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IPCA Laboratories Ltd
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Good evening, ladies and gentlemen. I'm Kritika, moderator for the conference call. Welcome to Ipca Laboratories Limited Q1 FY '23 Earnings Call hosted by DAM Capital Advisors. [Operator Instructions] Please note this conference is recorded.
I would now like to hand over the floor to Mr. Nitin Agarwal of DAM Capital. Thank you, and over to you, sir.
Thanks, Kritika. Good evening, everyone, and a very warm welcome to Ipca Labs Q1 FY '23 Post Earnings Conference Call, hosted by DAM Capital Advisors.
On the call today, we're presenting Ipca Labs, Mr. A.K. Jain, Joint Managing Director; and Mr. Harish Kamath, Corporate Counsel and Company Secretary.
I'll hand over the call to Mr. Jain to make the opening comments, and then we'll open the floor for questions. Mr. Jain, please go ahead, sir.
Thanks Nitin and DAM Capital for organizing this call. Good afternoon to all participants, and thanks for taking all time and joining us for Q1 FY '23 earnings call.
Today's earnings call and discussions and answer given may include some forward-looking statements based on our current business expectations. This must be viewed in conjunction with risks that pharmaceutical business faces. Our actual future -- our actual future financial performance may differ from what is being -- what is projected or perceived. You may use your own judgment on information given during the call.
Domestic formulation business for Q1 FY '23 has delivered a growth of around 12% from around INR 613 crores to around INR 685 crores. Domestic anti-malarials business has shown a significant decline in first quarter by almost around 68% and business from INR 39.5 crores last year first quarter is reduced to us around INR 12.6 crores.
So excluding anti-malarials domestic formulation business, other therapies have delivered almost around 17% growth during the quarter. This is in spite the WAP base pricing increase on domestic schedule formulation benefit was not fully available during the quarter because we were maintaining around 2 months inventories around that time. Prices have become effective only somewhere in June.
We expect that domestic formulations business to grow around 12% to 13% in current financial year FY '23. The lower projection for growth in this business is on 2 accounts. We also have higher base of anti-malarial business in second quarter and higher base of anti-bacterials business that we had last financial year due to COVID-19.
Our export foundation business by around 14% for this quarter. The business in Sri Lanka, Russia, Ukraine declined for the quarter because of geopolitical issues that disturb market. For FY '23, this business is expected to deliver around 13% to 15% growth.
Export generic business for the quarter has declined by around 2% to around INR 213 crores from around INR 217 crores is mainly because of decline in U.K. business because of issues with -- we have stopped that -- dealing with one of our distributors. We are confident that in spite of some decline in U.K. business for the business overall for FY '23, the generic business has expected to deliver around 5% growth.
Institutional export business of anti-malarials have declined by around 17% in this quarter to around INR 97 crores from INR 116 crores. We have pressure on this business in FY '23. And there may be some decline, maybe around 8% to 10% in this business in FY '23.
API business has shown a decline of around 10% for this quarter, mainly because of sales written of Losartan. And now [ EU ] has come out with -- come out that there is no risk of azido impurities level that we had earlier in our under produced batches. We have further improved our manufacturing processes to reduce the impurity level to a drastic low level. And this business is expected -- the API business is expected to deliver around 5% growth in the current financial year.
Overall, material cost to overall total income has gone up to around 34.1% for FY '23 as against 33.39% on same period last year. There is an increase of almost around 1.33% and 1.33% on this.
Inventories of higher cost procurement are consumed for this quarter. The cost has started coming down. There is a softening trend in the prices of both raw materials and packing materials, but inventories which were procured earlier month at higher prices. So mostly, that got consumed in this particular quarter.
Expenditure on fuel, travel, export, freight are high to a very significant level. And the increase in the costs compared to FY '22, at the same time, increase in number of field staff as well as lower base of expenditure last year due to COVID Delta wave, resulted in the higher sales promotion and marketing costs. Practically, field staff has worked in last financial year for only 2 months so that travel and everything also. At the same time, we have also increased our field staff in current financial year. So that is also increasing the promotional costs as well as our field cost.
The EBITDA margin for the quarter has declined to around 19.5% in our stand-alone accounts as against 27.1% in the same quarter in last financial year. We have revised our EBITDA guidelines for FY '23. So our -- as against 23% last year for the whole of the year, 23.25%. Earlier revision was around 22%. But looking at now that inflationary pressure, we are revising our EBITDA guidance to around 21% for financial year. This also -- there is a pressure on additional cost due to field staff the overall increase in the field strength.
On taxation front, our post-tax profit will decline due to opting for 25% tax as against 18% tax earlier paid in cash and balance tax was paid through past best credit available to the company. Since we are now opting for 25% tax, the net credit would not be available. And our overall current tax is expected to be around 27% because a lot of those kind of cost which are there on marketing and sales promotions and CSR and all those will get befell out. So as against 25% tax, our overall current tax is likely to be around 27.5% in the current financial year.
The deferred tax provision for the quarter is higher by around INR 8.76 crores. This is mainly because whatever earlier MAT credit was there as a part of books, and there was higher deferred tax liability was there. The deferred tax liability is coming because we are at a lower level because of 25% tech and the med credit, debt got set up and there is difference of around INR 8.76 crores, that has been charged to the P&L account as a part of deferred tax liability. And therefore, deferred tax liability in the current quarter is higher by around INR 8.76 crores.
Given the overall business scenario and some details, I now request participants to ask questions.
[Operator Instructions] First question comes from Surya Patra from PhillipCapital.
Sir, just a couple of questions. First of all, let's say, the European business, which is seeing a kind of a pressure in terms of growth, largely led by U.K. So could you comment some more [indiscernible] like we had registered around 43 dossiers products in our own name or rather converting those registrations to our own name. So what is the stage of conversion there? And when do we really see the revival of the business in the U.K., something on that side?
Let's say, by the current year-end, probably, we will be more or less there will be some decline. But overall, we will be able to recover in the current year itself as against 43 dossiers because all these dossiers are extra distributors name. So now we have to get our own registration.
So we have practically -- up to now, we have launched 6 products only in U.K. and almost around a similar number of approvals has recently received. So next, I think in a few months' time, almost around 5 to 6 more products will be launched.
With that, almost around 80%, 85% business, whatever of distributors and our own we are doing, that we'll be able to recover. And in the course of the year, we expect around 8 to 10 approvals more. So depending on that approval, hopefully, the business will be recovered. And it's only -- I think whatever decline is -- a small decline may remain that will remain in current year. From next year also onwards, this business will start doing very well.
And is it fair to say [indiscernible] 20%, 20% kind of a decline in the overall European business in FY '22 because large to do is the European disruption -- sorry, U.K. disruption rather?
Decline only last year where -- from last year, it has started because the distributors, we had business relations for almost around more than 20 years, and we had a significant business with them. But since their financial position deteriorated and their payments started coming late. And as a result of that, we never wanted that the business cycle should disturb that way because of payment. And then we stop dealing with them because the situation was not improving from their side.
So it's only because of payment. There are not as such dispute with the parties or anything of any kind of litigation or those kind of things. It was only because of payments not coming in time. We have said that we will not be able to do business and then we'll start our own distribution in the U.K. So that's what we have done.
Okay. The second question is on the domestic formulation business. So you had indicated about around 1,200-odd people addition for the current year. So what extent that we have done. And you are also indicating about so the price hike, but possibly in the opening remark, you commented something that, okay, the full benefit of the price hike was not visible. But whether you were able to take the price hike of around 6% to 7% on the entire [ non steroidal ] bucket, sir?
Yes, that's what is going to happen in current years. And in fact, downstream market, we are doing very well. More particularly, we have increased the people metro cities because almost all bigger cities has expanded largely and that populations are increasing in these cities. So our more focus is now towards the city side and we are increasing our coverage in cities in most divisions.
And even in the first quarter itself are by and large Delhi, Kolkata, Mumbai, Hyderabad and Bangalore and Chennai, these cities have registered almost around 23% growth because of overall increase in the field support.
We have improved our ratings. We also improved our market share in domestic market. And as you have seen that excluding anti-malarials, our growth is almost around 17%. And antimalarials pie in this quarter as I think from 6%, it has come down to 2% in for the quarter. But our second quarter base of anti-malarials is normally very high because it's around that time all anti-malarials sales, but we are not seeing that kind of sales in current year. And we see that there will be a significant decline in anti-malarials base even in the second quarter of the current year.
And therefore, even though our other business has been moved up, but the overall growth will come down because both anti-malarials and anti-bacterials, these are the 2 therapy anti-bacterials because of COVID-19 and Delta wave and subsequent infections and all were very, very high. And therefore, anti-bacterials fuel last year for whole industry as good. So -- and this year, more particularly for your azithromycin -- the business was -- we also had azithromycin brand, and that brand is declining current year because of -- it was significantly used for COVID-19 treatment.
So those issues will continue. And because of that, we have taken an overall, let's say, growth guidelines to 12% to 13% for this year as against a higher guidance of 13% to 15% kind of guidelines. So because of H2 decline.
But overall in domestic market, we are doing very well. And as against 1,200 people overall increase, almost around 800 people are already recruited. And I think balance will get recruited in next 2 quarters, and depending on the overall progress and all. So almost around 1,200 people will increase in the current year, that will also put a little more pressure on our field operating cost as well as on sales promotion cost. These costs will be higher. And normally, it takes around 2 years' time for people to become productive. So hopefully domestic, they are doing very well. Our market shares are increasing. Most therapies are doing well. So it's the right time for us to increase our overall penetration in India, and that's why this step is taken.
So just last one question. So obviously, the elevated cost, input cost logistics and all that has been a kind of a concern area say for some time. And you are also kind of indicating a lower margin for the current year from the earlier guidance, so about 100 basis points kind of lower.
So, sir, I mean, so sure, the commissioning of the Dewas plant and whether the likely would have benefit flowing from the integrated operation due to that new plant. So whether that will not be seen this year, end of this elevated cost structure is likely to continue entire of this year. That is why you are guiding this way? Or anything else that you're thinking about for cutting your margin guidance?
Let's say, the cost side, the major cost sales are like say, one is fuel, which has moved up significantly. Another is field cost has moved up, sales promotion cost is moving down. Travel costs last year was hardly any. And now let's say, international and domestic travel of our corporate staff and you have sales promotion teams and sales team and market -- international marketing team, all those travels are happening. So that cost is going up.
And another is freight. So these are the costs which has mainly contributed. Otherwise, all costs are more or less at the same level. But these are the costs which is in the first quarter has almost ended almost around INR 60 crore or INR 70 crores to the overall cost, which includes fuel itself is around INR 12 crores, freight itself is also around INR 11 crores. Field staff costs have gone up by almost around INR 14 crores. And balance, I think travel itself has gone up by around INR 6 crores. And balance from sales promotion costs.
So I would say that as far as fuel is concerned, in first quarter last year, the base was lower. We were preparing for that around INR 7 crores to INR 8, which has gone to INR 15, INR 16, INR 17 in the in between periods.
Now coal cost is coming down. It's around INR 12 to INR 13 kind of -- base, it has come down. But from a base last year of INR 7, INR 8, it is still at elevated level and it's not likely to come down so drastically in the -- cost is coming down every month, but it's not likely to come down to anywhere level, near the level which was prevailing in the first quarter last year. So the fuel cost definitely will remain high.
Freight, I would say that container cost, which has gone to [ $8,000 to $9,000 ] does come down by almost around $3,000 now. But the cost is coming down, but it's also not likely to be what was practically before 1 year, the point of cost, which was prevailing, and costs will remain elevated.
As far as my field staff is concerned, that cost will remain high because we are adding almost around 1,200 people. And also because of all these fuel costs are moving up, that traveling allowances and all those kind of let's say, daily allowances has moved up. So that cost definitely will remain elevated, will not come down.
First quarter impact is higher because for 30 to 40 days, the field staff was sitting at home. There was no travel or nothing or no sales promotion because of Delta wave around first quarter of time. And therefore, this year, cost is not after. We are comparing 2 months cost with practically 3 months cost. So the cost increase in the first quarter is higher as compared to in -- so in future quarters, the increase may not appear to be that high. But yes, this cost will remain high because of overall increase in people and also increasing that -- not only your traveling costs, your ticket cost and all that, their allowances has also moved up because of higher petroleum costs. So that will remain elevated.
And freight is coming down, freight is coming down, but still it is nowhere near to what it used to be there earlier. So cost pressure will continue to remain. Looking at the cost pressure and looking into overall business and everything, as against 23% kind of EBITDA, 23.25%, what we had in FY '22, our -- earlier guidance of '22. But looking at overall overhead and overall field staff increase and other costs, we have further revised our whole working and it's coming out that time.
I think probably we will be able to achieve around 21% EBITDA for the whole of the year. So EBITDA from our last financial year, it's going down by almost around 2.25%. It's not 1%. 1% is from earlier guidelines.
Next question comes from Prakash Agarwal from Axis Capital.
Yes. Thank you, sir. Good afternoon. Just clarification. So you -- your EBITDA margin includes other income, right? I mean, then only we get 19%. So adjusted for, et cetera, you have 17.9%.
Yes, that's probably what we calculated, yes.
And the other clarification, you mentioned that all -- most of the high-cost inventory is largely consumed in this quarter. And your resulted would be that gross margins would likely to come back to 66, 67 or it will have a step function?
Gross margin, definitely, costs are coming down. It's definitely there, but they are not near to the levels which were there earlier here. But let's say, on domestic market, like say, this scheduled formulations, now it will be available for all of the year, that price increase and other price increase will also be in the region of around almost around 7% in current year. So overall, it will have an offsetting effect of that. So that also will come in the overall in margin calculation...
Any expectations, sir?
No, I don't. Overall, I'm not looking at much of gross margin pressure, the more pressure is on the account of the overheads. And also, there are -- I think we have done almost around significant improvements in 3 of our major API in cost reduction. And the cost reductions are almost accounting for around 22%, 25% of the cost. And they are major selling APIs, where we have the new processes and those validations and submissions to the regulatory authorities are happening now.
So our overall, there'll be overall [ lighting ] in maybe in the -- somewhere in the third quarter and fourth quarter, some of the effect of that also will start coming in. Plus, they were around -- the 2 big intermediates we were importing from China that we are completely internalized now, and there will be no more imports of those except for if there is a higher consumption than some quantities we may import from -- and that is coming at an overall lower cost. Our own internal manufacturing will be at a lower cost.
So that will also have some kind of positive impact overall in the margin. So as far as gross margins are concerned, I'm not looking for bigger pressure. Bigger pressure is on account of cost increase because of overall increase in number of field staff and still the cost of fuel, travel and freight, they are at elevated level.
That is clear, sir. So gross margin actually will improve from here is what I understand. And you have given 21% margin versus 19% in Q1. So the remaining 9 months, margins should be healthier because of the reasons you said about cost reduction, price increase in India. Are there any big pieces which we are missing?
No, that's what I had talked about, yes.
Okay. And second question is on the new initiatives you are taking for the India business. Currently, we see you're having a very strong growth in pain management, cardiovascular. But have we looked at new initiatives, new therapies, new product launches in India and export markets. Anything new segments we are looking at India, API and export market, sir?
I would like to correct you a little. Let's say, pain, we are continuously doing well, even in the first quarter, current year, we had 20% growth on pain. Cardiovascular, our growth was lower. In fact, cardiovascular, antidiabetics in first quarter, we just had around 5% growth. The reason for that is that we have started 2 more divisions.
And with that, there was -- whenever you do the restructuring, there are disturbances because we have lot of product relationships and all those gets disturbed. And for some period, some coverage get lift. And all those issues happen. So we are -- and that has -- we were knowing that we have since the first quarter because of the overall reshuffling in the overall cardiovascular. And that 2 more divisions we have started mainly because the huge amount of good number of products, which are blockbusters are getting off patented and their launches and we are doing very well. Our overall cardiovascular reach is improving, our consultant level and all. And therefore, we wanted to have further more penetrations in these markets, more particular to increase our overall your current basket coverage.
And therefore, this initiative is taken. But for a short-term period, there is this kind of disturbance is there in the first quarter that we had lower growth. Hopefully, we will do better in the second quarter and now onwards.
So in fact, our other therapy growth are very, very good. Anti-bacterials also has declined in this quarter because of -- only because of azithromycin that -- last year, first quarter, we are down almost around INR 48 crores business of anti-bacterials against this year, we did amount only INR 40 crores.
So these 2 therapies, one is anti-bacterials and anti-malarials, both has declined and cardiovascular had lower growth because of restructuring. In spite of that, we have 12% growth. And excluding anti-malarials itself, we have 17% growth. We overall improved our market share in India. And market share has become almost around 1.85% now.
Okay. And exports and API, sir? Any new initiatives, new product launches or anything in the pipeline?
That's a continuous process in there on new product launches and all and we are looking for much higher significant business increase in API in time to come with Dewas commissioning and with lot of products, which were commercialized now on this a lot of sampling and other things are done.
Hopefully, in 3, 4 years' time, our API business has sells almost around 3 years' time or 4 years' time, maybe around INR 2,000 crore basket.
Okay. And sir, lastly, on fiscal '24, since so much development is happening, how do we see the margin playing out for fiscal '24? Just a little color will help.
Let's say, by and large, this 1 year is a transition period because of all these 1,200 people additions and that cost, that is what is putting larger pressure. And hopefully, by year-end, a lot of good traction in the market with these people additions will start. And next year should be much better because now cost pressures are also reducing particularly on chemical side and on the intermediate side and our own production of certain intermediates and cost reductions on certain APIs, which are larger in volume terms. So that will compare to again to the earlier level.
23%, 24%?
Around 23% is reasonably possible. We have not done the working right now, but it's possible to achieve that.
Next question comes from Chirag Dagli from DSP Mutual Fund.
Sir, can you comment on the margin in India currently versus pre-COVID level?
As far as India is concerned, gross margin, there is not much of a difference. Issue is only increase in the overhead because of additional people, what we have added since Q4 of the last financial year. This is I'm talking about India formulation business.
Correct. Correct. So just broadly...
Sir, your voice is too low. Could you speak louder?
Is it better now?
Sir, there's some electric noise on your line, sir.
There is a lot of disturbance.
Better now? I'm actually on my handset.
No, still there is a lot of disturbance.
I will come back in queue.
Next question comes from Priya Ramani from Perpetual.
So first question is on just a clarification on institutional sales. So you mentioned there will be some pressure in FY '23. So what's the guidance exactly for FY '23?
Actually, we have not given a very big growth numbers but temporality looking into the current scenario and sourcing and fund allocation and other things by institutions, we feel there could be some reduction in this business compared to the previous year.
Okay. Okay. And sir, second question is on branded formulation business. On export side, so you said there was a decline in business in Russia, Ukraine and Sri Lanka. So how is the situation now, like in July or maybe mid-August?
Overall, I think we have guided for current year that this business will grow almost around 15%, 13% to 15%. [indiscernible] has been good. There was -- as I have talked in earlier, I think a, we had our, I think, our Q4 results that initial period in Russia, the currency fluctuation was very high.
Currencies have went up to very, very high level. The ruble was almost around 120, 125 level. At that time, we have -- we were a little slow in shipping. So practically, we have lost a lot of time in April. So practically, in April, there were hardly any shipments were there. And since the -- because that would have added it from the past levels of currency, this kind of levels were there.
And for some time, we have stopped even billing there because in Russia, our distributor, we have -- because otherwise, reimbursement of cost difference would have been too high to them. If you are sold at 120 level, then practically, they would have asked the reimbursement of that cost difference to us.
So when currencies started stabilizing around at a lower level, then we started billing and then thereafter, the traction has been very good. In fact, Russian markets are doing very well. So business definitely are improving. In fact, their inventory level in that market has significantly come down. And therefore, business will again move up.
It's only in case of Sri Lanka, we have no overdues in Sri Lanka for the matter because we are getting all the payments in time. Mostly, the businesses are happening in LCs, and we are a distributor. They have large -- very large network and a lot of exports also they have. And therefore, they are able to overall get the foreign currency and do the business. But businesses are not happening because it's also people's affordability level. So businesses are not happening to the level which was happening earlier.
So there will be definitely some reduction in Sri Lanka market. In first quarter, you still lost or business of almost around INR 5 crore in Sri Lanka. So overall, all markets are doing well, and hopefully, we should be able to do almost around 13% to 15% kind of growth in overall in branded promotional market.
Next question comes from Kunal Dhamesha from Macquarie Capital.
First one clarity on the EBITDA margin guidance, you said 25%, but is it including the other income, et cetera, and guidance?
That I have clarified that normally, we include other income. So I think probably your method is you take -- exclude other income...
Okay. And on the manufacturing -- on the other expenses side, is the Dewas commercialization already included in the quarter 1 day or then some more overhead that can come from there in future quarters.
Dewas, initially, we started production of 2 intermediates. We have just received the drug license now. I think last 10 days back, we received drug license. And now the process of establishment basis of API as well as their validation, which is -- so that process will happen of around 5 to 6 API.
So from now to March, I will be -- the Dewas plant will be only the establishment and validation, establishing the entire chemistry. They will take the transfer of technologies on your entire analytical methods and manufacturing and all those kind of factories, training. And by and large, there will be only the validation batches would happen because our first priority to do the validations and thereafter do the stability because without stability from that plant, you can't ship anything to anybody.
So next 6 months is practically, old plant will be busy only on the establishment and validations. And once you have, let's say, around 6 months well, your stability data, then on the API produce, then you can give a higher kind of your stability and the shelf life on the product.
So actual business would start happening only from next financial year. Dewas will not contribute to any kind of turnover in current financial year because unless we generate the data, we will not be able to do business. This data then will be supplied to the -- filed with the regulatory authorities when we will invite the regulatory authority for approvals and all.
For the meantime, let's say, India-related business and a lot of other market-related business where those approvals are not required to be taken nearly on submission of data, we can start. So those kind of business will start first. And thereafter, once regulatory inspection happens, then other markets like EU then and out of those markets like Brazil, Mexico, those kind of markets and will be added to that.
So that process, that's the process. So Dewas will have to go through that process. So for some time, these kind of, let's say, operating losses would be there and that is all factored in our calculations, yes.
And the last one on the India business. So on [indiscernible] business, you suggested that price increases will pick in from quarter 2. But on [ non-NAM fees ], have you taken the price increase? Or are they still going to pitch in the same quarter 2 of? Or is it currently factored in quarter.
In India business, let's say, on, let's say, on 1st April, as government announced the prices on scheduled formulations, we had taken the pricing, but that production started in April. And by the time, let's say, for 2 months, we have sold our old stocks with lower pricing in the -- so practical somewhere pricing was effective from June and somewhere from July, but now every where the prices are effective.
As far as the nonscheduled formulations are concerned, the prices can be taken in the increase can be taken in a cycle of 12 months. And most of our cycles are falling in the second and third quarter. So first quarter [indiscernible] has been that significant. But overall, maybe it's around -- as we have guided around 6% to 7% price increase would happen and that some price increase has happened in first quarter also. But major increases are happening in the second and third quarter.
Next question comes from [ Dina Patti Parmpal ] from [ InCred Capital ].
Two questions. Sir, any further update on our U.S. business restarting? Anything further?
As far as the U.S. business is concerned, whatever regulatory front and we have already submitted to them. And for all the plants, we have made a request for inspection. They have started now visiting India and probably that the inspection has started of the companies now. So I think a lot of inspections are currently happening. Hopefully, our plants will also get inspected. But it's very difficult to say that when the inspections would happen, but it's -- we understand that there is nothing pending from our side to be given to FDA. So hopefully, from [indiscernible] inspections would happen. But when, FDA is -- any day they come today, tomorrow, any time they can come.
Understood, sir. -- Suppose that inspection happens and we are cleared. Can you immediately start selling some of your old approved products immediately in the U.S. monitor, is it going to be a cycle of fresh approvals product-wise?
Let's say, we are only import a lot. So after inspection, there could be -- I suppose there are some kind of minor, some observations are there. They need to be replied within a certain number of days.
No, no, I'm assuming -- I'm talking about once everything is cleared, once the plant is cleared, immediately your old approved product...
My disclaimer is that nobody is waiting for me. So I had to go and disturb the market and create the market again. And it's a cycle that some people get tied up for 6 months, some time get tied up for 3 months. So whenever they come back for the buying and then we start pitching, so it will take some time to get back to the market. So it's not that from the day 1 the business will start and business will start in a big way. It will take its own time.
We are concerned that we will able to get higher businesses on those products because we have cost efficiencies on our major products and we still have cost leadership. And on those main products, we are further reducing the cost. So we have the ability to disturb market big way.
One final question on tax rate. So you were mentioning the initial comments about the tax, something about the deferred tax liability regarding that. So what is the full year reported tax rate that you're looking at for this year and also say for next couple of years?
That's what I have clarified. Earlier our guidelines was there that probably we've been fall in 25% tax rate, not from this financial year but from next financial year. But Supreme Court has come out with the decisions on all the sales promotion cost of [indiscernible] and other things. And because of that judgement, your -- even past cases which are there in -- your appeals, they will whatever where assessments are open. Let's say, 3 years assessment are open and there are some certain assessments which are there in the appeals and all.
So there's -- for small issues, there are -- that litigations are there. But now, these cases will be looked a fresh and practically, one of those costs will get disallowed. And therefore, we thought that whatever MAT credit available with us, let us utilize that credit for the past disallowances. And therefore, instead of hoping for 25% next year, we have opted for this year. So there are no past liabilities. Past liabilities will get adjusted against an credit available.
And from this year, we have beyond 25% current rate of tax. But the finance bill has changes the -- the finance sector changed, practically some kind of that will be absolutely, when we are opting for 25%, there'll be no incentive. No kind of deductions will be there.
And finance sector has also come out that whatever, say, brand records and all that are given to the doctors on small values and practically to remember the brand and all kind of thing, that will also likely to get disallowed. And therefore, that will also put an additional burden on pharma companies. So we said that as against 25% tax, our tax rate is likely to be around because of disallowances. There could also be mismatched between depreciation and IT depreciation.
So overall tax rate could be around 27.5% in current year and that tax rate will continue. And then there is some kind of -- because of timing difference, there could be deferred tax, but that deferred tax amount is not very large. So overall, let's say, around 27.5% to 28% will be the current tax and deferred tax in the current financial year and future financial years.
Next question comes from the Kapil Agarwal from [ Itis Capital ]
Am I audible?
Yes, Kapil. Yes, you're audible.
So I wanted to understand a little bit better on what's happened around the U.K. So my understanding, you could partnering only 1 distributor in the U.K. And when you has [indiscernible] decided to facilitate the our own distribution. I wanted to understand what the dynamics would lead you to not partner with multiple distributors in the U.K. And why did you decide to instead of partnering with some other distributors decide to distribute their own.
Kapil, we were doing business with this partner when we were nobody in U.K. So our relationship with this distributor is of 25 years. So from 0, he took us to INR 300 crores, there is absolutely no issue. But since last 2 years, the distributor is having its own problem because you also had its own manufacturing facilities in U.K. because of this COVID and Brexit and all.
So his own operations is also into some kind of trouble. So because of all that, the remittances from him were not coming in time. That is the reason we decided to better we start our own distribution network in U.K. So that is how we started. Now we are having already 6 products in market and another 6 products will get added during -- maybe in a quarter or 2.
Few more products registration will come before end of this year. Another few products are under registration. So going forward, we will have a good number of our own products registered and other market in the U.K. And we are very confident. And whatever business now, we are doing is our own business. And it is a more predictable business, and it will grow year after year. Instead of depending on the distributor, and we see a good scope in U.K. market.
Also doing business in many European countries where we have multiple distributors. We have learned from U.K. So you should not depend on one distributor. And actually, what happened in U.K., we were new, and this distributor came to us and all our dossier, even though we developed, it was registered in his name. So because of that, we could not start our own distribution immediately. Neither we could give those dossier to somebody else.
Whereas our model in other European markets, we have operate in many countries, we give products to multiple distributors. They have to export really buy from me because it is by those dossier. But I am not excluding to him. I can give same product to any other parties. So that's kind of a business arrangement in multiple countries Australia, New Zealand, many of European countries, Canada, which is the business model.
Next question comes from Abdulkader Puranwala from Elara Capital.
So my first question is on your India business. So what is the total number of amounts do we have right now? And secondly, the call that the productivity of these amounts would be at par in the next 2 years?
By end of the current year more or less, we should be having around 6,000 sanctioned field spend in the market.
Okay. Yes. And so on the productivity front, by what time could as productivity for as the current one?
That's our current productivity is around INR 4 lakh per rep on an average basis. There are new divisions where productivities are low. There are older divisions where productivity are at INR 10 lakh to INR 12 lakh or INR 7 lakh to INR 8 lakh. So it all depends on establishment of brand by debt division and a longer period of time as the business gets established, the productivity keeps on rise.
So -- and since we wanted to increase our penetrations, by and large, these field force additions are happening in there. Number one is in existing divisions to increase the penetration because our survey suggested that our own internal service that overall, we have a lower number of people in metro cities where we need to have more penetration metros. All bigger cities are growing faster and there the doctors coverage were little or lower sign because of government people.
So from we have increased more penetrations to the bigger cities. And number two, we have started 2 more cardiac divisions. We also splitted our rheumatoid arthritis division, which is in pain management and created 1 more division because we wanted to add more number of products in rheumatoid arthritis segments and all and with more number of brands coming in, it becomes difficult for a rep to concentrate on that. And in a division, you can have only a 3 to 4 power brands. So brands can grow only if we are that there are the more number of power brands and are can't concentrate more than 3, 4 kind of power brands.
So we needed to create more division in rheumatoid arthritis. So basically, it's more macro coverage, more -- we are penetrations in rheumatoid arthritis and cardiovascular diseases where the addition of people are handling happening. Almost around 1,200 people are getting added in current year so it's almost around 800 are already recruited. Balance people are in the process of recruitment and all in the current financial year. So by the year-end, we should have almost [ 1,200 ] medical reps in the field.
Sure, sir. I appreciate that clarification. So next question is on this API guidance for year of 5%, are we factoring an entire normalization of Losartan in the year in this guidance of 5%? .
Normally, what happens and when disturbance happens, other suppliers penetrate in between. So somewhere, some Chinese suppliers has also entered into the supply chain. And it takes some time to get back those market back. Even though let say the regulators have come back and say that whatever our impurity levels were there in part per billion. Earlier, we have expressed that could be risk, but now they are come absolutely at that level of impurity, there are no risk. But meantime, market were disturbed because of the guidelines. And it took us some time to come out with process.
First, we came out with a process where overall, let's say, impurities has come down, but our productivity has drastically gone down because of additional strep of purifications or added costs were also increasing. But that process was not efficient. So we were simultaneously working to come out with newer process where we have added the process where efficiencies are gained back. Capacities are gained back. Then also we improved overall our yield factors, thereby reducing the cost.
So those -- that process registrations are on. So we will be able to aggressively compete and gain the market share, but it will take some time. And therefore, we have overall lowered the guidance on current year and first quarter. Anyway, we have recalled and those kind of losses are there on account of lower business and all.
So looking at that kind of things, we have all reduced our guidance to a lower level in current year. Hopefully, next year and next 3 years, as I already guided, we are looking for almost around from API side around INR 2,000 crores kind of business. And we have this kind of product pipeline and now capacity getting built up for our Dewas plant and all. So hopefully, that Germany will perform. We expect to do very well on API in a longer period of time.
Next question comes from Mitesh Shah from [ Nirmal Bank Securities ].
I just want to repeat the same thing about the tax rate. You said that the increase from 25% to 27.5%, mainly because some of the assets not consider in the depreciation. Is it right?
No, no, no. Some of the expenses will get disallow. For example, CSR expenses, correct? So our profit for tax, you are reducing that. But for income tax, you have to add it back because it is a disallowable expenditure.
Similarly, Mr. Jain said because of this Supreme Court judgment, certain small recall items were to be used for the brand recall and all. Those expenses may also get disallowed. Because of all this, the taxation actual rate will be INR 25 plus another 2%, 2.5%.
But that... That records are from the export market, right?
No, no, no. domestic market.
Domestic market, okay. Got it.
Sales promotion, whatever expenses you are incurring, I think, like brand recall, you give pen, paper, weight such expenses. The brand will be good.
So that is applicable for the across the industry, right?
Yes, across industry, every player will have to pay higher taxes because all those expenditures will get disallowed under income tax level. Law is also amended and Supreme Court decision has also come. So both are the areas. So Supreme Court segment is impacting the past open assessment and your current taxation rates are changing because of the budget.
And just one more question that 1,200 MRs your are adding made, you have said that will be productive in the next 2 years. So that will be an optimal productivity, they will reach in the 2 years?
Normally, let's say, similar time to become proceed, that's about our past experience in there. Productive means, I will say that you start recovering this cost, the supervision cost, all the promotional costs will incur on them. And then we start contributing towards the margin till such time, let's say, travel cost, the salary cost by the time we start giving us a business at a breakeven level. And above breakeven it takes around 2 years' time.
Next question comes from [ Anubhav Rahul from NV Research ].
A couple of questions. One, I probably missed out. So what is your sales -- overall sales guidance for fiscal '23?
9% to 10%, yes. Growth.
9% to 10%. I mean here also has been revised down I mean...
It's around that earlier we were talking around 10%, 11%, so it's 9% to 10%. It's a 1 point percent...
And for the domestic business?
Domestic business, we have guided around 12%, yes.
Okay. And if we exclude anti-malarials, any numbers you have?
It will be higher. Anywhere between 17% to 20%.
Okay. Okay. Okay. Got it. Second, sir, could we -- what would be a utilization level for the facilities, which are impacted by import a lot like Pithampur, Silvassa and all.
Facilities. There are 2 formulation facilities, which was having the U.S. FDA approval, it is at Silvassa and Pithampur. Pithampur, we are using to some extent for other generic market, whereas Silvassa capacity utilization is bare minimum, hardly anything. Pithampur, maybe around 30%, 35%.
There is real capacity of there, which we're using for U.S. market, most of them we have now started using for other markets globally.
Okay. And for that long, we also did the debottlecking also?
So that is correct, yes. And we have some new facility at Dewas, which will help in scaling up my API production as and when required for U.S. market improving.
Okay. Okay. Okay. But Dewas is primarily for APIs, right?
It is for APIs.
Okay. And sir, I wanted your views on Krebs Biochemicals, how do you foresee levels right now? And when can we achieve breakeven at EBITDA level?
Krebs is a listed company, so it's not good on my part to talk to you on Krebs. I think probably you can raise the question to the Krebs.
We're having a follow-up person from Kunal Dhamesha from Macquarie Capital.
On any allowance you said that daily announces for medical restore increase. So can you just to give some clarity on what was the number before and what is it now?
There are various kind of allowances that I'll not be able to give a number, but let's say, petroleum cost has moved up. So air travel cost has moved up. So somewhere, those allowances are gone up. So all food prices have moved up... Daily allowances, and food and travel and...
Daily allowances... And 6,000 people in field. So that will definitely put some pressure on cost...
Full price, that's kind of the 2 things...
Can you quantify the allowance in the percent of revenue?
Allowances increase was 10% to 12%, yes. There are 2 kind of effect. One is increase in allowances, and secondly, increase in field people....
This will be the last question for the day. I would now like to hand over the floor to the management for the closing comments.
No, madam, we have answered most of the questions. No further comments from our side. Thank you. And thank you all the participants.
Thank you, sir. Ladies and gentlemen, this concludes the conference for today. Thank you for your participation and for using [ Zoom ] conference call. You may disconnect your lines. Thank you, and have a pleasant day.
Thank you all. Bye.