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J B Chemicals and Pharmaceuticals Ltd
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Ladies and gentlemen, good day, and welcome to J.B. Pharma's Q1 FY '23 Earnings Conference Call as on 5th of August 2022. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Jason D’Souza, Vice President at J.B. Pharma. Thank you, and over to you, sir.
Thank you. Thank you, Stephen. Welcome to the earnings call of J.B. Pharma. We have with us today the management of J.B. Pharma, Mr. Nikhil Chopra, CEO and Whole Time Director; and Mr. Lakshay Kataria, Chief Financial Officer. Mr. Kunal Khanna has taken ill today, and as a result, is not able to attend this call.
Before we begin, I would like to state that some of the statements in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available on the Q1 FY '23 results presentation that has been sent to all of you earlier.
I would like to hand over the floor to Mr. Nikhil Chopra to begin the proceedings of the call and give his opening remarks.
Thanks. Thank you, Jason, and good afternoon, and a warm welcome to everyone joining us today for the discussion on the operating and the financial performance for J.B. Pharmaceutical during Q1 FY '23.
I shall commence with a review of our first quarter performance and share some thoughts on our business. Later on, our CFO, Mr. Lakshay Kataria, will continue with the financial highlights. After our remarks, we would be glad to engage with all of you over a discussion.
Gentlemen, we are all on the call, we are pleased to report a healthy growth in top line underlined by strong sustained trends in the domestic business and complemented by robust improvement in our international business. It is heartening that we have been able to deliver this performance despite the challenging operating environment.
During Q1 FY '23, revenues on a reported basis increased to -- increased by 30% year-on-year to INR 785 crores. Domestic formulations delivered good growth and crossed a revenue of INR 400 crores in a quarter. This is all-time high revenue that we have generated for India business as on today.
Organic growth for domestic business was in mid-teens as compared to flat growth as reported in IPM for quarter 1. We continue to be the fastest-growing company among the top 25 as per IQVIA MAT June '22 data. Our approach on enhancing field force productivity is yielding intended results. So also our focus on driving our chronic business.
As we nurture our new product launches in the adjacent therapies, our big brands continue to get bigger. Just to give you some perspective, our brands like Metrogyl, Cilacar-T, Nicardia have each further improvement their rankings within Top 300.
J.B. Pharmaceuticals has also announced its prescription ranking and now stands to #15 in IPM as per IQ. And also happy to report that J.B's. prescription base increased from INR 2.6 crores prescription in quarter 1 FY '22 to INR 4.09 crores in FY -- in quarter 1 FY '23, growing at 57%.
Just to give brief highlights on what has been happening in our inorganic business that we acquired in the last 6 to 8 months. The acquired portfolio -- product portfolio from Sanzyme has performed well, whereas in Sporlac, which is a leading brand in Sanzyme, we have seen market share gains.
Azmarda represents an extension of our leadership portfolio in the cardiology segment. Heart failure is relative a new subsegment and vastly underserved. We are presently in the investment mode for Azmarda and are witnessing good results month-on-month. Our teams on the ground are fully gathered with an end-to-end portfolio from hypertension to the prevention of heart failure.
In keeping with our outline strategy to be present in high potential categories, we have also completed the acquisition of 4 pediatric brands. On a combined basis, this account for INR 33 crores in sales in FY '22. This acquisition will provide J.B. a comprehensive portfolio with well-known brands to cater pediatrician as a specialty. It will increase our market coverage and align with our go-to-market model.
Moving along, our international operations have demonstrated a healthy uptick in focus markets. South Africa is showing attraction in the generic segment across both public and private market. We are also seeing robust demand in tenders and new launches in private market in South Africa.
Russia and CIS has shown a stable demand trend given the daily challenges. As all of you are aware, in the geopolitical realities, we continue to have a cautious approach, and I'm happy to note that our receivables position is positive.
In the CMO segment, we enjoy global leadership in the world of lozenges, more so in herbal and medicated varieties. We have grown the scope of our relationship with our key clients through continued new product development in both lozenges and liquid formulations during quarter 1 FY'23 as we reported.
Also happy to share that we could surpass a revenue of INR 100 crores for quarter 1 FY '23 in the world of CDMO segment, which is our highest that we have achieved. With a strong order book position, we are in a comfortable position to drive this business further.
The CMO business tends to be front-loaded with first 2 quarters of the financial year performing better than the later half. We are pleased with the progress that we have made in last 2 years in transforming our company and business.
There is a scope to further improve our share in the domestic market through a combination of better growth in core therapies, whereas we are continuing to support the line extensions and developing new brands.
The emphasis on growth is clearly coming across with operating parameters building up as per plan. Our aspiration in domestic market is to make our big brands bigger, focus on both market share and prescription gains for our acquired portfolio and organic portfolio, target focused life cycle management in existing brands and pursue new brand launches, which will continue to do as committed.
There is an exciting opportunity to be had in the international operations as well, where we have selective approach and are focusing on identified geographies as well.
In case of international market, we will continue to benefit from consistent execution in the world of CMO segment through new launches as well as adding new partners, healthy mix between private and public market in South Africa and continued demand revival in selected ROW markets.
As the corporate growth accelerates and the business mix enhances, we shall see a transition into maintaining or increasing our EBITDA margins, given our discipline and focus on cost optimization initiatives.
That brings me to the conclusion of my remarks, and I would like to call upon Mr. Lakshay to share his views more on the financial performance for the quarter. Over to you, Lakshay.
Thank you, Nikhil. A very good afternoon to all of you, and welcome to our Q1 earnings call. I will now take you through the financial highlights of the quarter.
On the revenue front, the domestic business and international business reached new highs during the quarter. The reported revenue growth of 30% comprised of 20% organic growth and the rest coming through the new acquisitions made last quarter and this quarter. The depreciation in rupee vis-a-vis dollar also aided our growth.
Overall, for the quarter, the domestic business reported a revenue of INR 418 crores, and international business reported a revenue of INR 366 crores, which is a growth both year-on-year and quarter-on-quarter. The gross margin for quarter 1 came in at close to 63% compared to 64% in the previous year. Excluding Azmarda, gross margins for the business were relatively flat.
The gross margins, as you all know, have taken the impact of inflationary pressure in terms of input costs, packing material costs, which have been managed through a [ few ] of cost management and pricing initiatives.
The good news is that we've seen softening in certain packing materials like aluminums and also on the international freight costs. But given the continued volatility that we see on the geopolitical and the economic front globally, we continue to monitor the situation, particularly for the fuel supplies and API prices.
Overall, we hope to sustain the gross margin closer to 64% for the fiscal with the marked improvement coming through in Azmarda margins on the expiry of LOE. Given the high inflation prevailing across the world, we've been trying to maintain our operating margins in the range of 24% to 26%, and this quarter's operating margin was in line with our guidance.
On the EBITDA front, the Q1 FY '23 operating EBITDA was at INR 190 crores, including an adjustment for noncash ESOP charge of INR 17 crores. This, when compared to Q1 FY '22, operating EBITDA of INR 164 crores is a growth of 16% year-on-year.
During the quarter, the employee expenses, excluding ESOP charges, have increased by 19% on account of the annual increments and the integration of the workforce from acquisitions.
Operating expenses have now largely normalized with the normalization of operations post-COVID, baking of operating expenses of acquired businesses and increase in freight and power and fuel expenses.
Depreciation during the quarter was at elevated level due to amortization of acquired brands. The PAT for the quarter came in at INR 105 crores, which saw a year-on-year decline of 12% on account of higher treasury income in the previous year, noncash ESOP cost, which was not present in the same quarter last year, depreciation of the acquired brands and finance costs.
On the cash flow generation also, I'm happy to report the business continued its strong trajectory. Overall, we ended with a debt of INR 325 crores, which was largely to fund the acquisition of Azmarda. And on the cash front -- cash and investment front, we ended with cash of over INR 180 crores compared to INR 56 crores last quarter.
That's all from my side for now. We would now like to open this forum for an interactive session with all of you, and we'll be happy to respond to your questions. Thank you.
[Operator Instructions]
The first question is from the line of Nikhil Mathur -- sorry, the first question is from the line of Rahul Jeewani from IIFL Securities Limited.
Now on the CMO business, we saw a very good traction this quarter. So if you can just comment on what led to the growth on the CMO business this quarter in terms of which clients and which markets contributed to growth?
And then the second part on the CMO businesses, you have indicated that the CMO revenue tends to be front loaded in 1H of every year. But last year, in fiscal '22, the second half was heavier for the CMO business. So given the growth which you have seen on the CMO business in 1Q, what is your outlook for the CMO business for the full fiscal '23?
Yes, Rahul. This is Nikhil Chopra. So overall, we see -- we saw the demand coming across all the markets outside India because the CDMO business, what we do is outside India. And this was overall more happened because of the upsurge in the -- because of the cough and cold which -- where our major dominant portfolio is.
Equally, if you look at in quarter 4 last year, we could see the surge happening, which is continued in quarter 1. And as I see, because these all businesses, we do with all the multinational partners and for them, quarter 3 of ours is the last quarter for them.
So the orders for -- the way we are seeing trajectory this year that the orders for our CDMO business is more front-loaded, that is what we see and that is what I commented that we have a robust order book for at least next 3 to 4 months.
And overall, as the year-end comes and Christmas comes in, where we see overall demand overall being tepid, and they keep enough stocks to cater the market. Our guidance for overall year for CDMO business, the way trajectory we are looking at and this year -- this quarter, we could touch INR 100 crores, we will continue to see plus/minus 10% demand coming for -- which we have order book for next 3 to 4 months.
And overall, the contribution that, Rahul, we have been talking from this business, which was last year 10%, and this year, we are seeing this business contribution should be closer around 13% to 14% for overall business. That is what I can say at this moment of time.
So you are saying that FY '23, the CDMO business contribution to full year revenues will be around 13%, 14%?
Yes.
And sir, second question on the India business. You spoke about the organic growth for our India portfolio being [indiscernible]. But if you can also comment quantitatively on how Sanzyme and Azmarda has grown during the quarter because on Sanzyme, you have been trying to implement this fiber overlap as well as geographic sales synergies, which you see between your and Sanzyme portfolio.
So anything which you could highlight on the growth trends for both Sanzyme and Azmarda?
So overall, both the assets, Rahul, which is a combination of Sanzyme -- let me start with Sanzyme, we are seeing a monthly run rate of around INR 12 crores to INR 13 crores. And this is doing a growth of mid- to high teens. That is what I can say at this moment of time.
And the overall plan that we have put in place with 3 benefits that we enjoy at J.B. as compared to enzyme as an entity was more from a prescriber base, more from a geographical footprint and equally life cycle management.
So we have started seeing some benefits coming out of geographical footprint and prescriber base. More from life cycle management, you should see a couple of more products coming into the market in the next 2 to 3 months. That is where we stand from Sanzyme as an entity.
Equally, when you look at Azmarda, our monthly run rate is now around close to INR 7 crores to INR 8 crores, that is where we stand. More so, we are trying to -- we are in an investment [ mode ] as Lakshay stated, more so in terms of looking at how much more we can get patient pool and more and more patients getting diagnosed because as you are aware, last time also I had commented that incidence of potential patients in India of heart failure are close to 10 to 11 to 12 million patients and the treatment today is being which has been offered is close to around 15% to 20% patients are getting treated.
So the emphasis is how more and more number of patients can get diagnosed with the help of 2D and 3D echo, that is the intention. And we have a dedicated teams, which are going and promoting this product to cardiologists and physicians.
And we are seeing uptick in terms of more and more patients getting diagnosed and the run rate is close to around INR 7 crores to INR 8 crores, which should go up in the coming time.
And just one follow-up on Azmarda. so anything which you could comment on how the market would form out post the patent expiry in December '22? Anything which you would have seen in the sitagliptin market, which you can compute for Azmarda as well?
See, there are cases in terms of when you saw what happened with sitagliptin and now what you are seeing happening in sitagliptin, there are more than 100 branches in the market.
But what I would like to point out that this is a very -- as compared to Vilda and Sitagliptin, heart failure is a very specialized market. Obviously, we will see more than 50 players coming in. Price erosion will happen, but obviously the brand which stands will have its own value. So we are keeping fingers crossed in terms of the overall strategy that we will put in place when the LOE sets in.
And right now, what is top on the agenda is to how to at least have critical loss of patients who are getting diagnosed, and this is overall more beneficial for the patient community. And post the LOE sets in, let us look at it in terms of where the price gets in because it will be overall more benefit for the Indian population who will be getting quality medicine at affordable price.
And if the overall uptake, which I'm telling that around 15% to 20% population today or the potential people who are suffering are getting the treatment, it may go to 30%, 40%. That is what is going to happen. That is what I can say at this moment of time.
Just one last question before I join back the queue. So if we look at the coming back our gross margins are flat except Azmarda, then that implies that Azmarda has impacted our gross margins by 150 to 160 basis points. But at least the calculations, which I'm working with, for my calculations, the impact should have been around 90 basis points. So the impact on account of Azmarda seems to be higher on the gross margin side. So if you can please explain that.
Rahul, let me pick that. Yes, you're right. The impact is actually higher because this was a transition period. So we wanted to make sure there is continuity of supply, and we had to incur certain extra cost in terms of air freighting et cetera, and sourcing, which we've done to make sure during the transition period, we do not lose out on the volume. But the impact on gross margin is yet significantly higher than 90 basis points.
Okay. So going forward, can we expect that the impact would be closer to 100 basis points then on a normalized basis?
I think it will take some more time as the inventory sort of transitions as we consume the opening inventory, I think it will probably be Q3, where you see some relief. And as we come out of LOE in Q4 is when you will see a significant improvement in the gross margins.
The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.
So sir, in the Capital Markets Day that you hosted, you had mentioned that there's a chance that J.B. Chemicals margins might take a hit in FY '23 because of the high cost of procurement for raw material and other stuff, which was towards second half of FY '22.
But since you mentioned that on a Q-on-Q basis, the gross margin was stable [indiscernible], just trying to reconcile, there should have been some bit of gross margin hit, right? Or why hasn't that happened?
Sorry. Could you repeat your question?
Your question is not clear. What are you asking?
I'm asking is that your gross margins are stable on a quarter-on-quarter basis. But in the Capital Markets Day, you had highlighted that J.B. Chemicals which will be working with higher cost of inventory in FY '22 because there was a lot of procurement that was done towards second half of FY '22.
So basis that, shouldn't the gross margins come under pressure in this financial year, but for Q1 you have reported stable gross margin?
So that is what Lakshay stated earlier that when you see the gross margin, which we reported last year was close to 64%.
We were at 65%.
65%, and this quarter, if you see our gross margin is close to 63%. So there is there is a 1% and 1.5% is that we see. That is what we will see for next 3 to 4 months.
And once the LOE expires for Azmarda, overall, the gross margins will go up in a significant way and we'll come back to our gross margin trajectory by quarter 4.
Sorry, sir. I'm not clear. In 4Q, reported 63% gross margin?
Nikhil, I think you -- the product mix is very different between Q4 and Q1, and thus that comparison is not at.
Okay. So you believe that the impact of higher raw material costs is there in this particular quarter?
Yes, that's what we stated the higher raw material cost is there in the quarter.
Okay. And sir, you also have given up EBITDA margin guidance of 24% to 26% for FY '23. We have done 24% this particular quarter, and you have also mentioned that we are starting to see some things starting to soften now.
So can it be assumed that from 2Q onwards, the margin could possibly towards the higher end of the range?
See, Nikhil, if you look at our operating EBITDA margin is still 24% plus. So the guidance that we have given is a guidance of range between 24% to 26%. So you will see some quarter 25%, some quarter you see 26%, we can be back to 24%. So that is a that we are putting across because you are living in a very volatile world.
Please understand the overall geopolitical issues, the currencies, the receivables, all those things have been put in place. So somewhere we are seeing some tailwinds in terms of the commodity price going down overall, but there are tailwinds in terms of the fuel and gas price is going up. So that up and down will happen, and that is how we want to -- that is how we have guided for the year, 24% to 26% margin.
And one final question on the acquisitions that the company is undertaking. So the pediatric brands from Dr. Reddy's Azmarda did. Any synergies that we see with the existing portfolio because on the face of it, the multiple seems to be slightly on the higher end of these acquisitions, but can they be complemented with some higher sales of existing portfolio, which can be cross-selled by the same set of medical reps?
So Nikhil, a very good question. And if you look at the 4 brands that we have acquired from Dr. Reddy's, they now are being promoted by our team, which are 300 people under the division of Nova, who already are promoting respiratory and pediatric products.
So if you look at what we are trying to do is to position ourselves as a company in the clinic of pediatrician, which will be more getting into the world of gut product promotion, which is a combination of Rantac syrup that we had, [ Xodac ] syrup that we have. And now we have got Z&D. Equally, we have got a brand, which is Pecef which is antibiotic, which has got a good starting point.
So this will, over a period of time, probably we'll be able to add more color, very initial studies that we are into. You will see probably Q3 onwards where we'll be able to share more information in terms of how the traction is happening in terms of acquisition that we did of these 4 brands.
Azmarda, we have a team, field force of around 180 to 200 people who are promoting Azmarda as a brand, and we are looking at 1 or 2 product additions that we will do over a period of time within this team more in the field of cardiology, maybe in the world of arrhythmias. So all those synergies will come into place. That is what we are looking forward.
[Operator Instructions] The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Just a couple of clarities. First, the sales force incremental, the total, including supervisors, et cetera, has gone from INR 2,100 to INR 2,500. So the delta 400, Nikhil, you just mentioned Azmarda may be taking 200 delta and the remaining 200 is all at Sanzyme because I still remember Sanzyme when it came to you, they had about 300, 325 people. Can you just clear the math here?
Yes. So J.B. is organic, we have got -- we were having 2,000 people, 300 people are now as a part of team for Sanzyme and 200 people are a part of team of Azmarda. In totality, we have 2,500 people.
Okay. And for this acquisition, pediatric acquisition we've done from Dr. Reddy's, what's the payback period do you have in mind for that?
So generally, a payback period is 6 years. That is what task that we have taken. But as you see, what we are trying to do with Sanzyme and Azmarda, obviously, the aspirations would be much higher as compared to what we have committed to the Board. So we will look at how we can get it sub 6 years.
Okay. And the same applies that pediatric acquisition as well?
We will see -- you should track us quarter-to-quarter. You will get to know more in terms of how we are faring.
And for this quarter, when we look at the base products for us, some of the larger products like Rantac and Metrogyl, how would they have grown for this quarter year, rough idea?
So they are growing low double digit. That is where we stand because last year, if you look at particularly to talk about Rantac as a brand, it was a part of COVID regimen treatment.
And today, where we stand -- and we had a very good season for Metrogyl. So we are working now at a very high base of both the products. So low double-digit growth is what we could achieve for the quarter.
So when we look at the base business, the organic growth, so Cilacar would have grown at about high 18s to 20% and the rest of the portfolio the Rantac, Metrogyl, Nicardia, would have grown about low double digit. That's the time -- framework we can work with?
So you can look at Rantac, Metrogyl and Nicardia at 12% to 14%. You can count on Cilacar brand going at around 14% to 16%. Obviously, there are -- some brands also. There are other 10 potential brands, which we never talk about that we have in our [ kit ] which are in the world of -- just to give you an example, we have a product called [indiscernible] which is a iron supplement, which is a INR 1 crore brand.
Then we have brands like Laxolite, D-cough. There are many brands where we have seen very good uptake. Some of the new launches that we have done in the field of respiratory, they are also seeing good traction in terms of prescription. So overall, this is what you can assume 12% to 14% growth for our equity portfolio and close to mid-teen growth for our product portfolio.
Okay. And next question is on Sanzyme. How strong seasonality in this portfolio? Is the second quarter significantly high for this or 1H significantly higher for this?
We should see the same traction what we saw in quarter 1, probably quarter 3 onwards. Overall, the demand gets little bit -- overall, you will see things going down. But what we are trying to do is we are looking at by that time if we have 1 or 2 good products in the terms of life cycle management that we'll be putting in the market, that is the plan.
Let us see in terms of how much we are successful in getting those products and at that time. But at least so the first half of the year is overall a better demand for probiotic Azmarda.
So Nikhil, how do we look at this [ molecule ]? If you do run it to INR 12 crores, INR 13 crores, so yearly-wise, give and take, INR 150 crore kind of number can roughly work with for the Sanzyme portfolio?
So just to clarify that when you are taking that -- when we are talking about INR 12 crores to INR 13 crores revenue for Sanzyme portfolio, Sporlac is around close to INR 6 crores to INR 7 crores. There are other parts in the portfolio, which is a combination of products for infertility, products for stone management, there are some supplements.
So overall, Probiotic contributes now 60% and 40% we have rest of the portfolio. And you are rightly in terms of you should see our revenue traction for the year close to around between INR 140 crores to INR 150 crores for the year.
A couple of more questions. One is the CMO business. So just trying to understand this. You mentioned across markets, there was a little higher orders from the customers.
Now at the customer end, is this restocking of the inventory only or the end market sales, we are seeing it higher because now you've seen 2 quarters, which is a very high demand.
Obviously, the end customer demand is on the higher side. That has started probably -- that started some time, I think, in mid of last year quarter 4, and that we continue to see.
Probably the stocking part happens in -- for us, calendar year -- calendar quarter is quarter 2. That is how things happen. And if the end customer demand continues to be there, then it should surprise one of us.
And Nikhil, when you talked about this can be 13%, 14%, so like very roughly your revenue this year will be about INR 3,000 crores. So that -- roughly are you talking about INR 380 crores to INR 400 crores for the CMO business?
No. No. We are not talking about INR 300 crores, INR 400 crores for CMO sale business. So if you understand the overall orders, which come -- this is the orders, which we procure for our CMO business are more front-loaded for H1 part of the calendar.
As the festivity and the festive season starts more so Christmas and in western part of the world, probably there are holidays for 45 days, 60 days, so that is how they at least look at stocking the products and look at it in terms of how they will be able to meet the demand, which will start coming for them in quarter 1, which is January onwards. For them, January to March is the first quarter and for us, January to March is the last quarter.
So I don't want to get into any absolute figure on what revenue we will do that the trajectory that we are seeing is around INR 83 crores, if I'm not wrong, Lakshay, for quarter 4, INR 85 crores for quarter 4, INR 100 crores for quarter 1. We should be close to between these 2 figures probably in quarter 2. Quarter 3, we'll be able to give more color probably in our quarter 2 results commentary.
The next question is from the line of Rashmi Sancheti from Dolat Capital.
Congratulations on good set of numbers. Just a clarity again on CMO segment. So earlier, when you commented 13% to 14% of the overall revenues, that is what the CMO segment would contribute. That basically was not the contribution and it wasn't the growth which you were expecting for FY '23?
Rashmi, I think when you are modeling the CMO business, Nikhil clearly mentioned that in the first half, it is a heavier base and then the latter half is subdued. So I guess when you're modeling the CMO business, it's best to look at a like of a mid-teens growth. That's what I think we are more comfortable with, and that's what we've kind of earlier guided to.
Okay. And coming to the domestic business, in the presentation, it is mentioned that the overall prescription base has become INR 4.09 crores. Can you just give a split between the GPs and the specialist prescription in this? And how does it look like in Q1 FY '22, I mean, last year?
Exact details, Rashmi, I don't have, but we will -- Jason can come back to you. But just to give you a rough guidance in terms of the way I see is it would be around 60%, 65% GPCP and around 30%, 35% specialist.
This is as of today, right? I mean, generally, 60% to 65% is what we are [ earning ] now. And how does it look like 1 year back?
It would be 5%, 7% up. This would have been 60%, it would be 70-30. So we don't see, please understand, then if you want exact details, we'll come back to you.
But the reason why we have given a prescription, very strong prescription was that clearly shows the kind of work that is happening at the doctor level and clearly shows how primary sales are also will get impacted because of this higher prescription. That's the reason we have indicated those numbers.
And related to the South Africa sales, can you give the figures like what kind of growth we have seen and how many launches we have done in this business?
So in South Africa, it's been upwards of 25% growth during the quarter. And both public and private business continue to do well. Overall, from a new product perspective, sorry, I can't share those details on the call.
And private public ratio would be 50-50 in this quarter also?
Yes, roughly in that so.
And my last question is related to debt. If you can give the figure for FY '22 between long-term debt and short-term borrowings?
So end of quarter, we had a debt of about INR 325 crores, of which roughly INR 300 crores was long-term debt, which was taken for acquisition of Azmarda and balance was working capital. And we had a cash and investment of about INR 180 crores plus at the end of the quarter.
[Operator Instructions] The next question is from the line of Abdulkader Puranwala from Elara.
Sir, my first question...
Sir, if you can speak closer to the handset, please, your audio is a bit low.
Yes. Is it better now?
Yes, better.
Sir, my first question is with regards to Azmarda profitability. So when we spoke about the monthly sales of INR 7 crores to INR 8 crores, and on the gross margin level, the entire impact was largely alluded to Azmarda sales. Would it be fair to assume that currently at an EBITDA level, this would still not be a major contributor?
Yes. In fact, Abdul, we've been guiding all of you that actually we are in an investment mode, particularly till the time the LOE expires. So actually, it's a negative EBITDA from the brand as of now.
So sir, I mean, Q4 on onwards, then once the LOE expires, I mean what is the kind of margin we should expect from this product?
Overall, I think we should aim for at least a company level of EBITDA. And it will -- like Nikhil said, obviously, there are moving parts. We need to see how the pricing, et cetera, pans out. But our minimum aspiration should be that we should do slightly better than the company average EBITDA on this portfolio.
Okay. And sir, my final question was on the MR count. So we added close to 400 MRs, 400 to 500 MRs for these 2 new portfolios that we acquired. So sir, for future acquisitions, would you further go to increase MR account in order to increase your reach? Or this will be largely absorbed within this existing clinical [indiscernible]?
So it will all depend upon approval, the type of opportunity which comes on the table. For example, let me give an example of the 4 pediatric brands that we acquired, there was no addition of any medical representative on the ground. But equally for a specialized promotional products in the world of heart failure, you need to have a team because you already are running -- you are already having a revenue of INR 60 crores to INR 70 crores where we will need people to go and is a big opportunity according to -- the heart fail is a disease of next decade.
So it will all depend upon the type of portfolio, which is better. We can fill that portfolio within our existing business or we want to give it -- or we see better opportunity in having field force, which will give justice to the acquired brands.
The next question is from the line of Gagan Thareja Gagan Thareja from ASK Investment Managers.
Sir, the first question is around Sacubitril Azmarda. Dapagliflozin also has an indication expansion for heart failure. And NIH data from U.S. actually shows Dapagliflozin has better outcomes than Sacubitril. You already have Dapa with you. So I was just wondering what is the thought process or rationale behind going into Sacubitril level?
See, Dapagliflozin is being promoted by different team. And you are -- you are right, absolutely right in terms of Dapagliflozin has a role in patients with heart failure. But we are not a big player in the Dapagliflozin, and we are making some -- we're making slow inputs. But if you look at Sacubitril and Valsartan, the product has been there in the in U.S. market for last now, I think a decade. And Jason correct me if -- that it's a $4 billion product for Novartis.
So it has got a lot of studies and supporting evidence in terms of what Sacubitril and Valsartan brings on the table as compared to Dapagliflozin. So that is how we have taken a call of looking at the primary therapy in heart failure is going to be Sacubitril and Valsartan, and Dapagliflozin will have its own role.
And once the -- I think the LOE expires, probably you will see not much difference in the price point of both the products, and you may see better uptake of Sacubitril and Valsartan, which has got its own benefit and improvement in the quality of life of the patients who are suffering from heart failure.
And the reason I was asking was also one more reason I was asking is because these are possibly very comorbid conditions, both diabetes and heart failure for a fairly significant chunk of the population, especially in India. So from an Indian context, you feel what worked in U.S. would equally work well in India as well?
So if you look at for a products, which is a patented product to generate a revenue of around INR 500 crores in 4 years of its execution in India itself talks about the strength of the molecule. And there are enough evidence available in Indian population also.
And when we are going and talking to the top cardiologists of the country, they are very much aligned in terms of the stage 3 and stage 4 patients of heart failure where they are using Sacubitril and Valsartan as a starting therapy. And at some given time, as LOE expires and the medicine will become more affordable, you will start seeing acceptance of Sacubitril and Valsartan in Stage 2 part of the journey of the patient also.
Sir, and on your acquired Sanzyme portfolio, if you could give us a little more sort of detailed understanding as to how post acquisitions Sporlac and Lobun and some of the other brands are working out and how you're strategizing around these because overall, you've indicated they're growing well in the mid-teens, but is there a difference between how Sporlac picked up and how Lobun and the others are doing?
So there were -- this entire entity of Sanzyme is into 3 clusters. The cluster 1 is Sporlac and different variants of Sporlac, which is 60% of the revenue where we have seen market share gain. And quarter 1, if you look at Sporlac as a brand, which has grown at 26% as compared to [indiscernible] and [indiscernible] which have grown at around 18%, 20%. So we are seeing good uptick in terms of prescription for Sporlac.
And the intention going there is what I spoke earlier that how do we at least encash the J.B. strength of GPCP prescriber base, which is today very much giving us benefit for Rantac and Metrogyl as a brand.
And equally, in next couple of months, you should see us see some more variants of Sporlac, which will be premium priced to be in the market. That is point #1.
Point #2, which I have spoken earlier also, Oxalo and Lobun are class probiotic, high-priced probiotic more for chronic kidney disease patient. And there, we are going to nephrologist, the intentions are how do we generate more scientific data and make this brand bigger.
These are brands -- these both brands contribute around 15% to 20% of the revenue, and we are seeing the gradual uptick because J.B. as a company, we cover all 2,000 nephrologist. And we have got a very good prescription uptake from nephrologist as a specialty for our Cilacar, Cilacar-T, Nicardia. So there, we enjoy equity.
Third part is, third part of this business is business in the world of women health, more so in the world of infertility, which is once again, 15% to 20% of the revenue where we have teams who visit around 1,200 infertility clinics.
And there also, we are on the verge of doing life cycle management in terms of the portfolio gap that we see. So that should also see overall uptick, probably it will take more time because this is a highly intensified competitive market where we have very big players who enjoy better market share. This is what commentary I can give on behalf -- on what we have observed in last 3 to 4 months of operation of Sanzyme as entity.
[Operator Instructions] The next question is from the line of Ashish from IIFL AMC.
So on the CMO business, obviously, we have plans to double the scale, but then would we be sticking to medical lozenges? Or you feel there is an opportunity for us to diversify and grow the business accordingly?
So the entire opportunity on the table for CMO business is twofold. First is, how do you widen your portfolio? And earlier also what I have shared that we want to venture into areas like sleep disorders, motion sickness, oral thrush, sexual wellness, acid peptic disorders. So there some proof of concepts which we have developed, and we have shared with our partners.
And please understand getting into a new category of business and when you get a reference product, and you develop the product, you have to share with your partners, they do their own research and then they come back and depending upon what potential the product has. So that is a process which is on. That is point #1. And that as in it happens, we'll be more than happy to share.
Equally, the business development work that we are trying to do is to add more partners because we have enough capacity in terms of the lozenges that we can make and look at working with more partners across the globe, maybe in the eastern part of Europe, some parts of Russia, some parts of South East Asia. So there are some more partners where dialogues have been done. So as and when things proceed, we'll be more than happy to share with all of you.
So just to share with you, Reckitt, we started for their brand called Strepsils in Australia as a market. Now we are looking at opportunities with Reckitt in Russia, in Southeast Asia. So that is how things happen.
But this business has got its own gestation period that has to be understood. We were fortunate enough that we could see a good uptick because of the -- because of supposedly more a seasonal flu type open fall season, which probably has happened in western part of the world in where our partners are in Southeast Asia, Australia and New Zealand, Canada, South Africa, Russia, where we -- where our partners sell these products.
And this is what we want to do in the world of CMO, and we have got all the capabilities and we have got all the capacities. That is where I see that -- and it's a differentiated entire approach where we can bring enough opportunities on the table.
And it is -- it takes time for any company to get into this scale of having partners whom we have been working for last now 2, 3 decades and equally, rightly also have the capacity to add more partners.
And third part is to get into new age portfolio because what COVID has taught us that cough and cold will be more seasonal, but immunity, wellness, motion sickness, sleep orders, these are the new areas where our customers are looking forward if this therapeutic delivery can come in the world of lozenges which has to be overall low dosage form.
So to double the scale from, say, INR 250 crores to INR 500 crores, would you need very high investments? Or you feel we already have the facilities at our disposal?
We have the capability to manufacture 2 billion lozenges across the year. Right now, our output is close to 1 billion plus. That is where we stand. So we have enough capacities.
And another question was on these branded markets of Russia, CIS. Obviously, we had plans to launch 2 to 3 products every year. And obviously, on the OTC side and there on build on the legacy, but how is the market shaping up currently? Because the larger distributors control almost around 50% of the market. So given the current construct around Russia, Ukraine, how this market panning out?
So the way we've seen quarter 1 pan out, it is not the strongest sort of quarter for us because of the seasonality of the portfolio we offer. Usually, we start seeing traction towards July, August.
So sequentially, we do expect the traction to get better. And as far as the new launches are concerned, we are pretty much on path. So we haven't sort of made any change to our strategy on that part of our business.
Okay. And any time on the South African generic market, you would like to contribute because so much less talked about market. I understand it's a smaller proportion of the overall scheme. But still?
Like I mentioned during the quarter, we saw upwards of 25% growth, and both public and private business continue to do well. And our focus there has really been to sort of scale up that subsidiary, and it's pretty much on track.
The next question is from the line of Neelam Punjabi from Perpetuity.
I wanted to understand if you can just comment on your Russia business. How has it done during the quarter?
So like I mentioned, this is not the strongest quarter for Russia because of the portfolio that we carry. This is usually a bit of a leaner quarter, but the demand has held steady year-on-year. So I think the business overall hasn't sort of seen any deterioration or headwinds.
And as we now get into Q2 and as you know, we start getting for the cough and colds season, et cetera, it should start seeing better traction from this quarter onwards. And on the receivables side, also, we've seen decent traction in the last quarter.
My second question is on your PAT. So if I look at over the last 2 years, our revenues and EBITDA have grown quite well. But on the PAT level, we are largely flat, which is understandable given the soft cost, higher depreciation due to acquisitions and loss of treasury income. But going forward, what's the trajectory that we can see in terms of earnings growth?
See, on -- let me just explain you, I think, a little bit more conceptually as how we look at it as a management team. When we started this journey on acquisition, we had a cash of about INR 700-odd crores. It was earning us about INR 50 crores a year.
We've invested it in a business called Sanzyme, which we brought EBITDA of about INR 50 crores a year. We feel that this INR 50 crores in the next 4 to 5 years can become INR 100 crores, right? That's our hypothesis and that was the whole logic of buying this business.
So we personally feel that while there will be a depreciation ahead and the treasury income has gone away, but we've created a more sustainable income stream and a cash flow stream for the company.
And given today's age in world where our treasuries across the board are struggling with varying yields and currencies and interest rates moving up and down, I think this whole strategy served us better. That's how we look at it as a management team.
And to your question on PAT, I think if I look at it from a sequential basis, now ESOP costs are largely stabilizing. And as we move into Q2, Q3 of the year, they will sort of become comparable with the base as well because the base also carries ESOP cost and some of the treasury income also will get normalized.
So you will start seeing the benefit of EBITDA growth also into PAT growth. So I think you have to bear for 1 or 2 more quarters and, you will sort of start seeing upward trajectory on the PAT as well.
And if you look at our ROCEs, they have come down from 42% to 22% given the acquisitions. Do we see this ROCE numbers going back to the historical levels as the growth from Sanzyme and the acquired portfolio comes in?
So I think when I look at 42%, I think I personally feel 42% was coming on a back when probably we were not investing as much into acquisitions and the business side, and a lot of our sort of PAT, et cetera, was being driven by treasury income.
Will we go back to 42%, maybe no. But can we get back to 30%, 35% over the next 3 to 4 years, for sure. But I just want to caveat this understanding, this also depends on overall our M&A strategy and further investments that we may choose to make. So that we'll come and explain to you as and when those opportunities arise. But with the portfolio we have as of today, can we go back to 30%, 35%, for sure.
And sir, you have given a guidance of 24% to 26% EBITDA margin this year, do we start seeing our historical FY '21, 27% margin that is starting next year?
See, Neelam, these are very difficult to talk about next year because we understand the guidance that we are giving is on the basis of the volatile world that we are living into. At some -- even right now, we are seeing some tailwinds in the case of commodities, in the case of freight, stabilizing.
But if you look at still there are pressures in terms of gas, in terms of fuel, in terms of currency volatility, in terms of RMP and procurement for some specific products.
So net-net what we are looking at that how overall the EBITDA margins should flow from delivering market bidding growth. That is the intention going ahead, and we are building an organization which is more future ready, which is more into progressive portfolio.
Never we have launched new products in the world of ROW market. You will see us launching new products in the world of ROW market next year, which are more progressive in nature, which are going in the world of cardiology, diabetology. So those will need investment.
Equally, we now have a team of 2,500 people on the ground in terms of if we have -- if what earlier was spoken that the payback period has to be sub 6 years. So we have to make the right investment in terms of how do we drive better prescription traction.
And from 2 crores, if we have gone to INR 4 crore prescription, why not to aspire for 6 crore prescription in the coming time by making right investment. So we are looking organization from a theme of invest to grow, that is what is the intention.
And equally, a huge opportunity in terms of what we are trying to do in the world of CMO business, where there are new proof of concepts which are in the entire journey of development. So these all things will play as and when things stabilize.
Once things stabilize, we'll be able to give better direction in terms of what trajectory of EBITDA margin we are looking at. And we plan to do some time that in quarter 3 as we see things normalizing.
And just one last question on my end. Given we have acquired Dr. Reddy's like pediatric portfolio, 4 brands. And the current depreciation I think Q1 is INR 26 crores. How much will it go going forward?
This will -- the DRL acquisition will not impact us, the annualized impact of that portfolio will be about INR 5 crores a year.
Ladies and gentlemen, we take the last question for today from the line of Rahul Jeewani from IIFL Securities Limited.
Now the 57% prescription growth, which we have indicated for the quarter, does that include Sanzyme and Azmarda as well? And if yes, can you please talk about how our organic prescription would have grown?
And we can come back to you on that data, but this includes Sporlac and Azmarda. That is what I can say at this point of time. And please understand this was on a low base. That is on how you see 57% growth.
But the agenda going ahead is what I've spoken about earlier also that how do we start getting more and more prescription from the specialist. And more so P/D has also increased in a big way. That is the number of discussions which we are getting from the same doctor is also showing encouraging and healthy data.
So we are trying to look at prescription from a view of how do we have a fundamental strong base of prescribers and more so coming from the specialists because from a GPCP base, we have got now a prescription for Rantac, Metrogyl, Sporlac, which are 3 big brands in the country.
So we are looking at that new products that we have launched, which should be coming from specialists, which is in the case of cardiology, nephrology, pediatrician, just physician from the diabetology. That is the agenda.
That is why we wanted to share in terms of we have seen uptake in prescription overall and the P/D also is increasing, and we are seeing some uptake in terms of the prescription uptake from the specialists. But more data, Jason can share with you probably in a day also.
But, Rahul, just one point. This is IQVIA data. So if it is there in the base this year, it is also there in the base last year, Sanzyme and the other brands.
Okay. So this is like-for-like growth for the overall portfolio?
Right. Correct. That's correct.
And just one follow-up, sir. So on the specialist doctor coverage, so what is our doctor coverage on the specialist side as of now in terms of our coverage and how do you see it expanding over the next, let's say, 2- to 3-year period?
We don't expand. Rahul, we are covering close to 3.5 lakh doctors. And I think the specialty coverage would be close to around 1.5 lakh doctors. We have enough doctors that we are covering.
Please understand what I was trying to talk earlier that we are looking at how do we start getting prescriptions from the doctors who are fully not supporting us and how do we start getting prescription for doctor who are already giving a prescription, that is what we want to do. So we don't want to start covering 5 lakh doctors.
That is what we don't want to do and what earlier I also have spoken that we don't -- in short to midterm, we don't have any plans to increase the field force. Basically, the agenda going ahead is how to at least have a motivated, better trained, charged field force on the ground who are doing the right job, getting into the wolrd of digital retailing, getting into the retailing progressive portfolio, helping them in terms of how we can get into the world of medical marketing, conferences that we can hold and at least come closer to the doctor community. Wherever we want to play, we want to win. That is what we want.
Thank you. I would now like to hand the conference over to the management for their closing comments. Over to you.
Thanks very much, Stephen. I think with that, we have run out of time. So I would like to thank all the participants who have attended the J.B. Pharma's Q1 FY '23 call. With this, we would like to conclude the earnings call. Thank you, everyone.
Thank you.
Thank you. Ladies and gentlemen, on behalf of J.B. Pharma, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.