability of containers have improved, within the U.S. there's a problem and so just to overcome all this, we had to stock a lot of inventory for existing products and also new launches.
Got it, sir. Second, just an observation. Our share of metformin in the overall revenue has trended down a bit recently. Is there anything to read from this trend and how do we expect metformin to pick up going forward?
Metformin will continue to have the same sales if not a little growth in U.S., but we definitely see growth coming through from other geographies. We have always had a very decent market share in the U.S. So I think rather than concentrating and pushing more into the U.S., we should concentrate in other geographies. We got an approval for U.K. and we are likely to get our approvals for Europe also for metformin shortly. So we should be getting increased revenues from metformin.
I meant metformin revenue share for our overall revenues meaning which is about 25%.
Overall revenue -- overall products are also increasing, Tushar. Paracetamol is doing well, ibu is doing fairly okay and other products are coming up. So I think it should increase slightly. Tushar, I have the numbers here. Value wise it has increased a little bit by INR 20 crores, as a percentage it's come down. That's what exactly I was saying there's an increase in other products also. So as a percentage, it may stay there or increase a little bit. But we see a lot of potential for paracetamol tablet launches in Europe going forward. So maybe for the time being it may stay there, but slowly there could be some improvement.
Right, sir. If I may ask couple of questions around the long-term strategy. One on the biotech side, if we can understand what is the product strategy or how we are intending to build up this space over the next, say, 2 to 3 years? And even on the longer term, what is the intended strategy regards this new asset? Also on the oncology side and regarding the new block, biotech block, if you can help us understand any progress on the CDMO/CMO front for onco and high-po products?
Yes. I think Dr. Ram Rao will take that question.
Yes. So on the biotech side, the way we are looking at it is we already have a good portfolio of the existing commercial products and also the new products where there is a possibility of doing a biotransformation which helps in 3 ways. The first one is to look at cost leadership. The second one is to look at ESG. We also stated that Granules' focus on ESG as a strategic lever I think it is always there and we have already started working on it. So this will help us to move in that direction. And the third one we are looking at is the future product portfolio where as you develop the products, I think this will be the first approach that we will take on the product development side. So I think we are already good with the portfolio of the product that we want to do and then how the enzymes and the biotech fermentation area that need to be built up as a capability.
We have already started making our steps in the direction. We already got R&D lab and the pilot scale fermentation done as a first step and we will be going forward and looking at commercial production and utilization of this into our identified portfolio of the products both from commercial as well as the future product development portfolio. Coming to the second question. I think we have already made good progress on the oncology CDMO side. We did have some contracts that have already been done and some products will be getting commercialized today. Already we have commercialized 2 products, but that will give us intended focus as we move forward and would allow to create that line of business in the next couple of quarters.
That's very helpful. Just if I may squeeze 1 last quickly in. You highlighted cost management initiatives to improve the overall margin profile and also the cash flows. If you can highlight specific initiatives you're taking. And on the business side despite higher sales from paracetamol this quarter, our gross margins have improved. So is it fair to say that in paracetamol also we have bottomed out from a gross margin perspective?
I think the specific initiatives that we are looking at I think as a part of our overall strategy and we have already started implementing it in some of the areas. We are looking at the product level cost leadership at a global level. So I think you'll see that directionally we are looking at that as a part of our overall EBITDA transformation journey we have taken. And you will see some of these initiatives, which will be focused on the EBITDA transformation going forward.
And that I think is already visible when we look at the EBITDA percentage improvement and we hope to see that along with the stabilized freight cost and the raw material costs that are likely to be either stable or go down as we see the indications. I think a journey that we have started on technical side on both R&D and manufacturing to really bring up the areas of focus, which will enable us to drive the EBITDA transformation journey. I think these initiatives are already in place and we are also going to improve some of those initiatives going forward to enable us achieve the targets of the EBITDA which we have in our mind. That's the first one. And on the paracetamol, I think -- can you just clarify your question exactly on paracetamol, please?
So sir, it's just my understanding that paracetamol would probably be slightly lower margin product for us than the overall corporate margin. So when we see a year-on-year -- sorry, quarter-on-quarter improvement in gross margin for the company this quarter despite a higher paracetamol sale, is it fair to assume that the gross margins for paracetamol per se as a product have also bottomed out in the previous quarter? So we are trending upwards in gross margin in paracetamol as well in addition to the overall business?
Last quarter apart, Tushar, as we sell more and more of tablets of paracetamol, the margins will improve positively. So like I said, we are launching paracetamol tablets in Europe where there'll be a lot of value-add and value-add in terms of margin also. So it's not definitely bottomed out, there's still scope for improvement in margins for paracetamol.
Got it, sir. And just a clarification is when you mentioned cost management program, you're referring not to operational but to actual product profile meaning yield improvement or something on the R&D side that is improving your cost structure for a specific product? Is that what we refer to in the cost management side?
That's right. I think we are looking at several aspects of the product cost and I think that is the initiative that we have certainly taken up as a part of R&D. Sandip, would you like to add some more?
So Tushar, apart from the initiative which is specific to a product, there are also overall initiatives that we are taking which was not there earlier. That is like various places wherever we are finding that there is an increasing trend in the cost than we anticipated. There are other areas we are identifying where there is a scope of improvement and we are very, very judiciously walking towards reducing the -- making the cost structure same or less at an overall year basis. So which is a pure transformation from the way we used to look at it since earlier. So there are 2 ways to approach. One is that product specific cost optimization efforts and then cost opitimization approach also. So these are the 2 things which will eventually improve the EBITDA.
The next question is from the line of Varun Pattani from Quant Mutual Fund.
So just 1 question. So with the plant...
Excuse me. Can you -- so your voice is stable.
Varun, can you speak a louder? We are unable to hear you.
Yes. Am I audible now?
Little more louder will be better.
Okay. So my question was the planned CapEx of INR 300 crores and INR 250 crores of buyback so what is the year-end net debt target that you are going to sort of achieve with the strong cash flow generation as well?
We are sure and confident that the net debt position will come down. There will be a positive cash flow after all this expenditure and the net debt position will definitely come down. By how much is something we cannot venture to say, but definitely there will be a reduction.
So you are planning to cut down on the long-term portion of the borrowings?
Long-term portion is very little, it's only INR 300 crores. Sequentially it's coming down year-on-year by itself. In 2 or 3 years there will be no long-term debt. Even today if you see, by the end of the year our cash position and long-term debt will cancel themselves so what we'll have is only short-term debt, but also will possibly be there or come down a little bit.
What gives you sort of confidence to have a better cash flow generation this year like what has changed fundamentally?
It's basically the inventory management, which went haywire because of all the supply chain disruptions. That's going to slowly turn positive, number one. And also we see improvement in reduction in receivable days. So we are working with different customers to bring down the credit days and we have already seen some positivity there and we'll see more going forward.
The next question is from the line of Yogesh Tiwari from Arihant Capital.
Am I audible?
Yes, you're audible, Yogesh.
So actually, I wanted to know some -- sorry. Wanted some information on the regional revenues. So if I look at Europe for example, it looks like that Europe has increased by about 60% on a Y-o-Y basis because of the increase in paracetamol. So just wanted to understand what is the scenario over there and is it sustainable this growth going forward?
Improved revenue share in Europe from 16% to 22.5%, that's what you're saying, right, whether it is sustainable or not?
Yes. So on a Y-o-Y basis if I multiply those proportions, I get about 60% increase.
Yes, you are right. So there will be more actually going forward in Europe because as CMD was mentioning and we have clearly mentioned that our next 2 years focused market will be Europe, expansion in LatAm and South Africa also and that will be core products. So obviously there will be improvement in those geographies. And as we go back to the core versus noncore so it would be like this that the entire expansion will happen in terms of all the geographies and then the percentage of the core will be gradually increasing to 92% '22-'23 that we are actually mentioning. So that's how the strategy will work.
And sir, regarding there were some recent news that there has been drop in PAP prices. So is there a big chance of an upside in margins for paracetamol going forward because of declining PAP prices?
There will be a short-term upside, Yogesh. But then again when prices fall, the customers also expect us to pass on the benefits. Like in the past when prices were going up, they would not give us the price increase immediately, but over a period of time. There was always a lag we were getting some increases. So here also with a lag, there will be a drop in prices. But overall margin we believe can actually improve.
Yes, sir. And coming back to Europe so the 60% growth, can we expect a range of 50% to 60% for the next few quarters for Europe?
50% to 60% of the total revenue or growth?
Growth, 50% to 60% Y-o-Y growth for the next few quarters for Europe.
We have to see. We are having new launches that are coming up are very promising, but let's see how they perform. We'll be launching some products -- possibly 1 or 2 products in this quarter itself, but otherwise definitely next quarter. So definitely there's going to be growth. How much? I won't be able to say today.
And sir, in terms of your U.S., how many launches are we planning for FY '23 in U.S.?
Priyanka, would you like to take this?
Sure. We have about 2 to 3 launches that are still pending for the rest of the year. We'll be launching them in this year, but we'll see the effect of the market share pick up only in the next year. We'll see some in Q4 and remaining in the next fiscal year.
Yes. And in terms of U.S., I understand that we have grown our revenues by 18% on a Y-o-Y basis. So I'm just assuming that if there's a price erosion of 10% in the U.S. market, volumes would have increased by about 28%. Am I correct on those things?
Volumes have certainly increased, percentage-wise I need to get back to you on that. But volumes have certainly increased especially on our larger volume products.
Sure. And on India business, it looks like there was a degrowth in India if I just multiply the contribution. So if you can share some light on the India business for the quarter compared to same period last year.
See, our objective was always to add value to our products, Yogesh, and India we only sell APIs. So as we add value and the PFIs and tablets are sold in other markets. So over a period of time unless we have new capacities of certain products coming in at surplus capacities, India business will be here or possibly there will be a little more degrowth. Definitely it's not going to grow. Even if it grows in the short term, it will slowly come back unless India also becomes a big market for PFIs in future.
Sure, sir. And lastly on the LatAm market. So LatAm, it looks like we increased by about 1% on a Y-o-Y basis. But since you told that our focus would be on LatAm so I assume that, that will grow exponentially in the coming quarters, the LatAm market.
Not in the coming quarters, Yogesh, but in coming years definitely because we have been -- the focus now is from PFIs to FD in LatAm. So that's going to take some time. We have made some filings and we'll be filing some more. So over the years definitely there's going to be a drop, definitely not in the next few quarters.
But can we expect lower single-digit growth in LatAm for this year?
Yes, it's possible. Maybe 1% or so possible, but let's say it's going to be stable.
Thank you. Ladies and gentlemen, in the interest of time, this was the last question for today. I now hand the conference over to the CMD for the closing comments. Over to you, sir.
So ladies and gentlemen, while I thank you all for participating in this call. Let me conclude by saying we have ended this quarter on a very positive note and we are also positive that quarter-on-quarter we'll see some improvements both in terms of profitability and also in terms of cash generation and we are also confident that we will end the year on a very positive note in terms of cash. So with this, ladies and gentlemen, I thank you once again for attending this call.