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Lupin Ltd
Earnings Call Analysis
Q2-2025 Analysis
Lupin Ltd
In the recent earnings call, Lupin reported impressive growth, with Q2 FY '25 sales reaching INR 5,497 crores, marking an 11.3% increase year-on-year compared to INR 4,939 crores in Q2 FY '24. For the half-year period, sales were INR 11,011 crores against INR 9,681 crores from the previous year, reflecting a robust growth rate of 13.7%. Particularly notable was the performance in the Indian market, with an annual growth of 19%. North America saw a more modest expansion of 6%, while EMEA experienced a substantial rise of 20%.
Lupin's EBITDA margins improved significantly, reaching 23.8% in Q2, an increase from 18.7% year-on-year. This was accomplished despite a 190 basis points quarter-on-quarter rise in R&D expenditures, which represented 8.2% of sales. The company attributes this margin enhancement to a favorable product mix, cost efficiencies, and lower shares of in-licensed products. For the remainder of the fiscal year, the company guided EBITDA margins to remain in the range of 22% to 23%.
Lupin's U.S. business recorded revenues of $220 million in the latest quarter, a rise of 3% year-on-year in constant currency. Looking ahead, the company has provided guidance for nearly double-digit revenue growth for the fiscal year, bolstered by upcoming product launches including Mirabegron 50 mg. The long-term strategy includes increasing the share of complex generics, with more than 20 respiratory and 40 injectable products in the pipeline.
India's Formulations business notably outperformed the market with a growth rate of 10.9%, driven by strength in chronic segments like cardiology, diabetes, and respiratory. Additionally, the non-U.S. developed markets experienced a growth surge of 20%, with contributions from Canada, the U.K., and Australia. Emerging markets, including Mexico and South Africa, also showed promising growth signs.
R&D investments are set at approximately INR 1,800 crores for FY '25, focusing primarily on complex portfolios and new generics. This strategic investment supports a strong pipeline, aiming for greater innovations in respiratory and injectable segments. The recent success of the Phase III trial for a ranibizumab biosimilar signals further growth opportunities in the near future.
The financial health of Lupin remains strong with a reduction in net debt to INR 274 crores from INR 477 crores in March. Furthermore, working capital management is stable, with operating working capital increasing slightly to INR 6,562 crores. The rising employee costs, which surged by 17% year-on-year, have been attributed to regular increments and an increase in the employee base, ensuring the company has the necessary workforce for future growth.
Lupin achieved an S&P Global ESG score of 76, significantly above the industry average, reflecting its commitment to sustainability. Ongoing initiatives include human rights assessments in manufacturing, indicating the company's dedication to ethical practices in operations.
Overall, Lupin's quarterly results demonstrate strong revenue and margin growth amid strategic expansions in key markets and product offerings. The company remains optimistic about its growth trajectory, sustained by an extensive product pipeline and increased investment in research and development. With a focus on maintaining margins and addressing operational efficiencies, Lupin is well-positioned for sustained long-term growth.
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Good evening, everyone. I hope all of you had a great Diwali. I'm very pleased to welcome you to our Q2 fiscal year '25 earnings call. I have with me our MD, Nilesh; our CFO, Ramesh; and our Head of Investor Relations, Ravi here. We look forward to sharing with you our highlights for the quarter as well as outlook for the year ahead.
We are very happy to report another quarter of double-digit revenue growth, led by strong commercial execution in our key markets and also backed by new product launches. We are particularly pleased with our EBITDA performance with 510 basis points improvement year-over-year and 50 basis points improvement sequentially despite higher investments in R&D. We feel confident of maintaining our growth momentum in the coming quarters, with EBITDA margins in the 22% to 23% range for the fiscal based on our business momentum and continued focus on driving efficiencies.
Our U.S. business performance was strong this quarter with volume-led growth in in-line products and strong performance in our respiratory portfolio, offsetting additional competition in products like Suprep and doxycycline. With the recent successful launch of Mirabegron 50-milligram, and Pred Forte with the CGT exclusivity, we feel confident of delivering close to double-digit growth in the U.S. this fiscal. Also, we have continued to improve our profitability in the U.S., led by better product mix and higher efficiencies in the base business.
We are very optimistic of our long-term growth strategy in the U.S. So far, we have evolved our business to 40% complex generics, and we have an exciting pipeline with more than 20 respiratory products, 40 injectable products in development that we believe will enable us to continue to drive the shift to 50% plus in the next couple of years.
Coming to India, we reported strong growth of 19% year-over-year, led by growth in our India Formulations business and additional tenders in our Global Institutional business. Our India Formulations business recorded growth of 10.9%, 40% ahead of the market. For H1, our growth was 30% ahead of the market. So very strong momentum in India. Volume growth in the quarter was a strong 3.5%. I'm happy to report that all our key therapy areas, cardiac, respiratory, diabetes and GI, grew ahead of the market.
I would like to specifically call out our diabetes portfolio, which was challenged in the past due to loss of exclusivities on brands. Our diabetes business now grew 19% year-over-year against a category growth of 9% in the quarter. We feel confident on continuing to deliver above-market growth in our India Formulations business backed by a strong portfolio of innovative and in-licensed products and extensive reach through our 10,000 people sales force.
Our non-U.S. developed markets grew 20% year-over-year, driven by strong growth in key markets like Canada, U.K. and Australia. Growth was contributed by both in-line products like Zaxine in Canada, Luforbec, Fostair generic in the U.K. as well as new product launches. We also witnessed healthy growth in our key emerging markets like Mexico and South Africa during the quarter.
On R&D, as planned, our R&D as a percentage of sales has increased to 8.2% during the quarter. We successfully completed Phase III for our ranibizumab biosimilar this quarter, which paves the way for us to file the product in the U.S. and EU this year. We expect R&D to be around INR 1,800 crores for fiscal year '25 with an increasing percentage of complex generics as planned, primarily in the respiratory as well as injectables platforms.
From a compliance perspective, we have submitted our responses to the recent FDA audits at our Pune Biotech and Pithampur Unit-I facilities. We would like to reiterate that we are committed to ensure that all our sites are fully compliant with U.S. FDA and other regulatory agencies around the world.
Before I hand it over to Ramesh, I would like to say that we remain very optimistic on our growth potential, both in the short and medium term. Our strategic growth levers are well defined and backed by an exciting pipeline of products in our chosen markets and key therapy areas. We are committed to driving efficiency measures while leveraging our investments across all major geographies. We are confident on building on our momentum, both in terms of top line and profitability going ahead.
With this, I will hand it over to Ramesh.
Thank you, Vinita. Friends, I welcome you all to our Q2 FY '25 earnings call. I'm happy to announce that we have delivered another quarter of consistent double-digit revenue growth across most of our geographies. We have also increased our EBITDA margins despite an almost 190 basis points Q-on-Q increase in our R&D spend.
Diving into the numbers, sales. Sales for Q2 FY '25 came in at INR 5,497 crores as compared to INR 4,939 crores in Q2 last year, a growth of 11.3% year-on-year. On an H1 basis, sales came in at [ INR 11,011 ] crores vis-a-vis INR 9,681 crores last year, growth of 13.7% year-on-year. We have registered robust growth across most of our key geographies. India business has grown 19% year-on-year. North America has grown 6% year-on-year. EMEA grew 20% year-on-year. Growth markets grew by 12% year-on-year, whilst API grew 10% year-on-year.
The U.S. business. In the quarter, the U.S. business recorded sales of $220 million, a growth of 3% year-on-year on a constant currency basis. As Vinita mentioned, volume growth in our base products and increased sales of respiratory products were offset by increased competition in products like Suprep and doxycycline, and low single-digit price declines. We also had impact of high channel inventory for some of our new product launches, which will get normalized going ahead.
Based on the visibility of new product launches like Mirabegron 50 mg and Pred Forte, amongst others, we are confident of meeting our guidance of close to double-digit revenue growth in the U.S. for this fiscal. We also continue to execute on our strategy to improve our profitability in this segment with another quarter of high profitability from this business. On a long-term basis, we remain confident of consistent delivery of profitable growth with increasing share of complex products in our portfolio.
Coming to India, the India business grew by 18.8% year-on-year during the quarter. With this, the prescription business has grown 10.9% year-on-year, outperforming IPM growth by 1.4x during the quarter. Even on H1 basis, the prescription business has grown at 10.8%, handsomely outperforming IPM by 1.3x. Our chronic segment has grown 13.5% year-on-year during the quarter against an IPM growth of 9.7%.
If you look at our top three segments of cardiology, diabetes and respiratory, we have handsomely outperformed the individual category growth within the IPM. I would also like to mention that as per IQVIA, Lupin is ranked #3 in so far as new product introductions are concerned. The share of in-licensed products is around 12% as compared to 15% last year, which also has a positive impact on our profitability going ahead.
I would like to mention that in our India region, outside the India prescription business, our adjacencies and domestic part of our global institutional business, have also performed well in this quarter with revenues of INR 208 crores versus INR 66 crores in Q2 last year.
In so far as other businesses, revenues in our ex India, ex North India Formulations business, which includes EMEA, ROW and growth markets, have increased 10% year-on-year to INR 1,222 crores and now constitute 22% of our sales. In so far as EMEA is concerned, which constitutes our EU region and South African business, this registered strong growth of 20% year-on-year during the quarter. This has been driven by healthy growth in EU markets like U.K., from Luforbec and other products.
Growth markets. Our growth markets, includes APAC and LatAm regions, have grown 12% year-on-year during the period. The APAC market grew by 10% year-on-year during the quarter, led by strong growth in markets like Australia. LatAm market grew 14% year-on-year in the quarter due to strong growth witnessed in Mexico.
Coming to the P&L aspects. Other operating income of INR 176 crores has increased by INR 76 crores this quarter. This is mainly due to PLI and other export benefits during the quarter. Gross margins. Coming to the profitability. Q2 FY '25 gross margins were 69.3%, up from 68.4% in Q1 and 65.5% recorded in Q2 last year. The improvement is driven by multiple factors, which includes product mix, tailwinds on input costs, lower share of in-licensed products, increased volumes and various cost improvement and efficiencies, which we have undertaken over the past several quarters.
Barring any unforeseen circumstances in terms of geopolitical uncertainties in the Middle East are concerned, we feel confident of maintaining our gross margins around these levels going ahead. Employee benefit expenses at INR 1,007 crores increased 17% year-on-year from INR 861 crores in Q2 FY '24 and INR 971 crores in Q1 FY '25, translating to 18.3% of sales, vis-a-vis 17.4% last year and 17.6% in Q1 FY '25. This change is largely attributable to higher costs attributable to regular annual increments and business growth during the period.
Manufacturing and other expenses. Q2 FY '25 manufacturing and other expenses came in at INR 1,667 crores, which translates to approximately 30.3% of sales as compared to 31.4% of sales in Q2 last year and 29% of sales in Q1 FY '25, reflecting a growth of 7%. The expenses are mainly due to higher R&D costs and some extraordinary provisioning relating to some disputes.
R&D. R&D is at INR 448 crores, which is 8.2% of sales in Q2 FY '25 as compared to INR 350 crores at 6.3% of sales in Q1 FY '25. Almost 2/3 of R&D is directed towards complex portfolio. For the full year, R&D is expected to be around INR 1,800 crores. EBITDA. Excluding ForEx and other income, EBITDA was INR 1,308 crores vis-a-vis INR 923 crores, an increase of 42% year-on-year, with margins of 23.8% vis-a-vis 18.7% last year in the same period. On a quarter-on-quarter basis, margins have expanded by 50 basis points. This margin expansion is on the basis -- on the background of higher R&D spends, which have increased by 190 basis points quarter-on-quarter during this period.
If you look at our EBITDA margin profile, we made improvements across all our key segments. Our gross margins are higher by almost 1% quarter-on-quarter, and there has been increase in the operating income, and we benefited from cost savings all over. We also made additional provisions of INR 58 crores for an ongoing dispute. Putting this all together, we believe that we should be able to deliver EBITDA margins in the range of 22% to 23% for the remaining fiscal.
On the tax line, our ETR was 18.7% during H1 FY '25. The full year, we expect it to be around 20% to 21%. Insofar as the balance sheet is concerned, operating working capital was about INR 6,562 crores as of 30th September against INR 5,691 crores in March '24, which translates to 107 days of net working capital against 105 days as of 31st March. And net debt is about INR 274 crores against INR 477 crores in March again. Whilst we focus on increased cash generation from our business, we'd like to highlight that we continue to actively explore strategic allocation of our capital to address the long-term growth vision of the company.
On the ESG front, Lupin has achieved an S&P Global ESG score of 76 in the recent bout of [ emissions ] from concerned body, the industry average being just about 30 in the pharmaceutical sector. Our S&P score reaffirms our commitment to prioritizing sustainability and creating impact and sustainable health care solutions that benefit patients and communities worldwide. Seven of our Indian manufacturing sites got successfully reassessed for human rights assessment, with five sites retaining platinum rating and two others for gold -- moving from gold to platinum.
With this, we open the floor for discussions.
[Operator Instructions] So we'll take the first question from Saion Mukherjee.
I hope I'm audible.
Yes, you are.
So my first question, Vinita, is that for future launches, you talked about injectable glucagon and Dalbavancin. Can you just talk to us about the visibility of these launches and what kind of upside you are expecting from these products?
Yes. So injectables right now are a very small part of our portfolio. So we're looking forward to these approvals. We expect glucagon and Dalbavancin in the next couple of quarters, one may be in Q4 and I think one might slip into Q1 of next year. But over the next couple of quarters, we should be seeing these approvals. Plus risperidone, we expect in the next fiscal year. And potentially also liraglutide, Victoza, we expect into the next fiscal year. So we really see the injectables portfolio building very nicely starting the end of this fiscal year to -- through the next fiscal year on top of our respiratory and other exclusive orals.
Particularly on Dalbavancin, is that an exclusive product for you? How you are expecting competitive intensity here?
We see a couple of competitors, but still limited in number compared to other injectables.
Okay. Okay. The second question I have was on the India and emerging market opportunity on the GLP-1 space. So if you can take us through what you're thinking about India and other emerging markets? What are your preparedness and how you're seeing this opportunity?
So, go ahead.
So I think it's essential that we bring this as a leading cardiometabolic company. We think we're ranked #2. Obviously, we want to bring these products to the Indian market as well. We believe that we aim to be in that first wave of generics coming in into the market. So likely in 2026, we would hope to launch the first of several. I think everybody is chasing a whole bunch of products at this point of time. So I think there would be -- I think there is importance to bring this sooner rather than later. But I think short answer, 2026, we hope to launch the first of these.
And I'd say, just to add to that, also other emerging markets, we have positioned ourselves to either like partner the product or internal development to contribute to the market when it opens.
So we'll take the next question from Neha Manpuria.
Ramesh, in your opening remarks, you gave us several reasons for the gross margin improvement that we have seen. And I heard -- I think that you mentioned you expect the gross margins to maintain at these levels. So would that be in the first half range that you're seeing in the 69% to 70% or the quarter? I just wanted to get a sense on that.
Yes, Neha, 68% to 69% is a good range to kind of sustain for the future.
Sorry, Ramesh, your voice broke. I think my line...
Around 68% to 69% range is what I was referring to.
Understood. Understood. And what according to you has been the biggest driver for the margin improvement that we have seen in the first half? Is it product mix? Is it the input cost? If you were to pin down the top 2 areas where you've seen the most improvement?
I would actually say three things. One is, of course, the sales mix, Mirabegron, of course, contributed there. The second is essentially the procurement costs. So they're also coming down, and we expect that to continue to go down in the quarters to come. And the third, of course, there are a lot of operational efficiencies that have kicked in over time. For starters, the gross margins line itself, we do have firstly, alternate vendor development that we have done for key products and so on, key materials. And the second part in so far as, for example, we have air freighting, which has been reduced and we are now into the ocean freighting mode. So all of these kind of efficiencies have helped in kind of bring up the margins to the levels that it has come to.
And I think Vinita also mentioned that we are seeing improving profitability in the U.S. Is it fair to assume that the U.S. margins now are higher than our corporate margins?
Yes. Absolutely.
Okay. And last, what was the number for the global tender business in the India sales this quarter?
About INR 150 crores.
The next question is from Kunal Dhamesha.
Can you hear me?
Yes, we can.
You can take the question.
Just wanted to follow up on your GLP strategy. Globally, you said '26, it starts. And could you give us some sense of when the markets open up globally, not just in the U.S. for the semaglutide, [indiscernible], et cetera, especially regulated markets, et cetera?
So more of the regulated markets are actually patented later. The loss of exclusivity is expected, I think, in 2030 for the developed markets with the exception of Canada. But India, South Africa, Latin America, Philippines, some parts of Eastern Europe, those are the markets that are available for us to launch in '26.
And you have a strategy in place to be in the first wave of [indiscernible]?
Yes. So we have definitely positioned ourselves for India and South Africa, we have a license. So a combination of our internal development as well as in-licensing. We have positioned ourselves in all the key markets where we can really participate in the category.
Understood. Second question about your new initiatives on the CDMO space. You have investment in that space with some innovators. Now you have set up a subsidiary and are you trying to focused there, especially in the context of [ Myrbetriq ], et cetera?
Yes. So sorry, what's the question?
Question about your strategy in the CDMO space. Are you planning to be focused there?
Yes, of course. I mean that's exactly why we created Lupin Manufacturing Solutions. Obviously, it's early days. We are putting the team together. I think we've got almost all the entire structure that will fall in place between this quarter and the next quarter. And then obviously, I mean, I think we need to put our head down and give it a year or 2 years of good work to be able to talk about this. But we're very optimistic about what we should be able to deliver out of that. I think there's some very positive trends towards India, and I think that opens up the headroom for companies like us to be able to capitalize on this. So very excited with this venture.
But what would be your value proposition versus pure CDMO companies?
It is going to be a pure CDMO company in that. I mean it's a separate company and everything is structured as such in that. I think if you look at the -- just the variety of technologies that we would have, if you see the understanding of regulated markets, I mean, we're not unique in this. I think there's obviously a few other companies that would be able to do this even out of India. But I mean, we have the ability to play at scale in this space. We believe we have a right to win.
I think we understand -- obviously, we understand chemistry, we understand technology. We've done this for years. We understand regulations. We understand quality. And we are getting the right kind of commercial capabilities in place as well, which is key. I mean some of the other disciplines, like project management and the like, are different, and we are obviously building and acquiring capability. But the intent is to play this as a pure CDMO player in that part.
Understood. One last question to Vinita. The U.S. quarter-on-quarter revenue has come down a little bit, and this is despite Mirabegron 50mg being launched almost a month before the end of the quarter. So what has primarily led to that Q-o-Q decline in revenue? I assume that has continued to do well from your comments. Is it some fluctuation in the base business or some albuterol hit?
Actually, the base business has been fairly strong. I mean there's been some phasing on Mirabegron because we had the inventory load in the first quarter for the 25 milligram. And for the 50 milligram, it was more substitution. So it was not as much of an inventory load. But you'll see that normalize in the second half of the year.
And then it was really additional competition in products like Suprep and doxycycline, like I mentioned. We had some erosion there. But the base business, the respiratory portfolio, as well as Mirabegron from a share perspective has continued to build in Q2. And it's just the phasing of the inventory load on the Mirabegron also that has a little bit of impact between the 2 quarters.
We'll take the next question from Anubhav Agarwal.
Am I audible?
Yes, yes.
Okay. So one question. I just want to get some more clarity on the specialty business where you had a new precedent as well last month. So what areas you're trying to focus here? What will be risk appetite? How do you want to build it? Earlier, the company was focused more on the women's specialty area, how are you thinking about it here?
Yes. So our focus is on the two therapy areas where we have a presence. I mean right now, we have a small presence on the respiratory front in the U.S. with Xopenex. And in Europe, our franchise is a branded generic franchise. So that is one. And two, neurology. Again, there, we have a presence with NaMuscla in Europe. We are looking to expand that into the larger indication. Right now, it's an NDM, and we have started to conduct a study for DM, for global commercialization of NaMuscla, in particular Europe and the U.S.
So the focus is the two therapy areas that we are already present in. And very excited to really have Claus on board. He brings in tremendous experience, and in particular, the two areas of our interest, respiratory as well as in neurology. But as an organization, we will build this out in a cautious manner. As we have stated, I think, in past interactions as well, we would like to really build with accretive assets in the near term as we continue to really drive our EBITDA margin expansion from the 23% level to the mid-20s and above over the next 5 years.
So just one subpart of clarity on this question. So do you see yourself or Lupin basically acquiring midsized assets here, $100 million, $200 million kind of assets, or bouquet of about three, four products over a period of 3, 5 years? Or is that the way when you say cautiously build this up?
Yes. So we'll look at medium-sized assets. that can really help us build the business as well as our own organic portfolio with the capabilities we have on the respiratory front, we're building a pipeline of green propellant products where we hope to be in the first wave along with the other brand companies. We have our own brand in Xopenex, so we have that opportunity. So a combination of midsized acquisition opportunities that make sense for us as well as organic builds with the pipeline.
Sure. Then on the U.S. generic business. On generic Spiriva, I'm just trying to understand the market share is largely around 30%. So I'm assuming there is no production constraint. This is just your reading of the market, you're trying to maximize your potential here. So should we assume that till the time the next player comes in, which could be fiscal '27 or thereabout, would you largely remain around 30%? Or what would trigger this 30% to go to 35% or 40%?
Yes. So right now, we have kind of stabilized at that 30% level. And the brand has held on to 70% share. And when we look at the different channels in the marketplace, in the commercial space, we have more than 50% share. But in the Medicare, Medicaid space, our market share is lower. That's what driving it down to the 30% level. So we have efforts ongoing to expand the awareness and try to help conversion in the Medicare, Medicaid business and hopefully can drive that over the next couple of quarters to the mid-30s. But right now, we have stabilized at a 30% level.
And in the commercial space, you think 50% is an optimum level? Or there that could be 60%, 70% as well?
Yes, we're already above that 50% level in commercial.
Okay. Just last question on mirabegron. I saw that Astellas got expedited review approval from the Court of Appeals. So not the outcome, but the total process of litigation. Can we assume that this gets done either ways in a couple of quarters from here? Or could this be extended and extend to, let's say, a year from here?
It's really hard to predict that. At this point, the case was remanded back to the district court. And I'm sure that the brand, whatever the outcome is, is going to likely challenge us if it's not in their favor. So it's hard to really predict, but we were pleased that it was remanded to the district court that already ruled in the favor of generics.
So the clarity was on the expedited review that Astellas has got it in starting October a month back. Does that have an implication on the timing of the case?
I mean that's one part of multiple cases which are going on in Mirabegron, right? So this does drag out for well over the next few quarters any which way.
We'll take the next question from Girish Magru.
Vinita, just going back to glucagon. I mean you had commented for maybe Q4 launch. Just wanted to know, is this a kit presentation or a vial presentation?
It's an injectable. But we think -- yes, but it's vial [indiscernible] I think so. But we can get back...
I believe we did kit, but we can just check.
Sure, sure. And I mean I'm probably also understanding the market is shifting here because I think the use of the product is now shifting mostly to diagnostic chains in the U.S. That's why the vial presentation is probably getting bigger. But I mean would the market size has become different as per your understanding?
We don't expect any material shift in the market. Right now, majority of the market is with Amphastar, right? And we expect to be one of a few competitors. So it's an attractive opportunity for us the way we're looking at it. We haven't really come across a material market shift here.
Because Amphastar is only selling kits actually. So -- and vial market is what is actually I read that is growing, that's why I was confused what presentation actually would one you'll focus on.
Why don't we get back to you about that.
Sure. Sure. And just on the risperidone. I mean we have one generic which is already approved. We have a 505(b)(2), I think, already approved. I'm not sure if it's too early to call out whether the shift from brand to these newer players is happening already in the market at an expected pace. But is this going to be a product which is very difficult to shift the prescriptions from the brand to generic?
I understand that the 505(b)(2) has been slow uptake from -- at least in the last couple of quarters. And so we still expect in the near term for this -- the primary product to which we have a generic to be a material opportunity for us.
Teva is already in the market, and I'm guessing -- and their also numbers are pretty low right now.
Yes. But Teva also has the 505(b)(2), right? So they have both the 505(b)(2) as well as the generic. We don't know how they are positioning each.
We'll take the next question from Damayanti Kerai.
I hope I'm audible.
Yes.
My first question is clarification on other operating income. So Ramesh, did you mention INR 76 crores of PLI and other export benefit? Or number is something different?
Yes, that's what I meant. It's a higher quantum. It has increased by INR 76 crores by during the quarter.
Increase from which level? Just you can just quantify for the second quarter, please? Like how much is that?
You take it for the full quarter, it's INR 76 crores higher for the quarter...
And it was INR 50 crores for the previous quarter.
Yes, INR 165 crores in the previous quarter -- in this quarter and INR 86 crores in the previous quarter.
Okay. Understood. That's clear. Okay. My second question is on -- second question is for Vinita. So can you also update us on your respiratory pipeline in terms of which key assets are due for filing or approval in, say, next 2 to 3 years?
Yes. So we have a few nasal sprays that should get approved in the next 2 years. We have Dulera that we are actually in the process of doing additional studies to be able to respond to the agency. We hope to be able to respond to the agency in the next fiscal year. So that should be hopefully the fiscal year '27, '28 opportunity for us.
And then in the current fiscal year, we have multiple products in development, but the major ones, both the Respimat and Ellipta products, we have planned exhibit batches before the end of this fiscal year. So have made significant progress there as well.
Sure. And most likely, these Respimat and Ellipta products can say '27 and beyond opportunities or it could be earlier also?
No, it won't be earlier because we'll have to certify against the patents as well.
Okay. That's helpful. My last question is on GLP opportunities, which you mentioned. So I just want to understand in terms of capabilities, which are your key areas of strength? And will you be manufacturing it in-house to supply to global market? Like developed markets will come later, but once you start in '26, so manufacturing will be in-house or it will be done through CMOs?
So for products like semaglutide, obviously, we will do it in-house because we obviously have both oral and injectable capability. For other products, I think it all depends, right? It depends on the alliance that we would try to see and the like. So, I mean, everybody is chasing multiple products at this point of time. Some of them may be just simple in-licensing, others is where we could manufacture, we would love to be able to manufacture as well. I think that strategy will really play out in the next year, and we'll have more clarity at that time.
Okay. Okay. So it will be mix between in-house and maybe depending on market opportunity.
Right.
Yes.
We'll take the next question from Kunal Randeria.
Vinita, my question around liraglutide. Given the drug is not as efficacious as semaglutide has higher dosing frequency and now there is already one AG in the market with a few more lining up. Just wondering how do you see this market shaping up in future?
While semaglutide and the follow-on products obviously are -- is where the market has moved to, liraglutide is still a substantial market, both Victoza and Saxenda. So we still look at it as a $1 billion-plus market with hopefully staggered entry of players. So we're looking forward to the approval.
So do you think there will be a sharp price erosion and then at the same time, the volumes could go up?
I mean that could be a scenario. I mean it's hard to predict, but we are chasing the applications with the FDA to be able to hopefully get into the market next year.
Got it. Okay. Now my second question is around albuterol. Now you did make some reference to your share being low in the Medicare setting. I guess the brand share is very high over there. So with this $2...
Yes, I was talking about Spiriva. It was in reference to Tiotropium, not albuterol.
Sorry. But okay, let me ask on albuterol then. But even in albuterol, in the Medicare setting, the share of the brand is pretty high. So how do you see this Medicare $2 per month out-of-pocket thing playing out for generic companies like yours?
We really don't see any potential impact of the $2 program because it's more to cover the out-of-pocket cost for patients. right? So it's the planned coverage. And if anything, I believe that it can potentially expand usage of the drug if the product is available at a low out-of-pocket cost to patients. We really on a -- and as far as albuterol goes, the substitution in albuterol is pretty strong from a generic perspective. As you know, even the brand companies have launched authorized generics on the product. So a good 80% plus of the market is really with authorized generics and generics.
Even in the Medicare setting?
Yes.
We'll take the next question from Shashank Krishnakumar.
Am I audible?
Yes.
My first question was on the margin [indiscernible]. So given the trajectory of gross margins and other expenses, is there any in terms of the medium-term margin aspirations or the medium-term margins that we are guiding to? I think I heard 22%, 23% this year. Beyond FY '25, are we looking at margins?
There are two aspects to this. Obviously, we believe that our core should be in the range of about 23%, 25%, and that is something that we would get to in the medium term. And so there's this aspect of adjacencies also, which actually some of these are still loss-making in the current context, which should obviously spin on their own access in the next couple of years because we intend spinning it off and bring private equity to kind of participate. And they would, of course, have grown and become more profitable as well.
If you were to knock out the impact of the adjacencies, you would actually have an EBITDA margin higher by about 0.8% this particular quarter itself. It's coming down for sure vis-a-vis the previous quarter, for example, and steadily becoming more profitable. And that would really alter in the next couple of years.
That's helpful. Secondly, just wanted to check if this quarter so far in albuterol, have you seen any impact of Amphastar's [indiscernible]? Though the company has been saying that they themselves don't expect meaningful contribution this quarter, but have you seen any impact so far?
No, not in this past quarter.
I also wanted to clarify something on the -- there's so much of questions around the impact the PLI and the like as well. The scheme provides for INR 1,000 crores over a period of 5 years, as all of us know this. So that actually roughly means about INR 200 crores. But it also actually provides for an exception where you could actually take a quantum a little more during the course of one particular year. It's an exception really in the framework. And we've taken advantage of this, this year because of the fact that we -- there's a surge in terms of exports and the like.
And obviously, money into the kitty much faster is always better for us. And that's the reason why you would find a higher quantum of PLI monies coming in this year, but doesn't necessarily mean it's going to be the same quantum spread over the next several years.
We'll take the next question from Kunal Dhamesha.
Can you hear me?
Yes, we can.
The provision of INR 58 crores, what is it related to? And how should we think about it? Is there more liability that can come for us? Or this is...
This is a measure of abundant caution, so to speak. As with every company, we also have a share of litigation disputes and the like as well. So we just thought in the goodness in the fitness of things that you provide for something, and that's what it is. And it's just that it's an abundant caution rather than actually -- you don't need to read too much into it. It's not something which will repeat unless things go horribly wrong or something, which we don't think it will ever materialize that way.
Which business segment does it belong to like geographically?
Well, it's basically a general provision, I would say, attributable to certain disputes.
Sure. And then there is also -- when I look at our current provisions, there is almost cash outflow of INR 400 crores between March and here. So what does that refer to?
It's basically -- we paid out our dividends and the like, right? So from that perspective, you would actually see it was actually a cash surplus company towards the end of last quarter, but there was, of course, the slight increase in working capital. It increased by about 3 days, 4 days. And then it's, of course, the dividend outflow, which has caused this cash outflows.
Dividend. Okay. Okay. And on India business, out of our total revenue this quarter, if you can help us understand the three parts to it. I think one is prescription business, another is the tender business and then adjacencies like diagnostics, right? So can you provide color on what is the contribution from each?
We don't go into segment-wise, I wouldn't like to do that at all. But I just tell you about the fact that adjacencies are still loss-making, and this is essentially the Diagnostics business and Digital, and if -- and there's, of course, some parts of OTC and so on. But that -- all of this put together actually impacted the EBITDA margins by about 0.8%. The tender business, of course, is profitable. It gets included because it actually emanates from this particular geography. And that actually increases overall, quantum increase this quarter to -- the growth to about 18%.
And this tender business, would it be meaningfully lower gross margin business than our India business? Or would it be in line, how to think about it?
Well, we are not actually revealing geography-wise margin. So that question might not be relevant in that sense. But as with every tender business, you would expect, in fact, the gross margins to be lower than the retail business in a general sense.
I mean just to give nature, I think 90-plus percent is, in any case, the Rx business that we're talking about here.
Absolutely.
But then I don't understand the total India business growth is 19%, and we are saying Rx business growth is 11%. Then a huge chunk is coming from tender. Is that the way to understand it? Or what am I missing here?
Your question related to sales quantum as well as the profit. So we are not talking about the segmental profits at all here.
Sales figures.
The 11% increase in India region sales for sure. There's, of course, the OTC and Diagnostics business, which have also gone up over the quarters. And there's, of course, the tender business, which has also been represented in the overall figure of 18%, 19% growth.
So in the year-on-year, the number was very low last year, and the number is a substantial increase. We already talked about the global institutional business being INR 150 crores in the quarter.
Okay. And entire of that flows into India business as we reported?
A good portion of that for this quarter reported into the India business. It sometimes it's exports, sometimes it's domestic. Actually, our press release in any case, would give you the India region business as well as India region formulation business, right? So we do give that split.
[Operator Instructions] We take the next question from Alok Dalal.
Am I audible?
Yes.
So Vinita, just to clarify, ranibizumab filing will be end 2024. Is that correct?
Yes, this fiscal year.
Okay. And do you expect this to be a first wave launch, Lupin in the first wave?
No, no. There are already products ahead of us. But we expect it to be a decent-sized product, given the fact that it's an ophthalmic product, and we already have relationships with some of the ophthalmic distributors.
Okay. And apart from this product, which are the other biosimilars in the pipeline and launch time lines for those?
So we are hoping that pegfilgrastim is going to be our first one, and we are waiting for FDA approval for the product and have the ability of launching it as well in the next -- hopefully, in the next 12 months, subject to FDA approval and clearance of the Puna site. Ranibizumab would be the second one. Aflibercept also is progressing well in development. So building on the ophthalmic franchise. And then we have a couple of partnered products, denosumab in Japan with a partner. We don't have plans to bring it into the other markets unless we find a partner. And then Etanercept in the U.S. in '29. And there are a couple of products that are earlier stage, especially the respiratory biologic like Mepolizumab and Benralizumab earlier stage in development.
Okay. So it appears that in each therapy area, there is one or two products. With this kind of portfolio, then will you have your own field force in the U.S.? Or will this be a partnered field force?
Yes. So we are -- we have a cautious approach on biosimilars. We can't -- we don't plan to really build a market presence for each therapy area. So we intend to partner where it makes sense. And if we have the ability to leverage our infrastructure, if there is a synergy with the rest of our business, then we will commercialize ourselves.
We'll take the next question from Saion Mukherjee.
Vinita, on NaMuscla and generic Fostair, what is the headroom to grow this business in Europe? And on NaMuscla, you mentioned about the new indication for U.S. and Europe. If you can talk about the time line on that indication and what's the market size one can expect?
Yes. So we are really excited about the potential of NaMuscla in the DM indication, DM1 and DM2. We have started the study already and also got FDA feedback on the DM study, and believe that we should be in a position to file to the U.S. in '26. So it will take us through next calendar year into '26. But the potential we see is sizable, both in Europe, the potential of the DM indication is multiple times the NDM. We think it could be a $100 million product in Europe.
And then in the U.S., based on pricing, it will be -- it can be well beyond that. So I mean, the Europe likely will launch first. But the team is in the process of putting the plans together, especially with the addition of Claus now, making sure we can leverage the opportunity across all the developed markets on a timely basis.
Okay. And so fiscal '27 is what you're indicating as filing and then in fiscal '28, possible commercialization in the U.S. Is that the right understanding?
That's right.
Okay. And do you have, for this new DM indication, any clinical data with you, which suggests success -- commercial success of this product? Or we have to wait and see for the Phase III data to come before you kind of get the confidence of having this commercial success?
Well, so right from the start, when we embarked on this product, we knew that the product works for NDM and DM. We know that clinicians have been using it off-label, so -- and that's why we thought that it was a low-risk study to pursue. And likewise, for the DM indication also, we think while the data will have to prove it, obviously, and make it to the label for us to be able to commercialize it effectively. We have a high degree of confidence that the product works. There's nothing else available for the indication. So the physicians are very enthusiastic about seeing the product make it through clinical development to the market.
Okay. And any comment on generic Fostair as to how much more opportunity is there for Europe?
It's been a substantial growth driver for our European business and continues. As we look at the next fiscal year, Fostair continues to be -- [indiscernible] continues to be a major product for us in Europe. I mean, so far, we have got into some of the major markets. We have not entered Spain as of yet. We don't -- so we have a presence across 11 countries at present. So continue to expand our geographically as well in Europe over the next year or 2.
And in U.K. or some of the big markets, can you share market share on...
Why don't we get back to you? I mean, yes, we are still the market leader apart from the brand, and it's been a big growth driver for us in the U.K. in particular.
Right. Ramesh, one question on the employee cost. We have seen around 15% to 17% increase in the employee cost, which seems to be on a higher side. So if you can give some color as to why the level of increase is this high? Is there some new expansion that is driving it? If you can give more details on this.
There is, of course, this complement of people that have been added during the course of this year, this quarter. And there is, of course, another in terms of the ESOPs, there is -- the share price has been going up and when we compensate people in terms of ESOP. There is a charge to the P&L to that extent and that's -- it's being brought in. And the third, of course, is the normal increments that we pay to people and stuff like that.
Understood. And just one last question, if I can ask on the tender business. So it seems for the last 2 quarters, this was at a higher level. So how should we think about the next 2 quarters and maybe even FY '26?
By its very nature, it is always going to be sporadic, essentially because there is some consistency. The overall business that you're competing in that is about $650 million across the world, but the timing of that is always very difficult to kind of certain. For example, the tenders in India are delayed for a couple of years and the like and then they brought the [ latent TB ] along with, in fact, the global fund. From that perspective, it's something which you can't really predict. But it's a market which is about $650 million, and we obviously are very competitive in that market.
You might see some lumpiness, but I think we'll largely be at this level. I think it's going to be a good year for that business.
We'll take the next question from Tushar Manudhane.
Am I audible?
Yes, you are.
Just on the GLP-1 opportunity as far as emerging markets are concerned, in terms of the value chain, where is the key hurdle? Is it going to be the marketing? Or is it going to be the manufacturing from end-to-end manufacturing, if you could share your thoughts here?
I think in India, it's about the commercial excellence. So it is going to be about that. And that's the reason why we're not that hung up that we have to manufacture this or the like. I think obviously, when we do this for developed markets, we are going to want to control more of the value chain. So obviously, manufacturing, even the R&D, all of that would be done as well. But I think where we have branded generic markets, there -- I mean, it's more access to the product than anything else, which is important. And in other markets, we can -- we would obviously do a more holistic play.
And given the kind of the business, which, let's say, the innovator companies are making on the product, despite that, the manufacturing won't be constraint for emerging market. Is that the right understanding?
Well, not for India, for example, right? I mean I think the crown jewel and all of this is going to be the India conversation. And I think in India, it's going to be about commercial excellence.
Besides, we have looked at our manufacturing capacity. And if we launch in every market that opens up in '26, we are still able to manufacture internally if it came to that.
Got it. And secondly, on this Dalbavancin, what would be the market size?
I don't have it off the top of my head.
We can get back to you.
Yes.
We'll take one last question from Shyam Srinivasan.
Just the first one on the trajectory for the U.S. business. It's been kind of range bound with the exception of, say, Q1. So I just want to understand how should we look at the second half?
I think like we said, we should be able to increase closer to the 230 plus, again, depending on the pressures that we see on some of the key products. But overall, inching up to over 230 and likely the second half enabling us to close at a double-digit growth level for the year. And as we get into next year, first quarter, we should have the impact of tolvaptan plus the injectable products that we hope to get approved by the end of this fiscal year, early next year, as well as others that we have in our plan. So we expect to get to that 250 level through the next year to be able to be at $1 billion plus next year.
Understood. And would that, Vinita, entail a much better margin profile for us in terms of the U.S.? Or maybe what is -- is the current U.S. margins closer to corporate average? Or do you think once we reach the $1 billion mark, it could now punch above that?
So it is already above that. And the newer, more complex products have enabled us to actually expand our margins. So we would expect that to continue given the pipeline that we're bringing to market, again, is limited competition products.
Understood. And my last question is just on the sales force productivity in the India business. I think 7,700-odd medical reps, right? So is there any PCPM number that you are -- you can share at this point of time? And where do you think this can likely reach?
We don't have it offhand. We're trying to pull it out. Otherwise, we'll share it with you. I mean, clearly, I think one part is we were under-indexed. So therefore, we have added a substantial sales force in the last 2 years. Now it's going to be programmatic. So we are going to add a few hundred representatives each year. The focus definitely has to be on productivity. We have some very nice AI measures that are -- that we're putting in place. Hopefully, those would be interesting plays as well. We would want to focus on productivity as well in line with maybe a little bit of increase in areas where we are less represented.
How many we added first half or second quarter also?
Marginal, not much at all.
It's been continuously increasing over the last 5 quarters because initially, there's a training -- there's a period when they're not as productive. If you look at the current quarter, it's close to about 7.5 lakhs per month. And this has been increasing and still not reached the peak, which we did in about 1.5 years ago. Because obviously it takes time to kind of train the people and so on as well.
And Ramesh, what was that number like historically?
We were closer to this market about 1.5 years ago.
Okay. Like 9 lakhs, 10 lakhs, you're saying?
7 to 7.5 to 7.8.
That brings us to the end of the Q&A session. I now hand the conference over to the management for the closing comments. Over to you.
Thank you. So thank you, everyone, for all your questions. Just wanted to respond to the glucagon question. What we have is the kit, and we look at it as a nice size opportunity. It's roughly a $200 million product, where we hope to be one of maybe two players in the market. So looking forward to that.
And as I mentioned, I mean, we are very optimistic about our growth prospects in both this fiscal year as well as the years ahead. We know that we have still a long way to go, although we have come a long way as an organization when you look at our growth trajectory as well as our margin expansion. We continue to be focused on driving both growth across our key markets, not only U.S. and India, but also the other developed markets, that we can now grow with our complex generic platforms or specialty and other emerging markets based on our India portfolio, and in particular, the GLP-1 opportunity that we see in front of us.
So looking forward to a very successful rest of the fiscal year, and we look forward to connecting with you again soon. We've noted down a number of questions that you had that we had agreed to get back to you offline. So we will connect with you to respond to those. Thank you again for your time and look forward to connecting with you next quarter.
Thank you so much, ma'am. On behalf of Lupin Limited, that concludes this conference. Thank you for joining us, and you may now exit the webinar. Thank you.