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Strides Pharma Science Ltd
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Ladies and gentlemen, good day, and welcome to Strides Pharma Science Limited Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, sir.
A good afternoon, and thank you for joining us today for Strides Earnings Call for the Third Quarter Financial Year 2020. Today, we have with us, Arun, Founder of the company; Dr. Ananth, CEO and MD; and Badree, ED Finance to share the highlights of the business and financials for the quarter. I hope you've gone through our results release and the quarterly listed presentation, which have been uploaded on our website as well as the stock exchange website. The transcript of this call will be available in a week's time on the company's website.Please note that today's discussion will be forward-looking in nature and must be viewed in relation to the risk pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach to our Investor Relations team.I now hand over the call to Arun to make the opening statements.
Thank you, Abhishek. Good afternoon, investors and analysts and other friends from the financial communities who have participated today. Before I start, I will take the opportunity to introduce Dr. Ananthanarayanan, who is our new CEO and Managing Director. He joined on board in the first few days of January. And before I get more into details of the quarterly performance, I'm going to hand over the mic to him so that he can give you a brief introduction about himself, and then we look forward to the opportunity of meeting many of you along with Ananth in the coming weeks, so that you can get a better perspective of his capabilities and his leadership over the many years.We at Strides are very excited to have Ananth on the Board. He has had several years of leadership experience across marquee companies. And it's been only a couple of days since Ananth has joined the company, but I'm sure he will give you already a high-level perspective of what he thinks about the organization. Thank you, Ananth.
Thank you, Arun. Good afternoon, everyone. It's truly been my pleasure and privilege and honor to be joining Strides as a part of the team, the senior management team, as the CEO and Managing Director. As Arun said, it's just been a few days that I have taken on and been in the organization now.I know some of you, but for the others, whom I would probably be meeting, just a quick introduction. So I come from the pharmaceutical industry for about over 3 decades, having spent my time through a mix of technical, techno commercial and P&L ownership. I've had the opportunity of spending time in India as well as outside of India, in the U.K. and in the U.S. I've also had the ability to lead companies, both on the API side and the finished-dose side through a mix of big pharma, large multinationals and large Indian pharmaceutical companies.I was most recently, prior to joining Strides, with Cipla as their Global Chief Operating Officer. And prior to that, with Teva as the CEO for 3 of their businesses, the Biologics business, the API business and the Global Generics B2B Medis business. So it's really wonderful to be here to interact with all of you. My objective would be over the next several weeks, to be able to travel out and meet many of you. And I think I certainly will look forward to that interaction that I could share some of my perspectives and what I would like to focus as well.Just to give a perspective, I think over the last few days that I have been with Strides, I'm very excited. I'm pretty excited at the opportunity that exists in the business, pretty excited with the strategy. And I'm sure, during the most recent Investor Day, all of you would have had a chance to go through some of the strategy that was presented. So my objective is really to continue to reinforce that strategy, but really focus on execution of that strategy, and focus on ensuring that we don't miss out on any of those execution elements. And I see a lot of opportunity in the portfolio strategy as well as the go-to-market and the time-to-market approach that Strides has taken, which is really playing out extremely well for the organization.So with that, I'll hand over back to Arun, but I very, very much look forward to interacting with all of you over the next few weeks. Thank you.
Thank you, Ananth. So before -- so in terms of a quick overview of the quarter, we had a very strong quarter albeit a weak performance -- continued weak performance from our emerging markets. We achieved a historical milestone of a 25% EBITDA growth -- sorry, 25% EBITDA on our operations for the first time. That is very pleasing given that the reset started about 2 years ago, and we are very delighted with the quarterly performances -- Q-on-Q performance that the company has delivered.Pleasing, of course, is the significant increase in the gross margins this year. This quarter, this has been, obviously, aided by continued growth in the regulated markets, especially in the U.S. We benefited this quarter, like all quarters this time of the year for seasonality, both with products like benzonatate and Tamiflu. And of course, we, Strides also benefited from the fact that we relaunched Ranitidine for about 6 weeks.For those of you have been following the company, you will notice that the TRX and Ranitidine, we have reached -- we have already come back to where we -- in terms of market share, we have about 55% of the market share. And we believe that we will be able to penetrate more, given that we are the sole player in the oral dosage forms -- I mean, the tablet format, which is about 90% of the Ranitidine opportunity.EBITDA at INR 185 crore, obviously, that's street estimates. But that is in line with our OpEx leverage and the incremental margins flowing through to the bottom line. PAT, adjusted PAT, was about INR 101 crores and EPS and our run rate is about INR 45 per share.What is important here is that we had a capitalization in Q3 FY '19 of our Singapore operations, which had a run rate of close to INR 25 crores. So technically, year-on-year, our EBITDA has grown from about INR 40 crores to about INR 185 crores per quarter.The U.S. business, obviously, has done exceedingly well. We continue to benefit from niche product selections, launches. We benefited in the last quarter with Losartan being introduced for the first time. We benefited from Ranitidine relaunch. And obviously, we've had a good run in the U.S. business. 90% of the business in the U.S. comes now from our own content. And some of you will see an incremental increase in working capital, which can be attributed to this. Q-on-Q growth has been $20 million on the front end. And that's obviously resulted in working capital increases because as most of you know, you need to invest in the gross sales and not necessarily in the net sales in terms of working capital for -- until you stabilize the business. We will see some more increment increases in the working capital in the next couple of quarters before it stabilizes. And we are now in good shape to get to -- to grow this business even further to what we think would be the right size in the next many quarters.For the year, we are now very confident as far as the U.S. business, we'd like to believe that we'll be closer to the upper end of the guidance of $240 million. That will give us a significant leg up from where we left this business last year. The other regulated market is systemically, this quarter is always a weak quarter, given Christmas and other reasons, especially in markets like Australia and South Africa, where they are closed for several weeks during the holiday season. So it's historically a weak quarter. So Q-on-Q, growth has been flat, but Y-on-Y growth has been 54%. In all the regulated market, it's clearly been a complete execution excellence, if I may. And we've -- we are benefiting from our contracting strategies.Emerging markets. I've been -- in every call in the last several quarters, my commentary hasn't changed, that we have been very focused on delivering businesses -- doing less for more. Consequently, the business that we do is of better quality. But clearly, the growth has taken a toss. We would see a turnaround of these businesses. We already see some green shoots this quarter. And we believe that both the emerging markets will -- which is getting very high level of management attention, will lead the growth in the next financial years. So that's about the overall business.Specifically, there have been 5 odd FDA audit outcomes post Puducherry over the last 1 year. So that's pleasing that we have got many approvals, including 2 consecutive 483, Zero 483 approvals for our Alathur facility. We have now completed all our necessary [indiscernible] and submitted them to the FDA, and we are hoping the agency will come to inspect us in the near term. And we do hope to have a good outcome, given all the work that we have done there.So Q-on-Q growth has been from $57 million to $66 million and year-on-year grew by 62% from $41 million to $66 million.We spoke about the other regulated business. A lot of R&D spend is now focused on the other regulated business, you will see significant new product launches and approvals going forward. We've been more or less at the same levels for some time now, but you will see a significant shift for the better, especially given the uptick in our Australian demand, given that we have now started servicing the Apotex volumes too, for the first time this quarter. So that's -- we are in track to see the visibility of the $20 million EBITDA that we have guided when we exit Australia as early as next year, few quarters ahead of schedule.So that's good. The branded Africa business has done well. It's turned around and there's now no more challenges in terms of hygiene. And we are hoping to receive our first product approval for our ARV business in the new regimen anytime now, and that should obviously give us a fill-up to that business. So that's more or less the high-level commentary in terms of what we have executed in the last quarter. And the reset strategy in our view has played out. And we believe that, that we will continue to grow from here in, qualitatively. I'm not so sure about the quantitative growth, but qualitative growth will continue to be very strong.So we continue to be very excited with our strategic reset. We continue to be excited with having got our execution right. And we obviously are getting ready for scale, as we build out the business.So with that, I and my colleagues, Badree and Ananth, will be more than happy to answer questions. For those of you who may have questions based on our results today. Thank you.
[Operator Instructions] We have the first question from the line of Alankar Garude from Macquarie.
Congrats on a strong performance. My first question is on margins. While sequential top line growth is just 2%, we have seen a strong -- more than 600 basis points Q-o-Q improvement in margins. So just wanted to know what magnitude of this expansion is sustainable? You mentioned various factors in the U.S., but are there any other factors like, say, a lower contribution from Africa and emerging markets which have a much lower margin profile, which has resulted in this strong margin expansion?
Yes. I think you answered your question. Between 2 and 3 percentage points increase in the margin is predominantly because of the subscale Africa and emerging market business. So that's -- the regulated markets benefited in -- I mean, the margins presented benefited from that. But the U.S. business and our business in Europe is tracking well, especially in the U.K. and in the U.S. and both continue to contribute very strong margins. So I think once you see the emerging markets and the Institutional business climbing back to where historically this business would be, you'll probably see a moderation of margins by about 3% to 4%. But we are more and more confident that the range of 60% is something that we would -- we believe that we can continue to keep in the -- given that our regulated markets continue, we'll continue to grow from where we left -- where we are.
Understood, sir. My second question is on the other regulated markets. Now would it be fair to say that you mentioned about Arrotex or the Singapore facility contribution starting in this quarter. But would it be fair to say that there's still a lot of room to grow or rather lower your under-recovery from the Singapore facility?
Yes. So the plan is that the Singapore facility is not necessarily supplying to Arrotex as much as it was originally planned. We have now shifted the Singapore focus to the U.S. because we -- as you probably know, we've got VA designation for the plant. And we've already got our first contracts from the VA. And VA the business is obviously more sustainable long term. And we are benefiting from that also in terms of margin expansion. We expect Singapore to be predominantly a U.S.-centric business going forward. And therefore, under-recovery would be almost fully sorted out before the -- in the next 2 to 3 quarters.
And then -- so supplies to Australia would be from which facility?
So we have now converted one of our plants in Bangalore to a dedicated Australian-approved facility, which was earlier supplying to the emerging markets. So a lot of our volumes have been -- are shipped from here. But Singapore also supplies, but not of any great volume or value.
Understood. And my final question is for Dr. Ananth. Congratulations on the new role, sir. It would be great if you could just share your initial thoughts on what are your immediate priorities? And which areas would you like to focus on?
Yes. Thank you so much. I think, clearly, for me, first immediate priority is to ensure that we keep continuing to focus on sustaining compliance. As you all know this industry, the criticality of compliance is very, very important, and therefore, continuing to have the focus on compliance will continue to be an important factor. That's number one. Number two, of course, while we are ready as a company to -- with all the remediation in Pondy facility, I think ensuring that we try and get the FDA inspection and close that is going to be also equally important.I think the third element would be to continue to focus on executing well on the deliveries, on the supplies and ensuring that we maintain our security of supply and assurance of supply to our customers, and then executing to our product portfolio, executing to our customer segment and utilizing our facilities, I think, are going to be key, but my initial thoughts from initial days I think these are what I would say. As I keep going and getting into the details of the business, and as I keep meeting all of you, I think we'll be able to share much more and give more color.
[Operator Instructions] We have the next question from the line of Nitin Agarwal from IDFC Securities.
Congratulations on a brilliant set of numbers, and congratulation Dr. Ananth for joining the team. Arun, on the U.S. business, for the current quarter, I mean, how should we look at the base? So 2 parts that you alluded to. One is that the improved Ranitidine contribution as well as some seasonality. So any -- I just want to get a sense of how meaningful and how sustainable some of these impacts would be going forward?
I think for the current portfolio that we have, and with a continued discipline in terms of margins and market share, the Q3 base is a reasonable place for you to consider. I mean growth from here would be there, but will not be in that kind of big scale and that we have done in the last 4, 5 quarters.
And on Ranitidine, have we got the full impact in the current quarter of prelaunch?
Yes. So we got the full quarter because of -- the pipe was obviously stopped. So we got a 55% in that 6 weeks that we had put the product in.
Okay. And secondly on this Africa, this Institutional business, we've been talking about moving -- getting approvals for the new ARV regime, and how competitive do you think or we would be in this new regimen, given the fact in this new sort of API construct, which is going to be there in this regimen?
So here, the API volumes that are involved in the new regimens are not kind of large volumes like what it used to be in the first regimen. And we have significant security -- also security and supply chain integrated this time on this new regimen. So we are very confident of being as competitive as most of the other players would be, as we've got all our duct in line in terms of getting everything right to be -- to take a significant share. We expect the approval of the product in a few weeks from now. And then we should be good to go from, hopefully, from the next quarter.
[Operator Instructions] We have a next question from the line of Saurabh Shah from AUM Fund Advisors.
type="A" />Arun, two questions for you. One is on the U.S. business, you mentioned that you're looking at adding new products over the near term as well and including next year, and I think you just mentioned that this quarter was a good base. So how should we see the contribution of new products from a top line standpoint? I understand your margin outlook in the U.S., but just from an absolute size of the market, how much more do you think in the U.S., you would -- you think can be done with the new products?
So for your benefit, we operate in a pyramid format where at the bottom of the pyramid, we have only 6 to 8 products, which deliver close to about $20 million on an average. We are not done with that strategy. And the growth and the margin expansion comes from the middle of the pyramid strategy where our average sale is only about $4 million per product. And this is where we are adding more margins, not at the cost of potentially steady -- I mean, tactic growth, but that's the margin expansion. So that's leading to Nitin's question, but you cannot expect blitz-scaling considering that we have already achieved a lot in terms of getting the model right. So incremental product -- if you have 15 product launches, and if you're averaging $4 million to $5 million per product and that's all you can grow from here. So I hope that answers your question because we are not chasing top line in the U.S. market, we're chasing profits.
type="A" />Sure. And the margins from the new products that you mentioned, $15 million or would that be kind of similar to what you are just now? Or you would look at even more sort of accretion?
Yes. Typically, as a company, I mean, the current quarterly average is slight -- or little more than what it is. But not materially different.
type="A" />Okay. I understand the strategy, just a separate point, what would be our U.S. utilization currently?
What do you mean by that?
type="A" />Utilization of the asset for sales in the U.S. from the U.S. facility?
You're talking about capacity utilization of our total installed capacity?
type="A" />Yes.
So all our plants together can produce about 20 billion units, what we call an equalized or equalized unit and we currently need about 7 billion to 8 billion units for the U.S. market, it's about 40% of our capacity.
type="A" />Okay. Great. Second point was on the yield strategy that you mentioned that you look to -- you're still looking to reconfigure that. Just want to get a sense of 2 years out, 3 years out, what in your case would be a base case for the size of that business? And what margins do you think would be appropriate for the business that you are seeking to build up?
So I didn't say that I'm going to reconfigure the business. It's already been reset. I say -- what I said is that you'll see play out starting from this quarter or next quarter. We're already seeing green shoots around it. We believe that we can double the business from our current quarterly rate, but getting to a peak sale in institutional emerging, which was close to about $150 million is several quarters away.
type="A" />Okay. And do you think that is optimal to build that scale out, given your focus on margins and return on capital?
It will deliver return on capital, but probably at the cost of lower gross margins?
[Operator Instructions] We have a next question from the line of Kunal Randeria from Antique Stockbroking.
So my first question, Arun, would be on Ranitidine. So have the volumes for the overall market shrunk? Because I think when all these issues cropped up a part of the market moved to Famotidine. So how do you see this overall market playing out?
So we don't -- we are not experiencing, Kunal, any drop in volumes. It's also because the OTC business has also starved for products. So obviously, there would be a natural switch between the OTC and Rx markets. So we are not seeing -- and we don't operate the OTC business at all, although we have approvals. So we don't see any drop in the unit volume as yet. And that could be because -- simply because we may be servicing a larger part of a diminished opportunity, and then we are still getting the same volumes, right, what we normally sell.
Right. But do you see the pie then going up again?
It's a combination. I don't think the volume is going to go up. It's -- the total market is about 2 billion tablets between OTC and private label and the Rx, and the Rx is about 1 billion in tablets, 100 billion in capsules, which we don't sell, and the rest is in the OTC and private label. It's more an OTC and private-label product. So the opportunity for Ranitidine, per se, is for us to scatter across all the categories. It's a question of how we want to wait and watch the scenario in terms of the players coming back into the market. At this time, we are happily settled with our Rx strategy, and we want to continue to focus on that.
Right. And would it be fair to assume that price also played some role in good numbers, U.S. numbers and the margins in this quarter?
Price plays across the portfolio. Ranitidine is not a case of isolation. What we basically say is that our strategy has always been to be a secondary supplier to most portfolio -- to the buyer universe. Consequently, we operate at a slightly better margin than most other companies because we never take a primary supplier status with anybody. This play out has been happening for the many -- if you look at our commentary for the last 8 quarters, we have consistently been saying that we have no price erosion on any quarter. This quarter, it's the same. It's just that we have a larger base, many more products in play, and 9 out of 10 products, we don't see a price drop, we see improvements in many cases. But I can't give you specifics around Ranitidine alone.
[Operator Instructions] We have a next question from the line of Chirag Dagli from HDFC Mutual Funds.
Sir, in the non reg business, there is stellar growth, what is changing there? And what does it mean -- what does this growth mean for margins in that business?
So it is -- I mean, it is stellar growth Y-on-Y. Q-on-Q it's flat. So -- but yet -- I mean, you have to adjust for the weak quarter that traditionally it is for seasonality. What we see, growth coming mainly is coming from U.K., Brexit is helping. We are entrants to the U.K. market quite well. Sterilization is helping, but not many players are in a position to offer sterilized products across the European territory. So that's growing. We are seeing margin expansions in South Africa. And obviously, those bases are very small, but we are seeing growth. So what happens in this business is that since we -- sometime most of the businesses, you incur costs that have cost ahead of time, and once you get to a certain size, then gross margin flows through to EBITDA, and that's what we are seeing. This business used to be about $20 million a quarter. It's now -- we have a run rate close to about $140 million, $150 million in this P&L by the time we get out this year. And then -- we believe that this is the market that we will see more growth. We want to mirror the other reg markets to the U.S. business as you will know that we were blitz-scaling the U.S. business over the last 2 quarters, but we've also been guiding that this model will only take us to a certain level. We can't build a $1 billion business in the story. Therefore, the other reg business will mirror the U.S. business in the next several quarters, and that's our focus, both in R&D and also in operational excellence.
Okay. Sir, that helps. And just 2 clarifications. Did you, during the call, sort of indicate that on the quarterly base of about $65 million for the third quarter, we should still see growth?
Yes. Not big scale growth, but marginal growth.
But some. You are viewing this as a growth business even on the base of this?
That's right.
All right. And just a last bit, sir, the minority interest is largely Stelis. Is there any...
Stelis and consumer health.
And consumer health. Can you split the 2 pieces?
We will do that when we meet you, Chirag.
[Operator Instructions] We have next question from the line of Mr. Gaurav Maheshwari from Unilazer Ventures Limited.
Arun, my first question pertains to the U.S. business. You've seen a fantastic growth over the last 6 quarters. Given that in your last presentation, you have mentioned about an existing business to be a $400 million opportunity in 12 to 18 months, which means like $100 million for Strides. We are at $66 million. So is this the right understanding at $66 million, we can see it moving to $100 million quarterly run rate in next 12 to 18 months time?
Well, that is the idea. That's why we guided that this scale can get us to $400 million. Yes, you're right with that.
Okay. The second thing was on the Africa business. Would you be able to guide on how do we see that panning out? As you've seen a sharp decline this quarter. So where do we think that business would stabilize?
It's been a decline by design and not by default, like I said, and that has to do that, whatever we are doing is profitable, and that is what is helping us to ensure that our margin profile doesn't change. But growth will come with a new regimen, and we are expecting this business to grow. We would like to see this business at least doubling from where we -- from this quarter run rates in the next 3 to 4 quarters. We are confident of getting there, but a lot will depend upon how quickly we can get the product approved by the WHO, which we -- like I said, is weeks away in our scheme of things. And then how do we build it from there.
We have next question from the line of [ Vishal Vohra ] from SK Ventures.
Congratulations for an excellent set of numbers. I want to understand, the run rate that we now have and given that it's driven by U.S. and to some extent, reg markets, where we already have a lot of the investments in place. So would it be fair to assume that going forward, the cash flow from the business, the cash generation should be much stronger, say, over the next 2 years?
Yes, it's a fair assumption.
And in that case, sir, what is our intention? What do we want to do with that cash? Whether we are looking at for any M&A opportunity? Or looking to pay down debt? I mean what exactly -- is there a guidance?
The guidance is -- we'll give you guidance when the pot arrives. So at this time, we told you, your assumption is right, but the cash has not yet arrived. So once it arrives, we will have a chat and we'll take a call then. But at this time, we have a comfortable balance sheet. We don't see the need to do any big ticket acquisitions. There's a lot of IP and assets that are available for the cheap. That's not going to stress the balance sheet. So it's a little too early to talk, but directionally, these are opportunities. All what you said are the opportunities for the company to evaluate.
So -- but let's say, from a next 2 years' perspective, from a growth perspective, we don't need any major incremental investments to, say, drive the kind of growth we've seen over the last 4 quarters?
Not with our current debt book and the balance sheet size.
Great. Second, just to confirm, sir, U.S., we mentioned $100 million run rate. Over what period is our intention?
I didn't mention. I was just -- when we did our investor meet, we communicated that the current module is good enough, will mature at around $400 million. We indicated between 16 to -- between 18 and 24 months from December that we indicated. And we think that we are on track to get there in the next 2 years.
Right. And third, sir, just if you can share some -- so already, there's been a lot of detailing done from the company on Stelis. But just to understand your vision for the company over the next 2 to 3 -- for that particular segment rather over the next 2 to 3 years, where do we see that business?
So the Stelis and the injectable business are our businesses that will fuel our growth in the next 3 to 4 years. And the core business will also generate enough cash, like you correctly mentioned, to support the incremental investments that we require in injectables and Stelis. So we are a little early days in terms of what -- where exactly -- I mean as we can articulate outcomes and numbers and all of that. But what is important here for you to understand is that we've got all the building blocks ready. The heavy lifting is over, the long gestation process of developing a product, setting up a plant are completed. So we're excited about this. And while Ananth and the rest of his team will ensure that the base business that we operate now and what we reported today, will continue to have legs and grow profitably, we will spend more time investing in capabilities around the biotech and the injectable business, but it's very early days to make any specific commentary around this.
[Operator Instructions] We have the next question from the line of Nitin Agarwal from IDFC Securities.
Arun, for the next year in the U.S., how many are -- I mean, what kind of visibility on approvals do we have?
We should have an average of -- so we have now a little over 100, and 102, 103 products approved, sorry filed. We have about 70 odd products -- 69 products approved and we only commercialized about 40. So we have a lot of -- like we spoke in -- we for example, Tacro, we launched after 3 years. Losartan, we launched after 5 years. So there is -- there are big opportunities for us to even launch the remaining approved products. But to answer your specific question, we will have probably about 10-odd approvals per year, which what we think would be, which will fit into our commercialization bucket. We may have more. But what we actually commercialize may be only about 10 products a year. And that is more than enough.
And 10 of the new ones, plus whatever opportunistic -- opportunities you do on the existing approvals?
That's right.
Okay. And on CapEx, Arun, how should we -- what kind of CapEx number should we sort of pencil in over the next couple of years now going forward?
Sorry. What's that? So about $25 million because of West Palm beach, and about $10 million to $15 million of -- $25 million between further expansion in Singapore, if we need next year. Capacities may be required to meet more demand for the U.S. and also about $15 million to $20 million as regular CapEx. So yes, about -- in the next 2 years, we're looking at around $50 million.
That's an aggregate cumulative CapEx of $50 million over 2 years?
That's right.
We have the next question from the line of Sachin Kasera from Svan Investments.
Congrats for a good set of numbers. Just one question regarding the investments in biotech and CHC, which stand at INR 430 crore approximately as on date. Next 2 years, how much approximately we would need to put in more in these 2 ventures?
At least about INR 300 crores more.
Cumulatively. Okay. And just one question regarding the tax rate. Current year, we are at very low rate. How do we see that for the next 2 years?
I'm going to give that to Badree to answer, please.
Yes. So we have guided generally between 10% to 13%. So the -- that's what we hope to achieve in the next few years, but it is also subject to different change in regulations, which can happen in the next few days because we are closely looking at the R&D benefit, whether it will be extended for further period of 5 years or so. So after that, once get a clarity on that, we should be able to guide it better.
Sir, just last question regarding this losses from the JVs, should be only INR 80 crores, INR 85 crores this year in the P&L. How do we see this in the next 2 years? Should it come down or should it remain at current levels?
It should go up a bit till we make money in the biotech division.
We have the last question from the line of Chirag Dagli from HDFC Mutual Fund.
Sir, in the emerging markets business, over 3 years we've -- I mean, what will happen even if we double from here on? Why be in this business at all, Arun? Every few years, we've gone through these iterations where we've sort of changed the strategy.
Chirag, the only thing constant in our business is change because that's how the business is being disrupted. The emerging markets and in-Africa, for-Africa strategies are important strategies. They are not a distraction for the company. They don't take cash. There is no investments required. So building these businesses are important, the regulated markets look attractive now from what we are doing. But a diversified business model is what Strides is building in and rushing to as we communicated 2 years ago. And we are committed to make it successful. I think this -- especially once we get the institutional business back on track, which we will soon, this question will probably fade away from your mind. But clearly, just -- we can't just be a reg market player. Although sometimes as a capital allocator, you get tempted to follow your idea, but I think we need diversity in the business model.
What will be the capital employed in this business?
Very marginal. Capital employed in Africa would be about $25 million.
This is across working capital as well as fixed debt?
Yes. About $25 million.
Okay. And then, sir, you mentioned you have 70 products approved in the U.S. You've commercialized only 40. Are you seeing a lot of incremental opportunities, given the kind of supply disruptions and price increases we've seen in those specific products?
It depends upon the competitive landscape, it depends upon the regulatory status of an existing player. We don't chase the market share at the cost of price. We would wait and watch often. That patience pays off. We always have the ability to turn the tap on and bring a product in the market almost as soon as it's required. So yes. So we see opportunities. And I think we are benefiting quarter-on-quarter by incrementally moving our base and adding new product sales.
In most cases, the reason you're unable to launch these products is because you're not geared up in supply chain, because you're not backward integrated or because prices have come down at such a level where we are not sustainable?
There is a discipline in our pricing strategy in the U.S. The moment we compromise that, then we are no more confidant. The whole model is to only operate products where if it's a commodity you're fully integrated within the group companies. We have complete control of the supply chain, we are not depending on China. If it's a niche product, it's just a matter of time. And one of the 3 players or 5 players that operate in that product will withdraw the product or exit the market because it's too small a volume and all may have challenges in supply. So we like these smaller products because that's what incrementally adds to our gross margins.
But do you see this 40 on 70 ratio changing dramatically 3 years out?
No.
Thank you, sir. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Sir, over to you.
Thank you all. And as always, we are available to answer any specific questions. The IR team is more than happy to answer any specifics. So if you need to talk to me or to Ananth or Badree, please try to mail to us and we'll be more than happy to get on a call. Thank you all, and have a wonderful day. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Strides Pharma Science Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.