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Marksans Pharma Ltd
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Yes. Good evening, everyone, and a warm welcome to Marksans Pharma's Q3 and 9 Months FY '23 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.
The results, press release and Investor Presentation are available on the stock exchanges and company website. I would like to now introduce the management team today on the call with us, Mr. Mark Saldanha, Founder, Chairman and Managing Director; and Mr. Jitendra Sharma, Chief Financial Officer.
A cautionary note that some of the statements made on today's call could be forward-looking in nature, and actual results could vary from these statements. A detailed intimation in this regard is available in the investor presentation, which is available on the stock exchanges and the company's website.
I will now hand over the call to Mr. Mark Saldanha for the highlights. Over to you, sir.
Thank you, Sidharth. Welcome everyone and thank you for joining us on our Q3 FY '23 and 9 month FY '23 earnings conference call. I'm pleased to announce another quarter of strong performance across all our regions led by volume growth and market share gains in existing products. Strong revenue growth of 32% year-on-year was also reflected in the similar EBITDA growth. Our EBITDA margins year-on-year were stable at 16% despite high inflation, input cost pressure, pricing erosion of a high single digit in the U.S. although the supply pressure and freight costs have softened in the quarter -- in the current quarter compared to the last year, which is a silver lining for us.
Before we discuss our performance in the quarter, I'm pleased to highlight that on January 20, 2023, we completed the raising of INR 372.40 crores through the conversion of warrants into equity shares by OrbiMed Asia and Promoters at INR 74 per share. With this transaction, OrbiMed Asia now owns a 10.8% stake in the company. We are confident that our strategic partnership will bolster with OrbiMed's deep global health care experience.
Marksans strives to strengthen the best governance practice. We continue to value the expertise of OrbiMed's representative, Dr. Sunny Sharma, on Marksans Board. We have MSKA & Associates, affiliate of BDO International, as our auditors. BDO is the fifth largest auditing -- global auditing firm.
In January 2023, we also completed a buyback of 64.74 lakh equity shares for a total value of INR 32 crores. Looking ahead, we see growth potential in OTC and Rx markets, especially the switch from Rx to OTC. We remain confident of our growth journey driven by volume growth, market share gains and new product launches.
With this, I'd like to turn it over to Jitendra, who will update you on the financials, before we can start our Q&A.
Thank you, sir. Our operating revenue was at INR 479.8 crores, an increase of 32.3%, compared with INR 362.6 crores last year. U.S. and North America was at INR 217 crores, representing a 37.8% increase year-on-year basis. EU and U.K. formulations market grew by 25.4% to INR 186.8 crores. Australia and New Zealand formulation market recorded 27.6% growth to INR 49.6 crores. Rest of the world saw a 52% increase in the sales to INR 26.5 crores in Q3 of FY '23.
Gross profit was at INR 240.3 crores, up 23.2% year-on-year, though gross margin declined by 371 basis points from 53.8% to 50.1% in Q3 of FY '23 due to the pricing pressure and input cost inflation. The EBITDA was at INR 76.6 crores, an increase of 32.6% year-on-year. EBITDA margin was stable at 16%, with operating leverage offsetting the impact of high level of inflation.
Profit after tax was INR 62.3 crores, compared to INR 48.3 crores in Q3 of FY '22, a growth of 29.1%. EPS for the quarter was at INR 1.56, 30% growth on a year-on-year basis.
Now I'm taking you through the 9-month performance. The operating revenue was at INR 1,366 crores in 9 months of FY '23, up 27.3% year-on-year. The gross profit for the first 9 months of FY '23 increased by 21.3% year-on-year to INR 688.6 crores. The gross margin was at 50.4%.
The EBITDA for the 9 months of FY '23 increased by 17.7% year-on-year to INR 229.8 crores. However, EBITDA margin declined by 138 basis points from 18.2% to 16.8% in the first 9 months of FY '23. The cash generated from operation was at INR 208.6 crores.
For the first 9 months of FY '23, PAT grew by 16.2% year-on-year basis to INR 182.6 crores. The earnings per share grew by 18.7% to INR 4.54 per share.
We spent INR 24.5 crores in the first 9 months of FY '23 in R&D, which amounts to 1.8% of the sales. We continue to remain debt-free. We had a total of INR 417 crores of net cash position as of 31st December of 2022, which we can't utilize for CapEx funding and for our inorganic growth strategies. This cash excludes the 75% warrant subscription amount of INR 279 crores, which we have received in January 2023.
With this, I would like to open the floor to questions and answers. Thank you very much.
[Operator Instructions] I have the first question from Riddhesh Gandhi. Riddhesh, could you please introduce yourself?
This is Riddhesh from Discovery Capital. Congratulations on your numbers. Sir, just wanted to understand, we are showing revenue growth despite you indicating high single digit price decreases. Just wanted your view on, if you see these price erosions to kind of continuing into the future or can you see it actually abating. And also, just to get an understanding of the reason we've been able to gain share, is it because we have kind of reduced our pricing or is there something else which has led to an increase in our share?
So basically, obviously, the pricing pressure, price erosion still continues in all the first-world countries, especially U.S. We do see it stabilizing at some time. The scenario is highly volatile where raw material prices are also on the decline. So that again raises all the questions of pricing pressure. Our market gain has been obviously because of service, because of our new product launches, because of our positioning and our product basket that we offer now in those markets, especially in the U.S.
So we are the preferred choice, and we are catering to segments in total. So that's’ where we have achieved that market penetration, reliability, and sustainability. So that's where we basically have succeeded and actually gaining some market share overall.
That's helpful. And sir, if you could also throw some light on the backward integration you guys were looking into API and any kind of time lines on to that?
Yes. So with regards to the backward integration, what we have done is, besides doing our R&D work, we are going with the CDMO strategy presently. Because we have our hands full where, obviously, we are working on the Teva integration and the acquisition and the integration of Teva will be our immediate focus. So we are actually working on the CDMO strategy, but we do plan to file our DMFs in the calendar year of 2023, that's this year.
Got it. And then effectively, we would be looking at a commercialization, then would still be, let's say, 3 years away? 2 to 3 years away from [indiscernible]?
Commercialization will be relatively fast, but there is a process because once we file our DMF, we still need to get that DMF onto our licenses. Actually, that process is longer than actually developing and filing a DMF. Because getting an active raw material onto a license could take anywhere between six to nine months after we file the DMF. So we are working on parallel grounds, but you are looking at a year-and-a-half in total.
And the last question with regards to effectively going ahead, do we continue to be able to see this kind of growth trajectory? And is there any sort of abatement in terms of the inflationary pressure and therefore potentially coming back to that 18% to 20% at the EBITDA level?
So I think we will maintain our growth trajectory. Like I've always said in my previous calls, we are poised to cross INR 2,000 crores in the next financial year. I think, so we are moving in that direction. I don't’ see any hurdles coming out there. I think with regards to pricing pressure, it's just the nature of the beast that -- and we are into that. So we know the nature of the game very well by now. But I don't foresee any challenges appearing from that angle. So we should be pretty much as per what I pretty much mentioned in the last couple of quarters.
We'll move on to the next question. CAO Capital.
Am I audible?
Yes, you are.
This is Agastya from CAO Capital. Congratulations for great numbers. I think in the sector, you guys have probably delivered the best numbers. I could be wrong, but great performance.
I'll take that complements, so that's fine.
Yes, because these numbers were really bad in the sector. And thank you for hosting this call over Zoom. Last time, we had requested you to do the same and you guys took the suggestion. Thank you very much for that as well.
Sir, my questions are kind of an extension of what the previous participant was asking, but I will concentrate more on the cost side. So there are so many moving pieces as of now, as you mentioned that raw material prices are coming off and freight costs are also coming off. Yet, there is an element of inflation, right?
So how long do you see inflationary pressures continue to reflect in our P&L? Because I'm pretty sure on the margin, costs are coming off, but you must be sitting on some inventory and there will be some lag effects. So on the cost side, when can we expect some sort of stability? Do you have any visibility on that?
Agastya, that's’ a very good question because, yes, you are right, we are sitting on some material and especially because if one noticed in the month of October, November, and December, China had all these issues of lockdowns and there was absolutely a standstill with China. So at that time, obviously, we decided to increase our inventory holdings so that we can service our contracts and everything on that stuff. So the position is very fluid, but one positive silver lining, like I mentioned earlier, is the freight costs have come down and that is some relief.
And the raw material situation is that we are sitting on very close to six months of inventory on raw material or finished product, which are at a high cost, But we do see -- now that China has opened up and now that things are cooling down or coming down, we do see the raw material situation to further improve and this impact or this advantage could be see maybe post six months. You can see that.
Would we see a couple of quarters of some inventory losses? Are the finished good prices falling fairly steeply?
No, no, because we all have contracts. So basically finished goods prices will not change overnight. But however, the margins will also not improve overnight. But we'll see some better days, like I mentioned, once the new raw material pricing come down, but I must caution you that while raw material prices do come down, as and when you go for new contracts, there will always be a correction in pricing or pricing pressure happening.
So the market, especially in the U.S., is just coming off a pandemic. It's coming off the flu season. It's coming off the virus that was prominent. So what happens is, there is always a correction in the distribution channel. And doing that correction in the distribution channel, you do see a slight slowdown happening. Honestly, companies do get a bit desperate in terms of pricing. But that said and done, we are confident of achieving our objectives and hitting our forecasted numbers.
Sir, I was coming to that point also. Can you give some idea as to what kind of channel inventory is out there as of now? Because you were not the only rational person. I would say, it was very rational of the company to stock up on inventory, given the situation in China in October, November. But I'm pretty sure the channel would be filled with inventory as well.
And also along with the freight, transit times are also compressing. So that also has this result of just liberating a lot of material in the supply chain, right, which was earlier getting caught up in transit. So given all of this, do you think there is any risk of significant channel destocking? Or do you think those situations are under control overall? And we should not see any significant slowdown in primary sales, so to speak?
In primary sales, the only slowdown can happen more seasonal or more because of COVID, or the lift up, or the distribution channel, basically being overstocked due to, like I mentioned, the flu season, the COVID or the viral outbreaks that happened in the last quarter. But with regards to destocking and with regards to access stocking, I don't see that having a materialistic impact in movement, in terms of units being sold or distribution or value being eroded presently.
Correct, sir. One question to your CFO. Sir, I just wanted to reconfirm the cash that you guys have received post-conversion of warrants is INR 279 crores, over and above INR 417 crores of cash as on December?
Yes, that is correct.
And sir, can you also share the final fully diluted share count now after the warrant conversion and after the end of the buyback?
See, the final share -- issued share capital is around INR 45 crores shares now. We have intimated the exact numbers to the stock exchange.
Utsav Jaipuria, DAM Capital.
So my first question was on the U.S. business. So Q-o-Q also, we've seen about a 12% growth. So is this largely because of the flu season?
I think it's -- there is some flu season involvement out there. But it's -- again, it's how the products move in certain seasons and how it moves in certain markets and certain timings. We do plan to show this type of growth basically year-on-year. So we don't foresee any hiccups on actually showing growth in the U.S. in the next financial year.
We should be able to maintain that growth per se. And that will be because of new product launches also that takes place and certain contracts that are being commercialized, which were awarded maybe 6 months back. So it's -- I think it's coupled with a lot of factors.
So on the contract, so this would really be largely in the Store Brand segment, right?
Yes.
So what's the typical length of a contract in that segment?
It's normally 2 years.
Okay, 2 years. And is there any sort of a switching cost for our customers in that?
I didn't get you.
Could you -- is there anything that prevents, let's say, a customer from switching to a competitor after 2 years?
No, after 2 years, nothing stops them. You will probably have another bid that comes around and then you have to pitch for the business. And -- but over time, you develop a relation, you have a reliability factor, you have a consistency factor. You have the support factor that comes into play. And it's basically the confidence that they have on you, which puts you in a stronger position to win the contract next year.
That's fair. So I had a question on the Teva plant as well. So what sort of a breakeven time line, ramp-up time line are you expecting from this plant? What sort of payback period are you expecting?
About 9 months, give or take, maybe slightly here and there. So we do see the first 9 months, obviously, the consolidation phase happening, integration happening. We are going to pump in a lot of money into CapEx and increasing capacity. So -- but I would say, probably take us 9 months to break even.
Now we have Viraj.
I'm an individual Investor. Congratulations on stable results. A couple of questions for you. Mark, you mentioned about this Rx to OTC switch. Can you educate us a little bit about what's happening in the end markets, particularly in markets like the U.K., which is leading to an increase in OTC due to the switch?
Yes. I mean these are opportunistic moments that one looks for where products coming out of Rx going into OTC, it's all about timing and how fast you can actually foresee that and develop your product to file it and get an approval on pretty much the same date. But these are opportunities that give you pretty much better value than a normal generic.
So we don't -- as a company, we don't go into para IV patent challenges, but we do look at these situations where a product which was initially an Rx item but still has high usage goes into OTC, which becomes basically reachable for the consumer who goes to a grocery to just pick it up. So obviously, in such scenarios, the volumes grow much higher than waiting for a prescription. So it is an area where -- I mean we are not inventing this. It has always been there. But we are...
And it's driven by the local regulator -- health care regulator?
It is driven by local regulator and companies, basically. Companies who basically propose so evidence. And obviously, there is something called -- the regulator obviously does a risk assessment evaluation. They look at the grandfather status, how long the molecule has been in the market, time-tested, the clerical, the risk factors to consumers of overdosing, everything. So there's a lot of factors that go into it. But ultimately, it's a regulator who decides that this product qualifies to go into a consumer mode of OTC.
Understood. Understood. Second question is regarding freight costs. Freight costs have come off meaningfully. Have you had a benefit of the freight cost reduction in this last quarter? Or is it likely to kick in Q4 onwards, because there's probably a lag effect?
There is a lag effect, and it will kick in, in Q4 onwards, but it's a relief because that was a big burden which was difficult because freight is a very variable factor. So it's difficult to pass it on to a client or something of that stuff because it may go up, it may come down. So you can't keep going to the client saying, well, it's gone up 1 day, it's come down the other day. So it was a huge drag in terms of the margins. So that...
And you reckon margins will go up by 1% on account of the freight cost reductions going forward or...
Yes, slightly 1-plus percent.
1-plus percent. Okay. Good. And lastly, on this API question that the first participant, Riddhesh, asked. Your strategy of going with the CDMOs, now you're not going to acquire an API plant or you're going to have this partnership with existing API players. What does that mean for your margin expansion? Because you're obviously now going to pay it out as opposed to doing 100% in-house. So do you see a margin expansion as you file these DMFs and go to CDMO route, and by how much?
Yes. We do see a margin expansion because we would be sourcing the intermediates, we would be sourcing the chemicals. We would be probably paying them the conversion cost, that's the only thing.
Now that conversion cost, if you run a plant, you'd probably have the same conversion cost yourself, and gestation time to break even plant from a greenfield project or from an acquisition would be much longer, assuming, which we do, to a great extent, prevent in taking any immediate losses or burden in terms of the learning curve that they go through in trying to integrate a manufacturing plant of -- especially into API.
So obviously, reason is because we have the Teva acquisition there, which we have done, and we'll be integrating this acquisition on 1st of April. So there were too many things to juggle. So we decided to go down this route. Number one, I do believe it will be more economical. And number three (sic) [ number two ], we do see margins improving because we would be in control of the cost factors.
Many a times when there is a surge in demand, mostly, you see the raw materials prices not going up that much, but a lot of time, API companies exploit the situation and increase the price.
So more stability in your RM and hence, the margin expansion over time?
Yes. Yes.
Next question is from Prerit.
I'm Prerit Choudhary from Green portfolio. So I have some questions related to the numbers. So we are saying that we will be supplying some of the products from the Teva plant to their existing customers until the end of financial year '23. So in the current quarter, did we record any revenues from the Teva plant?
No. In this quarter, obviously, there won't be because we are taking -- we are getting into the Teva plant on 1st of April.
So the revenue from the Teva plant will start from the next year only.
And second question is how much was the revenue from the Access Healthcare business?
For the first six months, it was...
Sir, revenue. Revenue from Access Healthcare for this quarter.
Yes, it was INR 19 crores only, 1-9.
So now OrbiMed has become a key shareholder in the company. So -- I mean how would OrbiMed be helping our company in growth, if you can talk about it?
So obviously, OrbiMed gets a lot of intangible values on to the Board besides intellectual and discussions that we have -- strategic discussions that we have. Their exposure and experience in the global market, especially in the health care, is absolutely valuable to us. Our business model revolves on both organic and inorganic strategies.
So they are exposed to a lot of companies, clients, where they do get to us opportunities for exploring our inorganic strategies. So it is very helpful to use their strengths and basically help us in our growth strategy, which partly depends on inorganic. That's why we raise the resources or the funds.
Over and above that, obviously, having an investor with so much of knowledge in the health care does add a lot of valuable discussions that we have on the Board on a regular basis, on a monthly basis, on a quarter basis. So definitely, they are adding good value on to the Board and to the company.
Okay. So the next question is, so company had a cash balance of INR 417 crores and through warrant subscription INR 279 crores. Now we have around INR 700 crores in cash, but -- so what would be the breakup? How would we be using these funds in the future?
Yes. Obviously, we have a CapEx plan, which we have discussed over the last quarters in the same vein that we -- number one, we still have to consummate the Teva. I mean we have to pay for the Teva deal. So we will be paying for the Teva deal maybe in the next couple of weeks. Over and above that, we would have to spend on to the CapEx plan of Teva, which we've already highlighted.
And then we have the inorganic growth strategy that we are pursuing, and we have dialogue with few firms, but nothing concrete. But we still need capital to consummate these deals. So that's where we do -- look at a decent amount of capital going.
Okay. Understood. So the last question is, what would be the guidance of our revenue and margins for the next financial year?
So obviously, we do -- like I've always said and I repeated the same thing in the beginning of the call, we are looking at crossing INR 2,000-odd crores next year. So that is pretty much what we said even in the last quarters. So we -- our trajectory is, if one extrapolates the numbers, you can easily get [indiscernible] line for this year. Based on that, we are confident we will cross INR 2,000 crores in the next year.
And on the margin front?
Margin front, I think we will maintain margin, if not slightly.
Next question is from Vishal Manchanda. Vishal?
This is Vishal from Systematix Institutional Equities. So on Teva, when it gets integrated next year conveniently, will we see an impact on your operating margins because the new -- it will take time for you to get the approvals from the clients. So is it fair to resume an impact on margins conveniently?
We do have CDMO contract with them -- a CMO contract, sorry, CMO contract with them on the existing products that we need to ship out for the next 12 months. But that said and done, I don't see it being -- I don't see the margins having too much of impact overall. But like I said, the breakeven scenario, we are looking at 9 months once we enter the plant, it will take us about 9 months to basically break even our operations out there in the plant.
Will it lead to incrementally invest in the facility?
Definitely, we will have to invest in the facility in terms of CapEx, which we've always said. We are planning to expand, I mean increase their capacity, their capabilities in different dosage forms. So we are planning to put in a lot of resources out there to scale up the operation. So I mean, yes, from that angle, investment will go into CapEx, but that will also give us additional revenue right now. So we are looking at Teva giving us a decent sizable revenue, maybe 12 months down the line.
Can you share a number as to how much they need to invest in the Teva plant over a period of [indiscernible]?
So we have budgeted about INR 200 crores in overall CapEx for the Teva plant.
That includes the upfront payment we would make to acquire the facility?
Yes. Yes.
That includes?
Yes, that's includes.
Just need to understand price erosion a bit better. So what I can see is when you have a portfolio, you have -- you will also have aging products like ibuprofen. So do you still see price erosion in such product categories?
Yes, because price erosion in such categories, obviously, it will be very limited because it's already eroded substantially, but that said and done, with raw material -- if raw material prices keep falling down, then obviously, competition do try to exploit that situation and [indiscernible] different pricing.
So from that angle, you can look at price erosion happening, but relatively, it's a much more stable molecule in terms of volumes, in terms of value, in terms of everything that we have seen so far.
So is there a thumb rule [ as such ] when you have, say, 7 or 8 players in a product category, it will be so that price erosion may not incrementally happen while, say, lower competition will remain prone to price erosion?
So price erosion happens when -- like I said, when the pricing of materials change. Either price -- I mean if the material prices are very stable, then price erosion does not take place to that level. But if material prices start going down rapidly, then pricing pressure comes into the finished product also.
And just with respect to the Rx to OTC switch, are you targeting any product categories in the U.S.?
We are working on a few categories. It's too early to discuss that right now on this forum, but we are working on a few items and products, both in Europe as well as in U.S.
Is the Rx to OTC switch driven by the company or it is driven by the regulator?
It is driven by the regulatory prima facie, but it also -- it's a push from bigger companies that go on. And instead of waiting and watching, you need to be more alert as to what's happening in the market. So -- and obviously, regulatory bodies evaluate, like I mentioned earlier, a lot of other parameters before they actually approve it. And based on the probability factors, we need to start working well in advance so that we don't miss the bus on early-to-market strategies.
Yes. I believe Lalit was there in the queue, but his hand is not raised. We have Yogansh Jeswani.
Yogansh Jeswani, are you there on the call? Okay. We'll move on to Jessel. Jessel, are you there? Okay. We'll move on to HN. I guess HN is also not there.
This is Hiral, an individual investor. My questions were answered. So I just wanted to understand your plan to utilize that INR 700 crores and more about the Teva facility or the time lines. I think both the questions got answered by the previous participants. So I'm done with that.
I guess we have Dipesh on the call, Dipesh Sancheti.
I'm Dipesh Sancheti, and I'm an individual investor. I wanted to understand, are we carrying any accumulated losses which will be useful for a tax advantage from Teva plant?
No.
There won't be, okay. And also wanted to understand what is the additional -- I mean what is the risk of additional competition coming in from other Indian companies into the OTC market, which we are in U.S. as well as in U.K.?
Sorry, could you repeat that?
I'm saying what is the risk of additional competition coming in from the other Indian companies into the OTC market of U.S. as well as U.K.?
Well, this is not a new market. So -- I mean we live with that and we live at competition. And like I said, it's the nature of the beast. So we just got to work with that.
Because you mentioned that the cost advantage which we have is the marketing cost in the presentation.
Yes. I mean because we do not have to increase the marketing team, we don't need to over leverage ourselves or re-invent the cycle all over again. So that's where our advantage arises. But beyond that, I would say that it is -- competition will always be there. New players may always come in. While new players come in, some old players exit. So it's a balancing act.
Okay. And where do we see our growth coming from in the coming years? Will we see maximum from Teva firm? Because...
So growth will come from all geographies. Teva, the plant which we acquired at Teva -- from Teva, that will help us to service and basically fuel revenue from whatever we produce in the plant. So definitely, it's going to service our global demand that is going on and newer markets that we venture out into. So it is a very important strategic acquisition that we have done at a decent price.
And the 8 billion capacity expansion, which we are planning to do, will maximum happen in Teva firm? I mean how much of it will happen in Teva firm?
I mean all of it will happen in Teva firm.
All of it will happen. And approximately INR 200 crores is the CapEx which we have budgeted, right?
Yes.
We have Manthan on the call. Manthan, would you be having a question? Anupam Agarwal?
Yes. So this is Anupam from Lucky Investments. Congratulations on good numbers. Sir, my question firstly is on the number of filings that you have mentioned, basically the pipeline for U.S. and Europe. If you can give some color as to the overall market size, the potential number of competition in those products.
Well, in U.K., we have planned over 34 new filings in the next -- what we are planning in the next 3 years. So obviously, we do plan to -- out of which, nearly 7 are planned only in this calendar year 2023. 16 products have already been filed previously, are waiting for approvals. So it is a huge product portfolio. It's a huge basket. The same thing in the U.S. We are looking at nearly 32 products, which are in the pipeline. 20 of them are in solid oral. There are some in ointments, some in creams, some in soft gels.
It's difficult to narrate the segment and the value of each of them. But these are our future growth drivers that we do believe will add value. It is quite expensive to go and file an ANDA now in the U.S. So we have -- we only undertake that when we feel there is enough of returns and value to be generated from the product.
So we are looking at the futuristic growth. But that said and done, this is not going to happen in 1 year. So when I talk of 32-odd products, it's over the next couple of years.
Yes. My question was not on product-specific answers. I'm asking basically that 75 products which are in pipeline, which will fructify in the next 3 to 4 years? What will be the overall potential of those products?
See, market size will be huge, a couple of billion dollars, but that has no relevance because, obviously, then you have a lot of players in it. If it's a digestive item, then a single molecule could be $1 billion. But you may have 4, 5 players, you may have players that are very prominent into those segments.
So definitely, they can give us a good revenue jump, help us to at least get us to a double revenue over time, let's say, in the U.S., help us to achieve that objective of doubling our revenue over time if all those molecules do see light.
Understood. In terms of capacity utilization, how much would that be for the Goa plant currently?
So you're talking now Goa. Obviously, we have to consider 2 plants that we have. And with our plan to expand the Teva plant to get us 8 billion units, that plant will basically be generating more volume than our current existing plant -- slightly more volume in terms of our current existing plant, which is very close to 8 billion anyway.
So you can just add the numbers of what we are doing presently today, and you can double that from what will come from that plant. So we do see a larger revenue pie coming from the other plant.
Fair enough. Fair enough. Lastly, I just wanted to understand on this Rx to OTC switch. So is it going to be marginally accretive for us? And is it going to take time for that to happen? Or is it going to be with a 1 quarter, 2 quarter lag?
No. So Rx to OTC is a long-term plan. So these are items which, like I said to the previous people on the call that these are determined by regulatory authorities. And once visibility comes, you should be ready to file it and then after filing it, wait for approvals to happen. So you don't want to file it when it's an Rx item. You have to file it when you see a visibility happening in the OTC. So when it's being switched to an OTC part of it. So these are long-term game plans. Like I said, we are not into para IV patent challenges, but these are opportunities that we look out for.
Got it. Lastly, sir, again, on the CapEx. So INR 200 crores CapEx for the plant and balance would be inorganic acquisition. Is it right?
Yes.
And at what stage of discussions or negotiations are we on that front? And what location are we looking at the acquisition to happen?
So it is in different geographies. I've always stressed that we are looking at expanding our footprint into Europe. At what stage, it's too early, there's nothing concrete to put to discuss on this forum right now, but these acquisitions will take a decent amount of resources or funds to consummate it. So -- but like I said, there's nothing -- I can't basically discuss on what stage it is presently because it's too early.
So the size of the acquisition will be INR 400 crores, INR 500 crores kind of an acquisition or...
No, I can't comment right now because it all depends on what valuation expectation and agreements that we would eventually conclude on. So it's very vague to speculate on that right now.
Next question we have from Manoj Mathew.
Hello, can you hear me?
Yes, loud and clear.
Okay. I'm an investor. And my question is, has the warehousing charges in the U.S. gone up?
Warehousing charges.
Warehousing charges.
Warehousing charges, I mean we normally have our own warehousing in the U.S.
Okay, not public warehouse?
No, we don't do 3PL warehousing over there. You're asking if real estate prices have gone up, yes, the answer is yes.
Okay. The next question. So you're talking of some acquisition. Probably, let's guess it's Europe. But definitely, it should be consummated within the next financial year because, of course, OrbiMed will also be getting restless with their funds with you.
Well, M&A is a very tricky thing. But if past history has taught us anything, I mean if you look at our track records, we have done over 4 M&As over the span of 1.5 decades. And so we are exploring. We are in talk. OrbiMed is involved in everything that we do. And so we do have a very -- we have marathon discussions. Their input is valuable because they do give us insights of the company, the financial backgrounds and analytic evaluations that they run through.
So they are pretty much involved in tune, in hand with us on M&As. And they are also getting quite a few potential clients to us, and we evaluate it as a team. And then obviously -- then that's only the starting point, right. From there, it goes through the entire nine yards. But presently, today, there's nothing concrete.
We are in dialogue with a couple of companies, but there is nothing concrete to discuss as to whether they'll be consummated or whether they will go through and the time lines of that. If not, we will continue our search, and we will continue exploring the possibility.
Okay. Again, back to the warehouse, you ship to the East Coast, West Coast, Gulf Coast off the U.S., okay? So in all these 3 places, you have your own warehouses?
No, we ship to the East Coast and from East Coast we distribute it to the rest of U.S.
So you have some arrangements with some truckers.
No, we have our own. I mean we don't have own logistics, but we have companies that basically either collect programs or if you are dealing with a large client, they have collect programs where they pick it up from a warehouse. Sometimes we ship it directly to the customer.
Okay. So you will be shipping to New York most probably?
Yes. And we have all state licenses. So we don't need to work on a 3PL for anyone else.
Okay. And you own a warehouse in New York. That's what you are telling me?
Yes, we have one own warehouse and we have a long-term lease warehouse.
Okay. Fixed least for long term?
Yes, long term.
Our next question is from Bilal. Are you there Bilal? Okay. Yogansh Jeswani? Yogansh, you have a question? Okay, next question, Vishal Manchanda.
In your presentation, you indicated you also had your own label brands. So can you share what percentage of your OTC business will be your own label?
What percentage?
Yes.
So our own label is around 15% to 20% right now.
Are the prices in your own label brands stable? And do they fetch better realizations versus your -- versus the rest of the business?
Yes, they do, to some extent. Yes.
But are they -- so -- like, as I understand, private labels are gaining market share over own label brands. So are these brands stable in terms of market share?
They are stable. They are niche products, and they have potential of growth.
And they're -- so which categories are these -- these are the therapeutic categories that these private label -- your own label brands valued at? [indiscernible]
No. They are in the same categories that we are into pain, in digestive, in cough and cold. So our product portfolio revolves around those type of products presently. We focus on to these 3 segments presently on that.
One thing that you are thinking about fortifying your existing business is backward integrating into API. So one of them is ibuprofen where you are thinking to backward integrate. Which are the other molecules which maybe large part of your business and you are going to backward integrate into?
Well, we have a couple of molecules which have become very large. Cetirizine is one of the items that we are backward integrating, some of the digestives we are backward integrating. So we're working right now on 10 DMFs presently. We do believe at least 2 or 3 of them will be filed in 2023.
These DMFs will be filed from third-party businesses?
No. The DMFs will be on our name, will be filed by us, but we'll be only using their facilities.
So 200, 300 basis point expansion, can that -- is that fair to expect on account of this backward integration process?
Yes, sure. It's reasonable to expect that.
So like -- currently, it's 50% your raw material cost. Would it be fair to assume about 80% of that would be API first?
Yes, substantial amount will be the active, yes.
We have our few investors left. I'll just take them one by one. We have Yogansh. Yogansh, your question is done or you would like to ask?
Am I audible now?
Yes, Yogansh.
Yes. I'm so sorry about the...
Yogansh, would you please introduce yourself?
So I'm from Mittal Analytics PMS. Mark, my question to you is on the inventory side. So could you share the December ending inventory number for us?
See, as of 31st December, we had inventory of around INR 449 crores, say INR 450 crores.
Okay. So if we just look at your inventory in terms of inventory days a couple of years back, it used to be, I think, somewhere in the range of 100, 150 days, 120 to 150 days. While in last 2 years, it has gone up to 250, 200 kind of days. So going forward, what is the trajectory like? Do we think that once these things normalize, we'll be back to our 150, 120 days or that is a challenge now?
[indiscernible] our revenues have also grown. So we are expecting to do almost INR 1,800 crores plus in this financial year. And if you see our overall working capital cycle, so as on December -- like we had a working capital cycle of around 110 days. So we think that this kind of numbers will remain in the business. And with the absolute sales going up, the working capital will also go up.
So these levels, I think, will continue in our business from now onwards because we need to -- the inventory consists of raw material in the previous products. Since we are directly distributing the finished products, we have to [indiscernible].
Understood. So just one clarification on that part. So earlier, the finished products used to not be on our books. Is the warehousing thing that you were mentioning to one of the participants, is that something recent that we started, say, last in 2, 3 years?
See, we have over integrated business lines. We are directly marketing these products to end consumer. So our revenues -- 100% revenues are coming from B2C segment. Before acquiring Time-Cap in U.S., we used to distribute it through third parties or through repackages. So at that time, of course, the finished goods inventory used to come in their books, not in our books. But now since we are distributing directly, once we export the products to U.S., it remains with us till we deliver it to the customers -- end customers.
Okay. Understood. So that was helpful. Just one question -- not even a question. I just wanted to know your management's thought on it. So our company has been performing very stably for last many quarters now, and we are doing a lot of right things, like we did a buyback at a good time.
We have also put in money in terms of promoters and bringing in a strategic partner, while if we still look at the kind of valuation that the company is getting in the market is really low. So what are your thoughts as a management on this? And what are you thinking of in terms of unlocking more value for all the shareholders?
Well, there's no magic wand except working hard and performing. But over and above that, obviously, the sentiments of the market play a very vital role in what you said. With COVID that took place, I think sentiments was not very favorable when we exited the pandemic scenario and got into normalcy because a lot of other industries started coming back into the play.
But that said and done, we are looking at a long-term outlook, and our performance will speak of the numbers that will come. So I think our numbers will be a reflection of our performance, and that's what I believe from a long-term one has to evaluate it from that angle.
We have a question from Forum Makim. Forum, could you please introduce yourself? Forum, are you there? Okay. Bilal, do you have a question? Bilal Khan? Okay. Tanuj Khiyani, you have a question?
This is Tanuj Khiyani from Ventura Securities. I actually had a question on the ibuprofen shortage that was going on recently. So how is our situation like? And do you have any material impact?
Well, the shortage was very short-lived because obviously of the impact of what happened in China in the last quarter. Now with China opening up, I don't foresee that having any material impact.
But of course, we do have a good amount of inventory like raw material lying with us. We don't foresee any challenges, at least so far as we are concerned.
Okay. And I think Caplin Point has also done with its CapEx in the soft gel segment. So do you see -- how do you see them? How would be competitor doing in regards to our company?
I can't comment on somebody else's company. So -- but I don't -- we don't look -- we don't evaluate it from that angle. We are more focused on to what we do and how we grow. So I don't see that being a concern right now.
Participants, in the interest of time, this was the last question. And for follow-up questions, we request participants to write to ir@marksanspharma.com. So sincere apologies for this.
Yes. As we have restricted the questions, we may now conclude the call. I will now hand over the call to the management for their closing comments. Over to you, sir.
Thank you, Sidharth, and thank you, everyone, for giving us this time, opportunity. I know it's a busy day of the week. So thanks a lot for coming on the call, and I hope we answered all your questions. Have a great day and be safe.
Yes. Thank you. On behalf of Marksans Pharma and Systematix, that concludes this conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar.
Thank you.
Thank you.
Thank you.