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Natco Pharma Ltd
Earnings Call Analysis
Q2-2024 Analysis
Natco Pharma Ltd
NATCO Pharma Limited reported a stellar performance for the second quarter of FY '24, with consolidated total revenue skyrocketing to approximately INR 1,060.8 crores, marking a substantial 134% year-over-year growth. This exceptional revenue inflow was matched by a remarkable net profit surge, witnessing a sixfold increase from the same period last year, registering INR 369 crores. Such growth can be attributed to the company's adeptness in capitalizing on formulation exports and expanding domestic agro business segments, which indicates the management's strategic prowess to nurture diverse revenue streams and optimize profitability.
The company underwent a regulatory inspection in October, and the outcome is anticipated within 90 days from the submission of NATCO's response and remediation plan. Executives exuded confidence in their mitigation strategies, emphasizing a dual-site approach for major revenue-generating products to minimize potential commercial impacts. This implies that the company's risk management practices are robust and that it can effectively navigate regulatory roadblocks.
In the realm of financial guidance, the company remains cautiously optimistic. While maintaining consistency with prior guidance, NATCO expects business performance to remain robust in the upcoming years. However, the absence of specific growth targets for the next financial year suggests a prudent stance taken by the management, likely awaiting further clarity on pricing environments and other market factors.
NATCO anticipates a pipeline rich with potential, highlighting important filings including Semaglutide, Olaparib, Bosentan, Carfilzomib, Ibrutinib, and Erdafitinib, some already approved and some in review. The company's strategic execution involves having multiple manufacturing sites for key products, ensuring operational security and presenting promising upside potential for future growth.
Investors should note the company's short-term expectations of a weaker December quarter, attributed to seasonal factors in the agro business and Revlimid sales, followed by a picked-up performance projected for the March quarter. The importance of Glatiramer and the strong performance in Brazil and Canada markets underscore the consistent growth strategy, with both areas anticipated to grow by 25% per year. Meanwhile, the agro business is poised for compelling growth, projected to reach INR 200 crores, with an emphasis on a 25% compound growth target in the next financial year.
The company reinforces its commitment to Good Manufacturing Practices (GMP) as a process of continuous improvement. This indicates that quality management and regulatory compliance remain top priorities, ensuring sustainable and responsible operational practices going forward.
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Ladies and gentlemen, good day, and welcome to the NATCO Pharma Limited Q2 FY '24 Earnings Conference Call hosted by Batlivala & Karani Securities India Pvt. Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Bhat from Batlivala & Karani Securities India Pvt. Ltd. Thank you, and over to you, sir.
Yes, thank you. Good morning, everyone, and welcome to NATCO Pharma Q2 FY '24 Earnings Conference Call hosted by B&K Securities. From NATCO Pharma management, we have with us Mr. Rajeev Nannapaneni, Director and Chief Executive Officer; and Rajesh Chebiyam, Executive Vice President, Crop Health Sciences. We'll request Rajesh to give brief opening remarks about NATCO's 2Q results before we open the floor for Q&A session. Over to you, Rajesh.
Thank you, Rohit. Again, good morning, and welcome, everyone, to NATCO's conference call. During this call, we may be making certain forward-looking statements or statements about future events. And anything said on this call, which reflects our outlook for the future, must be reviewed in conjunction with the risks that the company faces. We'd like to state that the material of the call, except for the participant question, is property of NATCO and cannot be recorded or rebroadcast before NATCO's expressed written permission. So I'll begin with results highlights and then an interactive Q/A session. We have uploaded the financials on our website as well. Hopefully, you guys have seen it.
To summarize, NATCO has recorded consolidated total revenue of INR 1,060.8 crores for the second quarter of FY '24, that ended on September 30, 2023, as against INR 452.6 crores for the same period last year, reflecting a growth of roughly 134%. The net profit for the period on a consolidated basis was INR 369 crores as against INR 56.8 crores same period last year, showing a significant growth of over sixfold increase from the prior period. Company business was strong during the quarter due to growth in formulation exports and also increased sales in our domestic agro business. Rest of the business is stable. Specific segmental revenue split has been also shared. I will not go into the details. We'll open up the floor for the Q&A. Thank you.
[Operator Instructions] The first question is from the line of [ Saumil Shah from Paras Investments ].
Sir, congratulations on a good set of numbers. Sir, wanted to know the impact of 8 observations on our Kothur plant on our revenue for the current quarter? And by when we can clear these observations because it's almost a month now?
Sure. The inspection happened in the month of October, as you're aware. So on November 8, we have responded. You're given 15 working days to respond. So November 8, we have answered the -- given our reply to the observations and our rectification and our remediation plan based on the observation. Typically, what happens is it takes about 90 days for them to make a classification not the observation. So I think -- so 90 days starts from November 8. So that's on the FDA side. In terms of impact, I think impact will be minimal because I think the company has always done this mitigation with their top products. As you're aware, I think all our top revenue items, our top 5, 6 revenue items are -- have an approval from our Vizag side in addition to the Hyderabad, Kothur side.
Lenalidomide also -- which is the biggest revenue item is also having approval from both Vizag and Hyderabad except for 2 strengths, which are 2.5 milligram and 20 milligram, which is about 7% of the total Lenalidomide side even that also we have done the batches, it's on stability, started stability. So we believe if we do 90-day stability and it's a procedure called CBE 30, if that is also done then even that can be moved that was already on the way, so we're -- so that is also planned. Overall, I think our impact will be minimal. And so I think let's wait for the classification of the, what you call, of the inspection and we'll make a decision. But as -- just as we plan every project, I think we always have a 2-side strategy for all our top filings.
Okay. So even if this -- I mean, currently, since the observations are there, so the production has been moved to the other plant?
No, the products are already being made in Vizag, most of the products, and some products have not been moved, but we already have approvals from Vizag. So it's a little bit of both. So some products, we have approvals, but we have not moved. Some products we have approvals, we are making in Vizag.
Okay. Okay. And sir, in the previous call, you did mention to achieve a say INR 1,000 crores to INR 1,200 crores profit for the current fiscal so -- but what would be the -- I mean, for next financial year how much can we go...?
No, no, there will not be much. I don't think there'll be much impact. I think I'd still stick to the same guidance. I think that range we're able to achieve. I don't see a problem.
And -- okay. Okay. And for the next financial year, can we grow 20%, 25% above this?
Next financial year, I think it will all depend on how the pricing environment is. I think we'll give more color to it, I think, closer to the end of the year. But we are expecting that we should do well even the following couple of years. I think that was a general broad sort of trajectory of the business. And so I think -- yes, I think we'll speak more in detail about the actual -- though we are in closer to the end of the year. But overall, I think, yes, the impact will not -- will be minimal.
Okay. Okay. And sir, there were -- recently there was some news article that even Aurobindo entered in the Revlimid this thing, space. So how much that can impact overall our business?
Aurobindo has entered into what, oncology business? Revlimid you're saying. Okay. I think a lot of players in Revlimid. There's already -- it's all factored in. I think our earning projections are through the competition. So it's all factored in my friend.
The next question is from the line of [ Yash Malhotra from JM Financial ].
Sir, in your last quarter presentation, there was a key molecule in your pipeline called Semaglutide. Can you throw some color on its progress?
Semaglutide -- I mean, it's a good question you have asked. This was not filed in NATCO, it was filed from a CMO side, okay? First question -- to answer your first part of your question. The review is ongoing. I mean it's very early days at this time. So I can't give you any update at this time. And our partner here is Viatris.
Okay. And what steps are we as a company undertaking in order to have a better FDA track record henceforth?
I think we have a good track record. And I think we have -- it's a -- GMP is a constant improvement process. And when observations come, you need to take yourself to the next level and meet the regulators' expectations. I think we are engaged, and we are cognizant of what is required, and I think we'll do what it takes to get it done.
The next question is from the line of [ Marcel ].
First of all, like we didn't find the PPT presentation for the Q2 results, neither in your website nor in the [indiscernible] okay, so can you please make sure that next PPT is [indiscernible]?
Yes. Usually, what we do is within 24 hours after the Board meeting we upload, and we usually incorporate certain questions that come from the call as well and we do it. So it will be done within an hour or 2 after this call.
No, sir, actually, what happens in the 99% company announce or like upload the PPT prior to the con-call call. So that the analyst, investors can go through the PPT and can accordingly frame their questions and the avoidable question can also be avoided because a lot of answer we can find in PPT itself. So can you please make sure that...
Point taken, point noted.
That prior to this one, prior to the con-call just like at least few hours before like this must be uploaded...
No problem, I think we'll take your advice here. Thank you. Thank you.
Now like coming to the questions.
Yes, please go ahead.
Like yes, in view of our key, like your products, so like how do you see the progress? Or like how is the growth in the current part of December vis-a-vis September quarter? If you can just like talk at least about key brands.
Which product, particularly sir, can you tell me exactly which product, key product you're saying in the company's portfolio you are saying?
So like for that, I need to open your this like Q1 PPT...
No, no, I'll tell you which one are the important ones. I think we can run through them. The most important ones, obviously, lenalidomide is the biggest one. So lenalidomide, I think we have already -- we don't have much quantity left for December. Most of it is sold. lenalidomide will take up again starting from March. So the December quarter will not be as strong as this quarter. And again, March, things will pick up. And regarding other products, I mean, Glatiramer is doing very well. I think it's very stable, and we'll see how things are -- we have very good market share. And overall, our RoW business, Brazil, Canada is doing extremely well. So we are happy where we are progressing. Our subsidiaries are doing almost this quarter gross sale of INR 136 crores. So -- and they're all profitable, and we're doing well. So these are the 3 major items that drive the earnings. And agro has done extremely well. I think it's a business that we had almost very little turnover. And now this quarter, we did almost INR 55 crore -- INR 100 crores for the half year. So all business segments are doing well at the core.
Yes, so like we expect that like our financial performance during December Q will be a bit better than the September? Or will it likely be downwards?
It will go -- it will be not as strong. I already answered the question, sir. I -- what I said is it will not be as strong as September because typically, we don't have -- because the agro season is not there because kharif is over. Second thing is we don't have much -- Revlimid sale is not there so -- as much. So basically, it will be a little weak, but I think things will pick up again from March quarter.
Okay. And sir, last question that like do you feel -- like do you see any new product launch during the December quarter or the March quarter?
Any big product launches you're saying in the December, March quarter?
Any product launch.
No, there are no big launches per se at this time, no, not in this next few months, no.
The next question is from the line of Nitin Agarwal from DAM Capital.
Rajeev, can you provide some sense on the growth outlook for the non-U.S. geographies for the next couple of years? I mean, what could be the drivers? And any particular geography which is looking particularly robust from a growth perspective?
In terms of Brazil and Canada are doing extremely well. So I think -- wait a minute, I'll take the numbers for -- so if you look at the last quarter, specifically, I think Brazil has done INR 34 crores and Canada has done about INR 61 crores. So these 2 segments have done very well. And so we expect that these businesses will grow another 25% a year that is I think the firm growth driver in the base business. Another growth driver has been the agro business. It's a business that we start off from a 0. So last year, I think we did about INR 40 crores. And I think this year, we're doing about INR 150 crores, INR 160 crores. So a minimum to INR 200 crores. So I think these are the major drivers on the non-U.S. business.
And in terms of these geographies, you talked about Canada and Brazil, are there any major approvals which are possible or likely over a -- which can have a meaningful impact on these geographies from a revenue perspective over the next 2, 3 years?
I think the business is steady. I think it's ramping up very well. We have some approvals, which are pending in the next 1 to 1.5 year, which we are expecting. So next 1, 1.5 years, we're expiring good approvals. I think the benefit of that, you'll see in the financial year is '24, '25. I think nothing before '24 March that I can think of but definitely in '24 to '25, we have some very good filings. We generally don't state the products because of the confidentiality nature of the business -- because of strategy. But I think we have some good launches lined up in the '24, '25.
And last one on the R&D front. Any sense on -- any color on any large filings or big filings possible you've done this year or looking to do in the second half of the year?
I mean, we are tying another 2, 3 products. I think we are trying for few other FTFs. They're all in the initial stage. But any of those filings will be happen on the financial year '24, '25, nothing in the next 4, 5 months.
The next question is from the line of [ Sagar Doshi from Fintuit Investment ].
Okay, so just wanted to ask like we have a good year-on-year growth. So specific reason or drivers for it? And what -- so I don't want any guidance, but what's the sustainability of the revenue or the profit jump that we have this year. So next year or let's say, in the next few years, will we be at least able to maintain this rate? Or what would it be? That's the first one. Second is, how dependent are we on Revlimid? What is the total revenue that we get from it and the growth drivers?
I think see, Revlimid is important for every other company, I think everybody is doing well with this product. In terms of the growth in the next couple of years, again, it's all a function of the general, what you call, price erosion. I think optimistically, I think it should do well for the next couple of years, '24, '25 and '26. But again, only we'll -- only time will tell and how market formation happens, but that's our sense. Regarding our pipeline post Revlimid, I mean we have a lot of other big filings. I think we have spoken about them in the past. I think Semaglutide is one big filing that we have. I think -- and another good product that we have is olaparib. So I mean, these are all products which are under review at this time.
So we'll see how things go. But -- and I think our sole FTF pipeline is in public domain. I mean we have Bosentan, we have Carfil. So we have Ibrutinib, so -- Erdafitinib. So I think these are all very good filings. And I think some of them are already approved and some of them are under review. So I think we are very clear where the growth is going to come from. And I think we have lined up our core manufacturing, and we also have a backup strategy for all manufacturing. I think company strategy has always been to have 2 sites but all important products. I think this has been ingrained in our system for the last 5, 6 years. So I think in that sense, I think I feel secure about the filings. And at the same time, I also feel that there's a reasonable amount of upside in the future.
Okay. So just can you just tell me the percentage Revlimid contributes as on today.
I didn't understand my friend. Can you say that one more time? I'm sorry, I didn't get it.
Yes, sur, the revenue percentage that we generate from Revlimid pills, as on date.
Percentage on Revlimid...
Revenue percentage generally, we don't give sales numbers, my friend. I think generally, we don't for competitive reasons. But it is -- obviously, it is impactful. I mean I'm not going to say -- it has a reasonable impact. But yes I think [ it was flat ].
The next question is from the line of Aman from Astute Investment Management.
My first question is on our GLP-1 portfolio. So your thought little bit on the Semaglutide side, if you can just talk about will -- the impact of this product, will it happen in the next 2, 3 years? Or do you think it is like 5 years away? And the more important question on this part is also, so there is this Liraglutide opportunity that is coming sooner. So are we going to participate in this Victoza and Saxenda opportunity today?
I don't have a filing on Victoza so that's the easy answer. So we don't have a participation. I don't even have a filing. So I think we are not participating in Victoza. Semaglutide, it's early days my friend. I think the review is in early days, the patent litigation in early days. As you know, this is a very good product. It's done extremely well. You're aware of that. So I think we're very excited about it whenever it actually happens. At this time, it will be very premature to give a time line. I would refrain from doing that. I just -- once things develop, I think we'll give you some time to come -- some guidance and just as of now, it's too premature.
Sure, sir. You missed the part on the Saxenda from that, are we planning? Or have we filed?
Which product, I'm sorry?
Saxenda, Victoza, you said we are not doing Liraglutide but Saxenda.
I don't know this product my friend. I -- it's not in our -- it's not that we have -- nothing I have disclosed. We only disclosed Semaglutide. We have done both Ozempic and Wegovy. I think that's what we have done. The diabetes and weight loss.
Both are through Viatris relationship only?
Yes, yes, that's -- that Viatris is our partner on this product. Yes. Correct.
In both the cases?
Yes, that's correct. Absolutely correct.
Sure. My second and final question is on Humira, sir. Is there any -- given it is becoming off patent just few months back.
These are not my products my friend, these -- Humira is -- you said Humira right, it's a monoclonal antibody, it's not in our pipeline.
The next question is from the line of [ Chetan Doshi ].
Congratulations for the good set of numbers. My question is that this agri business. You said it is seasonal. So first half you have done almost INR 100 crores. The question is how much is this contributing to net profits and what are your targets for the next financial year where we want to grow as far as this product line is concerned?
I think we have a very good pipeline. So I think this year, it will -- we'll have some sale in the Rabi. So usually it's about 60-40 split. So I think 60% comes in kharif and 40% comes in Rabi so I think that's where we are. This product -- this profit right now is on the lower side. Earlier it was not profitable, now it's profitable. It's on lower side because we had a lot of high-cost inventory from the earlier years which we couldn't sell for a long time and finally, we're able to get rid of it as we speak. I think the costing has gotten much better now. I think there's good diverse set of raw material supplier. You will see a very good profit run in the next year. I think that's what our expectation is. In terms of growth, I think we'll probably settle between INR 150 crores to INR 200 crores in this financial year. On that, I think we are targeting that we should grow compounded by another 25% in the following year based on the pipeline that we have.
The next question is from the line of Ketan Athavale from RoboCapital.
I just had one question. Is the current quarter EBITDA margin sustainable in the long run?
I've said -- I've already answered the question. I'll repeat my answer one more time. I think the current quarter EBITDA will not be -- the next quarter will not be as strong as the current quarter, but it will pick up starting from March again.
This was for the consol level.
I'm sorry, say that again.
Consol level. Yes.
Yes. Yes. Consol level. That's correct.
[Operator Instructions] The next question is from the line of Ritesh Oswal from Opal Industries.
Congratulations for good numbers. Please provide some colors on inorganic growth acquisition.
Inorganic growth. Good question. I mean, we're looking at opportunities all the time. So we are opening up subsidiaries in multiple countries. Our cash has improved dramatically now. I think as of December -- I mean, your -- already the numbers are there on there , but I think we received a reasonable amount receivable. So as of October 31, we have almost INR 1,657 crores in cash or cash equivalents. And we have about INR 108 crores of foreign bill discounting borrowing. So net cash level, I think we're almost at INR 1,550 crores. So I think our cash [ road ] has increased and going forward by end of the year, also, I think it will go up reasonably well. So I think we have the cash. We're looking at opportunities. I think we're just trying to see what the right one is. But I think certainly, I think we're looking at. Yes, as of now, I don't have any deployment plan. But yes, I think we're looking at different options.
In antibiotic sectors?
I'm sorry?
Antibiotic.
In antibiotic sector?
Antibiotic, you said? No, no, no, not antibiotic. No, not in antibiotic. No.
The next question is from the line of Yajash Mehta from Kotak Mahindra AMC.
Just wanted to know, obviously, you mentioned that the September quarter is expected to be weak -- the December quarter is expected to be weak compared to the September quarter and you'd be expecting a recovery in March. How do you see H2 post vis-a-vis H1 going forward?
So could you say that -- I understood most of it. I didn't understand the last sentence, last -- can you say that one more time please, the last sentence what is it...
Yes. So how do we look at the second half of the financial year compared to what we've seen things. How do we see things pan out for the first half of the financial?
I mean I said December will be a little on the weaker side and things will pick up March. I think we have given a guidance that -- I've given a range guidance, I think our expectation is that we'll do more than INR 1,000 crore -- between INR 1,000 crores to INR 1,200 crores of PAT this year. .
Okay.
Exact numbers and all -- I mean and I don't have a crystal ball my friend. I can only make an estimate on how things are. But I think that's our expectations. Yes. Yes. Okay.
The next question is from the line of [ Saumil Shah from Paras Investments ].
Sir, as we know, there is a fixed percentage for Revlimid sales for each year that we can do. So can we know for next year, this percentage will be higher than the current year or it will be similar to the current year?
It will increase my friend. It will increase. .
And...
It is all in public domain. I think it will increase to almost -- by end of the term, it will increase to almost 1/3 of the total sale of the innovator.
So next year, we can go up to 1/3?
No, no, no. By end of the term, by end of the term, it will go to 1/3.
Okay. And when is the end of the term?
I think by -- in the next -- I think by 26th March, I think 26th January I think...
Yes. Yes. It's all right. Yes. 2025 end.
Okay. So -- and currently, can we know, I mean, how much of that -- I mean, if it goes to 1/3, currently, we are at single digit? Or how is it?
I generally don't give that information my friend, we generally don't give yes, it is bound by confidentiality. That's all we are allowed to say.
Okay. And can we know this is the second year for this product for us?
Yes. Yes. .
Second year. Okay. Okay, that's it from my side, yes.
The next question is from the line of [ Yash Malhotra from JM Financial ].
Sir, if you could throw some light around the volatility and litigations in the U.S.A. As per my knowledge, you currently have another one in New Jersey filed yesterday.
Which particular product?
The same one an antitrust case.
That we've already spoken, and I think we are defending our position. And I think we believe that the lawsuits are without merit.
The next question is from the line of [ Hussain Bharuchwala from Carnelian Capital ].
Just wanted to understand, apart from CTPR, we have some other products in pipeline in the agrochem side, so can you give some color on those products?
Generally, we don't give a pipeline until it is at a mature -- where we're very close to marketing approval. But we have a very good pipeline. We're expecting at least 2 to 3 unique products in the next 12 to 18 months in the agro division.
And secondly, we were doing some relaunches of our product with our subsidiary Dash. So any progress on that front, if you give some highlight on...
Your -- is your question that you have launched some older products through Dash Pharmaceuticals is -- our wholly owned subsidiary. Is that the question?
Yes, yes, yes.
Yes, we have launched, yes. We have launched some products. It's doing reasonably well, but still a business that is losing money at this time because it's still in early stage. That's the only subsidiary that loses money. Otherwise, the -- all other subs make money. But it's a journey so it will take at least 1.5, 2 years before excessive turn. We just acquired it so I think -- and lot of the pipeline that we have is older pipeline so it is not such a profitable portfolio but I think over a period of time, I think we should be able to introduce new products and newer launches where it will turn around.
And lastly, on the domestic front. So on the onco side, how is the business is shaking up, can you give some color on the overall domestic business?
I think domestic has been stable. I think if you will look at it, I think we have done well. If you look at our half year numbers, I think we have grown around 10%, 12%. So I think it's fairly stable. I think I'm happy where we're going. Unfortunately, only missing piece is that we have done an acquisition, which we have been talking [Audio Gap] valuations, but yes. But otherwise, the business has been stable.
[Operator Instructions] The next question is from the line of [ Marcel ].
Yes, just going through this current investment, we have portfolio about INR 305 crores and hardly about INR 20 crores -- INR 21 crores is only invested in the equity or the growth mostly in mutual funds. Remaining our almost, you can say, INR 284 crores, which is more -- which is about, you can say -- which is about 92%, 93% is invested in the bonds or debentures yielding hardly 8% return. You know that like our inflation is 7% plus like. So like getting 8% return is like nothing. So -- and if you also see this for example market perspective, even the provident fund or the government provident fund or the [ PF trust ] they are also like allowing up to 15% investment in the like you can say market like [ growth ] oriented. So like...
No, no, let me answer your question, no, just -- so our portfolio -- I think let's understand what we have and what we don't have. See, what we have in India is most of it is invested in fixed deposits in banks and financial institutions. Our average yield is about -- it depends on its tenure, but average yield is about 7.5% to 7.75%. I think that's what the average yield is for the India rupee deposits. But we also have cash in our offshore sub, which is giving a return of about 5% to 5.5% because dollar deposits only give you that much. So I think that's the -- where the variation is coming from. I can assure you, I think this is probably the most conservative investments we have done, and we have not -- we are getting a reasonable return for the cash that is there. I think that's -- yes, that's it.
No, no, actually the point is that currently, we have invested only 7% in the growth oriented scheme predominantly the shares of Laurus Labs, what we are like suggesting that if you can increase this threshold say from 7% to 20%, 50% in the equity because like the way the market is now booming and the way it is like in India macroeconomic factor, like it will be [ INR 7 trillion ] economy. So I think equity is doing like reasonably good whereas we can say 22% to 25% interest per annum. So if you could to consider like this allocating like bigger chunk for the equity, I think yes it will, as I say, increase the stakeholder value there.
I understand your question. Now I understood what you said. See, the thing is our equity exposure is very low. I think our equity exposure is only 5%, 6% of our total cash exposure. Laurus and all because of the relationship, we bought them at the IPO. Those shares have been there for many years. It's -- I mean our job is not to do equity stock market investment. Our job is to invest in pharmaceutical research and pharmaceutical manufacturing and pharmaceutical acquisition. I think that's always what the -- our mandate is. I think that's what we're looking at. If we don't have a great idea, we just put it in fixed deposits. I think that's what we actually do. I agree with what you're saying, but again, I also disagree with you because the mandate is very clear that it has to be invested in our core business, not in equity. Thank you.
No, sir, I respect it, but like let me just like add something more here. .
Yes, please tell me.
The mandate we respect. Only thing we are saying that like I'm not saying to go in the like this pure equity, we can go through the mutual fund growth scheme and those are liquid also. Suppose, for example, if you have got any target to acquire something then this investment in mutual fund can be liquidated within 3 days time maximum. So like there's no like issue that like a -- like there's no barrier there that the funds will be blocked forever, no. So like because the point is that if you invest in equity growth scheme of mutual fund, you will get a dividend also plus, there is market booming, so we'll get -- like our NAV will also be higher. So if you could consider to invest through the mutual fund route, wherein we will not be bothered day-to-day like about the market like this yes ups and downs just like let mutual fund work out so just please consider to do some more exposure in mutual fund please.
Yes, sir, I think we will consider what you have said, and I think maybe we can consider an exposure. But as of now, I think -- yes let me -- we'll just have a review, and then we'll come back with some thoughts yes, thank you for that.
The next question is from the line of [ Hrishikesh Patole from Batlivala & Karani Securities ].
Hello, am I audible?
Please go ahead, yes.
Yes, so just last year, same quarter what's your [ wave ] business without Revlimid and even without the agrochem scale up. And we had reported margins in the range of around 22%, so is that the right way to look at the business ex of Revlimid?
I mean yes and no. I mean it's a very complicated question what you're asking. When we have good revenue, we also spend more on R&D as well, right? So I mean we -- and when we have -- it's -- I mean I can't answer your question, honestly. I -- it all depends on see the budget based on our surpluses, and we plan our R&D investment based on that. So if you -- and your R&D is measured based on -- I measure -- I tapper my R&D cost, what you call, spend based on how the surplus is going to be. So I -- honestly I can't answer your question, my friend. I don't know how to answer your question. Okay, thanks.
Just a follow-up what was the R&D number for 2Q this year?
I did not give for quarter-to-quarter generally, like last year, 8% to 10%.
8% to 10% of our revenue we spend on R&D. That's correct. Thank you.
And that would be the same trend going ahead...
I think we are maintaining the same flow, yes correct. Yes.
The next question is from the line of Ketan Athavale from RoboCapital.
Sir, I'm new to the company. So can you just outline how have we doubled the margin percent year-on-year? And you said that after -- I mean, in Q4, we will pick up the margins again. So will the margin sustain the subsequent years?
I think we have spoken about it in the past. I think I mean short answer is that, yes, I think based on our product launches and based on the expectation of the price erosion, yes. I think that's -- we expect at least for the next couple of years based on the pipeline that we should able to hold out. Yes. Yes.
And how -- what has led to increase in margin over last year Q-o-Q?
I think we had some good launches. I think we had -- our subs are doing well. Our agro business is doing well. I think Revlimid also has done well. So I think all of them together has helped improve our margins.
Okay. Got it. And this cyclicity, I mean, is this a seasonality that the margin should go down in Q3? Or is this only for this year?
I mean I'm -- I cannot -- I can't provide every year I can only talk to this -- I can only tell you what's happening in the next quarter. Even a gentlemen asked what -- how will your Q3 be compared to Q2? And I think we have said that Q3 will not be as strong as Q2, but however, things will pick up from Q4. I think that's what we have said. And we have set the guidance for the year. And I think the number I think we already said that it will be between INR 1,000 crores to INR 200 crores PAT it is what we have said. I think that's what we'll end up for the year.
Okay. Sir, can you give PAT guidance for next 2 years also?
I don't want to give it right now, I'll give you closer -- I think if I have -- let me see how the year goes, and I think closer to the end of this financial year, I think we will speak about that. Yes, thank you.
[Operator Instructions] The next question is from the line of Nikhil from SiMPL.
Congrats for a good set of numbers. I hope I'm audible?
Yes, you are, yes, Nikhil, go ahead.
Yes. Two questions, Rajeev. One is on the domestic piece now probably at the current run rate, we are back to where we were 3 or 4 years back when there was the size shift and everything which has impacted the domestic business. But in the interim, we had launched some more products, and we had launched into -- I think maybe if I'm not wrong, around 10 to 15 products we have launched. How do you see the domestic business growing organically for us from here, like would it be more driven by more new launches? Or do you think than the current launches or pipeline, which is there in the market has seen true scale up? That is one.
And second question, if you can spend some light on -- see if you look at it since the Revlimid revenue has started coming in, our R&D expenses have increased significantly. And I know this R&D investment will basically help us provide us a pipeline for future. But if you can just share how should one understand this pipeline evolving? So are -- is it like are there a large number of opportunities, which are like $1 billion or $500 million kind of opportunities which we are targeting? Or are these opportunities where they would be needed for a clinical trials or such kind of opportunities? And once Revlimid goes off probably by FY '25, '26, would this R&D spend taper down significantly? Or how do you think about the investment in the R&D over next 2, 3 years?
Okay. See the way this business works is whatever money you make -- I'll start with the domestic. Domestic is going reasonably well. I think organically, our expectation that it will grow around 8% to 10%. And if you're able to add an acquisition, then obviously, there will be a higher growth. Regarding R&D money. I mean without spending money on R&D, you cannot build a pipeline. And I think whatever the risk pipeline that we got is because of this money that we spend. And I think good amount of the surplus that we're generating, we put it back in R&D so that we can sustain for the future. And I mean, our -- first of all that is already in public domain. So I think I -- so they have -- obviously, the time lines of when they'll actually happen, it all depends on the patent, its outcome. So to answer your question, do we have a pipeline post '26? Yes, of course we have. And I think we have a lot of products, and they'll all come at different times, but we are excited about what we have. The question is we have more ideas like which are highly valuable, which can give a very large amount of revenues. The answer is yes.
I can say, I tell you, it's a very simple business in a certain sense. I mean in -- if you do 4, 5 of these in the next 7, 8 years, I think you are set. You know we have delivered many of those. I mean if you can deliver 3, 4 complex products I think you are set. This business more and more -- again, this is my personal view, I mean everybody may not agree with what I'm saying. But I believe get the big things right. At lease 3, 4 big things, right, you're probably covering 50%, 60% of your buildup. I think -- and those are very important, but otherwise, it's a [ comparative business ] [Technical Difficulty] most of them will give you a very low returns. Maybe sometimes you might have shortages and maybe you might come upon a little bit of [ trouble ]. The only way this business works is only 2 ways, one is you do the complex generics and deliver those and two, you do a global strategy where you do an R&D and you do as many countries as possible. That's the only way you build a sustainable module. Otherwise, it doesn't work. Okay. Did I answer your question? Yes, go ahead.
Rajeev, one question. Yes, partly, and what I'm trying to understand is see over last -- hello? Hello?
Yes, yes, Nikhil, please go ahead.
Go ahead.
Yes.
Go ahead, go ahead.
Yes, last 15, 20 years...
Please go ahead.
You have build a model around finding these kind of opportunities and going for it. But over longer term, as the complexity increases, say, more products or more launches going towards biosimilar or such kind of products, would you say that at some point, as a company, we will have to move towards -- though we would have to change our business model or we would have to keep on moving up the value chain? How do you see over a longer term? So probably 5 -- next 5 years, this model can sustain but over -- yes...
I -- yes. So I think see there are enough opportunities in the areas that we're doing. We also do a lot of peptide chemistry. We do a lot of complex oncology products we do newer forms of -- new types of chemistries, which a lot of people are not doing. So in that sense, there is still a little bit of play available in the complex generic space. Regarding biotech, which is a separate question. It's a skill set we don't have internally. I think I'll be honest with you. We are trying to build it through small investment opportunities. But again, it's a skill set I don't have. There are enough opportunities in the setup that we have. So I don't think there are lack of opportunities based on the way we look at it. But however, saying that, obviously, biotech is the future. I mean it's just not monoclonal antibodies. There you have CAR T therapies, you have gene therapy, there are a lot of things that are happening in the pharmaceutical business that you can participate in.
And these are the technologies of the future. I mean, you need to be part of these. I agree with what you're saying, how would you participate? I mean that's the question that you might ask. I think at this time, my personal view is that we don't have the skill set internally. But if somebody is doing it, maybe we can probably collaborate with them by investing or co-investing. I mean, for example, I would say -- and again given example of one of our friends, I mean, like example, Laurus Labs has investment in a IIT Mumbai startup, and they recently got approval for a CAR T -- they had a CAR T launch for our oncology products. So I mean, something like that. I mean, where you take a substantial minority stake and you participate in the upside. So there are different models. I mean you can weigh them or in an ideal world, you want to own 100% of it and do it like again, you will have to weigh whether you can do or deliver or whether you want to do a collaborative approach, but you -- I mean, that's how we want to look at it. Okay?
Okay. Sir, and as a percentage of our current [indiscernible].
[indiscernible] next caller.
The next question is from the line of Robert Joseph...
Sorry, Nikhil complete the question. Yes. Yes, please.
The next question is from the line of [ Robert Joseph from retail investor ].
Hello, can you hear me sir?
Yes, please go ahead.
Congratulations for the good set of numbers on year-on-year basis, and especially growth on the agrochemical business. Sir, actually, last -- I have only one question. During your last AGM, where you were answering a retail investor. During that time, he was asking about the -- because our market cap was consolidating for past 5 to 6 years in the same pace. So is there any action you're going to take regarding increasing of the market cap of the share? You told that time that you may consider the issuing of bonus for the long-term services to reward them. So do you have any ideas in regarding this, if you want to share.
I -- as of now, no, my friend. I can't answer your question at this time. I -- we look at different options. We have done a buyback. We have reduced equity by about 2...
Okay, sir.
And we have given a reasonable amount of dividend. And I would like to say that our financial performance has been very strong. And as I also said, we have a good amount of cash on our books. The company is in pink of health. So beyond that, I can't answer your question. I mean yes so -- but I think you just have to articulate our position that this is what we're doing, and this is the pipeline and this is how we're going forward. Yes, I think that's all I can do, yes. Thank you.
The next question is from the line of [ Hari Swaminathan ].
Mr. Rajeev, I really admire your stewardship of this company, and I'm very proud to be a very long-term shareholder. Just 2 points I wanted your view. One relates to buyback and one relates to dividend. Now the last buyback was on the market method. So long-term shareholders didn't really benefit out of it. Though the equity capital came down, so our holding became more powerful. But the tender method would have been much more beneficial for long-term shareholders because, a, you get the money, b, it is tax free. And c, it is very equitable. So considering that you earn 7% to 8% on your INR 1,600 crores, and considering that you might not need that entire amount for a potential acquisition. So in case you are considering any future buybacks, particularly if you can time it with respect to this Q3 seasonality, so that people who are not really believing the company can, of course, pay the price.
Now the tender method of buyback, I feel could be considered. Many progressive companies are doing that, including Infosys and recently Granules did it. So it's like a form of dividend, but it helps us, number one. And there is a time limit that is now over for you to consider the next buyback, but I leave it to your better judgment. And the second point is on dividend. Now I understand that we want to -- at some point, even of this seasonality thing. But you see the way we pay out dividend. We pay much less dividend for Q2 and even less for Q3 and very high for Q1 because that's where your good revenues come in.
Now one way would be -- it's just my thought, is to -- as a measure of establishing our intent towards removing this seasonality to look at the dividend in a more equitable or equalized manner because otherwise, what happens is today, many in the market think that nothing positive shock is not going to come for the next 3 months. So people trade in and out whereas very long-term shareholders like us. We bear the pain and we hope for a better tomorrow, but we also bear this pain because of this seasonality thing. So these are my 2 thoughts, and I once again want to put on regard my admiration for your integrity and the way you have handled this entire piece. Hats off to you.
Thank you, sir. Thanks for your kind thoughts. I will take both your suggestions under advisement. I think in the future, if at all, we consider a dividend payout and/or a buyback, I will definitely weigh on your suggestion, and will do what is right for the current shareholders, yes. Okay? Thank you.
The next question is from the line of [ Saumil Shah from Paras Investments ].
Sir, as you mentioned that Q3 won't be as strong as Q2 but if we compare it as -- I mean, Q3 to Q3 of previous year, I mean, can you expect growth in that terms?
I don't want to answer that question my friend. Let me just see how this quarter goes, it's so early to answer that question. I think I can't answer that question. I'm so sorry, I can't. Let me just see how the -- so because I'm right halfway into the quarter, so I don't know how the orders will be booked and so I think -- just give me a little -- I can't answer your question. I'm sorry. I refrain from doing that because it's too premature. Yes. Thanks.
Okay. And one more suggestion as the previous participant that I mean, in future, if we do a buyback, please do it through shareholder and so that shareholders could benefit and not through the open market route.
Got it. Got it. I'll take that under advisement. Absolutely.
Because in last 5, 6 years, I think our market cap has been stagnant. So shareholders have not benefited. Yes.
Yes. Absolutely. I'll take that under advisement. Thanks.
Since we have so much of cash in hand, and if we don't any opportunity to -- for acquisition then please do a buyback in this way.
Yes, sir. Yes, sir. Absolutely. Absolutely, I'll take that under advisement. Thanks.
The next question is from the line of Ritesh Oswal from Opal Industries.
What's your view on Carbohydrate chemistry? Are we entering in this space?
I'm sorry, what chemistry?
Carbohydrate chemistry. Are we entering in this?
I don't know what that means. But I'll just -- I will just have a evaluation from our technical team. I -- we are not in -- I'm not a technical person, my friend. So I am sorry, you caught me off guard, but I'll just check what this means. I don't know what it means. Yes.
Okay, I will send you an e-mail.
Okay. Thanks. So I will take the last question for today. Yes.
Yes. As there are no further questions from the participants. I now hand the conference over to the management for the closing comments.
Okay. Thank you. Thank you so much. Thanks for your comments, and thanks for your questions. And I appreciate the suggestions given and we'll take that under advisement when we make our next set of decisions. Yes. Thank you, everyone. Thank you. Good day.
Yes, thank you all. Have a good day. .
Yes, I appreciate it.
On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.