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IPCA Laboratories Ltd
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Ladies and gentlemen, good day, and welcome to Ipca Laboratories Limited Q4 and FY '22 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors. Thank you, and over to you, sir.
Thanks, Pranav. Good afternoon, everyone, and a very warm welcome to Ipca Labs Q4 FY '22 Earnings Call hosted by DAM Capital Advisors Limited.
On the call today, we have representing Ipca Labs management, 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 some opening comments, and then we will open the floor for questions. Mr. Jain, please go ahead, sir.
Yes. Thanks, Nitin and DAM Capital for organizing this call. Good afternoon to all participants, and thanks for taking out time and joining us for Q4 FY '22 earning call. Today's earnings call and discussions and answer given may include some forward-looking statements based on our current business expectations that must be viewed in conjunction with risks that pharmaceutical business face. Our actual future financial performance may differ from what is projected and perceived. You may use your own judgment on information given during the call.
Domestic formulation business delivered 27% growth for the quarter from INR 433 crore to around INR 551 crore for Q4 FY '22. Export formulation business recorded a growth of around 3% from INR 338 crore to INR 346 crore for Q4 FY '22.
Branded promotional market in CIS market recorded a significant decline due to geopolitical issues in the region, and we could not make shipments in the month of end February and March, both the month shipments did not go. And overall promotional market achievement achieved a turnover of around INR 103 crore from INR 101 crore in Q4 FY '22.
Generic business in U.K. mainly impacted with much lower shipments to our distributors in U.K., as we have started our own distribution arm in that country. Business -- building sustainable business on that will take some more time as we get the product approvals in that market.
We were marketing almost around 43, 44 products of our own. Right now, in our labels, we have just got around 7 registrations and which are commercialized. We have got around 6, 7 more registration recently, which will be commercialized now. And as we get more and more registration, those products will get commercialized there and business will build.
The U.K. business in this quarter has declined from INR 60 crore to INR 20 crore in FY -- the Q4 FY '22. In spite of above, the generic business, excluding institutional business, recorded a growth of around 2% for Q4 FY '22 to INR 164 crores from INR 160 crore in last financial year.
Institutional business is also impacted due to lower shipment in the quarter to around INR 80 crore from INR 76 crore in Q4 FY '22. API -- export API business recorded a decline in business of around 14% to around INR 181 crore from INR 209 crore. Domestic API business delivered 52% growth from INR 50 crore to INR 77 crore in Q4 FY '22.
Overall API business for the quarter has declined by 1% to INR 260 crore-- from INR 260 crore to INR 258 crore for FY '22. API business for Q4 FY '22 is impacted due to issue Azido impurity in certain API, which is since resolved. And there was certain sales returns are received during this quarter.
Domestic formulations business has been very strong in this quarter. Our pain management segment has recorded 32% growth for whole of the year. It has recorded around 20% growth. Cardiovascular in this quarter has recorded 13% growth. For whole of FY '22, it has recorded 14% growth. Antibacterial in Q4 recorded 43% growth, FY '22 almost around 55% growth.
Similarly, cough and cold has recorded almost around 71% for growth for the quarter as against 72% for all of the year. Derma recorded -- derma business recorded 20% growth. And for whole of the year, it recorded almost around 41% growth. And similarly, urologic has recorded 36% growth as against 40% for all of the year. So domestic business in the quarter has been very, very strong.
In 9th March, '22, as per IQVIA, our ranking has improved to 18. And overall, our market share has gone to up to around 1.79% of overall India market. The represent market share has also gone up to almost around 4.98%. The COVID-19 spread and broad-based treatment thereafter positively impacted for the year FY '22 for antibacterials, antimalarials, cough and cold profession. And these therapies has delivered during the year very exceptional overall domestic business growth. Excluding the exceptional business in FY '21 relating to hydroxychloroquine and chloroquine for COVID treatment, we have achieved a business growth of almost around 13% for FY '22.
Overall therapeutic contribution in some of the key therapy areas for domestic market has been around -- pain is now almost around 49% of the business; cardio and anti-diabetes, around 17%; antibacterials is around 7%; antimalarial, dermatology and cough and cold each contributing around 5%; urology, CNS are contributing almost around 3% each now.
Impact of higher cost. Overall, the value addition for the quarter stood at almost around 70% for Q4 FY '22 as against 72% in Q4 last financial year. And for the full financial year FY '22, our value addition has been almost around 68% as against 70% for the last financial year.
The Q4 EBITDA got impacted due to impairment in the value of investment of almost around INR 22.46 crore provided during the quarter. And for whole of the year, we have provided almost around INR 39.14 crore as a provision for impairment in value of the investment.
We almost recruited around 500 additional people in marketing in Q4 and that has also resulted in a higher cost and these additional marketing divisions are launched from 1st of April in the current financial year. During the year, we are recruiting almost around 1,200 additional medical reps and launching 4 more divisions in the domestic market in the current financial year. Higher incentive to field staff. For significant higher achievement of 27% business growth as against the budgeted growth of around 16% has also resulted in overall, a little lower -- higher provision for the incentives to the field staff.
Significant higher fuel cost for the quarter. Almost the cost has gone up for the quarter by almost around 60% as compared to last year. And for the whole of the year, the fuel cost is -- has increased by almost around 49% for the year. Similarly, shipping cost has also significantly gone up during the quarter. Even though our export business has not done a significant addition, but the freight cost has gone up from INR 13.7 crores to almost around INR 23 crores, INR 24 crores. And overall, higher wholesale price inflation in economy has also increased overall overhead costs.
Having given the broad presentations, now I request participants to ask their questions.
[Operator Instructions] The first question is from the line of Ranvir Singh from Sunidhi Securities and Finance.
Sir, my question was related to that certain business. So in last quarter, we mentioned that due to impurities, that our shipment was lower. And that normalization happened in last quarter itself. But yet in this quarter also in your commentary, it seems that it is not normal or something. So please give -- throw some light on it.
Yes, issue got resolved. We've filed the newer process, whatever, with the modifications and all. But a lot of shipments which were made earlier to certain geographies, they have returned back. So sales return was higher. These goods will be reprocessed and then reshipped and reshipment will also be there. And therefore, in this quarter, because of sales return, some sales return may even come in the in the first quarter of the current financial year.
So for some more time, this will get impacted, but yes, newer shipments has already started. And the business got disturbed for almost around 6 to 8 months because of this issue. So we are also likely to lose some kind of market, which will take some more time to regain back.
So what is the quantum of sales return in this quarter?
Maybe I think overall maybe around more than INR 20 crores.
Okay, okay. And sales return is over now or some part remains to...
No, I said some more may come in first quarter of the current financial year.
Okay, okay. And secondly, on institutional business, that also in last quarter, you indicated a full year revenue of INR 350 crore. This is -- the full year revenue is considerably lower. You mentioned that shipment was lower, but the reason why shipment was lower, that I wanted to understand.
Let's say, as against INR 350 crore what we have achieved is around INR 318 crores. So it's lower because order flow, what we were expecting based on our discussions with various agencies, that did not materialize yet. So order flow itself is very, very low from institutions around that time because Artemisinin prices has gone up significantly higher.
And therefore, there was a price increase and getting those kind of higher prices -- so overall flow was slow. Because Artemisinin price which used to be existing around $150 has gone up to almost around $250, $260, and therefore, consequently, prices were also revised. So what kind of flow were expected, that did not happen.
Okay. So this is not a case of any part of sales being deferred to...
No, no. There's no deferment there. There's no deferment of shipment.
Okay, okay. And what was the outlook on institution business for FY '23?
I think FY '23 will -- we see -- we'll see a flat kind of business, maybe around -- we don't expect much of growth in institutional business for the whole of the year.
[Operator Instructions] Next question is from the line of Damayanti Kerai from HSBC.
Sir, my first question on India business. So obviously, we have seen exceptional gain, as you mentioned during your opening remarks in some of the therapies due to COVID. So on a high base of FY '22, how should we look at FY '23 growth? And if you can split growth into volume growth and new launches contribution, that will be helpful.
Okay. So overall, I would say that all business has not grown because of COVID, because our pain segment is significantly outperforming and it is continuously doing very well. And there are no impact of COVID in that kind of segment, except a small brand of paracetamol of ours has shown a good growth of almost around 109%. But Zerodol continue to record almost around 30% kind of growth in the last financial year.
And overall pain segment for Q4 has also grown by 32% and overall, in spite of hydroxychloroquine, which was exceptional business last year. And that decline, in spite of that Pain has given 20% kind of growth. So that has -- and other therapies like, say, let's say, derma for the year, has grown almost around 41%; CNS, 25%; Urology, 40%. So these are the therapies which are which has outgrown significantly from -- to the market.
But as far as some of the therapies like antibacterials, we had almost around 55% growth for the year; antimalarials had 64% growth; and cough and cold, we had almost 70%, 72% kind of growth. So these are the segments which has impacted because of -- the higher businesses because of COVID also. Normal business has also grown, but because of COVID, there was exceptional demand in the market for antibacterials, antimalarials and also your cough and cold preparations. So as far as the next financial year is concerned, I think overall, domestic business for us may grow almost around 12% to 13% for the whole of the year.
Okay. So 12% to 13% on a day for FY '22 looks achievable for FY '23?
Yes.
Okay.
First quarter growth may be a little lower because the first quarter, in April and May, because of your -- Delta variant's spread and all and broad-based treatments and all those significant higher offtake of antibacterials and cough and cold, So on that base, the growth may be a little slower. But for the whole of the year, we should be able to do a business growth of almost around 13%, yes.
And sir, quickly on the price hike, which was allowed for Elenium portfolio, that's been taken. And if you can confirm that? And what about price increase for non-Elenium portfolio? What kind of price hike you are anticipating or you have already taken?
Overall, Elenium product, almost around 10.7% price increase was allowed. And I think price increase was announced practically at last date. Normally, we carry around 2 months inventory because the first quarter business is higher, so we normally carry higher inventory around that time.
And therefore, practically, this price increase in the current year will be only available in June because we will be selling the older inventory, which is at a lower price. So for this price increase will be available for at least maybe around 10 months of the whole of the year, not for 12 months as far as Elenium products are concerned.
As far as other products are concerned, normally, our price increases has been around 6%. Overall for the whole of the year, we used to have around 6% kind of. But looking at overall the wholesale price inflation, which is currently in economy, probably we may be on an average around 8% kind of price increases given the current financial area.
Okay, sir. And my last question before I get back in the queue. Given we continue to see high pressure on the input cost part, whether it's a raw material part or shipping and freight cost which you also touched upon, so in terms of margins for FY '23, what kind of injections you are building in right now?
Let's say, in spite of higher prices in the current FY '22, we've been able to have a gross margin of almost around 68% for the year, which has come down from 70% in last financial year. 70% was very exceptional because of an additional business on account of COVID, what we did on hydroxychloroquine, that was at a much, much higher prices.
So in spite of your overall significant increase in raw material, we have been -- I would say that we have been able to maintain the overall gross margins value addition at almost around 68%. And in the fourth quarter of the current year also, we had 70% kind of value addition, that's what I have said in the initial presentation.
So we don't foresee that there will be any kind of reduction in that part. And what I'm seeing from market now is there is a significant resistance from the buyers in passing on the higher cost -- and normally, buyers gives 1-year orders and all those kind of things for the APIs and all.
Currently, what we are looking, that buyer says apprehension that prices will come down, and therefore, they are also giving quarterly orders and not committing for the full-year deliveries and all those kind of things. And similarly, it is happening for intermediates also, that the intermediate producers are also facing the heat because their volumes are going down.
And therefore, there is the indications of lowering the prices in spite of the China lockdowns and so many issues and logistic issues and all that. We are seeing the softening of the prices of certain -- the key intermediates in the recent time. And probably that trend would continue. So if that trend continues, then overall, our gross margin will further improve.
[Operator Instructions] The next question is from the line of Surya Patra from PhillipCapital.
Sir, first of all, can you give us an update on the ongoing projects, whether it is the Dewas or the debottlenecking activities in Ratlam, Aurangabad as well as conversion of Ramdev API to intermediate. On these projects, what is the kind of status? And in terms of utilization for Dewas, how should we -- that we should be building for the current year in terms of the utilization in all, for both the year dates?
At Dewas, we started commercial production for 1 intermediate. Second intermediate production would start right now in -- maybe in the next quarter. The major plant is the one which is under installations, and overall, I think that installations and validations would get completed. It's further delayed by 2 months. So maybe I think around July and/or August that will get completed.
And thereafter, say, all the validations, all the establishment and validations and the stability batches and all will be taken. It will take almost around 6 -- thereafter to generate the 6-month stability data and then file with the regulatory authorities for the approvals. And regulatory authorities will take some time for the approvals and visit the plants and all.
So we don't foresee any kind of significant impact of Dewas coming in the current financial year. Dewas will start impacting our overall performance maybe from the second quarter of the next financial year. And nothing great would come. In fact, it will contribute the initial losses because -- that's the pain in drug industry that you need to do all those kind of work.
And then -- so meantime, it will start producing some kind of the penultimate phases keep on supplying to Ratlam plant. And from there, we will increase the overall API output and all. But Dewas was not a significant impact in the current financial.
As far as your overall -- I think, Aurangabad, you have talked about. Aurangabad, there are no issue. It's a normal business. We have installed 1 pilot plant there. And there, the few stages are tactically stabilized and their yields has gone up by almost around 20%. Few more products are under -- currently your trials are going on and we expect significant improvements in that also.
But some of the stages where we were -- there are high amount of your -- practically phosphorus oxychlorides are used, those we are facing a problem relating to your MOC issues, and we are still not able to resolve in spite of taking up with all the kind of companies in domestic and international and -- so that issue is still there. But on the other reactions and all, we are seeing a good amount of progress happening there.
And as far as Ratlam debottleneckings are concerned, yes, that has been completed and the commercial production has already started here.
How about Ramdev?
Ramdev, the journey is going on, almost around 5 to 6 products are validated there now. And we have started filing those with the [indiscernible] and other authorities that the filing has already started. I think in current year, we may do almost around 8 to 9 filings. And once those kind of approvals start, then European and other business will start from that plant. Meantime, right now, it's serving to the domestic industry.
Okay. Sir, then overall, in terms of annually, what you generally mentioned about the integration levels for your activities with your captive operations. So can you share that what is the level of integration now currently?
It's almost around 56%.
Okay. So 56% of our combination...
56% of our turnover is coming from captively backed API.
Okay. Okay. Fine. So sir, my second question is on the overall export performance. So you mentioned that you had shipment problems during the last 2 months of the quarter. And hence, there was a kind of impact. So that is clearly visible. So apart from the stronger growth in the domestic formulation, which was severe otherwise other segment, whether it is API or export formulation or export API.
So everywhere that we have seen some slippage to the normal expected levels. So do you think, say, given the kind of concerns that is there on the shipment side or trade challenges front, so do you see any kind of softness or a softer trend for the export that is continuing at least in the initial period of FY '23 and hence, a kind of moderated growth on the overall export business?
Let's say, firstly, promotional market, we were targeting almost around 20% growth, excluding the exceptional business what we did in last financial year relating to COVID. And if we do exclude that part of them, I think on promotional markets, we had achieved a growth of around 12%. In spite 2-month shipment has not happened, if those would have happened, which are for the CIS market, if the things would have been normalized, we could have achieved almost around 20% growth in promotional market.
As far as current year is concerned, I think April got impacted because we didn't make much of shipments in that one. But from May onwards, I think overall, things have normalized. In fact, we may gain more in the -- particularly in Russia because 1 is your ruble rate has now stabilized around 57 and all. Our pricing in that market was based on 70. So our overall dollar pricing in that market will improve.
And we have done the -- based on overall initial part in the April, in February and March, so looking at the depreciation, we have revised our pricing based on 70 to 90 in that market. And therefore, we have increased the local prices in that market. And we have not reduced the prices right now.
So hopefully, there will be a significant gain as far as Russia is concerned, in dollar terms for us because our dollar prices will get revised there. And not only that business in Russia, even the API business, we have very good business in Russia. That business also got impacted. And we have put all the customers on advanced list now, that you send the advance and then -- so it took some time, and now shipments have started going to that market.
So both on formulation front and as far as API front, both we have suffered in that market. As far as Ukraine is concerned, we don't have a significant business, but we were doing almost around INR 15 crore business in that geography in a whole of year. And some shipment was sent in earlier part of February, even that has not reached to Ukraine. And therefore, I think Ukraine business will definitely suffer because we are still finding approval to have the logistics put in place for shipment to that market.
So as far as generics are concerned, let's say, all other geographies, we are having good progress, except the U.K. because where we are now completely stopped shipping to our distributors in that market. And as I said earlier that we have almost around 43 products with more number of SKUs put together was a very large list.
We only got around 7 approvals and 7 products were commercialized. Recently, we got a loss around 6, 7 more approvals, which will be commercialized in -- maybe in the second quarter but all preparations are going on. So overall, that business will show a decline in the current year.
But European business, Australia, New Zealand, Canada, South Africa, they all will grow. But I don't foresee a significant growth in generics. Overall, business growth in generics will be muted because of U.K. and the overall growth in generics may remain around 5%-or-so overall. So -- and API business foresee almost around 10% to 12% kind of overall growth, once these issues are completely behind us.
Okay. Sir, just a last question...
Sorry to interrupt you, can I request to come back in the question queue?
Sure.
The next question is from the line of Kunal from Edelweiss Financial Service.
Due to no response, we move on to the next participant. The next question is from the line of Ranvir Singh from Sunidhi Securities and Finance.
Sir, just on U.K. side, we have mentioned that change in distribution model has impacted. So I wanted to understand what's your status currently. So we have already set up our own distribution channel there. And so we expect sales to pick up in subsequent quarters of that process is still here going on. And secondly, how that will impact our profitability in that region?
Overall, if you look at U.K., in FY '21, we had almost around INR 152 crore business. Prior to that year, U.K. business was almost around -- few years back, it was almost around INR 350 crores. So because of distribution issues, this business has significantly got impacted, and therefore, we decided that, yes, we will be -- we want to be there in that market and have our own distribution. We have got during the year, those kind of registrations, what we have talked about, almost around 7 registrations.
During the year, in our own level, we have done almost around INR 23 crore business. And on distributors business are almost around INR 61 crores. So overall, almost around INR 84 crore business we have done in U.K. Looking at the current basket what -- of 13 products, the 7, which we are currently marketing and 6 approvals what we have received now, we would be almost around INR 60 crore to INR 65 crore kind of business.
We are expecting more kind of approvals, which if it comes during the year, then business could still be better and we could be at a breakeven, maybe around INR 84 crore, INR 85 crore in the current year. But we have not factored in our budget so far the fresh activates. But we'll certainly get more number of approvals during the year. So U.K. business, we see that there would be some kind of decline during the year, yes.
And the breakeven would be achieved?
Let's say, we are not right now created our own warehousing and other things. We are completely outsourcing, but we have marketing teams in place, and we have all over people in place. The QP testings are completely outsourced there, and we are also setting up our own QP testing facilities there. And in fact, business margins could improve there.
Just a disconnect, you said over INR 152 crore was from U.K. in FY '22?
Yes. FY '21.
Okay. FY '21 and...
FY '22 was INR 84 crore.
Okay. INR 84 crore was in FY '22 for a full year. Okay, fine. And...
So business has significantly come down from INR 350 crore to INR 84 crores.
INR 350 crore was in FY '19?
Before that.
Before that. Before that. '18-'19, yes.
Okay. Okay. And similarly in Russia, what is the contribution of Russia in FY '21 and FY '22, if you could highlight?
I think overall, CIS we did almost around INR 134 crore.
For FY '22?
FY '22, yes.
And the majority would be from Russia only. You said...
Majority will be Russia, almost around INR 15 crore are from Ukraine and some from Belarus.
Okay. And what was that number last year? Just wanted to understand the normalized number.
It was almost around INR 164 crore.
Okay. And sometimes in a war-like situation, when the situation normalizes, the demand also -- some sort of pent-up demand also comes up or there. Maybe some opportunity there because some MNC -- we saw some MNC has withdrawn from there. So do you see any -- that the opportunity would be larger when that situation normalizes in Russia?
In fact, we are sensing that business would definitely go up there. There are good opportunities. Our team is working -- the team is right now sitting from India there to assess all those kind of things, which are other dossiers, which are of other markets on which we can get Russian approvals and all that. So those all professions are going on. And we see a good improvement in business. And also you see earlier dollar -- your ruble rate was to be almost from 35. From 35 it went to 70. 70, it has come down to 57.
So it is basically our dollar billings, we believe, which were getting impacted that -- because of currency depreciation there. And since ruble is again appreciating, our dollar billings will increase, so overall business in Russia will definitely go up. And apart from that, additional opportunities, which are there relating to newer products approvals and all, that also will be positively impacting Russian business.
So what do we have, what forward contract there to hedge that currency fluctuation?
No, we don't have that. But our billings -- we decide the prices that are in those markets and prices and -- the distributor margins in that geographies are capped.
The next question is from the line of [ Bino ] from [ InCred Capital ].
Just a follow-up from my side on the domestic market. So we have done exceptionally well in the domestic market last year. So obviously, part of it came from the COVID upside, but you also said that part of it is not COVID-related like the pain, derma, et cetera, et cetera.
So I was wondering, all these are businesses which used to grow, say, at 10% or 11% annually. What has suddenly changed that these are growing 30%, 40%? Have you -- what are your thoughts around that?
See, last year, base was low because of the area growth -- if you look at 2-year CAGR, the business growth was almost around 14%, 15%. So -- and again, that's because of all these uncertainties, the base last year of the exceptional business what we had more particularly in antimalarials last year, and also in your antibacterials, we are little as against, let's say, 15% kind of growth, we are projecting around 13% kind of growth.
Next question is from the line of Saion Mukherjee from Nomura.
Sir, any update on U.S. FDA inspection? Any conversation you had with U.S. FDA with regard to your plants?
Let's say, all remedial actions are done. We are in regular touch with FDA. Hopefully, inspection should happen, but the FDA doesn't announce when they will come. But hopefully, inspections would happen in current year. Because there is nothing pending, no pending acquisitions from FDA again on any kind of remedy elections or submissions we have made to the FDA.
Okay, okay. Sir, on the branded business, you sounded positive with Russia coming back and some of the other markets. So what's the kind of growth expectation you have in fiscal '23 for branded formulation exports?
It could be around 20%.
Okay. And sir, your API business has done very well, particularly last 2 years, it has come off a little from FY '21 levels. You mentioned about sartan. So how should we think about what are the kind of opportunities you have? You have guided for around 10% growth next year, but slightly on a longer-term basis, what's the kind of expectation, this 10% growth you see? Or there is additional opportunities that you expect on the API side?
The business, from 10%, I think overall API business may grow to around -- once this capacity becomes available and regulatory inspections of Dewas site and all that happens and filing happens from that side, I think overall business may grow around 15% for next 3 years thereafter.
Okay. Sir, one final question on raw material prices. You mentioned prices have started to come down. I just wanted to understand, is the worst behind? And is it like the price inflation that you have seen or are seeing is limited to specific products? Any color if you can give?
And -- or is there a possibility of a material margin improvement in gross margin? Is that something which you see is possible because some of the costs may be exceptionally high at this point or in fiscal '22, which can come down?
We have seen the trend that overall, let's say, intermediate prices and they all started coming down now. And even the buyers are facing it because the sellers are facing it because they are also not getting volumes because at higher prices, the buyers are not picking the shipments. And those are issues are there.
And companies, the manufacturers of APIs are also facing problems in passing on the prices because Europeans and other manufacturer -- the buyers are also -- are hesitant to give these higher prices because somewhere, they also have a lot of insurances and other issues and there are pricing pressure there, and they are not able to buy at those prices.
So definitely, these prices, which was significantly gone up. It's not 10%, 15%, somewhere, it is 100%, 200%, those kind of price increases happen on intermediates and all. And those prices definitely are coming down, and the trend will be seen in the current financial year. But at the same time, because of higher petroleum prices, your solvent prices continue to remain high. We are seeing that excipient prices, which are mainly used in the drugs for formulations, for -- those prices are recently -- are moving up, but they don't contribute much to the overall cost.
But overall, we see that, yes, the price has been definitely come down and that will positively impact. But how much that would happen, we are seeing maybe around 5%, 10% retracement in the prices, but it has to come down much more. And that could positively impact the margin, but right now, it's very difficult to project that how much it will come down.
The next question is from the line of Aditya Khemka from InCred Capital.
Sir, just one question. On the U.S. business, our acquisition of a stake in Lyka, can you sort of expand on the rationale and what is the progress?
Lyka, our current plant is having WHA, [ JNP ] and certain authorities approvals there, but they don't have any kind of approvals, which are from the stringent authorities of the world. So no approval exists from the stringent authorities of the world. We have made an assessment there. And probably, there are some kind of modifications are required that will be carried out during the year. And then the -- our internal teams will -- are assessing their overall, let's say, quality systems and other issues.
And then after those kind of things are done, then we will review their data. And then with -- after modifications and all, then filing process will start, first in ROW market and then in the stringent market, all that kind of thing. So that's maybe around 2 years' journey.
And injectables are -- we have most of our businesses coming from oral therapies, and we definitely wanted to go for injectables. We wanted to have those kind of agents. And Lyka has a very good product range. So it's only the -- some kind of corrections and the regulatory approvals, and we can go for those kind of businesses. ROW itself presents a very big opportunities as far as those injectables are concerned. So that's a 2-year journey.
Understood. And sir, any outlook on the sartan portfolio of APIs that we sell? So I know we have been seeing some pricing pressure in sartans over the past 9 to 12 months. But do you think prices where they are now given the raw material inflation, sartans will not see further price erosion? In fact, will we be able to take some price increases in that portfolio to pass on the cost?
In fact, this your -- whatever these impurity issues which has come, that has opened up an opportunity that we could revise the processes for much higher yields. And that would, in fact, reduce the cost. And therefore, margins would be better.
Right. And you don't see any further pressure on the end price of sartan portfolio in the...
No. In fact, the intermediate prices were elevated, they have started coming down here.
The next question is from the line of Surya Patra from PhillipCapital.
Sir, a couple of questions on the finance side. So compared to last year, there is a debt addition of almost INR 550-odd crores. So what was the reason for that? Although it is a short-term plus long-term and a couple of small acquisitions that we would have done, but if you can break that year up in terms of our requirement and rationale for that.
See, that debt is not utilized. Let's say, it's lying in the bank account. So we may, at an appropriate time, repay those kind of debt. It's only a commitment for 13 months. For a specific purpose, that debt was made, and that purpose has not materialized, so we have not utilized at that debt.
Okay, okay. So then there is no major changes that we should build in our models?
Yes. Yes. No, no, there's debt -- it's lying in cash. I have in the balance sheet, almost around INR 1,300 crores cash right now.
Okay. Fine, sir. So second question is on the cost, sir. So although the elevated raw material costs and all that. So despite that, we definitely have delivered a strong gross margin scenario. But the cost pressure, what we are currently seeing, it is not on the gross margin front or EBITDA gross margin front. The cost pressure, what we have seen for the fourth quarter, is the employee cost front as well as on the -- more on the other expenses front, possibly it is a fuel cost, it is the distribution cost or shipping cost or freight cost and all that. So could you give some sense on that, sir?
Do you think that is -- the other expenses are likely to be normalizing in the near term or given the challenge trade challenges that is there, so your other expenses is likely to remain elevated for entire of this year. While we take comfort from on the gross margin front, but the other 2 line items are looking relatively larger. So some sense on that front for FY '23.
See, as far as personnel cost is concerned, I think overall, rising during the year is around 14%. Out of 14%, there are 8% is on account of your general increments to the people that -- balance is the -- because incentive provisions have significantly gone up, because in our system when somebody outperforms, the incentives are significantly higher. And therefore, incentive provisions has gone up by almost around more than double. It's almost around INR 60 crore additional provision for the whole of the year. So that has pushed the overall personnel cost during the year.
And also in the third quarter -- the fourth quarter of the current year, we have decided to add 4 more marketing divisions in the overall domestic marketing. And we are increasing our field force size from 4,800 medical reps to almost around 6,000 medical reps. So in current year, almost -- that will significantly impact. And therefore, personnel cost will definitely be -- will remain on higher side during the year.
And we have seen that, by and large, we are able to do almost around breakeven in the 2 years' time, that whatever your -- the reps were added during the year -- in 2 years, they start recovering their entire cost and from third year onwards, will start contributing towards the margin. So we will see some pressure during the year because almost around 1,200 more people are being added. And in the last quarter, number -- also almost around -- out of that 600 people were already added in the last quarter and they were under trainings and all that. So that has added to the adjustment costs.
We are continuously doing better in the domestic market and we see a good scope to further increase overall our market shares and all. And therefore, we are adding the 4 more divisions in the high-growth therapies overall, yes.
And as far as other cost is concerned, shipping costs will still take more time to normalize because pure petroleum are at a higher level. And because of the China COVID situations and the overall logistic issues. And that will continue to remain elevated. I think it's difficult to say that then, that's likely to be normalized. But once I think China, this overall situation start becoming under control as far as COVID is concerned, then the logistic cost will also come down.
And as far as the fuel costs are concerned, coal is a real big issue now. If April last financial year, if the coal rate was 100, it's almost around 220 to 225 is the rate now. So it's almost gone up by 120%, the coal cost has gone up. So in spite of whatever efforts we have done to save the fuel cost and others to buy, overall in spite of all that, the overall fuel prices, fuel cost to the company has gone up by almost around 49%.
It's very difficult for me to say that when the fuel cost will get normalized. It has, again, a lot to do with, again, China because they stopped buying coal from Australia and the coal which was coming from all that Indonesia. And all that became very, very high. And India also because of high heat, suddenly power requirement went up and then the coal was not available to the industry to that extent and then the prices -- they have started moderating in between, but again because of this high heat and all the coal costs have gone up.
But I think we will have to watch because if the winters -- your rainy season is a little extended, then the coal price may continue to remain elevated. But if the season ends in time and all that, probably the coal cost may start moderating around that time. So -- and as far as electricity are concerned, I think overall, I think there was a very big strain on the -- this year. Electricity cost has not moved up very big way. It's only the fuel such as they have increased because all electricity boards were holding the tariff hike and all. So we don't know when the tariff hike goes up as far as -- and that could further increase the cost.
[Operator Instructions] The next question is from the line of Kunal Dhamesha from Macquarie Group.
So the first question on the Dewas plant, as you mentioned, that there would be some the cost which would be baked into FY '23 as the real commercialization would come in FY '24. So can you quantify what kind of expense drag that we are looking at from Dewas in FY '23?
I think -- overall, I think the plant will be ready for, say, capitalization. So the major part of the plant will get be ready -- to capitalize in the month of August. And thereafter, maybe around for the -- maybe around INR 1.5 crores per month for up to March, that will be the cost, yes.
And some costs will definitely get recovered, but majority will remain unrecovered, yes. Because it's basically all the dossier developments and filing and stability and all those will be done, data will be submitted to regulatory authority. Until this time, we can do is the only businesses with your -- the countries where those kind of approvals are not required, and they are normally at much lower prices.
Sure. And second question on the sartan. And so as far as I was aware, the newer process was having a lower yield, right? But I think earlier you alluded that the newer process is having higher yields...
No, no. No lower yield. That was having lower output.
Higher time cycles.
Higher time cycle, but that we have again revised that. And with that revision, it's a normal output and higher yield.
Okay. Normal output and higher yield. And on EBITDA margin, have you provided any broad guidance for FY '23?
I think overall, our top line may remain around 10% to 12% for the whole of year and EBITDA margins will be around 22 to 22.5 because we'll have pressure of additional people recruitment in the year. And overall elevated cost on account of overheads more particularly fuel shipping and overall inflation in the economics. But our gross margin levels would remain around 68%. And if the prices comes down a little bit, gross margin may improve and that may impact the positive EBITDA, overall EBITDA.
Sure. And the tax rate still remains at 18%, right?
No, tax rate goes around 25% because we are exhausting most of our match credits and all, and some credit will get lost.
Okay. So I think last quarter, we said we had some INR 350 crores or something pending.
So current year, because of all the [ SEKEM ], so all those tax incentives are expiring and all. And thereafter, you can take those kind of tax incentives once you are opting for 25%. So some of the credits will get lost. We'll have to see that -- which is a better method. We will have -- some kind of credits will get lost.
Okay. So from this year onwards, we will be at...
This means that credit is not recognized in books. So it will not impact the balance sheet, but yes, the tax rate will go up.
From this year only?
Yes. This year only, yes.
The next question is from the line of Tushar Manudhane from Motilal Oswal.
Sir, just on the -- just a clarity on the API growth outlook, you guided for 10% growth for FY '23?
Yes, that is correct, Tushar, yes.
Is that going by the quarter of INR 250 crores and Losartan issue may be taking a quarter or so, still attaining 10% on almost about INR [ 1,340 ] crores in FY '22? So incremental sales is going to be much higher in the remaining 3 quarters, is that assessment right?
Yes. That is correct, yes. Because progress is slowly happening in capturing additional customers and business for Losartan volume. See, we were not servicing customers for 4, 5 months because of this impurity problem. So getting all that business again is slowly progressing.
But at the same time, I presume there are -- I mean there would have been some competition would have already taken away that market share. So regaining the market share...
Yes, yes, that is correct. But whatever benefit we have, costing and other things, we are sure we will get back all our customers and all our volume, but it will be a slow progress. And this quarter, Mr. Jain has already explained, there could be some return of older shipment also. So we have to give them the fresh material. So there is no loss of anything, but only that return will get replaced with fresh material, to that extent, there will be lower growth.
The next question is from the line of Kunal Randeria from Edelweiss Financial Service.
I hope I'm audible now.
Yes, Kunal. Yes.
Yes. Sir, just want to understand. So because in all these API price increases, if you are -- I mean, input cost increases, API contracts, when they come up for renewal, how much of it are you able to pass it on?
Mr. Jain has already said, there is hesitancy in the buyer side to give increased pricing. And earlier, routinely, a lot of long-term contracts used to get signed, but now buyers are preparing 1-quarter contract and all.
So there is a lot of hesitancy in the marketplace also. So people are not sure whether the price will remain at elevated level or it will go down. So corresponding formulation demand, formulation pricing, those are also having some concern and issues. So because of all that, there is a disturbance in the API business. But it will stabilize and improve as we progress quarter-on-quarter.
Sure. Okay. And just one more. So while you did briefly touch upon this, I think your sales force increase is almost like 40%, if I understand correctly, from around 5,100 to almost 7,000 by the end of this year. So where are you going to deploy this? Any particular division or any branch that you are looking to sort of invest in? A bit more color would be helpful.
Almost around 350 people will be added to the existing divisions because what we are finding, that our service suggests that in cities, we need more representation. And therefore, we are adding more number of people in our multi-specialty divisions, more for cities. So around 350 people will go in existing divisions.
We are adding almost around 1,200 people. Out of this, maybe around 350 people are again getting added to the pain segment, newer divisions in pain. Existing rheumatology divisions where we have market leadership and around 60% market share, that is getting bifurcated in 2 parts because it is becoming increasingly difficult to add products there.
And -- if you add products, then with a larger basket, it becomes difficult to have a kind of focus around the products and all that. So that, we are splitting to get the higher market share from that kind of segment. We are creating another segment for neuropsychiatry. And so that's some -- other additions are there.
And in cardiology, we are adding almost around 2 more marketing divisions, and almost around close to 400 kind of people will be added there. So broadly, these are the areas where the deployments would happen.
The next question is from the line of Prashant Poddar from ADIA.
Yes. Can you hear me?
Yes, Prashant. Yes.
Yes, yes. Just a quick question on the hesitancy that you talked about in price increases. So are you doing some risk mitigation at your end in terms of lower inventory cycles, et cetera?
It's very difficult to keep a lower inventory because this is the time that there are a lot of uncertainties are there in as far as supplies are concerned because of the China issues and all. In fact, our inventory in the current year has gone up by almost around INR 200 crore. And we could have, in fact, reduced the inventory, but -- in fact, the inventories has gone up because in order to maintain the business continuities and all supply disturbances -- to avoid supply disturbances, we have -- in fact, the inventory has gone up by around INR 200 crores.
So could there be an intermittent risk if the raw material prices were to correct?
On that, there will be a lower realization, but we can't have business disturbance because...
Yes. No, no, we agree.
Yes.
So -- and this risk is only in the API business?
Yes, this risk is in API business. Yes.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Yes. We have nothing more to add. Thanks to all the participants for taking your time out to attend this con-call. Thank you. Thank you very much.
Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
Thank you. Bye.