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Indoco Remedies Ltd
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Ladies and gentlemen, good day, and welcome to Indoco Remedies Limited Q2 FY '23 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Cyndrella Carvalho. Thank you, and over to you. Cyndrella?
Thank you, Yashashri. Good morning, everyone. I am Cyndrella Carvalho. On behalf of JM Financial, I welcome you all on the quarter 2 FY '23 earnings call of Indoco Remedies. At the outset, I thank the management of Indoco Remedies for giving us this opportunity to host the cost and looking forward to have a detailed insight on the earnings from the management. Today from the management team, we have with us Ms. Aditi Panandikar, Managing Director; Mr. Sundeep Bambolkar, Joint Managing Director; Mr. Pramod Ghorpade, Chief Financial Officer. I now hand over the call to management for their opening remarks. Over to you, Ms. Aditi.
Thank you, Cyndrella, and thank you all for joining us this morning. Amidst a very volatile Indian pharma market experiencing highs and lows due to COVID therapy product performance. At Indoco, it has been a pleasure to report excellent overall performance for the last few quarters. Our journey of financial excellence continues for Q2 FY '23 where a steady domestic business and a fast-growing international business have helped us post good numbers. We closed second quarter this year with a Y-o-Y growth of 8.6% and with domestic branded business contributing to 55% of revenues. Anti-infective and respiratory segments have shown substantial improvement over their Q1 performance this year. But the high base of last year for these therapies continues to create a drag for growth for India business.
Overall, acute therapies, which were degrowing by 20% in Q1 are now only marginally degrowing at 1.8% for Q2. I'm confident that in the coming quarters, both anti-infective and respiratory as well as acute therapy overall will start showing better performance for the company.
Sales to U.S. and EU have shown substantial growth and help the company post overall good performance. As part of our super transformation journey at Indoco, we recently achieved a major milestone when we successfully implemented SAP S/4 HANA across all verticals and geographies for the company. This was particularly satisfying as we went live within 8 months on dot as planned. I'm confident that SAP and all the advantages it offers will help us significantly in our quest for better top and bottom line in the years to come.
On August 23, Indoco completed 75 glorious years. Indoco wholeheartedly participated in the celebrations of the Platinum Jubilee year. I'm confident they will strive hard and allow us to register an excellent performance this year. Before the short preamble from me. I now hand over to Mr. Sundeep Bambolkar, Joint MD to take you through the financial performance for Q2 and half year.
Thank you, Aditi. Good morning, participants, both you and your family members are all safe and healthy. Let me first begin with the business highlights. Net revenues for the company grew by 8.6% at INR 404.6 crores compared to INR 372.6 crores for the same quarter last year. In the first half of the year, revenues grew by 6.1% at INR 799.5 crores as against INR 753.8 crores. EBITDA to net sales for the quarter is 21.7% at INR 87.8 crores compared to 23.2% at INR 86.3 crores. EBITDA to net sales for the first half is at 19.9% at INR 159 crores, compared to 23% at INR 173 crores. PAT to net sales for the quarter is 12.3% at INR 49.6 crores compared to 11.2% at INR 41.6 crores.
PAT to net sales for the first half is 11% at INR 88 crores compared to 10.8% at INR 81.2 crores. Earnings per share for the quarter is INR 5.39 compared to INR 4.51. EPS for the first half is at INR 9.56 compared to INR 8.81 for the same period last year. Coming to the domestic formulation business. Indoco ranks 26 in the second quarter FY '22/'23 with market share of 0.69% and reflects growth at 10.2%. This is as per -- data. Revenues from domestic formulation business for the quarter registered a growth of 4.2% over the immediately preceding first quarter of current fiscal and degrew by 2.4% at INR 8208.5 crores as against INR 213.6 crore for the same quarter last year.
For the first half, revenues degrew by 4.7% at INR 408.5 crore against INR 428.7 crores. During the quarter, 1 product was launched by Indoco's paid division, namely Febrex tablets, that is Levocetirizine hydrochloride 5 milligrams with Chlorpheniramine hydrochloride, 120-milligram sustained release tablets under the respiratory segment. Coming to the international formulation business. Revenues from international business registered a growth of 28.5% at INR 174 crores as against INR 135 crores.
For the first half, revenues grew by 22% at INR 351.5 crores against INR 288 crores. Revenues from regulated markets for the quarter grew by 32.6% at INR 147 crores as against INR 111.4 crores. For the first half, revenues grew by 23.2% at INR 295.3 crores as against INR 239.6 crores. Revenues from U.S. business for the quarter grew by 44.7% at INR 69.3 crores as against INR 47.9 crores for the same quarter last year. And for the first half, revenues grew by 42.7% at INR 134.2 crores as against INR 94 crores for the same period last year.
Revenues from Europe for the quarter grew by 25.2% at INR 74.7 crore against INR 59.7 crores, and for the first half, revenues grew by 9.8% at INR 152.5 crores against INR 138.8 crores. Revenues from South Africa, Australia, New Zealand were at INR 3.7 crores constant as the same quarter last year. And for the first half, revenues grew by 28.5% at INR 8.7 crores compared to INR 6.8 crore. Revenues from emerging markets for the quarter grew by 9.5% at INR 26.5 crore against INR 24.2 crores, and for the first half, revenues grew by 16% at INR 56 crores against INR 48 crores.
Revenues from API business for the quarter are at INR 18.3 crores against INR 19.7 crore. And for the first half, revenues grew by 3.2% at INR 31.6 crores as against INR 30.6 crores. Revenues from CRO and analytical services for the quarter are at INR 3.7 crores constant as the same quarter last year. And for the first half, there is a growth of 20.8% totaling to INR 7.9 crore against INR 6.5 crores.
One satisfying factor is our going live for the SAP S/4HANA on fifth of August. We now completed the closure of 3 months of sales revenue from the system and the first quarterly results have come out from the system. So altogether, the implementation of S/4 HANA buyout team has been completely satisfied and highly successful. Thank you very much for giving me a patient hearing. And now I would like to invite questions from all of you. Thank you.
[Operator Instructions]
We have our first question from the line of Aditya Khemka from InCred PMS.
Aditi ma'am. First question on the India business. So -- if I understand correctly, last year, in the first half, we had sales of about INR 430 crores, of which I think we had previously called out roughly INR 50 crores was, let's say, COVID-related sales. So if I adjust INR 430, INR 50, I end up at INR 380 crores of sales for last year first half. This year, first half, we are at INR 408 crores. So if I do the math, it's about 6%, 7% growth, excluding COVID impact in the base. And if I understand correctly, the level of price increases we have taken during the first half is around that number, 5%, 6%. So does that mean effectively that in the first half of FY '23 over first half of FY '22, the contribution of volume and new product introduction put together is zero?
Interesting question, Aditya. A lot of calculations you seem to have done, which I'll have to put in order. But the scenario you are finally arrived at is incorrect because let me start from new products. So new introductions in the current quarter contribute to INR 5 crore revenue with the contribution of 2.3% to top line, which is the best we have done in the last several years. Same quarter last year, we were at 0.8% of top line at INR 1.7 crores. So new introductions are doing exceedingly well.
The kind of math you have done is a bit difficult to apply for the Q1 and Q2 this year, because as I've explained before, various products performed well and did not. So the entire impact of top bottom line going up or down cannot be assigned entirely to COVID or COVID basket, because ATM is a product, which is a great strength for the company. So this is a product which without the COVID impact also as all the right when the season comes in.
I'll just give you a few numbers, which will explain things possibly, and effective as a category in absolute terms from Q1 went up by 73%. And respiratory has gone up by 25%. So overall, the categories have started doing well. But in some cases, there is this huge kind of -- so if you see Q2 last year, besides the COVID products, other acute products had also done well because this was around the time when peripheral therapy -- peripheral diseases to COVID were treated, et cetera, et cetera. So it's not correct to assign entire growth or degrowth to COVID basket. So in Q2 this year, for example, Febrex Plus as the brand has not done well was, while all the COVID basket products, including APM, for that matter and Karvol Plus are doing much better than the same period last year. I hope this answers your question.
Yes. To an extent, it does not -- so essentially, I understand that the performance of individual products might be different, but at a basket level, if we are growing at 5%, 6% for the first half over like-for-like, excluding COVID and that is the level that is.
You cannot use that calculation for excluding COVID technically. Yes -- that is where we defer possibly.
I get your point. No, that's okay. And second question, therefore, is the last year, we did roughly INR 800 crores in India. And this year, given that we have done INR 408 crores in the first half and first half tends to be the heavier of the 2 halves, would it be fair to assess that this year it will be almost 0 or negative growth in the India business?
No, we will do much better in the second half. I'll explain why this was a very challenging year for us for target setting for India business, as I said earlier. Because when you have for Indoco in particular, anti-infectives and respiratory contribute to 40% of our top line, at least. And these 2 therapies have had ups and downs last year, and we expect that it was very difficult to set targets for the field. So we had, therefore, created a target for excluding COVID and COVID basket.
Surprisingly, it did not support us this strategy. And we have now revised it strategically for the second half, and I therefore expect much better performance. So we thought there would be many areas where the ATM drop would affect people's performance, and therefore, give them separate targets. Actually, ATM has done much better than expected. But people do not push typically as field does. So we might have got impacted partly for our primary. But at a secondary level, I feel we are all right and therefore, our second half will be better.
But the second half, generally, given that the fourth quarter is the worst quarter of the year, second half generally tends to be like 45% of the full year and first half tends to be 55% of the full year. So you are saying this year, second half can be more than 50% of the full year.
Yes, yes.
Okay. So therefore, I mean, if you were to guide us, ma'am, what would you guide us to for the full year in India business on a reported basis on a base of INR 800, INR 3 crores of last year. What kind of growth should we be looking for?
I keep 5%, if not more.
So INR 800 crores going to INR 840 crores, INR 845 crores. That's what we're looking at.
Yes.
Understood. Understood. No, that's helpful, Ma'am. Second question, Sundeep sir, on the U.S. business. Just to understand, in the current quarter, is there any element of brinzolamide profit sharing in that INR 70 crore revenue that we have reported?
No, ever since we relaunched brinzolamide, brinzolamide has settled down in the market and the profit share from brinzolamide is not appreciable. The total profit share from U.S. business is around INR 7 crores. But that has many products. So brinzolamide is just settling down. And in the coming quarters, you will see profit share from that product.
Right. And what is the status of Combigan Sundeep sir. Have you been able to launch the product? And what is the kind of traction?
Yes. Combigan, as you know, is a much bigger product compared to brinzolamide. So more than double the market size. And we have been the third player to launch besides the innovator. So we luckily had stocks in Teva's warehouse already when we got the approval, and Teva has launched it just about a month back.
Month back. So we are saying in the second quarter number, there is no impact of Combigan sales. Am I right?
Right. From third quarter onwards, we'll have that.
Right. So basically, when you ship the product to Teva, that's not when you recognize the revenue. When Teva actually launches in the market, that's when you recognize revenue of the product. Is that the right way of understanding? Because you said the stock was already there intervals warehouse when you got approval.
Yes.
Okay. So you recognize revenue went actually, so it's not when you said.
The profit share is recognized when Teva sales, the first part of the dispatch was already recognized.
Okay. So that -- so manufacturing cost plus markup that revenue which you recognize that you recognize when you sell to Teva, when the product based on your warehouse to Teva's warehouse?
Yes. Yes.
So that element of revenue will be there in the INR 70 crores of 2Q.
Yes. Yes. Yes correct.
For Combigan, Okay. Got it. it. Now coming to the European market, Sundeep sir, obviously, very tough time given how the currencies are playing out. In fact, before this quarter results was published we were reading so many reports that Indoco will be severely impacted because of the pound depreciation. So could you talk about your European revenue seems to be fantastic, better than what is what I had expected. So can you talk a bit about the impact of the euro or the GDP of your business? And why that hasn't adversely impacted you yet?
Yes. I think a very smart question, Aditya, for the benefit of all those who are listening, and I will certainly talk at length on this. We deployed a very careful strategy while hedging the euro and the pound. With the result, our hedging has been near to perfect. I won't boast too much about it because things could go wrong, in the subsequent quarters. So I'll be very little careful with my words. But at least for the time being, we are on good track, like-to-like currency-wise, found as recorded sales or 2% higher than the same quarter last year, euro 11% higher and dollar 13% higher. So that is in constant currency terms. Now coming to why Indoco has done better.
The order book itself is INR 150 crores plus as on today. That's the first point, which gives us ample and good scope and very good opportunity to control costs and do a near-to-perfect production planning activity in all our plants. That is the 2 plants in Baddi and Goa 1 and Goa 3 as and when required.
Interestingly now, going ahead, we have got approvals for 1 capsule product of neurotic pain and 1 of epilepsy. So Europe will certainly see better times going ahead as far as margins are concerned. Right now, margins are tottering around 10% of EBITDA, 9.5%, 10%, but going ahead, within 3 quarters from now onwards, I hope to see EBITDAs of 14%, 15% minimum. Coming to your specific.
The entire European business Sundeep sir?
Sorry?
Just tend to -- margins going from 9.5% to 10% to 15%. This is for the entire European business?
Entire European business. When the pound was around $1.20 to the dollar and dollar was around 79, 80, we got ample chances to hedge the pound at that time, because if you see the pound was recording over INR 100 to a INR 1, and that's the time we really hedged the pound and euro hedging euro's hedging also has been quite favorable for us. The high rates were 95, 98, all those rates and the low rates were around 82 giving us an average rate of around 90. Hello, am I audible?
Yes, yes, yes.
Okay. So that is where we are on the European business. And as I told you, euro is recorded in constant terms also 11% growth. And pound, we will do far better now going ahead, because pound on constant currency was 2% to 3% growth.
Okay. Got you. So then this hedging that you do, how long do you hedge, I mean what time frame do you hedge for 6 months exposure, 12 months exposure? What is the extent to which you hedge?
At this point in time around end of '24.
Till the end of FY '24, you are already hedged?
Yes.
Okay. Okay. And that's a rolling exercise. As right now, you'll be buying fresh for '25.
Perfect. That's a rolling exercise. So we get advantage of it every month.
Okay. Perfect. Now a couple of questions on the P&L, Sandeep, sir. One is our other operating income. It was slightly on the higher side in 1Q and 2Q substantially higher. Is the majority part of this other operating income, ForEx gain?
Yes. Other operating income was higher by about INR 7.5 crores to INR 8 crores. But that is operating income, not only other income. As you know very well, the exchange gain is part of our business. It is not speculative exchange gains. That is very important to be noted.
So out of this INR 28 crores this year -- this quarter for other operating income, how much is exchange gain?
Exchange gain is around incremental exchange we should look at it's INR 13 crores.
Okay. Got it. And given that the India business was actually a lower contributor this quarter, to the overall revenue than it has been in the past. I'm slightly surprised that we are seeing gross margins improving 1Q versus 2Q, 67%, 67.5% of gross margin in 1Q and 70.5% in 2Q. So there are 2 questions on the gross margin. On the sequential improvement is slightly difficult to understand given that the India business has not really performed very well. And compared to Y-o-Y, obviously, your gross margins are down 200 basis points. So I guess the other question is when do we see normalcy being reflected in the gross margins? How long would you guess it would take? So first question, how did it sequentially improve? And second question, when does it go back to the normal level of 72.
Yes. As I already mentioned to you, the basic product mix of Europe is changing, and I have to talk on Europe because Europe was dragging us down. And a solid conscious effort has been put in within the organization. Aditi and myself are talking about this extremely frequently when we address management teams and an operational excellence team has been set up under the leadership of our CFO, Pramod Ghorpade and our operations head, Sachin Gosakar. So these 2 teams are interacting extremely sequently, and putting the plants under constant surveillance so that our overhead come down and our cost of goods improve. That's the first point.
Second point, if you noticed the raw material costs have now started normalizing compared to the sequentially previous quarter. So there a lot of effort has been put in to have alternate vendor development, which is a constant process for the APIs, which Indoco is not manufacturing on its own. So that's the second point. And sequentially, things should certainly look up with the U.S. business going up, that is going to be a very major contributor because we are in niche segments such as injectables, now getting into complex injectables, the first complex injectable has been developed by R&D, and we'll go into the plant for exhibit batches in January, end of February beginning new line has been purchased, which is getting into the plant in this month.
Point number to suspension ophthalmics like brinzolamide have entered the market. So that is the second point. Third, sustained release products solids will get into the U.S. market. One is under very active development. I won't be able to give you the name. So these factors all are pointing towards the high-scale U.S. business in time to come, downward COGS movement and resulting into much higher gross margin.
[Operator Instructions] We have our next question from the line of Mitesh Shah from Nirmal Bang Securities.
If you ask questions, then we have already last question to ask.
Mitesh, next time you ask the first question.
That would be better. Sir again, summing squeezing to the domestic market. So are you expecting around 16% plus growth in the domestic market, like are you giving the guidance for 5%. So what would be the major or bigger drivers for this 16% growth are you expecting for second half?
I think 5% was on annual sales. So the 16% -- but this is 5%, of course, includes the COVID impacted basket. So taking the COVID impact market quantum aside, we would do much better, right? As I said, almost all parameters, the business is doing well. We have certain setbacks on a few molecules, for example, this quarter, at infects the category did well for the industry into two. But that in fact is we sell separate time or they have not grown as substantially as -- your amoxicillin. So when you compare CVM or our performance vis-a-vis the industry, you will see these a little bit of hitches. But overall, for the company, on a product like Cyclopam is at 10% growth, even on Y-o-Y basis. And on quarter 1 basis, all products are on good growth. Febrex Plus is flat. So I'm very confident going forward, we'll do well.
And how much price hikes have you taken in your entire portfolio?
Effectively, we get around 6% price hike.
And that all have started reflecting in this quarter, it will be reflected?
No, no. It depends very much on how the units, the inventory in the system consumption, the new price inventory going out. There is some scope in future to get better efficiency and effectiveness here. We will -- we have identified this as an area of improvement.
Okay. My second question is regarding your other expenditure it increased sharply in Q-o-Q basis. What is the reason for that?
Yes. There is a onetime expense in the -- related to indirect taxes of around INR 7 CRs. Otherwise, we are always on all other banks.
Got it. So is that freight cost and everything has normalized or still on a high level?
It has steadied. It has not yet normalized, but it is not increasing much. And basically, as Sundeep explained earlier, it is our mix, geography and product mix of international business this quarter, which has helped us because we have done probably higher contribution from U.S. than any other geography at any time, and that has helped because that certainly helps margins.
Okay, got it. And the -- again, in the Europe and the emerging markets, the currency volatility, definitely you have done a good job in the hedging front, but it is a scope for to pass out the currency appreciate domestic currency appreciation or depreciation of the euro and the emerging markets and use.
Can you repeat that?
This currency. would be pass out to the end users for more and the emerging markets, it's hedging is definitely a good policy, but it won't be a sustained for long, right?
See, majority of our listing emerging markets and dollars, that's the first point. Complete Latin America major part of Africa and Southeast Asia are in dollar. The only part which is in euro and emerging markets is the French West Africa portion. So that is the first part. So we stand very strong on the dollar.
To front end, fortunately for us in Europe, we are not exposed to the front end because a large portion of our Europe revenue is of being contract manufacturers. So the impact is really taken by our end customers. And the portfolio is like that, that they understand it. So it is being absorbed.
Okay. And again, just coming back to the domestic market of the strong second half growth. What would be the key drivers for you? I mean definitely, the price high benefit will be coming into the edge. And you said that new product introduction are also higher than the past. So it would be like a combination of all volume price hike and the new product introduction would be a driver?
Yes. New introductions will technical continue to do well. So if you've seen -- it's already come to 2.8%, right? 2.3%. It will further go up to at least 3% by end of the year and very confident. Legacy product growth, Cyclopam is doing very well. It will continue to drive. Febrex Plus will also start catching up. As I explained earlier, both my acute divisions, Indoco and Spade were impacted with 1 product each which did significantly well last year for COVID. That puts tremendous challenges in setting targets. So we had given targets to Indoco main division, for example, without Karvol Plus and with Karvol Plus set target, and same for paid with and without Febrex Plus.
Now what happened is that this sort of buying people and this doesn't allow them to stretch. I'm very confident in the second half, this particular hurdle which we identified pretty early, and we have already strategically resolved it. So the performance will give us more, I'm very confident.
we have a next question from the line of Rashmi Sancheti from Dolat Capital.
Aditi ma'am on U.S. business, if you can bifurcate how many launches have been banging first half? And what are you guiding for the full year -- and if you can bifurcate in terms of how many -- we have launched and how many solid 3 you have launched?
Rashmi, thanks for your questions. So 3 new launches happened this to this point in the first half. And overall for the year, we expect to do at least INR 300 crores from U.S.
And any launch guidance in second half how much are we planning to do?
Yes, there are several opportunities. But at this stage, with the regulator and the time and everything I prefer to wait to announce.
Okay. And out of the 3 new launches, how many are injectables or -- or all or basically ophthalmic?
One ophthal and 2 injectables.
One ophthal and 2 injectables. And whatever filings we are doing in the U.S. business are paid majorly skewed towards injectables, like we are adding more of injectable filings. We do have a good basket of COVID.
So we -- yes, you guessed correctly. Major first priority, our largest Contribution to new filings is coming from injectables followed by ophthalmics and then the solid orders. We have already filed solid orders in the past. As you remember, we had several F2F opportunities which will now start getting converted into commercial whenever the patent time comes with. So solid order work has been done in the past. Now most of the filings are for.
Rashmi, I think you might have joined late because I gave a very elaborate answer -- on the U.S. business, where Aditya asked this question. So our preference now will be towards complex injectables the suspension ophthalmics and sustain released solids going forward.
And sir, everything would be via 1 only, right? We are not doing anything on our own?
Yes. I mean if you're talking about front-end sales, yes, filing several are ours. You know that.
Okay. But the pipeline, which you are talking about the complex injectables will be all through the partner in, right?
Intellectual property will be held by Indoco .
Okay. I see. Again, coming on the India business. I understand that you already mentioned that in the second half, we would be doing much better, why are the high base of FY '22, FY '23, how do we see FY '24, I mean are we expecting that we will come back to the double-digit growth in FY '24? And if yes, how that would be a. So if you can comment on the number of MRs? And are we -- do we have any plans of adding additional MRs, like below what peers are doing this?
Yes, we have heard a lot about our peers adding MRs. So let me start, you asked several questions, but let me start with where we see India business going forward. Of course, it's I think this is my opinion, I feel very clearly that the end of '23 this COVID impact business will all get over, and we'll have a new base on which we can grow. After that, the market I believe we'll start giving -- that is for the industry, higher single digit at least and in some quarters, double-digit growth. And Indoco will be able to beat those numbers as I can. Second question is about the incremental field staff being added.
So because Indoco has always had an acute portfolio, we have -- we compared to many of our other peers who have high chronic and have people mostly in the metros, our field staff is actually more scattered in the Tier 2, 3 and interior rural, as we call it. So we have a substantial presence, but we are watching what is happening in the industry and whether this number of people added by others is impacting us directly in any case.
Number three, Indoco has, especially with Warren is at least a good portfolio, which has an OTX element attached to it. So the company has done several strategic things so that we should be able to turn this around. We internally work very hard to generate prescriptions and at all our strategies of evaluation of performance excellence, et cetera. are around prescription generation. You'd be surprised that in a quarter like this when respiratory has given us so much trouble. We have actually added 1 lakh prescriptions even for a product like a Karvol Plus. So sometimes, as you look addition of prescriptions and outcome of sale is not something that goes hand in hand, especially if the product has a lot of OTX element attached to it.
At Indoco today, several initiatives have been taken by way of which we can change the ratio of prescription to sales. For such products in the coming years. And I'm expecting at least in the next year to start seeing some element of this is converted into sales. I hope that answer your question.
And finally, on margin. In the first half, we have achieved around 19% operating margin. And the second half in a normally fourth quarter, basically, it is very soft because all the costs -- we have already guided that second half will be much better -- is this sector in terms of operating margin also because cost is also getting normalized. So are we expecting that for the full year, we can meet our guidance of around 20% or 20% plus in FY '23?
Yes. So Rashmi, as you said correctly, we have given much better guidance for India business. But in fact, now international almost international plus others is almost 50% of our top line. And these businesses, we are expecting a good ramp-up in the second half itself. So therefore, until Indoco used to be heavy on India business, I could understand that the second half had issues on profitability because the numbers start looking different. But now it is very different.
So we are very confident going ahead. We will do well. And we will maintain -- we maintain our guidance of 20% or which we have made for EBITDA. And also Mr. Sundeep explained earlier, but let me say this again, that various initiatives have been taken to increase operational efficiency. And even this month, if you take out a one-off INR 7 CR even are out of the other expenses, you would see much better profitability for the company in this quarter also. COGS are coming under control, contribution from U.S. and India business to Total business is going up. All of this will help us.
We have a next question from the line of Deepan Shankar from Trustline PMS.
Good morning, everyone, and thanks a lot for the opportunity. So firstly, from my side, in the domestic business, so how is our chronic business portfolio performing? And what are our plans to scale up this business. So what kind of targeted contribution we expect from this business over the next 3, 5 years?
Yes. Thank you for that question. Thank you for asking it. I can look for sometimes we forget to talk of our chronic and that's not good. So chronic today contributes around 10% of India business. and is expected to ramp up well. The size is small, so the incremental sales coming from these therapies don't show great improvement. But cardiac therapy, for example, this quarter has grown by 70% and is now at INR 3.5 crores. Your antidiabetic is at INR 6.5 crores. So you have sort of -- the chronic therapy basket is slowly making up presence sales. In fact, if I was to share with you on a Y-o-Y basis for the quarter, it is our sub chronic and chronic data for the half year, sub chronic therapy has grown by 11.5%.
Chronic therapy has grown by 2% and helped us tied over the minus 13% or 12% acute up and down. So slowly and steadily, it is making a presence. For the first half this year, we have clocked around INR 50 crore sales from chronic. Last year, we did a major restructuring of our 2 chronic divisions and made it into 1 division synergy so that we could get efficiency and we could focus on the products that matter. In the call in the last quarter, I had explained this, it did not make sense to be the 50th launch where there are top 3 players take 60% of the market or something like that. So we are very careful now. We are focusing on the right brands, and I'm confident going forward, synergy revision will show great results.
Okay. So in the previous year, we used to talk about the launch of all of it kind of products. So those kind of critical products are we planning to launch in chronic business?
Yes, yes, certainly. And Alogliptin is also in the market. It is -- performance of -- is still muted, but a lot of work is being done there. And our plans to launch better chronic products in India market continues.
And ma'am, any updates on Apixaban launch in Indian market?
So Apixaban we are reviewing when we were 1 of the 2, it was an absolute fantastic kind of a scenario for us to get in, considering we are such a small player in the cardiology segment. Now when the packings get sort of over and the market opens for everyone, then for Indoco, we had such a small presence in cardiology, whether we can make a substantial dent in this market is something we are reviewing. We will come back to you once we finalize, but it may not be such a great advantage now as it would have been had we won the case against B&S.
Okay. Okay. And finally, from my side, so what is our long-term guidance in the margins looking like so over the next 3, 5 years, so considering now Europe business transforming from grams to launches and the U.S. business also complex products are getting launched and India business continued to do well. So are we upping our long-term guidance on margins, so in the range of 25%?
How much?
25%.
I didn't get you.
25%.
Yes. So in 3 years, I feel confident we can -- 25%.
Certainly, yes.
We have our next question from the line of Aejas Lakhani from Unifi Capital.
A couple of questions. One is on lacosamide, could you speak a little bit? And second, could you quantify what was your South Africa business earlier? Where was it reported -- and what is your outlook on that portion of the business?
Which was South Africa? First coming to lacosamide For 3 months, Indoco enjoyed a position of being the only generic in the U.S. market, for lacosamide injection. Thereafter, 2 players have got approval. But when I visited our partners in very early August, I was told very firmly that $43 million market size, which was prevailing when we just entered the market had grown to 49 million within 3 months, which is very good news for us. That means the prices have not at all come under pressure. In fact, we have been able to sell the product at good prices.
Taking into account that 1 or 2 competitors might have joined right now. But still, I think Indoco is holding very strong with its front-end partner. Now coming to South Africa business, we have revived the South Africa business. After all the approvals for all 3 plants in Goa are in place now. And in fact, in the long term, we have plans to get the Baddi plants also approved because right now, for the quarter, we are doing about INR 3.5 crores. But with more business coming in, more products getting approved.
We have certain contracts with large companies. I wouldn't like to name the 2 large companies at this stage. But there are various dosage forms like creams and ointments, liquid orals. So profitability in these dosage forms is much, much higher compared to solid dosage. So South Africa business will definitely grow. In 2 quarters, we should double this business and going ahead a strong growth of around 15% to 20% I can project.
Your question of where it gets reported, it gets reported to the FDA under FSANZ, South Africa, Australia, New Zealand. So there has been fantastic performance from South Africa this quarter. I mean Australia and New Zealand, we expect now things to ramp up in the quarters to come.
So no, I was talking about was your, you had a tender business with South Africa.
For South Africa.
Yes, correct. So -- but earlier on that business was, if I recall it, larger, right, INR 60 crores, INR 70 crores, I think 3, 4 years back?
Yes, yes. .
Thereafter, there were certain regulatory issues. -- but those all have been solved, and that INR 60 crore, INR 70 crore business is driven by tenders. So we have applied for tenders, and those will be announced shortly.
So you expect the tender business to come back for you in '24. Is that correct? .
Yes, starting April '23, correct.
Okay. So whatever the tender business growth and the size of the tenders are what you used to do earlier on that INR 60 crores, INR 70 crores bank with you?
Yes, per annum around INR 60 crore business is there.
Okay. So this business can really scale out much more than in the tender business in comes unfold?
Certainly, certainly, yes.
No, that sir. Okay. And sir, just again, wanted to -- an earlier participant asked this question. But sir, given the fact that we'll have profit shares coming in from the brinzolamide in the third quarter -- and you have been speaking about a lot of these initiatives that you have done, the RM basket coming down it seems quite obvious that your margin will shoot up in excess of 20%. So directionally, is that understanding correct? To guide you, but I mean, directionally, it seems that it will definitely far exceed that.
Yes. See, India business and U.S. business are the top contributors right now to the margin. I'm taking 3 quarters' time for the Europe business, as I clearly mentioned earlier because new product launches will happen then and U.S. -- sorry, Europe business margins will definitely improve in about 3 quarters from today. But all put together, you are right, next year onwards, margins should be better than what we are doing today.
Got it. And then just 1 strategic question because the landscape in the U.S. is so vast and so large, and you are being very targeted on specific molecules. So I just want to understand that how do you go about in the R&D process -- is it a partner-led where they are pushing you that there are such opportunities in the market next year? Or could you just speak a little bit about that process, please?
We have -- I can answer the question on a general note because there are a lot of confidential matters involved. So we have a process of molecule selection within the organization, which we do sitting with the business team and the R&D team. And as I said earlier, we are specifically going after complex injectables, suspension ophthalmics and sustained release solid. And our partnering opportunity, we do it at the right time. Sometimes when the molecule is very, very close to approval because the value then increases. So that has been the overall strategy. The partner pushing us, those days are gone. That was codevelopment. Now Indoco has become very strong to have its own product pipeline going ahead, and we have a solid pipeline with the R&D right now.
If I can add, there is also development for the API done, the moment the pipeline selection happens. So for 80%, 90% of our products, we have the in-house API and 1 of the sources, if not the only -- and this is very, very helpful, especially at the time of launch at the time of making product available for cash flows and everything.
Got it. And could you just quantify what has been the CapEx till date and for the rest of the year, what is the CapEx outlook?
CapEx for the year, we have projected INR 125 crores. And we are almost in line with that.
We have a next question from the line of Adit Khemka from InCred PMS.
sundeep, CapEx, INR 125 crores for the full year, first half, I think your cash flow statement shows INR 90 crores plus. So is it going to be only INR 35 crores for the second half?
95 includes a lot of advances Aditya. So we are confident to control it at 125.
Okay. Secondly, on the other expenses side, I was just looking at it. Our Y-o-Y growth in other expenses this quarter is about 20%. And other expenses includes your sales promotion, fuel cost at power cost and traveling expenses, et cetera, and also sales promotion. I just want to know which of these costs have gone up dramatically Y-o-Y up?
Aditya, we answered this earlier, but I'll anyway say that there is this element of a onetime expense related to indirect taxes of around INR 70, especially for this quarter. almost all other expenses are under control.
So -- indirect tax that you have paid and you recognize it in the there. SP1 One time yes.
One time.
Otherwise, it would have been basically INR 112 crores and not INR 119 as you can see.
Correct. Correct. Absolutely.
Okay. That helps. Lastly, on the PI business because we are obviously internally consuming more and more. In this year, what do we see as our external sales of API for this year?
Yes, I know we had aspiration to do very well in API external, but I'm not completing that internal consumption is increasing. But external sales, I feel confident to be able to do as much as last year, about as we -- so close to 100.
to 100, okay. Okay. That's helpful. Sundeep, sir. What is the utilization of the micro lab plant?
microlabs plant, there is huge scope for utilization. All the European businesses have been put under approval in that plant. And as you know, the regulatory agencies have given okay until December 23, they'll maintain the currency of the certification right now until December 23. So we are on a very strong ground by December 23, we will be in 70% occupancy.
Okay. Okay. And if we'd be there is space for expansion in the plant itself?
Adity, the way we -- that plant is used for supplying to many geographies today, not just Europe. In fact, some of domestic also gets done there. So the idea is that the European business ramps up. And as we transfer more and more from Goa to Baddi, we will move the India business out.
And it will be outsourced to third-party or your own plant somewhere in the?
Third party mostly, third-party mostly. We have relationships with these players now for a very long time for India business.
Sure. Yes. I understand that. I think I had 1 more question. Sorry about this. On the R&D side, our R&D is now 5% of sales, where do we see R&D going -- given that we have aspirations for being complex products or U.S.? Where do we see the R&D as a percentage of sales going?
Yes, Aditya, see, most important part of the R&D is developing smart products and well in time. So necessarily, the 5% need not go up, because the revenue size is going to go up and 5% of that incremental revenue size will automatically enhance the quantum. So I think we stay put at around 5% right now, and we have an excellent bio study center in Hyderabad, which we acquired in 2015, '16 which has an extent record of 0.483 after about 8 to 9 FDA inspections have been done. So considering all this, I think we are on a very sound footing.
Because I'll tell you why I asked this question, Sandeep, sir, because half of our sales is India, and I doubt any significant portion of this R&D goes for our India business, which effectively means that on our export business, we are doing 10% of sales as R&D. And that's a substantial amount of R&D that we're already doing. So I'm really crossing my fingers that, that doesn't go up and it shows in terms of profitability and top line growth for us.
It will not go up. We'll stabilize it around this.
We have our next question from the line of Vipul Kumar Shah from Sumangal Investment.
I just wanted to know why our CRO business is not ramping up, it has a very meager contribution. So what is the logic of continuing in that business? So what are the plans for?
Yes. So we actually backward integrated into -- or rather forward integrated into when the company has got into the aspirations of filing products in U.S., especially the first 2 products. And as of today, 65% of the capacity at the CRO is consumed by Indoco for our own product. So we have only 40% capacity for external sales, which appear here as income from CRO. Happy to share that we have ramped up capacity and an expansion is underway, and I'm confident in a couple of months that additional capacity, which we put double will then allow us to get more business from this segment. As Sundeep already mentioned, it's an excellent we have had 8 to 9 U.S. FDA audits, all with 0 increase -- and the CRO itself is looking at various new projects. So we are very much focusing on CRO going forward. It may not look substantial in size, but it is a critical part of our business.
And what the second question, ma'am, what is our productivity at present? And have you seen any improvement over the last 2, 3 years there?
Yes. We have actually gone from 3% to 3.5% over the last couple of years. And I see that this will only go up in the coming years.
We have a last question from the line of Cyndrella Carvalho from JM Financial.
I would just 1 question as we're seeing almost all our engines firing, like it be India, U.S., Europe and especially like market, which will support our EBITDA margins also going ahead. Is there any vision that you would like to share with us maybe a little better in time. But if you could help us understand how do you see this business going ahead? This is that's it from my end.
Thanks for the question. When it comes to vision, vision and aspiration, I believe it has to be something very, very large, right? So recently, as I already declared, we completed 75 years. And I was very happy that the first line team that reports to Sundeep and me collectively took a target of achieving INR 5,000 crores in 5 years.
I'm saying that's very integrating to hear. That's very encouraging to hear.
Cyndrella we can't hear you.
That's very encouraging to hear. Anything more, ma'am, you would like to add on that in terms of overall business.
I think everything else, we will speak as and when it turns out -- you know.
I think Cyndrella today has been 1 of the most active calls. So whatever we had to share, I'm sure we have shared.
Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you very much.
Thank you.