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Natco Pharma Ltd
Earnings Call Analysis
Q1-2025 Analysis
Natco Pharma Ltd
Natco Pharma kicked off FY '25 with impressive financial results, reporting a consolidated total revenue of INR 1,410.7 crores for the first quarter ending June 30, 2024. This marks a robust growth of 21.6% compared to INR 1,160.2 crores in the same quarter of the previous year. The company also saw net profits soar by 59%, reaching INR 668.5 crores, up from INR 420.3 crores year-over-year. The primary driver of this growth was the Export Formulations business, while the domestic pharma segment has remained stable.
Within the revenue breakdown, the Export Formulations segment led with INR 1,210.10 crores. Conversely, domestic formulations contributed INR 102.2 crores, indicating a solid footprint in both international and domestic markets. The API (Active Pharmaceutical Ingredients) segment recorded INR 39.2 crores, while the Crop Health segment brought in INR 15.6 crores, reflecting the company's diversified operational approach.
Looking ahead, Natco Pharma has expressed an optimistic forecast, aiming for an overall growth of at least 20% for the fiscal year, building off last year's net profit total, which was slightly below INR 1,400 crores. This is in line with their long-term strategy of continuous improvement and adaptation within the pharmaceutical landscape.
Revlimid, a crucial product in Natco's portfolio, significantly influenced the company's recent performance. Management indicated they started with a single-digit market share for Revlimid and plan to escalate this to about one-third of the market by January 2026. As the patent expiration approaches, there are concerns regarding potential fluctuations in profitability. Management indicated that while the product is performing well now, market dynamics could shift post-expiry.
Natco remains committed to its R&D efforts, emphasizing innovation as a pathway to long-term growth. While the API revenue has been somewhat stagnant, the company is actively pursuing multiple R&D initiatives that are expected to reshape its pipeline over the next several years, positioning Natco for future success in emerging markets.
Amidst its financial growth, the company acknowledged ongoing regulatory challenges, particularly concerning its Kothur plant, which has received a warning letter from the FDA. While progress is being made, management is cautious and is taking steps to mitigate risks associated with regulatory compliance, ensuring that supply chain effectiveness remains intact.
Currently, Natco holds about INR 3,000 crores in cash, which the management aims to strategically utilize for acquisitions or innovative projects. However, they reiterated a cautious approach to spending, preferring to preserve capital rather than engage in poorly valued transactions, particularly in the domestic formulation space where valuations remain high.
For the second quarter, management aims to maintain performance similar to that seen in Q1, with strong guidance indicating the potential for continued revenue growth. Despite this optimism, management warns investors to adopt a conservative view, especially as they navigate through possible challenges posed by Revlimid's transition post-patent expiry.
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Ladies and gentlemen, good day, and welcome to the Natco Pharma Limited Q1 FY '25 Post Results Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rishikesh Patole from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.
Thank you. Good morning, everyone. On behalf of B&K Securities, I welcome you all to the Q1 FY '25 Earnings Conference Call of Natco Pharma. Hope everyone is in good health and doing well. On behalf of NATCO today, we have with us Mr. Rajeev Nannapaneni, Director and CEO; Mr. Rajesh Chebiyam, Executive Vice President, Crop Health Sciences.
I now hand over the call to Rajesh for the management's opening remarks, post which we'll open the session for Q&A. Over to you, Rajesh.
Thank you, Rishi. Good morning, everyone, and welcome to the NATCO's conference discussing our earnings results for Q1 of FY '25, which ended on June 30, 2024. During the call we may be making forward-looking statements or statements about future events. Anything said on this call, which reflects our outlook for the future must be reviewed in conjunction with the risks that the company faces. I'd like to state that the material of the call, except for participant questions, is the property of NATCO, cannot be recorded or rebroadcast without NATCO's expressed written permission.
So I'll begin with the results highlights, and then we'll have an open interactive Q&A session. So again, hope everybody received the financials and the press release that was sent out earlier as well. It's also available on our website.
NATCO recorded consolidated total revenue of INR 1,410.7 crores for the first quarter, which ended 30th June 2024 as against INR 1,160.2 crores for the same period last year, reflecting a growth of 21.6% in revenue. The net profit for the period on a consolidated basis was INR 668.5 crores as against INR 420.3 crores same period last year. This reflecting 59% growth in profits. The growth in revenue and profits were primarily driven by Export Formulations business as our domestic pharma business remains stable. On the segmental split overall, what we have disclosed, Formulations exports, including profit share and foreign subs carried INR 1,210.10 crores, Formulations domestic INR 102.2 crores. API INR 39.2 crores, Crop Health INR 15.6 crores, other operating and nonoperating income crossed INR 43.6 crores, all totaling to INR 1,410.7 crores.
Thank you all. Now we'll open up for Q&A.
[Operator Instructions]
The first question is from the line of Nirali Shah from Ashika Stock Broking.
Congratulations on a good set of numbers. Sir, just two questions. First on the Revlimid front. So it appears that the contribution from Revlimid is a significant driving factor. Any insight on the market share would be valuable here? And additionally, just a follow-up question on Revlimid. After January 2026, we have a profit-sharing agreement with Teva, which is what the management mentioned in the last con call as well. Could you just provide any estimate of the potential variance in profitability numbers for Revlimid when we -- from the perspective or comparison of FY '25 to the post patent expiry scenario?
It's very difficult to judge, Nirali. I mean, how the market will form over a period of time. I think in terms of market share and all, I think it's already publicly stated. We start off with a single digit, and we go up to 1/3 of the market before January '26. So I think that answers your share question.
Regarding the price environment and all, it's hard to judge. I mean -- for now it's doing well. That's all I can say. I mean, the market dynamics change. So for now it's doing well. And we see that it will do well in -- I think, in the coming quarter also, I think it looks good. Beyond that, I think I can't comment further.
This being the third year we are expecting a significant ramp-up in the Revlimid side?
Could you say that again, Nirali.
This being the third year, we are expecting a significant ramp-up in Revlimid contribution?
I think, yes, in the last year, I think we are expecting to go to 1/3 of the market, yes, I think, based on the agreement that we have. But again, how much you will do and how well we'll do and all, it's all function of the market at that time.
Got it. And my second question is that we do hold a certain FDA status on certain strengths of Semaglutide pen. And even for the weight loss indication, we have the sole FTF across all strengths. Just wanted to understand the potential opportunities here again specifically on market share or maybe some internal targets that we have. What kind of market positioning and any financial impact that you are projecting from these -- 2 of these FTFs right?
I mean, we are in a good position in Semaglutide. It's too early to say anything, Nirali. I mean it's very early. I think the file is still under review. It's -- Mylan is obviously our partner here. I think it's tough to predict when the market formation will happen. Then the patent litigation pending. So at this time, it's very early, Nirali, to say anything about what the potential is. I think it's a good filing and I think we are working towards getting the approval, I think that's all I can say at this time.
The next question is from the line of Kunal Randeria from Axis Capital.
Just, Rajeev, if you can shed some more light on how the ex-Revlimid business has been performing?
I think the domestic has been stable. I think we're doing about INR 100 crores per quarter. I think it's been fairly stable. I could remove the one-offs. I think on an overall base business-wise, we'll remove the one-offs, it's growing around 8% to 10%. So we are fairly happy with how things are in domestic. Our Agro has not done well. We had first year full launch last year. And we build about INR 50 crores gross. So -- but just that we had some returns. So we prudently made the provisions for discounts and returns. That's the reason why our net sale is only INR 15 crores. But I mean it's a new business for us. This is our second full year of operations. So I think we will take some time to settle down. But overall, I think the prospects look good and the season has started. So we think that we should do well in the coming quarter.
Our export business has done extremely well. Canada has the highest turnover ever. And then if we can -- give me a moment, I'll just pull out the numbers. So the subs, which represent a significant part of our RoW business is doing -- indeed last quarter at about INR 180 crores and fairly profitable. So we had a PBT of INR 43 crores. So that business has done well. So overall, I think we are happy. I mean, we are building a reasonable business in RoW in Middle East as well. So we're doing a reasonable amount of diversification. So I think we could do better in Agro. If you reflect -- we could have done a little bit better in Agro, and I think we are looking for better momentum in domestic. But otherwise, the export business has been very stable for us. Revlimid and non-Revlimid both, Yes.
So Rajeev, just to clarify, even non-Revlimid, there's been a growth in revenue as well as margins, right?
Correct, correct.
Got it. Got it. And second, just a clarification on Semaglutide. Do we have sole FTFs or the shared ones?
I think the weight loss one, I think we have sole FTF. And on the diabetes, some strengths, we have sole FTF and some strengths we have shared FTF. The strength and all, I can't recollect on top of my head. But yes, I think some strengths we have. Let's say, 50% to 60% of the market value of the diabetes also we have sole FTF, some strengths we don't have.
Right. And at this point in time, I know it's a bit early, but could you -- I mean, would the launch be in this decade or would it be around 2030, '31?
I can't add to that, Kunal. I wish I knew. I can't answer that question. There are a lot of moving parts. I mean, we got to get the approval. We have a resolution of the court case and there's so many moving parts. I can't answer that question.
Understood. Understood. But would this be more like a 50-50 kind of profit share agreement?
No, I think it's a little bit higher with Mylan. I think -- I don't recollect the agreement exactly, but it's with Mylan. And we have a little bit of sharing with our contract manufacturer who is Stelis. So net-net, I mean, I can't -- I don't know the economics exactly, but I think we'll have substantial, but there's a share between Mylan and us and then what we are getting some we have to share with a little bit with Stelis.
Okay. So you would be getting a bit more than Mylan, right?
No, no. Mylan, we are getting -- will get the most, yes. I can't recollect a lot of -- I mean, nuances in the agreement. So I don't want to get into it because such early days, I think we'll give more clarity in guidance but when we go with the market formation. But yes, I think broadly, those are the terms, yes.
The next question is from the line of Arun Malhotra from CapGrow.
Yes. Just wanted to check, I know you mentioned on the pricing, still give a sense of the pricing of Revlimid in the U.S., how is it faring right now? That's one. And second, you said 1/3 of the market share, what would be a tentative market share right now for us in the Revlimid in the U.S. market?
I can't answer that question for competitive reasons. I think what we have disclosed, I think I'll repeat that same thing. I think it scales up, it goes to 1/3. Pricing and all, it's all handled by Teva. Teva is our front-end partner. And again, it will be -- for competitive reasons and I think because India and the strategy is there. So I think I can't answer that question.
Okay. And any sense on the competitive landscape? Right now how many players are there?
There are multiple players. I think everybody has their own market share. I think that's all I can say at this time.
And lastly, on the agrochem business that is still not ramped up as per our expectations, what would be your sense here?
I mean, I will not say it's been -- it could have done much better, clearly. I think we had a reasonable start, I would say. I will not say that we're not present in that segment. So we have launched with a very aggressive strategy by going after patents, and we've been in the first phase of launches. I would say we had a reasonable start. I think last year, we had about INR 105 crores of sales. So I mean, it's for the business, and we're building a brand business with farmer reach and building a brand, running TV ads and doing a lot of campaigns. So it is reasonable start. I mean for an upstart, which I had no experience in Agro, but I would believe if you want to build sustainable long-term businesses, you need to wait. I mean, things don't happen overnight. I think my personal view is give it about 2 years. So if you have -- give it about 2, 3 years from now, I think you will probably have a INR 250 crores,INR 300 crores nice branded business, which is stable income. But to reach that stage, organically, it takes time, and you just have to be patient.
The next question is from the line of Saumil Shah from Paras Investments.
Congrats on a very good set of numbers. Sir, this quarter, it's about INR 660 crores of profit. So now can we assume INR 400 crores, INR 450 crores of quarterly run rate for the remaining quarters of the year?
Quarterly guidance, we're not giving. I can't give you such precise numbers. I can say Q2 should also do very well. I think it will -- like Q1 should do well. Overall, for the year, we're giving guidance of a 20% growth over last year's numbers. So last year, I think our profit was -- PAT was a little less than INR 1,400 crores. So on that, I think we're saying we'll grow at least 20%.
Okay. And sir, I wanted to know about the FDA outcome of the warning letter, which we have received for our Kothur plant. I think it was in the month of April. So any update on the same?
As of now, we don't have any update. I think we continue to supply from that client to the U.S. market. So it does not stop any of the supplies. In terms of the filings, the impact has been that new approvals, we are now getting from that side. So we have taken risk mitigation program, and we have started moving things out of that client, which are critical. So I think we have a plan to move everything out. So some we already moved out. So I mean some of the products we already moved to Vizag. And some we already got approvals after moving them. And some we are in the process of moving out. So in the next few months, I think we're doing -- while we continue with the remediation work, parallelly we're moving out all the critical filings. So I think we're doing both these. I think that's how we are going forward.
Okay. But normally, how many days it takes for the FDA's reply? Because I think in one of the calls, if I'm not wrong, you mentioned around 90 to 120 days they tend to reply or?
No. You -- it takes time. I can't really answer that question. I mean, typically, 90 days is all -- I mean, when you receive the observation, giving the answer for those sort of things, but not when a reinspection will happen and all, it's very tough to judge. I think we are doing our remediation program. I think once we have an update, we'll share with you. At this time, it will be premature to comment on this.
Okay. So even if there is an adverse impact, I mean, we are -- we have the other plants from where we are supplying, right?
So what we have done is two things. So one is we have the other plant in Vizag. And over and above that, we are also -- like if it is the injectable portfolio, we have gone to a CMO. So we move -- we have 2, 3 ANDAs that we've moved out and a couple of oral products also we have moved out, and we refiled from the other sites with the updated data. So we are very actively moving to -- some internally, we're moving out and some, we're externally moving out. So both are parallel, yes. So we are not linking one with the other.
So while we work on remediation, parallelly, the critical filings where we think where 80% of our future earnings [indiscernible], I think those we are moving out.
Okay. So -- but the current Revlimid sales are from both the sites or...
Initially, I think some strengths were from Kothur and some strengths were from Vizag. So post, we have moved everything to Vizag. And we got it up to -- we had 2 strengths which were not approved from Hyderabad. So those we have moved it to Vizag. So that's already approved and we are already supplying from Vizag.
The next question is from the line of Ankit Minocha from Adezi Ventures.
Congratulations on the great momentum in terms of the numbers. So the question was, I mean, in terms of the guidance, we've already done, say, INR 660 crores of PAT this quarter. Do we feel and are we being too greedy, but do we feel that because then rest of the year then kind of looks pretty much at par with last year. So do we feel that this guidance could be slightly conservative and we would wish to overachieve?
Ladies and gentlemen, it seems like the management line has been disconnected. Please stay on the line while we reconnect it. Ladies and gentlemen, we have the management line again. So shall we move on to the next participant? .
Yes, I think the gentleman's question I didn't answer. He can repeat the question one more time, Some reason, it just got disconnected. I apologize for that Ankit. You can ask the question one more time, please.
So the next question was from Ankit Minocha. .
Congratulations, Rajeev, on the fabulous momentum in terms of the top line and growth. My question was that considering that we've done such great profit after tax this quarter already. Do we feel that the guidance for the rest of the year could be slightly conservative because it will come out mostly as flat over the last year for the next 3 quarters. So I just wanted to understand that could we expect upside in terms of that?
Sure. I mean, anything can happen, Ankit. I'll not say that. I generally like to say conservative numbers, Ankit. Generally, I don't want to give aggressive guidance. We can do better. I mean, at least I can tell you like on -- if you ask me for Q2, I think I can have a sense that the numbers will hold up. So again, market formation is so tricky to tell, right? So -- and how will you end up, it's very difficult to judge.
So I mean you're saying can we do better than that? Hopefully, yes, I think that's my expectation. But again, I prefer to remain conservative. If you put me in a spot and ask me what is going to be, I'll say the conservative number. I'll not say the -- but again, there's so many moving parts. So it's hard to judge. But yes, I think for now I'll answer for Q2. I think Q2 should do well, and we'll take it from there. .
That's appreciated. And the previous participant asked about Kothur, but just from a more -- from a slightly higher perspective, is there any risk then considering that you've mentioned that Revlimid is now largely moved to Vizag, then in that case, in case of anything adverse, which hopefully does not happen. But then in case of any adverse regulations on Kothur, then do we have any severe risks then baked into the numbers?
Whatever has happened has already happened. We can't get worse than we already can. So it's already -- it's all built in. So to answer -- the risk itself is the fact that we should move the things out and get them approved on time so that we don't lose the business opportunity. I think that's what I was trying to say. The risk, if anything, is I would say our execution of moving things out and getting it done. I think that's all it is. Wish the first to file. We have to move them out and get the batches done quickly. I think that's the only risk that will affect the future if we're not able to execute that. That's the only variable that I'm worried about. So whatever could have worse -- could have happened, it's already happened. You can't -- it is what it is. That's the only concern I have at this time. I think just to make sure that all the filing -- the good filings we have, we should move it out.
The next question is from the line of Abdulkader Puranwala from ICICI Securities.
Sir, on the sub part, you just disclosed about the revenues. Sir, in the next 2, 3 years, how should we look at the contribution coming from our Brazil and Canada subsidiary, any ballpark growth indication if you could provide?
I think they're doing well. I mean -- and we have good filings from these subsidiaries. So hopefully, they will continue to grow. I think, see this business, Abdul, it's essentially the filings that you have. That's what drives the earnings. And the good filings you have, we get great earnings. And see, it's a very product-specific strategy or product-specific strategy. And I think the more interesting filings we have, the better they do. And they're all a function of what the market formation is going to be. All we can tell you is that we are doing multiple filings in multiple geographies, and we believe that the growth will happen.
As of now, as I said, it is INR 179 crores. It's probably - I mean, we had one tender order in Canada that's why it had a higher sale. But if it normalizes, it's a little less than -- it's probably INR 140 crores, INR 150 crores a quarter. But see, I think our idea is to build more pipeline in this and hopefully acquire business, which is outside these 4 geographies that we are actively present, which is Brazil, Canada, U.S. and India, and hopefully build a more diversified business, so that there's less volatility in our earnings.
The next question is from the line of Nitin Jain from FairView Investors.
So my question is related to the payout. So year-on-year, there is a decrease. So is this like keeping in mind we want to conserve cash for acquisitions or something along those lines if you can elaborate?
You may pay out in terms of dividend, you're saying?
Yes.
Yes. I think -- yes, see, the last year, we -- I'm not able to recollect exactly, but I think INR 9 to INR 9.5, I think we paid as dividend last year. So this quarter, we paid out INR 3. I mean, well, I think will pay out reasonably well. But if you want me to say, will I give it a larger dividend? I don't want to give out a larger dividend. No. I think I want to keep the capital for possible acquisition. I think that's my thinking. We'll pay out a reasonable amount of dividend, but again, I don't want to pay a very high dividend because I want to keep the money for any possible acquisition, if anything will ever to happen.
The next question is from the line of Yash Dantewadia from Dante Equity Capital.
Can I just understand if you're sharing Revlimid sales for this quarter? Like what percentage of your sales was -- are you having that number?
We are not doing that. No, no. we'll not.
Right. And can you -- what is the cash that you have in your books right now post this quarter?
Without the receivable of Q1. Right now, I think we have about INR 2,000 crores of cash in our books.
Yes. So what's the plan with the cash? I mean how are you planning to use the cash? Acquisitions are you looking at something actively? Is there something in the pipeline? I mean where is the next -- what I'm trying to understand, basically, is where is the next leg of growth going to come from according to you? Let's look beyond FY '26, right? Beyond FY '26, where do you see the next leg of growth coming? Once your exclusivity ends with Revlimid, what is the next leg of growth come? According to you, what would be your best cash?
Good question. I think, see, the way I look at this business, right, I mean, you need to do interesting filing, okay? So if you look at the next 10 years of our future, I mean I don't take a 1 year, 2 year. We want to take a 10 years from now. So we have Revlimid now. We have Revlimid the next year. And obviously, it's going to -- as all products -- it all tapers out. So first question you asked is what is it that we have, which is interestingly large. I mean you'll have the smaller ones $5 million, $10 million, $15 million, but that won't move the needle. So the first question I asked myself is what do we have, which is worth more than $50 million or $100 million of net present value seriously.
So to answer that question, I mean, obviously, Semaglutide is my #1 bet. Then we have subject to the litigation of course and the approval on time. And then second one is, obviously, Olaparib, which is already disclosed in the investor presentation. And then another one that we have is Erdafitinib. Again, it's the product, is only $100 million, but we hope that we are going to -- it will become a bigger product over a period of time. So -- and then we have Imbruvica. I mean, obviously, we lost the case, but we are trying to see what else we can do to revive it.
So I mean, if you look at the next 10 years, I would say comfortably that we have ideas for about 5 to 6 years. So the question is, first question is how do I fill the rest of the 3, 4 years? I think this year, like for example, before we have done about 3 filings in this year. And all are FTFs. So is it only shared FTF or sole FTF, I don't know. I don't have an answer to that question. So in the next few months, you'll probably hear from us on maybe, hopefully, we'll pull off another 1 or 2 sole FTFs. So if you -- in the next 2 years, if we pull off another 3 or 4 FTFs or interesting ideas, then you have about 10 ideas for the next, let's say, 8 years. And even if you get half those ideas right, I think you'll do well. .
The elephant in the room, if it drops 2 years later, the earnings will drop? Possibly, yes. I will not run away from it. It will. But you can't look at a particular year or a year or 2 in isolation. You have to take an 8- to 10-year view on this business. And if you take a 10-year view and say that for most of the time, I'll have these very interesting products, I think I'll be a happy person. Hopefully, as shareholders, you will also be happy. So you can't -- I mean, upset too much about one bad year. I mean if we start doing that, then it could take you away from the larger picture.
Right. So basically, [Audio Gap] you end up with maybe INR 3,000 crores, INR 4,000 crores cash, right, by the end of this financial year?
We'll end up with INR 3,000 crores cash by end of this financial year? Possibly, yes, yes.
Yes. So what's the pipeline like?
You're breaking up. You're breaking up.
Your voice is not clear. .
I'm sorry. Is it clear now?
Yes. What's your question?
Yes. Yes. So my question...
You're still breaking Yash.
Your voice is not clear. You're breaking up, sir. Can you please come in the range? I guess the participant has disconnected. Can we move on to the next question, sir?
Yes, sure. Please move.
Next question is from the line of Sanjay Kular from ACME Private Limited.
Yes. Congratulations for giving good results. Sir, you are an entrepreneur. As an entrepreneur, we always see that our wealth should be best measured in terms of market cap. Companies like your size, which earns nearly INR 2,000 crores are quoting around INR 80,000 crores to INR 1 lakh crore market cap. So what do you think are the reasons, why we enjoy a little less market cap? And what are the measures should be taken to increase the market here?
I wish I knew to answer that question. Honestly, I don't have an answer to that question. All I can do is -- tell you what we're doing in our business and I can tell you how we see the business and what I see in the future. I think we've been fairly forthright and I think I tell it the way it is. And that's all I can tell you. Beyond that, I can't answer that question. All I can say is that I'm very comfortable with the strategy that we do. And I think we make very good return on capital. And I think if you look at our profitability and our strength of our balance sheet, I mean, it is very strong. So.
That is the reason I think we should enjoy at least 45 multiple, but we are enjoying 10, 12...
I wish I could answer that question. I have no idea. how to answer that question.
The next question is from the line of Sanjaya Satapathy, Ampersand Capital.
Congratulations once again for fantastic result. So you have tried to answer this question about cash and its utilization in many which way. Can I just ask that, if at all, that will be the acquisition, will it be more to diversify your revenue stream so that you will have lesser volatility or it will be more towards increasing your capability in R&D side?
I think a lot of the money that we're spending right now is only in R&D, right now. I think if you look at our numbers, these are all post expensing of all the ideas that we are pursuing. We're pursuing very interesting ideas, which are worth millions of dollars. And I think we have been consistently able to deliver this pipeline. I think we look at these things in 2 buckets. One is the R&D ideas we continue to deliver, we continue to spend. And whatever we're earning is after expensing all these R&D ideas, okay? That's one.
The second question is consistency of earnings and getting geographical spread. I think that's the piece that we need -- the cash flow. I think that's where I'm preserving the cash flow so that we get less volatility and more geographical spread. So there's more consistency in our earnings. That's why we're preserving the cash. But the R&D ideas, I mean, we continue to spend. And I think we believe in the next 2 years, we'll be able to accumulate enough ideas, which will give you our vision and our clarity of -- in terms of the pipeline in the next 8 to 10 years. And that's what we're working on.
Understood. Sir, can I just -- I mean, again, try my luck to understand it better. That now you have a fantastic R&D unit, which is delivering all these great molecules from time to time. And the company will have all this big cash, which will go into more of a capital-intensive kind of a business, which will stream us a smoothen the overall growth trajectory. Can one kind of look at it this way?
I mean, we are looking at it.
Ladies and gentlemen, it seems like the management line has been disconnected again. Ladies and gentlemen, we have the management back on the line. So you can please go ahead with the question again.
So you're saying -- could you repeat that question, my friend. I'm sorry, we're just having a very bad day in terms of disconnection. I apologize again. I don't know why it's happening. But anyway, please ask your question.
My question is that considering that your R&D unit is already delivering so nicely in terms of products and approvals, will you kind of use this big profits ever -- getting with the money to get into more of a capital-intensive business like this PLI-driven API or something like -- I'm just trying to kind of understand your thought process as to where the acquisition or investment will go into?
I don't like these commodity PLI type of businesses, my friend. It's not our business model. Our focus is always doing niche and high value and too difficult to generate rare disease products. I think that's the strategy. And we get some PLI for that, but it's not like -- it's not like the antibiotic PLI or any of the more mass volume. I think PLI scheme is different because they want to ensure security and localization of these commonly-used products. So -- which is not part of our -- of course, it's not our core strategy. So to answer your question, the answer is no. I would do an acquisition so that we can strengthen our geographical spread so that we can take our portfolio elsewhere. I think we have gaps. I mean we're not present in Europe. We're not present in Africa. We're not present so strongly in Southeast Asia. We're not present in Australia. We're not present. There's so many parts of the world we are not present. So those are the -- so these are markets we could possibly do so we fill the gaps.
The next question is from the line of Nikhil Upadhyay from SiMPL.
Just 2 clarifications, Rajesh, you mentioned -- so if you look at our subsidiaries, they've scaled up pretty well. And as you said, we are trying to broad base it. So if I'm just trying to understand the current revenue profile, both for Brazil and Canada would be across how many products?
Multiple products. I mean -- is it like 10..
Canada has a portfolio of more than 40 products today, right?
Is there a concentration risk?
Sorry?
Revenue concentration for few products, is there a risk?
Generally, we don't reveal the strategy of which product makes, which -- how much money. So I think that...
No, I'm not asking for which product. I'm just saying, is there a concentration risk on few products?
There's always in any business, my friend, there will always be the 3, 4 products will give you 80% of your profit or 60%, 70% of profit depending on which market you're talking about. So that -- but the idea here is that you spread over multiple geographies and have multiple products so that the volatility on 1 or 2 products doesn't give you -- doesn't cause too much concentration challenges.
Okay. And sir, second question, see, Revlimid was equally good in Canada. For Semaglutide, is it a similar thing? Like is it -- does it provide good opportunity in markets ex of U.S. also?
Semaglutide is in Mylan. So they are only falling. They're doing the strategy for the ex-U.S. businesses. But the major regulated market businesses are all handled by Mylan. I think that's the way the agreement is structured. And the RoW business, we have some rights, but the regulated market business is mostly with Mylan with our share.
Nikhil, I just want to clarify one point, Canada related, right? So my 40 number is the number of dossiers filed, right? Today, sales activity is more than 20 products in Canada, just to give you a sense. And then some concentration profile is always there for different countries, as Mr. Rajeev mentioned, okay?
The next question is from the line of Gagan Thareja from ASK Investment Managers.
Sir, two questions, sir. One on Semaglutide. I mean, given the current situation where there are shortages, compound pharmacies were allowed to supply. And if you look at the pricing of compound pharmacies, it's around 1/10 of the pricing that innovators give. Do you think this is a reasonable -- this reasonably represents what could happen later on when the much should goes generic?
I'm not a big fan of this compounding pharmacy business. I don't think it's -- you have some -- I mean, I don't understand enough about it, but I don't know enough about it either. So we'll have some exceptions here and there, but the real value is when you do it as an ANDA.
Okay. The second one, you indicated that once Revlimid patents expire, there could be a transition period where there will be some stagnation in earnings. Just trying to understand, is the base case scenario, one of stagnating earnings for a short period of time? Or could we perhaps also look at a base case scenario as one where earnings drop, there's a drop in earnings and perhaps it sort of stays down for a certain amount of time before you then recover?
I mean, obviously -- see, I can't tell you what the future holds. It's very hard to predict your earnings in a particular year. I think one thing is very clear. I think I can answer that we are doing well now. I think we see that in the next 1, 1.5 year, I think we should do well. Obviously, when your profitable product drops, obviously, there will be a slight dip. But again, the trick here is that you were able to find something else that replaces it. So what we can do is we can tell you like these are the ideas that we have, which will replace and these are the pipelines for the future. So you're going to have some dips, but overall, as I said, you need to take a 8- to 10-year view on your business and you can't take..
Which would be the critical ones for you to compensate for -- from a time perspective and from a magnitude perspective to compensate for Revlimid?
I think we spoke about that. I think few minutes ago I touched on the products. And I also mentioned that there are other filings that we're doing into this financial year. Hopefully, they will also come in. So we'll have -- the trick here is, we have about 10 or 12 ideas. I think I mentioned about 4 or 5 ideas. I think hopefully in the next 1.5 year, we'll simulate another 5, 6 ideas. So we'll have about 10 ideas for the next 10 years. And hopefully, we'll pull off about 6 or 7 of these ideas. And then we'll have some consistency.
And on the India business, what are your thoughts, sir? I mean in terms of sustainable growth rate with your current portfolio, what can...
I think we're doing well. I mean, I wish you could do better, obviously. But we have some good launches. I mean, obviously, the biggest one is being Semaglutide. Semaglutide, we think March '26 is the patent expiry in India. So I think hopefully, the regulatory approval comes on time. So I think we'll be in the first wave of launches. So that is probably going to be a very interesting product for us in the domestic space. And that will have -- because we have a low grades in our business, so Semaglutide can actually jump up the numbers quite a bit. So that's probably a major disruption we're expecting in the domestic business in about the next 1.5 years, March '26, so to speak, which is a little over 1.5 years. So we have ideas. It's not that it's -- you just have to just continue with your R&D focus and then do these very smart products. And you'll get a breakthrough someday. So I think it's all about just keeping the pipeline hot and then pursuing things.
And will you be -- will you need to add sales force for Sema or your existing sale force?
No, we actually have a diabetes setup. We have diabetes and a cardio setup. So I think we have a division. So -- but this we don't have. We have enough coverage. So we have already built that ground reps and all. So it's only question of launch.
The next question is from the line of Rajeev Jain from RK Cap. .
Sir, generally, you don't give guidance, but this is probably the first time that you have at least given visibility for the current quarter. I just like to -- one clarification, like you said that the current quarter looks good. So is it on a Y-o-Y basis or also on Q-o-Q basis?
Comparatively Q-on-Q.
Sorry? .
I will compare Q-on-Q. I'm comparing this Q1 with Q2, and I'm saying Q1 and Q2 also, we should do well like Q1 as well.
Okay. And at what price would buyback be attractive, like if -- let's say the share price dips to INR 1,200, will you consider buyback or you don't have it in your plans at all?
I think we did a buyback already. I think we -- last year, I think we did a buyback. So that's why [indiscernible] I was looking at implication. They don't look very good, honestly from what I can be. But again, as of now we are just conserving cash for some bigger acquisitions. So at this time, we don't have any plans for buyback. But if something changes, we'll speak about it. But at least my thinking now is no -- not at this time.
The next question is from the line of Bhumika Jain from Desvelado Advisory.
My question was revenue has been increased by 21.5% Q-o-Q. So what are the factors like geographical and otherwise both which led to the boost? And it is recurring revenue at the base or due to any large order?
Bhumika, I didn't understand your question. Can you repeat that and ask that slowly, please?
Sorry, sir, can you repeat?
Can you repeat your question, please? Your voice is a little muffled, sorry. Can you repeat your question please one more time?
Sir, I was saying your revenue has been increased by 21.5% Q-o-Q. So what are the factors geographically and order wise, what this [indiscernible] And is it the offering value at the base or due to any large order?
Your question is not clear. Sorry, Bhumika, you need to go slow and maybe rephrase it.
Okay. Okay. Sir, I was asking the revenue has been increased by 21% Q-o-Q, so what are the factors like geographically and order wise which led to the boost? And is it recurring revenue or due to any large order, one particularly.
So if I understood the question, what is the factor for the growth in the revenue and the profit. Is that the question?
Yes, sir. And is it the recurring one or any one particular thing that led to the boost?
I think we have multiple factors, I think, obviously, Revlimid plays a role as well. Yes, I think that's what has driven the earnings. And I think things are stable. And I think overall, our business -- our international generic business has done well. And so I think that's one of the factors why -- one of the many factors why the earnings have been good.
The next question is from the Rahul Choudhury, an individual investor. .
So my question is regarding the API revenue and domestic formulations. API revenue seems stagnant for many years now. I mean, domestic formulation, if I am not wrong, you've said last year -- last con call about some Jackpot idea. So is the Semaglutide in the jackpot idea or is it something else?
No. I think Semaglutide is one of our great ideas. So I think that's what I was trying to tell a few minutes ago. Yes, domestic it's been -- Semaglutide has been one of our biggest ideas that we have, but subject to all getting approval and then getting -- launching in the first way on patent expiry. Regarding your other question about API business being not growing. I mean a lot of API consumption is active. So that's the reason why you don't see that reflection of growth. In terms of output and all, I think it's been fairly occupied and there's a lot of captive consumption. That's the reason why we are unable to service the outside customers. But there's obviously scope for improvement. I think we're always looking at that. I mean, obviously, we're trying to add some capacity so that we can service our outside customers and also improve our internal capability.
Right, sir. So my other question was on the 28 products on the Para IV pipeline. When we say 13 are approved tentative or fully, it means -- what does it mean that litigation is ongoing or we've got the final clearance to launch in a particular future?
Some of them are tentatively approved, meaning tentatively approved means that they are approved and they are not given final approval. And some of them, we have settlements and some of them are under review. So I think it depends on the product.
The next question is from the line of Yash Dantewadia from Dante Equity Capital.
Yes. So basically, my question was by end of this year, you might have approximately INR 3,500 crores in your books, right, in terms of cash. Can you highlight the for the lack of better words, the shopping environment or the takeover or acquisition environment that is out there for your industry, what kind of companies would you look at? Is there something in the pipeline? And basically outlined the environment, I mean, if I'm a company with INR 3,000 crores in your sector and if I go to acquire companies, what's the environment like? Do you see something happening in the year or next year, like just highlight that whole portion because obviously, your ROCE has been exceptionally high right over these last -- over the last decade, at least. And you -- like you said, you're not going to focus on -- you're not going to focus on...
Sorry to interrupt, sir. The management line has been disconnected. Let me just reconnect. Please be on the line.
Yes, yes.
Ladies and gentlemen, we have the management back on the line. Mr. Dantewadia, can you please go ahead with your question again?
Yes. So my question is, by the end of this financial year, right? We are going to be -- we're going to have at least, I think, INR 3,000 crores in our books in terms of cash. What I wanted to understand is could you outline the environment out there for somebody in your industry, what kind of opportunity you see there for acquisitions and utilizing your cash, you've been a high ROCE company over the last decade.
So obviously, finding opportunities of that scale and size with high ROCE might not come at a decent valuation will obviously be much more expensive on that side. So if you are a company with INR 2,000 crores, INR 3,000 crores cash and if you go out to buy companies out or take over companies or acquire companies. What is the environment that you see out there with that much cash? Are you seeing any opportunities that might materialize in the next year or 2?
Good. Thanks, Yash. Yes. So it's -- honestly it will be very tough. I mean, as you rightly said, our sector is everything that you want to buy is very pricey. It's very difficult to especially in the domestic formulation space, the valuations are extremely rich. And but it is what it is, right? So you need to figure out a way how to do a transaction.
Personally, I find it very difficult to find a transaction. Maybe I'm too conservative, but we are unable to find anything. Outside India, we are finding reasonable opportunities. I think there's a fairer return of capital there compared to domestic. But it's -- we are evaluating, I mean, I'm not in a hurry to do a transaction. I don't want to do a bad transaction. So like this -- I mean I prefer to leave the cash alone rather than to do a bad transaction. I think that's always my thinking.
No, that's great. But when you look at the environment, what would -- what would be a great opportunity? I mean what are you looking in terms of ROCE? Like what is the great opportunity to you that you would go and like to buy like would you be able to picture that business and like tell me like this is the kind of business I would want to buy or that you -- which sector, what exactly -- I mean, what chemistry, anything basically on how you progress?
It's my money. If you leave out the R&D that you're doing organic growth that you are doing. I would spend on my money only on 2 things. One is on new technologies, companies or start-ups, which will give you something very disruptive, which can have a significant impact on earnings and something is extremely disruptive and unique or to buy a business where you have a gap in your portfolio, let's say we're not covered in a particular market size. A few months ago, we're not there in Africa, we're not there in Western Europe. So if we get an access to one of these markets, then it's worth spending because whatever you're doing, you can extend your pipeline there. .
I think there's only 2 reasons I would spend my money. I would want to get a good return. I would not get caught up in this craziness. I believe that everything is very rich and it's very tough to justify return on capital. But you're going to do it the way I think you can't feel pressure to do a transaction. Then you're in a way getting to peer pressure, right? And individually, you will always say that you should never succumb to peer pressure right? Same for business is still, right? You can't succumb to peer pressure to do a bad decision. Good decision is always a good decision. And even if everybody else is doing it, doesn't mean that it's the right decision. So you got to know what you're doing. And as long as you're getting a fair return on capital, and you do it based on what you think is right.
The next question is from the line of Ankit Minocha, Adezi Ventures. .
So just a follow-up from the previous question and your comments on acquisition being probably in a different geography or a complementary set. Is it necessary that this acquisition has to be in the pharmaceutical space, but I mean considering the current environment for company like your allied business which is agrochemicals, I mean we could look at an environment where valuations are a lot more favorable. So I just wanted to get the management sense that if there is a niche business in the agrochemical space, could that be viable then in turn in terms of market valuation.
Yes, I think even Agro also we can do. We can do any business. Obviously, if we had to stick to our core capability, which is -- and it has to add synergy to what we have. So I think as long as it makes sense, we can look at different levels of diversification. But again, we are a core health care company. So any idea that we do is obviously related with health care. And obviously, we're doing a better [indiscernible] But it has to be complementary, disruptive, unique and a reasonable return on capital. I think, unless it checks all the boxes, you should not be in a hurry to do a transaction, okay?
Fair enough. And my last question is basically, you talked about the 3 large opportunities, whether it was Semaglutide or the other 2 molecules. How would you put these in scale in terms of what we are seeing currently with Revlimid or if I was to look at those in the mutual opportunity side?
I mean, these are all large opportunities. I mean all the IMS data of these products are already there. So you can make an extrapolation. It all depends on the market formation. So there's a lot of multiple factors. So I mean the ones that I'm mentioning are reasonably large opportunities. So I think when I said reasonably large, I mean something that will make you $50 million to $75 million or $100 million type of upside. So I think those are the only ones I was talking about, so -- I think that was the -- assuming that they all work orders assuming we win the litigation, we have a good launch. We get the approval on time and everything goes well. Okay?
Let me apologize for the telephone disconnection. I mean it happened 3, 4 times. I sincerely apologize, which is having a technical challenge. Again, I appreciate the time that you guys have come and engaged with us to ask us about what we're doing. And I appreciate your time, and thank you for coming, and thank you so much.
Thank you all.
Thank you. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now direct your lines.