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Marksans Pharma Ltd
Earnings Call Analysis
Q1-2025 Analysis
Marksans Pharma Ltd
Marksans Pharma has reported a promising Q1 FY '25, with operating revenue skyrocketing to INR 590.6 crores, an 18.1% increase from INR 500 crores in the same period last year. This growth was notably influenced by a 29.8% surge in revenue from the U.S. and North America, achieving INR 251 crores.
The company achieved a significant gross margin boost, improving by 432 basis points year-on-year and 386 basis points quarter-on-quarter, reaching 55.7%. This expansion was largely attributed to a favorable product mix and declining raw material costs, although challenges with elevated trade costs persist due to geopolitical factors.
Marksans is actively working towards substantial revenue growth, targeting a revenue milestone of INR 2,000 crores within the next two years. The U.S. market is regarded as a pivotal growth area, with expectations for further penetration as new product launches occur. Europe also remains a significant focus, with plans for potential mergers and acquisitions to expand in this region.
Operations at the newly acquired manufacturing facilities are on track, with initial supplies commencing to key regions. The management anticipates a substantial revenue contribution from these facilities going forward, effectively supporting the company's growth trajectory. Currently, the Goa facility is contributing between INR 750 crores to INR 800 crores in sales.
Despite rising freight costs, which increased drastically from $2,000 to $6,000 in just three months, Marksans is hopeful about maintaining profitability. The firm is implementing strategies to absorb these costs temporarily while working on operational efficiencies to combat this pressure.
Looking forward, Marksans anticipates that revenues from the U.S. will be a primary driver of growth, complemented by consistent contributions from the U.K. and ongoing expansions in Europe. Management committed to maintaining a disciplined approach while planning for future expansions and product launches.
In Q1 FY '25, Marksans reported free cash flow of INR 14.3 crores, with a CapEx of INR 31 crores aimed at scaling the newly acquired manufacturing unit. The company remains debt-free, holding a substantial cash reserve of INR 691 crores as of June 30, 2024.
The company plans to stay within its current R&D expenditure range for at least the next two years, focusing on complex molecules that are expected to significantly enhance revenue streams in the long run.
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Ladies and gentlemen, good day, and welcome to the, Marksans Pharma Q1 FY '25 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors. Thank you, and over to you, sir.
Thanks, Steve. Hi. Good afternoon, everyone. A very warm welcome to Marksans Pharma's Q1 F '25 Earnings Call hosted by DAM Capital Advisors Limited.
On the call today, we have representing Marksans Pharma management, Mr. Mark Saldanha, Founder and Managing Director; and Mr. Jitendra Sharma, Chief Financial Officer.
I'll hand over the call to Mark to make some comments and then we open the floor for questions. So Mark, please go ahead.
Thank you, Nitin. Welcome, everyone, and thank you for joining us in our Q1 FY '25 Earning Conference Call. We appreciate your continuous interest and support for the company.
I'm delighted to announce a strong start to the year, driven primarily by increased market share with our existing customers and some new product launches. This quarter, we faced a mixed demand scenario in the U.S. region. However, based on historical trends, we anticipate the upcoming quarters to be far better.
Pricing pressure on our Rx products remain stable. U.S. is a strategic focus area for growth, and we are well positioned to capitalize on the opportunity that lies in this market.
Our gross margin for the quarter expanded by 432 basis points year-on-year and 386 basis points quarter-on-quarter, primarily due to the reduced raw material pricing and the depletion of old high cost inventory.
The favorable product mix also boosted our margins. However, we continue to face elevated trade costs, mainly due to the ongoing Red Sea crisis, container shortages and port congestions. Regarding our newly acquired of manufacturing facilities, we are on track with scaling operations and have commenced our product supplies to key regions. We expect substantial revenue contribution from this facility in the upcoming quarters.
Looking ahead, we are committed to growing our business in a sustained manner. Our goal -- our next goal is to reach INR 2,000 crores of revenue within the next 2 years. Our focus on growing the business, launching new products and enhancing supply from our new facility will be instrumental in achieving this target.
As a part of our commitment to a strong Board oversight, I'm pleased to announce the reappointment of Mr. Varddhman Jain as a Whole-Time Director for a further term of 3 years. Mr. Mohanty as a Non-Executive Independent Director for the term of 5 years. Our Board [ comprises ] of 5 eminent independent directors who are instrumental in guiding our company forward.
With this, I'd like to turn it over to Jitendra to update you on the financials.
Thank you, sir. For Q1 of FY '25, our operating revenue was INR 590.6 crores, an increase of 18.1% compared to INR 500 crores in the same quarter last year. The U.S. and North America was at INR 251 crores, representing 29.8% increase year-on-year basis. U.K. and EU formulation markets grew by 11.3% year-on-year to INR 251.5 crores.
On account of volume growth, incremental market share from the existing customers and contribution from new launches. Australia and New Zealand formulation market recorded revenue of INR 65.6 crores, at 12% increase year-on-year basis. The rest of the world recorded sales of INR 22.7 crores in Q1 of FY '25.
Gross profit was at INR 329 crores, up 27.8% year-on-year. Gross margin increased by 423 basis points from 51.5% to 55.7% in Q1 of FY '25. EBITDA for the quarter was at INR 128.4 crores, an increase of 26% year-on-year and increase of 17.1% on a quarter-on-quarter basis.
The EBITDA margin for the quarter was 21.7%. This improvement is attributed to a higher gross margin and our continued efforts towards enhancing operational efficiency. However, freight costs continued to rise during the quarter.
Profit after tax was at INR 89.1 crores compared to INR 70.4 crores in Q1 of FY '24 an increase of 26.4%. EPS for the quarter was INR 2.
In Q1 of FY '25, the cash from operations is at INR 45 crores and free cash flow is at INR 14.3 crores. The CapEx incurred during the period was INR 31 crores. The investment is in line with our plan for scaling the acquired manufacturing unit in Goa, and we spent INR 12 crores in the R&D, which amounted to 2% of the sales.
We continue to remain debt-free and had a total of INR 691 crores of cash as of 30th of June , 2024.
With this, I would like to open the floor to questions and answers. Thank you very much.
[Operator Instructions]
[Operator Instructions] The first question is from the line of [ Aditya Pal ] from MSA Cap Partners.
Am I audible?
Yes. You're audible.
Congrats on the great numbers. A couple of quick questions. Sir, now that our efforts in the backward integration have been successful and we've successfully tied up with a CMO partner also. So can I say that, a floor for gross margin has been set that the gross margins cannot decrease below a certain level even if the API prices in the near future go up? And what would be that level if so?
So obviously, new topic. When you talk of the scenario where API prices go up, obviously, if it is chemical prices, integrated prices going up. We are not immune to that escalation because most of it originates out of China. But what we can avoid is, like I mentioned in the past, we can avoid the exploratory raw material manufacturers exploiting the situation and increasing the prices beyond the cost of in our case or intermediates that basically prices that go up.
So from that angle, we will obviously, we should be able to sustain our profitability. But at the same time, there would be a cost increase, but what we would secure ourself is with raw material supplies and availability of raw materials and at a competitive price as and when the prices are escalated by other manufacturers.
Understood. Understood. And the gross margins that we reported this quarter, which has seen a sharp uptick of 420 basis points. Do you think this is sustainable? Obviously, assuming that overall API prices also remain where they are, and there's no sharp increase or geopolitical risk. So do you think that this is sustainable going forward?
So the quarter-on-quarter was 386 basis points. But I think it is sustainable. But barring the geopolitical situation that continues to evolve as you know on a daily basis, we will see [ trade ] pricing challenges happening. We are hoping it's not going to be for long. But as on today, freight rates is again creeping up, yet not with a historic high, but it is creeping up. But I do believe we'll be able to sustain these numbers.
Understood. And sir, the European and U.K. region, even though we reported a good growth Y-o-Y, there has been a slowdown, that the growth has been slowed. So from 20%, 22% that we used to report earlier, we're down to 12%. So can I see that now that 12% to 15% is the new growth rate that we can assume in this geography because, we have become a large player in that particular geography?
Yes. Very accurately pointed out. The base has become bigger. So with the base becoming bigger and market share growing, we are amongst the top 5 companies out there. But we will see a 10% to 12% growth happening from the region. And our team is working hard to supply us and move ahead of that.
But realistically, I think pretty much what you've said is what we believe will continue moving forward.
Understood. Just one last question before I come back in the queue. So say, 3 years out right, we have successfully penetrated deeper into the U.K. geographies. And now we are slowly penetrating and increasing our market share in the U.S. regions. So the 3 to 4 years down the line, other than the U.S. market as a very large growth lever, what are the other growth levers that you foresee that can benefit Marksans over the next 3 to 5 years?
So I do believe our U.K. is also, we've got a huge upside in our U.K., too, because of our products that are in the pipeline. I do believe U.K. will grow in terms of revenue and there's a deep market expectation. The only thing is, it may take a bit longer. But the facts will remain is that its, that is also a part of our growth guidance that are there.
The U.S. will probably grow at a faster pace. But the U.K. revenue also we have a budget, we have a marketing plan, we have a sales plan, we have our next 5-year outlook on U.K., and it is quite impressive from where we are today.
So -- but if you're asking me about beyond these 2 markets where else do we see our sales growing, I would like to grow in the European market. And for that, we are working on M&As, and we are exploring on these possibilities.
The next question is from the line of Ishita Jain from Ashika Group.
Am I audible?
Yes, Ishita you are audible.
Mark, congratulations on a consistently good quarter. My first question is on the capacity utilization. If you could tell us what the capacity utilization has been across the 4 units.
So the newly acquired facility is the capacity utilization is, I would say, about 25%, somewhere around 25%. And we did plan to every month to keep increasing. I think last month we probably did 30%. So you can see month-on-month, it's increasing.
The other facilities right now are at probably 65% utilization.
So 65% is the U.K. unit as well as the U.S. units?
Yes. I'm talking of my -- the other unit in India and U.S. unit. And U.K. unit will be around the same monthly, yes.
Understood. So my second question, so in U.S., we are currently in 4 categories, therapy areas in private label OTC. Are we going to be adding more breadth in terms of the therapy areas? Or are we going to add more vertical that -- for growth in the U.S.? I mean essentially just trying to understand what will drive growth for U.S. business.
Again, penetration with the client, our customers, there are a couple of approaches in terms of distribution. Current customers, I mean we have a huge basket, right? And all our clients don't have 100% of our basket, some have probably 10%, some have 5%, some have 30%, some will have 50% basket. So our aim is to just penetrate with pretty much all the customers with our free basket and to ensure we optimize our product range into every client. So that's why we talk of market that creeps, market penetration, better reach into each client. So that itself is a huge potential because the market size is obviously big and reflect our revenue growth.
Second is obviously targeting new clients, new customers, which are relatively bigger and larger. And while we did both, we have to also make sure that we have a back end in place in terms of manufacturing capabilities to support that growth that will come in because, again the U.S. market is a big market. So the volumes are huge. So and again, shows the U.K. and our future power markets that we know is Europe also. So we have to look into various angles.
But just to answer your question, which is more U.S. specific, the approach is obviously a better market product penetration in frequent clients, new product launches and new segments in the market that we want to launch.
Got it. Great. Just one last question from my side. You mentioned that right now, we are not so big in Europe and we're looking for M&A deals for that geography. Just to sort of get some color. In Europe, are we looking to be -- are we looking to replicate the U.S. model and be more private label OTC? Or are we going for Rx? Or are we looking at a mix?
It will be a mix. It will be more like a U.K. model, which is also fantastically, which is good. And we have literally replicated -- all our business strategies across have been very similar. We have been true to our principles and to our objectives and to our strategy all over the world. And what we implemented from the first acquisition till, first M&A till today, we are continuing operating the same strategy. So we will replicate what we have in U.K.
The next question is from the line of Darshil Pandya from Finterest Capital.
Am I audible?
Yes. You are.
Sir, just wanted to know what's the status on Teva plant? Has it started contributing to these numbers? And what are we expecting in for this year?
Teva plant, obviously, in a standalone, if you see it has contributed. In the consolidated, obviously, if we consolidate, it is not reflecting the consolidation because we have to ship our product, as we agreed and we are planning to launch these items. So I do believe the consolidated, you will see the contribution in [ Teva ] probably in the third quarter. I mean, after September or October, that it has contributed because we have shipped product out.
Like I mentioned, we have done revenue in the first quarter. The second quarter is better than the first quarter, and the third quarter will definitely be better than the first and second quarter. And the third quarter will probably be the best quarter.
So we do see an increase happening month on month. And yes, I mean, it is a reflection. If you look at our standalone numbers, it is reflecting on that.
Okay. Can you just quantify what was in the number terms or what revenue [ EBITDA ] did we do?
I think we did, in the first quarter, we did about INR 60 crores from December month.
INR 60 crores?
6-0. INR 60 crores.
6-0. And we're kind of anticipating around INR 500 crores, INR 600 odd crores of revenue in FY '25. So your comment on that?
In the first quarter, we did about INR 60 crores. But in July itself we did about INR 30 crores. So you can see it increasing month-on-month basis.
So any ballpark number that we can expect for this year, maybe...
So I do believe by the third quarter, we should be hitting close to INR 100 crores a quarter.
Okay. And for Q4 what do you -- for the whole year, what are you anticipating?
When you talk of INR 100 crores a quarter, that run rate, it may not happen for the full year, so on so forth. You are then trending with INR 400 crores, and then the fourth quarter will obviously be bigger than the third quarter.
We are anticipating that growth to continue from Teva. But more than anything, these are in the consolidated numbers, you will see the difference in the consolidated in the third and fourth quarters, especially in the fourth quarter, you'll see the rise happening because all the products that you ship will then see light in terms of product launches.
Got it. Got it. And off lately, you saw some news articles that U.S. and U.K. we might see some more contract manufacturing coming in. And you have any idea or any news about it? Maybe they will...
Not exactly. I mean there are different spaces. Not in our space. I don't see that. I don't see that happening. I don't see any difference in what we are going to want of the article basically talks about. So I see -- I don't see that not having any impact or any advantage to us.
The next question is from the line of Aejas Lakhani from Unifi Capital.
Mark and Jitendra, congratulations on a really good set of numbers. Mark, my first question is that you've got some new marketing authorizations approved in the U.K. region. I'd like to understand what is the market size of that? And are these margin-accretive products that you've been referring to, which we will see incrementally in the U.K. market? That's question one.
Yes. These are margin lucrative items. They are the niche products, difficult molecules. So they are not -- value drivers in terms of if you ask me whether the molecule will do a GBP 10 million sales. That may not happen. But the bottom line improvement is -- it will add tremendous value to the bottom line.
Got it. And we have already launched these products in the U.K. market and they're live. Is that understanding right?
No, we just the authorization. It takes at least, I don't know, 3 to 4 months to launch it. We have to manufacture it. We have to ship it out. And it has to be imported in, tested, released. So there's a good precision time of at least 3 to 4 months, and then we see the launch.
We will move on to the next question, it's from the line of Niharika from Aequitas Investments.
Sir, my first question is that we had on-boarded OrbiMed as our investor and we hold around 11%. So like have you reaped any benefits because that was a thought process of giving them preferential allotment.
There are multiple benefits. There are intangible benefits and there are tangible benefits. Obviously, they've added tremendous value on the board. We have regular meetings. They add tremendous importance to corporate governance and all the discussions that we have surrounding our growth, M&A strategies. They have been getting a lot of M&A targets for us. But that said and done, ultimately, it's all with our choice, whether we have to move ahead with M&A target amount. And that said and done, they are valuable partner source. And obviously they have contributed sufficient amount to -- for us to go and explore and look at M&A target.
So I would say we've added both intangible and tangible more.
Okay. Understood. And any insight, if there is any increase in competition in the OTC market from Indian, like bigger players who are wanting to enter into OTC market and say, U.S. or U.K.? And if yes, then how are we coping with it?
So I don't know. I mean this is not a new segment that we've created. It's been existing there for years. And I guess, all the companies have been there in the past, and will be there in the future. So it's just the nature of the beast and it just don't matter whoever wants to come in, it's an open market.
Is this part of our front and distribution channel in place that we are kind of able to beat the competition. I'm just trying to understand the moat in the OTC segment.
Our strength is our strength. And obviously, we have, over the decade or so, we have mastered. We have mastered the art of [ sale ] and servicing the OTC market. That's said and done, our focus is there on that segment. It's a part of our focus area.
In terms of competition, competition is there in every segment, that may be Rx or taking the [ post-patent ] products or this is who has does not differentiated from a competition point of view, like I said, it's the nature of the beast. We are in the pharmaceutical sector, which has a lot of companies in the world.
Okay. And like on a broader level, the U.S. has more margin accretive for us than U.K. margin-wise on a company level?
I think it's a fusion. It's a blended fusion of both. And obviously, today, U.K. you could understand, U.K. -- we have been in the U.K. since 2008. So we've been in U.K. for nearly 9 years before we entered the U.S., U.S. we relatively entered only like 4, 5 years back, that's in 2017, literally by ourself. So we still got a long way to go in the U.S. market, but it's a big market and has potential of growth. They're still very small in the market. And that gives us hope and potential that we can grow more.
Right. And on the Red Sea front, I think last quarter, we had incurred INR 9 crores more because of the Red Sea issue. Is there a number that we can give for the quarter that it was because of some abnormal Red Sea crisis that we see face freight?
So Niharika, we incurred additional freight of INR 12 crores if we see the year-on-year freight number. So yes, so incurred INR 12 crore extra in freight.
And even currently you're facing freight issues?
It is further increasing. So definitely, right now, there is no respite.
Okay. Understood. And then the Teva plant, have you reached breakeven in this quarter, quarter 1?
Yes.
Okay. And on the order book visibility, do we have like good visibility for, say, next 1, 2, 3 years, like, because I'm not sure how our like orders are kind of...
Yes. I mean based on the visibility, the confidence level that we will touch [ INR 3,000 ] crores in the next 2 years.
And then typically, how long is the contract for with the customer is, on an average?
2 years, 3 years.
Okay. And this had some price escalation, this also element in the contract?
That price, I mean contracts don't give you. We are not into real estate. So -- but normally, when contracts are there, the price is fixed. But there is law that increased raw material prices, escalate beyond a certain level percentage points, and you can always go back and revisit and renegotiate the price.
Okay. And my last question is, if you can give like top 3, 4 products, 5 products concentration on the total revenue, if we have that number?
Well, it's a very diversified portfolio. In the U.K., we sell about 350 different products. And U.S., our basket is nearly touching about 60, 70 box. So I think it's difficult to identify any molecule. And in a way, that's what makes it very robust because we don't have one standout molecule which says, oh, well, we are doing INR 100 crores on this molecule. That's not -- when I look at the numbers, I don't see any single molecules standing up like [ Eiffel Tower]. The bar chart is significantly, literally at the same level of maybe 20, 30, 40 products.
The next question is from the line of Viraj Mahadevia from MoneyGrow.
Mark, Jitendra, congratulations on the great results. Just wanted to check, given the cash balances of INR 650-odd crores. Has there been any progress on our acquisition in Europe?
No. Acquisition in Europe, we went through 2 due diligence companies, but none of them worked out. At the last minute, one of them we were -- last minute out. Bidded on the second one, it just didn't work after the due diligence part of it.
So right now, there's no plan to cope up. And we are in discussion with one more company. But it's too early to say that it will take any shape or color.
Right, understood. And given, I think, 1 year, 1.5 years ago, you mentioned your payout policy to shareholders of 1/3 of free cash flows. I mean, as I look at it in the last 10, 12 months, we haven't done a buyback and the dividends were still pretty small. So are you still adhering to that policy? Or has there been a change?
Yes, we are. Our CapEx was very high. So the free cash flow was very less and equity literally played more than our free cash flow. Just to continue our trend, but we have spent over INR 160-odd crores in CapEx itself.
So when we looked at a free cash flow, we had very limited -- that formula would have not worked from a dividend point of view to ensure our trend continues, but we still continue our trend.
And then last question is on the in-housing of some of [indiscernible] projects on the APIs. What progress has been made? How many molecules have come into that?
So we have signed 1 [ DMS ], and we are working on...
The next question is from the line of Aejas Lakhani from Unifi Capital. The current participant. Mr. Aejas can you hear us?
Yes. Can you hear me?
Yes, sir.
Yes, Mark, I got cut off earlier. Just a couple of questions. On the U.S. could you call out what is the order book today?
About INR 180 million.
INR 180 million, right?
Yes.
And that's executable over the next 2 years?
Yes.
Okay. And in the contracts with U.S. customers, these increase in freights, are they like a pass-through? Or is that something we have to absorb and it gets passed on with maybe a lag in the next quarters or so?
So obviously, we have to absorb this for the time being because we do not know whether this is a passing phase, whether it's going to last 1 month, 2 months, 3 months and correct long. So it's something that, it is not something that can be passed on at this stage, unless it goes totally out of -- spiral out of control, then we can go and present some pricing request. But right now, we have to absorb it.
Okay. Okay. And as the facility for Teva scales up in the next few quarters, do we expect some more operating leverage to play out? Or do you feel that, that will be eaten up by the incremental freight cost similar to what happened this quarter?
I think operating leverage, the more we produce, the operating leverage will definitely kick in. And we are hoping that our operating leverage will be larger than the freight cost. So there -- while you can see the freight cost has gone up, but our results were still very prominent. So again, operating leverage is kicking in, and we continue to take in from all fronts.
And based on that, yes, the freight cost is something that nobody wants it -- wants to see it. 3 months back, it was $2,000. Now it is $6,000 as on this month itself. So nobody likes to take that hit of 300% on the freight. But again, it is going to be just part and parcel of the global geopolitical scenarios that are existing. But I do believe and we are hoping that -- I don't have a crystal ball, but I'm hoping that it will start coming down because there is no rational product to keep increasing, if I were to see, it's an old issue. And manier times, I keep wondering what's driving this up because maybe the shipping vessels are from the [ charter ] or something, but I have no idea what's driving this because this vessel should not be a talking point today. But it is fact that the prices are going up.
Noted. And Mark, now that you have 2 facilities in Goa, how do you plan to refocus each of them? Because your older facility, which has been running for so long, that already had a certain set of line and products that you were making. So is it that -- if you could talk about how you are planning to optimize on the production given that you have now 2 facilities?
Well, as the demand grows and as the freights grow, the other facility is not going to be able to cater to all our requirements. So we have to basically start giving it to the new facility and make sure that we basically service our requirements globally, whether it might be for U.K. or U.S., Australia or Canada.
So obviously, the company is growing, that's INR 3,000 crores we need INR 3,000 crores plus we need 2 facilities. We can't just make that happen in 1 facility. Definitely the second facility is already ramping up. We've already, in terms of tablets -- I mean it's ramping up to the level that we anticipate it. So it's meeting our expectations, the speed shipments happening, started to happen. And every month, we can see some progress in the forward direction. I do believe that second facility will basically contribute larger than the first facility.
And it may take this calendar, this financial year to see that happen. Next financial year, I do believe you will see the full results of that being played.
Got it. How much would be the sales from the Goa facility today?
I didn't get you. How much would be what?
So you said that Teva facility will overtake your existing Goa facility in terms of sales in the years to come. So I just like to know what is the sales from the Goa facility today?
Aejas, it is in the range of INR 750 crores to INR 800 crores.
The next question is from the line of Naveen Baid from Nuvama Asset Management.
My question is actually a continuation of what the previous speaker -- one of the previous speaker has asked. If you could give some color, not necessarily be a finite number as to what is the [ packing ] order of margins amongst your U.S., U.K. and Rest of the World business?
Margins are obviously, like I said it's...
We'll see at the gross margin level, like we see to it that all geographies should give us 50% plus. So on an average, it is between 50% to 55% across these geographies.
Okay. But at the operating level, would it be to, safe to say that you'd be doing more margins in the U.K.
At EBITDA level, definitely, there are different numbers. And U.K. like definitely we have relatively higher margins, the Indian operations have relatively higher margins. U.S., we are catching up. Like told 250, a better number coming out from U.S. geography also. So...
Would U.S. be lower than the consol numbers for the company?
Yes.
[Operator Instructions] The question is a follow-up question from the line of Adityapal from MSA Capital Partners.
Sir, just wanted to understand, sir, there has been news in the U.S. that Walgreens, CVS has been shutting their pharmacies. Do we see an adverse impact because of that? Or it's no use type of a scenario?
No, we don't see any adverse impact on that. This is part and parcel of the cycle at U.S. witnesses every now and then. And while they shut pharmacies, after 1 year they'll open some more pharmacies, and we'll reposition the pharmacies in areas which don't have pharmacies.
So sometimes in the growth strategy, they go and literally open pharmacies every mile, or every 2 miles or every 5 miles. So maybe there is repercussion. So we don't see an impact on that.
Understood. And this question would be that when you're speaking about M&A and hunting for opportunities in the European region. So are we looking at a company which is a marketing company or someone which has their own brand plus a manufacturing setup?
Yes. It's difficult to cherrypick what we would like because that's what we've been trying to do. But from a manufacturing setup point of view, we are trying -- we are not trying to acquire a company which has the manufacturing facility. One of our M&A, one of the due diligence that we did, that was one of the touching points that because it was overlapping the capacity and the facility that we have.
So we didn't want to go ahead with that. But we would like more -- company with more market authorization and more than Europe spread, and we would like to leverage low-cost manufacturing base out of India.
Understood. And just last question from my side. So now when you're talking to another participant about the Teva plant. So Teva plant will be fully utilized by FY '26. Do we -- are we hunting for new land to build? Or are we planning to augment our existing facilities in terms of capacity? How are we thinking about that?
Yes. I mean very valid point, actually. But you're right, Teva facility has basically -- we have -- we are moving at a very fast pace, both from a growth point of view, from a requirement point of view. So we have been discussing, exploring, contemplating within the [indiscernible] strategies beyond INR 3,000 plus crores. What back end infrastructure we need, let's say the next jump that we have to do after INR 3,000 crores.
So we have to always align ourselves to ensure we have that support to fuel our growth. So we have to -- in pharmaceutical, we've got to plan 3 years before. You invest today, and you see the trends up 2 to 3 years. That's typically how we move ahead. And we have already started working on that.
The next question is from the line of Deepak Rao from [ KNR ] Securities.
Congratulations on a great set of numbers. So I have 3 questions. So the first question is regarding the timeline for a U.S. FDA audit on the acquired plants for Teva. And the second question is I just wanted to know if there's any guidance on how many filings are we aiming for in FY '25. And thirdly, I just wanted to understand what all countries are we targeting when we think about entering Europe?
To your first question, I don't have an answer because honestly, that's the regulatory, that's a regulatory question, which basically no one has an answer to. And they are free to come any time. So that is the -- that's the answer to the first question.
The second one. In terms of the market, it is literally the same markets that already are doing our products. Like I mentioned, our first plant, again we have align ourselves with the demand and supply gap. And definitely, our demand has gone higher than what our supply was in the first half. So we are anticipating, we are servicing that from the second plant.
And so basically, geographies are the U.S. market, European market, the Australian market and what's -- and your third question was?
Sir, regarding what countries are we targeting in Europe?
So I mean, right now, obviously, the countries that -- so right now, so the U.K. that we are servicing from the start. But in terms of countries like I mentioned, we are looking at M&As. And the countries of your choice would be obviously the Western Europe, and we can start from Germany and then spread out from there.
The next question is from the line of Dominic D'costa from Axia Capital.
And congrats on a great set of numbers. I had 2 questions. One is, should we see an increase in fixed cost? Or how do you think about fixed cost for the next quarter? Could we see any increase because of better -- increasing capacity utilization? That's number one.
Second is on the...
You are not audible. I'm sorry, I can't understand your question.
Sorry, is this better?
Okay, slightly better, but go ahead. I'll try.
Okay. So my first question is, so can you guide us towards the fixed cost for the next quarter. So we expect an increase because of the new Teva plant or all the fixed cost attributed to the Teva plant is already in the [ P&L ] for this quarter?
Yes. The fixed cost is pretty much out there. There will be a slight increase happening. But most of the cost is already captured in the P&L. And as and when, obviously, we ramp up further requirements, which is going to happen on a quarter-to-quarter basis because, obviously, from let's say, from INR 60 crores, we want to do INR 100 crores, we want to do INR 120 crores. It's -- you need people, you need teams to execute that. So it will ramp up proportionately when infrastructure is ready to get in touch with that level.
And the second question, any update on the [indiscernible]
No update.
[Operator Instructions] The next question is from the line of Jayesh, an Individual Investor.
Are you able to hear me, sir?
Yes.
So congratulations for 2 things. One is consistent and good set of numbers. And the second thing is our company is a $1 billion company. So congratulations to you and your team. Yes. So my question is regarding the prepaid agreement our country is trying to sign with U.K. So when it is signed, will there be any benefit from the U.K. operations for the company, sir?
No, there will not be any specific benefit arising out of that agreement. So, so far as pharmaceuticals are concerned, already, there are no duties as such. So there may be some advantage but nothing material.
The next question is from the line of Niharika, and Aequitas Investments.
Sir, just one clarification that you said that Teva plant current capacity utilization is 25%. And U.S., U.K., is 65%. Did I hear that right?
Yes. Teva plant, yes. Yes.
And what about the Goa plant's capacity utilization? And why we can have lower capacity utilization, is it because we have like overcapacity to like cater to the demand? Or is it like lower demand? Just want to understand the capacity utilization front.
Percentage this quarter high utilization. Our plants can go up to 100%. So maximum, they can go up to 80%. So 65% is a quite high utilization for the plant. But that's said and done, it will increase. As the demand, we have demand and based on product launches and all it will reach that, too. But we won't wait, we can't wait for it to touch 80% and then start planning. So we -- obviously, that's where the Teva plant came into play to service the demand and supply gaps that we foresee.
The next question is from the line of [ Akash Sawant ], an Individual Investor.
So from the numbers that I could see, we have about 70-odd scientists into R&D. Two questions. One, do we see a correlation between R&D expenditure vis-a-vis growth in revenue? And two, do we have any plans of adding more scientists or any kind of programs where they would develop products which would possibly end up contributing significantly to the top line in terms of another revenue stream?
So as companies evolve, we get into more complex molecules. So number of scientists increasing will again depend on the molecules that we are adding it. So -- and the growth strategy that we have in place. We try to maintain a discipline in our approach and not going overboard. But that said and done, we do believe it will be in the same range of what we're spending today for the next 2 years, at least, we remain in the same range, we'll be range bound.
The next question is a follow-up question. It's from the line of Naveen Baid from Nuvama Asset Management.
In your journey from the current INR 2,200-odd crores to INR 3,000 odd crores that you're targeting over the next couple of years, which markets do we think will lead this growth?
In short, in our journey from INR 2,100 crores to INR 3,000 crores, which would grow. So obviously, the immediate growth, the fastest-growing market will be the U.S. market, where you see the growth drivers in the U.S. market. But that said and done, the U.K. market will also add value to this growth. But in absolute numbers and comparison, it will be the U.S. market that will take us faster and closer to the INR 3,000 crores with the U.K. market bridging the gap to hit that number.
[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to the management for their closing comments.
Thank you, everyone, for participating in our Q1 FY '25 earnings call. Thank you for taking the time, and thank you for all your support and interest. Be safe, and looking forward for our next call. Thank you.
On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.