J B Chemicals and Pharmaceuticals Ltd

NSE:JBCHEPHARM

Earnings Call Analysis

J.B. Pharma's Strong Q2 Growth and Margin Expansion

J.B. Pharma witnessed a healthy trend of growth in domestic and international segments in Q2 FY '24. Revenue hit INR 882 crores, a 9% increase year-on-year, with gross margins up by 350 bps leading to a 28.5% EBITDA margin. Domestic revenues rose 11% to INR 481 crores, driven by chronic therapies and an acquired portfolio. The company’s major brands saw marked growth, with the Cilacar, Rantac, and Metrogyl franchises reaching notable milestones. International business without South Africa grew in double digits, while overall international revenue was INR 401 crores. Over the first half of the year, revenue grew by 12% and domestic revenue by 14%, reflecting improvements in product mix. EBITDA margins expanded to 27.8% from 24.6%, and net debt decreased sharply to INR 18 crores.

Steady Growth and Margin Expansion in Q2 FY '24

J.B. Pharma has showcased a resilient performance in the second quarter of the fiscal year 2024, primarily driven by robust growth in their domestic and international segments. The company's revenue reached INR 882 crores, marking a 9% year-over-year increase. This uptick was fueled by a strategic product mix and efficient strategy execution, elevating gross margins by 350 basis points compared to the previous year. Efficient cost management further translated into an impressive operating EBITDA margin of 28.5%, a significant boost from the 25% observed in the comparable period last year.

Domestic Market Success and Major Brand Milestones

Domestic business surged by 11% year-over-year to INR 481 crores, stimulated by a strong performance in chronic therapies and recently acquired portfolios. J.B. Pharma's rank within the Indian Pharmaceutical Market (IPM) improved remarkably, becoming the fastest-growing in the top 25 with an 18% growth rate, overshadowing the IPM's overall growth. Notably, they achieved the highest growth rate among the top 25 in chronic segments. The company's focused strategy on amplifying major brands paid off, with their three major franchises – Cilacar, Rantac, and Metrogyl – witnessing significant growth and market share improvements. Sporlac, another promising franchise, has achieved a remarkable rank within striking distance of the top 300 brands in the Indian market.

International Business and CDMO Segment Upturn

On the international front, J.B. Pharma reported revenues of INR 401 crores for Q2 FY '24, with a notable rise excluding the South African market. The company's Contract Development and Manufacturing Organization (CDMO) division has maintained strong momentum, contributing significantly to the quarter's revenue.

First Half Financial Highlights and Debt Reduction

Over the first half of the fiscal year, J.B. Pharma achieved a 12% increase in revenue, bringing in INR 778 crores. The domestic sector led the way with a 14% growth, supported by favorable product dynamics and acquisitions, while the international business saw a 10% increase in formulations and an 11% increase in the CDMO segment. Operating EBITDA for the first half rose to INR 494 crores from INR 392 crores in the same period of the previous year, with margins expanding to 27.8%. The company strengthened its financial position by reducing its gross debt to INR 427 crores and net debt to an impressive INR 18 crores. This substantial debt reduction reflects J.B. Pharma's commitment to maintaining a strong balance sheet.

Focused Capital Expenditure and Strategic Outlook

The company has strategically invested INR 93 crores in capital expenditure during the first half of this fiscal year, with a continuous effort to enhance its lozenges production facility in Daman. Despite geopolitical shifts, J.B. Pharma is cautiously optimistic about its international market approach, intending to leverage past learnings and favorable trade conditions to selectively navigate and grow its portfolio. Moving forward, the domestic business, particularly within chronic care, is expected to contribute around 75% to 80% of total sales in the mid to long term, revealing the company's confidence in their home market and CDMO capabilities.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of J.B. Chemicals & Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jason D'Souza, Executive Vice President, J.B. Pharma. Thank you, and over to you.

[Jason D'Souza, executive]

Thank you, Yashashri. Welcome to J.B. Pharma's Q2 earnings call. I would like to introduce the management who is present at this call. We have Mr. Nikhil Chopra, CEO and Whole-time Director, J.B. Pharma; Mr. Kunal Khanna, President, Operations, J.B. Pharma; and Lakshay Kataria, CFO, J.B. Pharma. Farmer. I would like to hand this over to Mr. Nikhil Chopra for his opening remarks. Over to you, sir.

[Nikhil Chopra, executive]

Thank you, Jason, and a big welcome to all of you for the conference call for J.B. Pharma. Overall, we have gathered to discuss operating and the strategic progress made by J.B. Pharma during quarter 2 and first half of the year. Let me first talk about quarter 2. During quarter 2, the business delivered a healthy trend of domestic and international business growth, with expansion in domestic business, led by our chronic segment and acquired portfolio.

Sharing quick highlights of results. In quarter 2 FY '24, we saw revenues of INR 882 crores, which is an increase of around 9% year-on-year. With a combination of good product mix and execution of our strategy, we saw gross margins rising strongly by 350 bps in quarter 2 FY '24 over the last year. We have a dedicated approach on cost containment, and this has led to translation of good performance into higher operating EBITDA margins at 28.5% relative to 25% in the same period last year.

Domestically, we saw continued traction in chronic therapies and our acquired portfolio, driving domestic business growth of 11% year-on-year to INR 481 crores in the same period. J.B. Pharma featured as the fastest-growing company in top 25 within IPM as per IQVIA MAT September 2023 data with a growth of around 18% versus IPM growth of 10%. We have also on the [ distinction ] of being the fastest-growing business among the top 25 in chronic segments with 18% year-on-year growth versus IPM chronic growth of 12%.

Our entire hypothesis of making big brands bigger continues to be there with our big brands only gaining ranks and improving market share. The focus on building brands franchise remains, and we have seen a good performance from all our big 3 franchises. That is Cilacar franchisee for hypertension, which is nearing now INR 600 crores; Rantac franchisee that is INR 400 crores; and Metrogyl franchisee, which has now crossed INR 300 crores.

In a short period, also, we are delighted to share that we have now paid another INR 100 crores franchisee, which is in the form of Sporlac. The Sporlac brand has seen a significant grade in ranking and is now ranked 336, close to entering the top 300 brands in Indian pharma market.

Now giving highlights of international business. The international business recorded revenue of INR 401 crores in quarter 2 FY '24 and INR 808 crores in H1 FY '24. Excluding South Africa, the business grew double digits in quarter 2 FY '24 and mid-teens in H1 FY '24. CDMO has witnessed a sustained momentum, giving us revenue of INR 115 crores in quarter 2 FY '24.

Let me throw some highlights of our financials for first half of the year. For the first half of the year, that is for 6 months, revenue saw a growth of 12% at INR 778 crores. The domestic revenue was INR 970 crores, growing at 14%, aided by a favorable product mix and acquired portfolio. In international business, the formulations segment grew by 10%, contributing INR 538 crores, and CDMO segment, 11% at INR 234 crores. Rest of the World exports contributed significantly to the growth in the first half.

Operating EBITDA, which excludes the ESOP charge, was at INR 494 crores versus INR 392 crores for the corresponding period. Operating EBITDA margins saw an expansion coming in at INR 27.8 crores -- 27.8% versus 24.6% in the prior year. This I'm talking about first half of the year. Operating cash flow was higher at INR 421 crores versus INR 279 crores in H1 FY '23. Gross debt reduced to INR 427 crores as of 30th of September 2023 versus INR 548 crores as on 31st of March 2023. And net debt stood at INR 18 crores as of 30th September 2023 versus INR 266 crores as of 31st of March 2023.

We have invested close to INR 93 crores in CapEx for first half of the year, mainly in expanding our lozenges facility in Daman and estimated CapEx is of INR 145 crores for the current financial year. With fresh fronts opening up in the geopolitical situations, we are cautious about our approach in international in international markets. Using the learnings for past periods and favorable trade and logistic costs, we are driving a curated portfolio in selected markets. The way forward is going to be marked by superior execution of our stated strategy in our domestic business, especially for chronic side, together with CDMO.

The combination of India and CDMO should contribute 75% to 80% of overall sales mid to long term. We are investing in making our big brands bigger, as I shared earlier, and we navigate growth in chosen categories of cardiology, probiotics, pediatrics and gastro segments in domestic market. The international business will focus on to expand to offering in CDMO and [indiscernible] our presence in identified new markets, better productivities and costs.

Given that the operating environment continue to throw up new challenges, it will be an endeavor to keep control on cost across board so that we have the headrooms to react and readjust. I also wish -- I would also like to wish -- to add that being sustainable is just as core to us as our performance is. We have published our second sustainability report recently and urge those interested to access it at our website.

Thus, I have come to conclusion of my remarks. I will take this opportunity to wish our CFO, Mr. Lakshay Kataria, the best on behalf of everyone at J.B. team at J.B. for his struggling contribution to the company and also taking this opportunity to wish everyone on the call to you and your family members and happy Diwali and a prosperous new war.

Now I hand it over to moderator and request to keep -- to get the forum open for the question-and-answer session. Thank you.

[Operator]

[Operator Instructions] We have our first question from the line of Rashmi Shetty from Dolat Capital.

[Rashmi Sancheti, analyst]

Sir, just want to know, and I understand more on the export formulation business, where you mentioned that, ex South Africa, we have grown mid-teen. But in South Africa, since you have taken some restructuring, so what was the rationale behind it? What exactly you have done? How much sales we had foregone in this quarter, if you can give more color on it?

[Nikhil Chopra, executive]

So South Africa, we have taken a haircut of around -- annually, we should assume that it should be close to around INR 120 crores. So for first half of year, it is close to INR 60 crores. What we have done is some part of tender business, which we are doing with government, we have let go because the margins were thin. So -- and more focus, we are asking our teams in South Africa to put in private market. We are getting into some consumer business. We are getting into some launch of new lozenges. We are closely working with Clicks and Discoms who are the gems in South Africa market. That is what we are right to do.

So outside South Africa, if you look at our BGx and CDMO business, they are showing handsome growth. That is what we were trying to communicate, and that is what we have done overall resetting our base across South Africa business for the current year.

[Rashmi Sancheti, analyst]

Sir, on this entire INR 60 crores is gone from this quarter only? Or there were some parts sitting in the first quarter also

[Nikhil Chopra, executive]

This quarter, it is INR 30 crores. So assume INR 25 crores, INR 30 crores every quarter.

[Rashmi Sancheti, analyst]

Okay. And INR 25 crores, INR 30 crores in the first quarter and more INR 60 crores is expected to go in the second half?

[Nikhil Chopra, executive]

Yes. Yes, yes.

[Rashmi Sancheti, analyst]

And these products were mainly antivirals and antiinfectives sort of the products or which kind of products?

[Nikhil Chopra, executive]

It was a mix of general size -- it was a generalized portfolio, a mix of antibiotics, antidiabetics and new segment. But I assure also one thing that we would also like to add, this entire INR 120 crores does not make any big impact in our overall EBITDA margins and EBITDA absolute value.

[Rashmi Sancheti, analyst]

Okay. Sir, the gross margins, which we have seen improvement, is majorly coming from a higher chronic share and to some extent, which is coming from this rationalization of this kind of regime?

[Nikhil Chopra, executive]

And third is the CDMO contribution, which is -- there is a big -- there are from 1 or 2 big players, which has overall helped us to maintain our gross margins.

[Rashmi Sancheti, analyst]

And in the CDMO business, this INR 115 crores quarterly run rate, which we have established, this will be continued in the second quarter or we are expected to see higher number because the winter season will be setting in?

[Nikhil Chopra, executive]

Winter season has already setting in that part of the geography. And when you look at us as a company in the world of CDMO business, if you look at it in the last 12 to 18 months, Rashmi, almost we have doubled our business. So this -- the way this business are statutory, I think first half of the year, we do 60% of the revenue. You should see some softness in quarter 3. I think, quarter 4, we should be back to where we are today.

And our mid- to long-term plan, which I've shared earlier, continues to be there with this business now contributing around 12% to the overall revenue for J.B., which was last year close to $50 million. We continue to stick to our commentary where we want to take this business to $100 million in mid- to long-term vision.

[Rashmi Sancheti, analyst]

Understood, sir. And sir, one more question. As we are generating good cash, are we looking for more M&A activity or this cash will be used to pay off debt completely in this year? What I meant is the long-term debt?

[Nikhil Chopra, executive]

There's no long-term debt. We are -- conceptually, we are -- will be -- basically, see, we're generating close to INR 500 crores cash every year. So irrespective of -- let us keep the debt and the M&A issue separate. Irrespective of debt being there or not there, we continue to evaluate assets. And that is what we have seen. We, as a company, have done around 4 acquisitions, invested close to $200 million, buying around INR 275 crore revenue in India.

And whenever we see right opportunity for us, which has got more synergy with the business, where we see payback period close to 7 to 8 years and where we see a potential quality asset, we'll be more than happy to invest.

[Operator]

[Operator Instructions] We'll take our next question from the line of Abdulkader Puranwala from ICICI Securities.

[Abdulkader Puranwala, analyst]

Sir, just -- but on the India side, so in the presentation, you talked about the acute growth getting slowed down. So I mean, can you just provide some color as to -- for the quarter, what would be your growth in acute brands like Rantac and Metrogyl and vis-à-vis the chronic growth for the quarter?

[Nikhil Chopra, executive]

So if you look at overall market, if you look at quarter 2, the acute portfolio grew at around 6%. And we at J.B. also, the growth was 6% for acute. So you should look at our overall Rantac, Metrogyl grew around 5% to 7% for the quarter. And if you look at first half of the year, Abdul, the acute market -- Indian pharma acute market grew at 7%, and we also were in line with that growth. That is where we stand.

Our portfolio is more dominant towards the GI part of acute, if you look at Rantac, Metrogyl, Sporlac. So the way we see traction in first half of the year, unfortunately for us, and fortunately, for the betterment of the immunity that people do not suffer from the GI infections, that is why you don't see the traction, which we see every year for J.B. portfolio in acute. That is what we would like to share.

Going ahead, I think what I've shared earlier also, the focus will be how do we improve our chronic contribution in India business, where a lot of effort has been put by the J.B. team in building big brands, particularly in hypertension and doing justice to the acquired portfolio in the field of heart failure, in the field of statin and launching some new portfolio in the field of diabetics.

So we'll continue to focus on chronic. And as and when, we are supported by acute season, where I think the portfolio is there, and I think the teams will do the need full in the doctor's clinic.

[Unknown Executive]

Just to add to the point of chronic, if you look at the chronic growth scenario, in quarter 2, the IPM chronic grew by 9%, whereas we grew at 14%. And for H1, the chronic growth was 10%, and we outpaced that by 8 percentage points, growing at 18%.

[Nikhil Chopra, executive]

Yes.

[Abdulkader Puranwala, analyst]

Fantastic. And sir, for the full year, then what is the kind of growth we should bake in for India? I mean, 10% to 15% is something still looks achievable and reasonable portfolio?

[Nikhil Chopra, executive]

We should be -- see, the Indian pharma market, if you look at MAT September '23 is growing at around 10%, and we are growing at around 18%. Indian pharma market should grow between 8% to 12%, and we should be 200, 300 bps better than the market, that is what I've been stating in my commentary, if you hear it. So you should expect us to grow at around 12% to 14%.

[Abdulkader Puranwala, analyst]

Sure, sir. And so from here on, do we have any plans to add any field force for any particular segment or any new segment you would be planning to enter?

[Nikhil Chopra, executive]

Not as of now. I think we have adequate presence on the ground. We have close to 2,200 medical reps and we are meeting close to 2.5 lakh doctors across Pan India. And probably, the productivity that we're expecting this year, we should be touching INR 7 lakh and we should be pressure testing ourselves in terms of how we can inch of the productivity and grow at around 10% to 12% next year. So in near future, we are not looking at adding any as is medical raps on the ground.

[Operator]

[Operator Instructions] We'll take the next question from the line of Rahul Jeewani from IIFL Securities.

[Rahul Jeewani, analyst]

Sir, can you please comment on this capacity expansion, which you're doing on the lozenges business? Because if I remember correctly, our utilization on the lozenges plant was around 55%, 60%. So what necessitated this CapEx for the lozenges facility?

[Lakshay Kataria, executive]

See, Rahul, when you look at the capacity expansion, it has to be looked at it from two perspectives. One is the debottlenecking of the packaging lines, which we have, right, to match the manufacturing capacity. And the other part is the long-term land acquisition which we have taken, for which we are not putting up any capacities right now, but that's a plan which is more kind of futuristic, so that going forward, if we have to double the manufacturing throughput 2 to 3 years from here on, we already have the land available, right?

As we have stated earlier, we have a manufacturing throughput of close to 17,000 to 18,000 lozenges per month. Our packaging throughput was close to 12 crores to 13 crores lozenges, which will match our manufacturing output by end of December. The significant investment, which you see in the CapEx, is actually -- is for land acquisition, which is more of a futuristic preparation if we want to double our manufacturing capacity 2 to 3 years from here on.

And that land was very adjusting to our current unit, and therefore, we saw synergies because of all the approvals which we have with our current principal partners so that we don't have a dispersed manufacturing scenario, and it also helps us logistically.

[Rahul Jeewani, analyst]

Sure, sir. So this INR 145 crores CapEx, which you will be spending this year, what was the quantum for the acquisition of the land, if you can disclose?

[Lakshay Kataria, executive]

So land acquisition is INR 50 crores, right? And the other, we have always maintained very close to INR 70 crores of maintenance CapEx, which anyway goes. And we are also kind of expanding our granulation tablet unit, but that's again a very marginal CapEx expansion. So mainly the investment is on land acquisition close to INR 50 crores.

[Rahul Jeewani, analyst]

Sure, sir. And sir, you indicated that, obviously, our growth in the India business this quarter [indiscernible] weak acute season. But what we hear from some of your other peers is that the season has started picking up from September onwards, even the October month growth was very robust for the domestic market. So have we also seen Rantac and Metrogyl picking up from third quarter onwards?

[Nikhil Chopra, executive]

So please understand, Rahul, which I stated earlier, there are 2 hypotheses which are coming in. First of all, October, November, December is not an overall what you will see in Indian pharma market, you will see good growth because of the base being low. Indian pharma market monthly reports around INR 19,000 crores, and October base was INR 16,000 crores. So you will see growth as absolute value. Quarter-on-quarter, you will not see growth.

Second for, as a company, our portfolio is majorly being dominant in the world of GI, Rantac, Metrogyl, Sporlac. So that traction we could not see. That is why -- that is what was a commentary, which I stated earlier. But I think what was stated also parallelly that the entire effort of being improving the entire chronic contribution to the business, looking at how we can -- giving justice to the brands that we have now in chronic space, that will be the agenda going ahead for us.

[Rahul Jeewani, analyst]

Sure, sir. And sir, one last question from my end before I the queue. So in terms of operating EBITDA margins in first half, we are closer to 28% kind of a number versus our guidance of 25% to 27%. So are we upgrading? So any thought process in terms of revising the margin guidance, particularly given the fact that now you are also rationalizing some of your low-margin export businesses, such as the South Africa tender business?

[Nikhil Chopra, executive]

So fortunately, Rahul, for us, I think first half of the year, we have been on the higher side of the guidance that we have been giving. So you can take debt as a new guidance from us.

[Rahul Jeewani, analyst]

Okay, sir. So that implies a 28% operating EBITDA margin quarter 4?

[Nikhil Chopra, executive]

[indiscernible] 25% to 27%. That was the range that we have given. So you can assume that we should be on the higher side of the guided margin.

[Operator]

We have a next question from the line of Shrikant Akolkar from AMSEC.

[Shrikant Akolkar, analyst]

Can you provide the update of the CMO business in terms of how should we look FY '25? Because last 2 years have been very good for us. And FY '25 seems to be not a pandemic year or not any way related to cold and cough. So how should we look at the growth in CMO business?

[Lakshay Kataria, executive]

See, first of all, none of our growth was attributed to COVID right? Even in our India domestic business, when we look at our segments in which we are operating, we don't have any core or adjusted COVID portfolio. So our business particularly was not kind of aided by any COVID portfolio. All the growth which we were driving was -- is essentially excluding COVID. So it really doesn't affect us much with the external market changing and everyone estimating that it's no longer going to be a phenomena next year.

[Shrikant Akolkar, analyst]

Even on the CMO business, I mean?

[Lakshay Kataria, executive]

The CMO is plain cough and cold. Again, we saw a significant offtake last year. But the good thing is that we have seen similar trends this year as well, and that's the reason why you see in H1, on a quarterly basis, we have been able to maintain 100-plus run rate. As Nikhil mentioned, we have almost traveled a journey of taking a CMO business from close to INR 65 crores to INR 110 crores levels right now. Q3 generally tends to be soft. But from a mid- and long-term perspective, as we see FY '25 and next year, we have our plans with our key clients. We are looking at life cycle management of brands, introduction of new portfolio. So the growth trajectory will continue.

[Shrikant Akolkar, analyst]

Understood. And for this quarter in domestic market, what was the actual chronic mix?

[Lakshay Kataria, executive]

So we are close to 52% to 53% chronic.

[Shrikant Akolkar, analyst]

Okay. And coming to Azmarda. So can you talk about the addressable market? And last quarter, we had 16% to 18% market share in that market. So how has been the improvement between the quarters?

[Lakshay Kataria, executive]

So the good thing is that the market has grown. Of course, when we were talking about pre-LOE period, somewhere around December, the market was closer to 1 million, 10 lakh units per month, right? Right now, the market is trending at closer to 16 to 18 lakh units per month. Our overall market share continues to be in the range of 16% to 18% despite the price erosion, which we have taken. And our steady-state run rate forecast was we had always estimated closer to 1.4 to 1.5 lakh units, and we are pretty closer to maintaining that run rate.

[Shrikant Akolkar, analyst]

Understood. And lastly on Razel. So since we have acquired, how has been the impact on the profitability of the product?

[Lakshay Kataria, executive]

From a profitability standpoint, it has, of course, contributed very well. We also kind of when we were talking about our overall gross margin profile, we did mention that the reason why the margins have gone up is because of the chronic mix in India improving, and some of these acquired assets have significantly contributed to that margin going up. From a top line acceleration perspective, when we acquired the brand somewhere around December last year, it was closer to INR 4 crores, and we are actually closer to INR 6 crores run rate right now.

[Shrikant Akolkar, analyst]

So margins would have gone up during that period, right?

[Lakshay Kataria, executive]

Only for the some of the decisions which we have taken in terms of shifting sources and in-sourcing our brand into our own manufacturing site have also helped us improve margin for the brand

[Shrikant Akolkar, analyst]

Understood. And last one, if I can. Just wanted to understand about respiratory and pediatric play, we have launched, I think we -- it is just not the So can you talk about our play in this area?

[Nikhil Chopra, executive]

For respiratory, we are present with half a dozen products, which are more in the oral space, antiviral and antiallergic, antimucolytic. We have launched nebulization [indiscernible] which is close to INR 1 crore in the season. That is where, yes, from a respiratory perspective, no plans of getting into the world of inhalation, very clear. pediatrics, we have done fairly well. We have close to 25,000 pediatricians. We have a dedicated team.

And the business, if you look at pediatric, all put together, it would be close to INR 150 crores annually. We are present major in the world of gut health with Rantac syrup, Sporlac syrup. We are into with Laxolite syrup. We have cough syrup. So we have a range of portfolio in pediatrics, which will only help us to double our business mid to long term.

[Operator]

We have a next question from the line of Harith Ahamed from Avendus Spark.

[Harith Ahamed, analyst]

So in one of the slides you've commented that the share of domestic and CDMO combined is expected to go up to 75% to 80% in the near term. That's a sharp increase from around 68% in the quarter. So what are the time lines that you are looking at for this share increase?

[Nikhil Chopra, executive]

Mid to long term, around 3 years from here. So if you look at it, Harith, when we started this journey, the domestic contribution was 45% and CDMO contribution was 5%. Today, it is almost a combination of 53% and 12%, goes to 65%, 67%. And 3 years from here, we should be able to be close to 75% to 80%.

[Harith Ahamed, analyst]

Okay. And can you comment a bit on the growth rates that you're seeing for your legacy brands like Rantac, Metrogyl, Nicardia? I'm looking at the MAT values that you've shared, float rate appears to be strong. We've seen almost 20% growth in Cilacar, 20% plus -- 30% in Nicardia. So are the primary sales growth trends in line with these acute GI growth rates?

[Kunal Khanna, executive]

So your question is more alluded towards primary versus secondary. Whatever data you see is largely completely in line with our secondary sales trend. When we compare our inventory in the channel versus the peers, we have possibly the best inventory levels. We do not operate at more time 30 to 34 days of inventory.

For us, Cilacar, Nicardia continue to be the most progressive brand. And as was mentioned earlier, these are progressive therapeutic segments like hypertension. And the life cycle management initiatives, which we have taken across these brands, have actually helped us drive this level of growth.

[Harith Ahamed, analyst]

Okay. Kunal, just to confirm or just additional clarity there, so is it correct to assume that these brands are growing above the company average growth for the domestic business, which was around 11%?

[Kunal Khanna, executive]

Absolutely.

[Harith Ahamed, analyst]

Okay. And lastly on Azmarda. We've seen a patent expiry. But when you look at the MAT value for September '23 versus September '22, we still managed to record growth in Azmarda. So have we been able to offset the price decline with additional volumes? And is that why there is still growth that you're seeing in this brand?

[Kunal Khanna, executive]

See, when we compare what is the scenario 12 months back, yes, there has been a kind of a volume increase, which has happened. Having said that, over the last 3 months, we have achieved a steady state run rate in this portfolio. So for all yes. A large significant percentage of the price erosion has been offset by the volume gain impact which we have seen.

[Operator]

We have a next question from the line of Charul Agrawal from Bank of America.

[Charul Agrawal, analyst]

Sir, my first question is on the cardiac franchisee, given that we have reached a sizable -- or, good size over there, with the Cilacar brand being among the top 4 players in the therapy. How should we look at growth from here? Would we expect the growth to moderate given this stand? Or do we see outperformance versus the therapy growth? And in that case, what would continue to drive growth from here?

[Nikhil Chopra, executive]

So overall, the way what we have been commenting on, we want to improve our chronic share within India business. Cilacar is brand, and it is not only Cilacar -- see Cilacar, INR 600 crores, it's umbrella brand. And we have 10 different versions of Cilacar. And we fundamentally believe in the approach of STP, segmentation, targeting and positioning.

Just to give you an example what I'm trying to say is, when you look at Cilacar T, that is cilnidipine and telmisartan combination, it's a fastest-growing combination antihypertensive and the revenues pushed around INR 120 crores. So we have targeted that combination for diabetic hypertensive. Cilacar 20 as a brand for newly diagnosed hypertensions. Also, from a statistical point of view, when you look at India as a country, close to 100 million people potentially suffer from hypertension in the country. And 1 in 4 patients is undiagnosed.

So the way we are looking at this as an opportunity that being 50% market share in cilnidipine as a brand, we have the onus and the responsibility to grow the category. So obviously, to fulfill that, we have to out to the market and that is the agenda going ahead.

[Charul Agrawal, analyst]

Just a follow-up on that. So when we're talking about growing the market, are we also going to new geographies? Or do we continue to focus on the areas where we have stronger presence?

[Nikhil Chopra, executive]

So we continue -- by first -- what I spoke earlier, I think we have Pan India presence. Basically, we go to cardiologists, physicians, GPs, nephrologists for this -- our entire presence in Cilacar as a franchise. We are trying to run some patient-centric campaign. We are trying to run some campaigns in terms of how tomorrow people should follow the precautions in terms of monitoring their blood pressure at their home. So all those efforts have been put.

Once you have a sizable brand and you have critical mass, this all helps us in terms of what you can do, "patient-centric campaign and adherence models that we want to put in place," which should only help us in terms of what more we can do. And also besides Cilacar -- Cilacar T, I think what we have also taken the right steps is getting to the right life cycle management with combination of cilnidipine and metoprolol. Cilnidipine -- that is dual combination and then getting into triple combination of cilnidipine-telmisartan-chlorothiazide, cilnidipine-telmisartan-metoprolol. So all these over a period of time is only going to help us to make this

[Charul Agrawal, analyst]

Sir, my next question is regarding additional therapy areas. So apart from the therapies you are currently present in, are you also exploring other therapy areas?

[Nikhil Chopra, executive]

Are we -- sorry, sorry, I could not get your question?

[Unknown Executive]

Are we're also exploring other therapies?

[Nikhil Chopra, executive]

So -- see, we -- I think earlier also what we have stated, we conceptually don't believe in starting things from scratch. And I think the concept which works better for us for India is buy versus build. So I think we have an efficient engine that we look at inorganic opportunities where we have a good starting point. And that is from a buy perspective, but also the build that we have put in the place, put in the entire competency model which we have in terms of how we can grow the asset better.

And the classical example is, I think, what was stated earlier was what we bought this asset, Razel, also from Glenmark, which was around INR 4 crores -- INR 4.5 crores a month, where in a period of 1 year, we have taken it to INR 6 crores. So we see that opportunity in terms of what we can -- how we can grow the asset better as compared to where it is placed by putting the right valuation on the table.

So that makes us a company which conceptually are able to put right all the tick box for any inorganic opportunity. So very -- we find it difficult to start from scratch. So that is not that we would like to get into any category of business starting from zero.

[Operator]

[Operator Instructions] We have a next question from the line of Tanmay Gandhi from Investec.

[Tanmay Gandhi, analyst]

Sir, my question is on the M&A. So can you give us some color that what kind -- so we know that chronic is a focus segment for us. But if you can give some color on what could be the potential size of these acquisitions because if you look at our India business, we have almost doubled our base in the last 2, 3 years. So is it fair to assume that this -- the future acquisitions would be bigger than what we have done earlier?

[Nikhil Chopra, executive]

Very difficult to give any specific commentary on this. It all depends upon -- see, we have done -- we have acquired a INR 35 crore revenue of pediatric portfolio from Dr. Reddy's to INR 150 crores revenue from Sanzyme that is a probiotic and infertility portfolio. So it all depends upon what is available, valuation, the quality of assets, being in progressive market, can we grow the asset better than where it stands today.

So we have to put all those things into perspective. And then only you can arrive in terms of if you are interesting to buy. Also, it is not that everything has worked in our favor. We have let go many of the buying opportunities, which I think other companies have got and they think it suites well better. So that is how this model works.

[Tanmay Gandhi, analyst]

Sure. And sir, how are the valuations looking at, right, at least -- or in terms of M&A, right, because a lot of Indian pharma companies have a huge cash on books and all of them are looking to acquire in India?

[Unknown Executive]

On this point, we cannot comment on valuations or what others would be expected to be paying for the assets which are there in the market. I think the key takeaway for all of us is if you compare the acquisitions which we have done versus some of the other acquisitions which have happened, one will clearly understand that we have been judicious about our capital allocation strategy, right?

So we just don't believe in acquiring top line and paying a higher multiple. Like Nikhil said, it should be progressive, it should fit into our overall thesis, it should be synergistic with our existing focus areas, and then we arrive at what value we'll pay for.

[Tanmay Gandhi, analyst]

Sure. So you will continue to do bolt-on acquisitions-only, right? So you are not really open to acquire smaller companies or maybe...

[Unknown Executive]

Again, it's difficult to comment because our -- what we have done over the last 18 months, it's a combination of a small sales marketing engine being bought from Sanzyme versus bolt-on acquisitions of pediatric portfolio and [indiscernible] bought from Glenmark. So it could be either. Very difficult to comment on that.

[Tanmay Gandhi, analyst]

Sure. And sir, lastly, again, on the M&A only. So if you can -- is it possible for you to give a broad number in terms of what is the -- what kind of return are we seeing on the acquisitions which we have done, right? I'm not asking for some margins, but if you can give a broad number, what kind of return on those acquisitions?

[Nikhil Chopra, executive]

Kataria?

[Lakshay Kataria, executive]

So see, we are very clear that our payback period should not be more than 6 years. We have some of our internal hurdle rates, and we work around those.

[Operator]

We have a next question from the line of Bino Pathiparampil from Elara Capital.

[Bino Pathiparampil, analyst]

Just a clarification of India domestic growth. This 9% that you have reported, I believe, has the benefit of some inorganic acquisitions you did in the previous year. If we remove them out, what would the growth look like?

[Lakshay Kataria, executive]

Pretty much now, everything is built in the base, right? So whatever you see is a complete picture of organic and inorganic.

[Bino Pathiparampil, analyst]

Okay. Everything is in the base, okay.

[Lakshay Kataria, executive]

Yes.

[Operator]

We have our next question from the line of Alok Dalal from Jefferies India.

[Alok Dalal, analyst]

So first question is, as you look to enter new geographies, can it lead to some incremental cost and maybe margins remain flattish for next year? Is that something that is possible?

[Nikhil Chopra, executive]

No, no, Alok. I think you are -- I think you would have read something that we are trying to do in the world of Philippines, but that is a very early starting point. Nothing is happening. Probably 1, 2 years from here. These all things take time. So there is no cost involved in terms of what you are asking in terms of setting up new geographies. So no worries about that.

[Alok Dalal, analyst]

Okay. So this 27.6 is not peak margins, right? Nikhil, there is room for margin expansion?

[Nikhil Chopra, executive]

So I said it earlier, Alok, that, fortunately, for first half of the year, we are on the higher side of the guidance that we have given. So that is what we continue to guide.

[Alok Dalal, analyst]

Okay. And Nikhil, I think you were mentioning about some specific launches in CDMO, say, some sleep-related disorder, lozenges, et cetera. Have those been launched in the market already?

[Nikhil Chopra, executive]

No, no, no. You should see, I think, 2, 3 new launches would happen next year. That is what you should see. See, these are things, please, it takes time. The gestation period is 24 to 30 months because with the entire conception of newer idea, getting the reference sample, developing the product, sending it to our partners, they're doing their own research, they give us back with some specification changes, we go back to them. So all those things take their own time.

You should see things happening probably in second half of next year. Some progress we have made. But that is why the guidance that I have been giving for CDMO business is we were fortunate of that in the last 12 to 18 months because of the good cough and cold season, we could almost double our season. We are trying to explore more geographies in the existing portfolio, diversifying into new portfolio and also looking at cross-selling of our existing products that we have to our existing partners.

So these all things put together will help us in terms of getting this business almost close to $100 million in probably 3 years from here.

[Alok Dalal, analyst]

Okay. And last point. So India has slowed down a bit. If you want to come back to the 13%, 15% growth rate, can you do it organically? Or you will need a small inorganic push here?

[Nikhil Chopra, executive]

So you should see -- see, in quarter 3, we should see that growth coming in. That is not a worry because it all is a reflection of what I said earlier that you will see all pharma companies showing good growth in quarter 3 because of the low base last year. So for us, overall, 12% to 14% growth will happen as is on the existing portfolio that we have.

Now we have got a good presence within cardiology, hypertension, heart failure, statin, probiotic pediatric, respiratory, GI. So we have got a good range of products. What you did not see this year, unfortunately, was the traction in the GI portfolio, which is a combination of Rantac, Metrogyl and Sporlac, which did not give us a benefit.

Otherwise, if you look at our chronic journey, we are growing at 18% as compared to market growth of 10% in first half of the year. So that itself tells the story in terms of what building blocks we are putting for us in this journey is helping us to grow better than the market.

[Operator]

[Operator Instructions] We'll take our next question from the line of Harsh from Bandhan AMC

[Unknown Analyst]

Just two, three questions from my side. One is on the gross margin aspect. This might be a little bit repetitive. But during second quarter, do we have a fair sense that for H2 FY '24, this would be a base to work with in terms of gross margins? Because I'm trying to understand that you had already highlighted a couple of points in terms of gross margins. But is there any incremental benefit of the raw material pricing scenario from the last 3, 4 months perspective or let's say, the last 4, 5 months perspective? Because going forward, your chronic mix might change. Your CDMO product profile might also change just on that angle.

[Kunal Khanna, executive]

I think, first, we talk about the material prices and inflationary pressure. The situation has been much better off than there we were almost 10 months back. And it's pretty much remained as is for the last 4 to 6 months, and we don't see the scenario changing over the next 2 to 3 months as well. There are certain areas where there are kind of slight mix, but that should not kind of significantly hurt us.

And overall, even our portfolio mix should pretty much remain the way it is with chronic continuing to grow for our India business. And from a mid- to long-term perspective, the CDMO business also within the international formulations contributing significantly. So this is the base we should work upon. Unless something changes as far as external market situation is concerned where there is more inflationary pressure, which, as of now, we cannot predict. But otherwise, this should broadly be the base we should work with.

[Unknown Analyst]

Sure. What is the split at the India level volume, pricing and new product introductions in terms of year-on-year basis?

[Kunal Khanna, executive]

If you really look at it from a reported growth perspective, volume and pricing is evenly split with some part of new introductions coming within the volume.

[Unknown Analyst]

Okay. But would volume be somewhere around 5% to 6%?

[Kunal Khanna, executive]

That is correct.

[Unknown Analyst]

Okay. And lastly, what is the situation on this Azmarda API sourcing as of now?

[Kunal Khanna, executive]

So as of now, we are actually sourcing the formulation from Novartis, and we are doing finished formulation manufacturing through licensing arrangement in India as well.

[Operator]

[Operator Instructions]

[Unknown Executive]

So there is a question on the chat from Ragadeep is that with the international business reporting a sub-10% growth, where do you see the international business in the next year?

[Nikhil Chopra, executive]

So I think what was stated in the commentary that next year, we should be, with resetting base of South Africa, we should grow at healthy double digit, which is a combination of our branded generic business, which we do in 4 clusters, CDMO and with South Africa now base being reset of haircut that we have taken of INR 120 crores, we should be -- we should go at around down double digit, 12% to 14%.

[Operator]

I would now like to hand the conference over to Mr. Jason D'Souza for closing comments. Over to you.

[Jason D'Souza, executive]

So thank you all for all the questions and patience hearing of our commentary. I think the progress that we have made delights us in terms of where we stand as a company in the first half of the year, and we'll continue to focus on the entire growth aspect and looking at what efficiency we can drive with the company, which will only help us to maintain our gross margin and report healthy EBITDA margin on the upper side of the bracket in terms of the guidance that we have provided between 25% to 27%.

We, as a company, would like to go at mid-teens. And what was stated that in terms of the combination of India and CDMO, close to 80% contribution coming from these 2 businesses where we see a bright future will only help us to serve more and more number of patients in India and serve more and more number of consumers and closely work with some big partners outside India. Wishing you once -- wishing you all and your family member, happy Diwali and a prosperous new year and keep healthy, keep safe. That is what we wish for all of you. Thank you.

[Nikhil Chopra, executive]

Thank you, all.

[Operator]

Thank you, members of the management team. On behalf of J.B. Pharma, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.