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Strides Pharma Science Ltd
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Ladies and gentlemen, good day, and welcome to the Strides Shasun Limited Q4 FY '18 Earnings Conference Call hosted by Macquarie. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Alankar Garude from Macquarie. Thank you, and over to you, sir.
Good day, and warm welcome to the fourth quarter FY '18 earnings conference call of Strides Shasun. From the management, we have with us Mr. Arun Kumar, Mr. Shashank Sinha and Mr. Badree Komandur. Thanks to the management for this opportunity, and over to you, Arun, for the opening remarks.
Thank you. Thank you, Alankar, for hosting us. Good afternoon, everybody. My name is Arun. I am the Founder and Chairman of Strides. I'm here after a 1 year sabbatical with not necessarily great news for all of you, but I just wanted to take you through what FY '18 has been.Firstly, like most of you are, we are all disappointed with our overall subdued performance for the year. A lot of things have not gone well for us in the last 2 quarters, mainly our U.S. partner business. We had a significant challenge with our Institutional business. We also timed our launch for our consumer health division in difficult environment, which, in hindsight, we could have done better with that strategy. And then we continued to struggle with the gap between secondary and primary sales in Africa. Having said all of this, the -- what I take away from these results is, obviously, that our strategy continues to build momentum; our execution, obviously, was not to our expectations, which I'm sure that, with the new vigor that we have established at Strides, we will bounce back strongly.We've completed several of our corporate actions that we had to do, and that's behind us. And we can now focus on building the company to a diversified B2C players. In the midst of all of these dark clouds, there was great success with our Australian operations. A non-U.S., non-Australia emerging regulated market was a win, considering the significant growth that we have achieved as they touch a low base. And of course, we also exited the India Brands business, which allowed us to pay down debt.I'm going to take a little time in this call to explain the business a lot more differently than what we normally had been doing earlier. This is in the interest of -- or rather a response to several industry requests for us to have more granularity on all of our businesses, which we have made and attended, which I'm sure many of you will appreciate and will also help you understand the business a lot better.Clearly, let me first focus on how we are proposing to course-correct this business. I do not think that this course-correcting strategy is going to take us much time. I am very confident of the Strides and all of its businesses bouncing back in 3 to 4 quarters at the best, and we will see improvements in the near term based on some of the actions that we have already taken.The U.S. continues to be a market for our largest growth. We will have a recalibrated strategy, and I'll talk about it in a bit. 65% of our business currently is partnered, and we will -- we are working very hard to reduce that dependency on our partners, and I'll explain what has already being done.Our second -- our next obvious strategy will be to bolster our Australian leadership position. We've already done a great job this year with the, business with an increase of [ almost ] over 300 basis points. We have recently announced a transaction involving Apotex. I'll talk to you -- talk a little more about it in a bit. We believe that our early success in focusing on markets outside of the U.S. and Australia leading to some traction. We have been very successful with our U.K. operations, parts of Europe and now South Africa, and that will continue to help us derisk the U.S. bias.More importantly, our Africa business is tracking very well on a secondary standpoint. If you look at IMS data, we're tracking approximately 3x the industry growth, which is great in the markets where IMS data is available. But our base being suboptimal, it continues to be an opportunity that we will focus on.Our Institutional business has had its toughest year yet simply because the malarial opportunity has compressed, is almost negligible from what it used to be at one point in time. Added to it that we have long-term contracts on our anti-retrovirals, which suffer significant API price increases. This is now a very common trend that we are seeing, increased prices on APIs across the board. In some cases, we've been able to put the prices up; in many cases, we haven't. And therefore, we have been very frugal in how we are approaching this business. It still formes a very significant part of our underrecovery strategy for manufacturing operations. We'll continue to stay invested, but this is a business that is going to be muted for some more time.Allow me to now take you through specifics. Australia is our biggest market by revenues. We completed the year at around AUD 184 million with an exit that's a little over $50 million. Sequential growth on that business quarter-on-quarter, above industry average growth, margin expansion of over 300 basis points from Q1 to Q4, mainly led by supply chain efficiencies and site changes that have happened. We think that we're right on track to continue in FY '19 to grow this business at low teens and to retain the FY '18 exit margins, which will allow a margin expansion in absolute basis. The key levers will continue to be expansion of portfolios. We had 29 new launches last year. We'd like to beat that if we can and also enhancing our pharmacy footprint. We increased pharmacy footprint by about 400 pharmacies. We'll continue doing that on a stand-alone basis.But adding to the new transaction that we recently announced, subject to several approvals, the Strides and Apotex combination will make us the undisputed player in the Australian market with phenomenal synergies of costs and also corporate costs because we don't need that cost to run a merged entity. We'll have synergies of scale, the volumes that we could bring back to our manufacturing sites between the 2 companies. And also, the expansion of our pharmacy engagement from 1,400 pharmacies to 3,200 pharmacies will give us significant synergies. But like all of us know, this transaction is subject to customary closing conditions. We expect to hear back in about 2 quarters and how that's progressing as this is a public process of the competition commission, and we expect the transaction to cross the line in terms of an approval, and we will keep our investors and analysts posted as we hear more. The U.S. business is where our issues for Q4 are. I think, structurally, there is nothing wrong with the business. The way it -- I mean, as in -- operationally, there's nothing wrong with the business. The way the business has been structured has some challenges. So if you look at the business, it's grown fairly well between the first 3 quarters, and it's dropped dramatically in the last quarter, resulting in us not meeting -- effectively being responsible for all our misses in terms of consensus estimate on EBITDA. And let me take a few minutes to explain this because this is important. 65% of our U.S. business is from partners and 35% is front-ended. The business, in spite of a low Q4, grew from $100 million to $120 million. I do agree the base is small, but considering the environment of the U.S. market, we're happy with the 20% growth, but significantly lower than what in Q3 the management provided an outlook for a $50 million run rate. If you noticed in Q3 FY '18, we already had a -- we had revenues of $42 million, almost doubling from where we were in Q1.Unfortunately, for us, both the products -- the 2 significant products that were responsible for the ramp-up of Q2 and Q3 revenues, mainly Lovaza and -- that Omega-3 and Potassium Citrate. In spite of having no -- not significant number of players, both products have not met initial partnering goals. The reason we partnered with Par on Omega-3 was that they had 29% of the market when we got product approval. They were switching their existing partner to us, and it was logical for us to get to a 29% market share without much effort. Little did we consider the competition that would come from Europe and U.S -- sorry, mainly U.S. players, including Teva, who aggressively priced their products to regain -- not only kind of disrupt part on their 29% market share, and this led to a severe drop of revenues and profit. So as a consequence, we effectively stopped shipments of product to Par, as there was no way we would be -- we would be spending on inventory if their market shares have dropped from 29% to 12%.We are now seeing a small uptick in this market share, but it's nowhere near where we had forecasted. So having met their initial 29% market share objective, we would still have had a significantly improved Q4.Recently, in Potassium Citrate, we had the same issues. The product was $105 million IMS opportunity. We had only one approved player in this product, an Indian company, and there was an [ AG. ] And surprisingly both the [ AG ] and the Indian player aggressively brought down prices to ensure that we would not get any market share. This effectively shrunk the market by 50% on both products, resulting in a significant drop on our opportunity. As a consequence, we are sitting on inventory, which should have been exhausted in 2 quarters. We're potentially sitting on inventory which will now get exhausted only in 4 quarters, considering the market share that our partners have.I'll come back to some of the partner strategies in a bit. But on the front end, as we've been consistent in our commentary, although the revenues are only 35% of our total business, we continue to increase market share because of our focused niche and narrow product range -- narrow products. We have only a single-digit price erosion throughout the year, which we think is better than the rest of the industry. And what actually led to a management outlook in Q3 was based on the confidence of the company having received a target action date for generic Tamiflu for an approval on September 17, and, regretfully, on the pack date, the API, DMF had a major CR, which resulted in significant rework on the DMF. And we had actually already tied down our customers, which would have given us a significant share of the Tamiflu generic opportunity, especially given the -- it was the worst flu season in the U.S. So it's been a double whammy for us, both from not having got our most important product approved on time, but more importantly, our partnered -- our 2 significant products we -- where we had partnered. We had an option not to have partnered on the Omega because it was a very recent partnership. It was done after we got the product approval. In hindsight, it looks, had we kept it ourselves, maybe we would have had better pricing discipline. It's obviously, a big learning for the company, which leads to our FY '19 perspective, where our recalibrated strategy is to build a front-end business upfront. I'm pleased to report that more than 50% of the revenues that are partnered have since been brought back to our own fold in terms of value, and we will -- you will see products, including Omega in our [ livery ] being sold towards the end of the financial year. This is because we, obviously, have to exhaust stock, and then we will have the control of the product.Clearly, given where the market prices are in the U.S., there is not enough profits for 2 companies to share. This is clear to everybody operating in the U.S. business. The U.S. business still continues to be an exciting and profitable business for a new player like us. So clearly, no more partnering. There would be -- there are 3 or 4 more products that needs to be approved, which have been already partnered, but there will be no -- there has been no new partnered products in the last 12 months. After the Omega product, there's nothing which is partnered. Like I said, 50% of the value of products have already been returned to us, documentation has been complete. And then we would see a significant momentum in H2 onwards because we will start selling the products that we're currently not, in our own degree, starting from H2. We expect inventory to run out by then. R&D has been frugal. It has been effective. We had only 12 NDA filings for the financial year. However, we filed 5 additional files in April and May. We do tend to take 1 month or 2 extra to ensure our filing qualities are a lot superior so that we get approvals in 10 months, which is our aim. And many of our products that we recently received approvals in FY '18, including the 3 additional approvals we got in April and May, we've got approvals of these products fairly quickly.One of the larger products that we got approved was ibuprofen soft gelatin capsule, which is an extremely important product, and as many of you may know that there's an acute shortage of ibuprofen raw materials. So although we have an approval, we have not commercialized the product as we are just awaiting the FDA approval for a source change of the API from our strategic partner Solara, where we have committed source of supply. So we think we will have the approval of the source-changed product by the end of the year to a past process, which typically takes about 6 to 7 months. And I'm very confident that we will get to the momentum that we were used to in the early years -- I mean, in the past year but with fortunes being controlled by us.So sorry for the long explanation of the U.S. because if you do the math, the slip of the U.S. is directly responsible for the 100% of the consensus miss on the EBITDA.I'd like to say that it's a one-off, but time will tell us that what we've done in terms of course correction has been the right strategy. We continue to believe in the U.S. market. We do not believe that we can grow at these rapid numbers in the other markets that we operate. So we will be staying focused, building our own fortune still in the U.S. with continued focus on niche products and products that we have complete control. So we are confident that we will rebuild this business, recalibrate it and deliver or exceed expectations of this business.Now if we just talk about the other regulated markets, we -- there's been very little color that has been provided on the regulated markets. Most of you will notice that we've had a good run. We have doubled the business -- almost doubled the business from Q1 to Q4. It's grown fairly rapidly from a very low base to $52 million. We're very confident -- in FY '19 that this business will -- we'll be able to grow this business at the Q4 levels, which means that it will be one of our more strong -- more focused growth markets for us, and this is mainly coming from our U.K. operations, which has seen significant price improvements. There's been a lot of supply issues that many companies have, which we have been able to benefit. It's not like the U.S. prices increased significantly as the market is highly generified. And we have a solid footing with a nice product selection and a recent transaction in Trinity, where the margins are very suboptimal at this time, but with our actions like we did in Australia, we are very confident of building this business.What is most important in the other regulated markets is that our [ IP1 ] portfolio in Australia is very valuable, and there's fungibility of that portfolio in all these markets. And we are very focused on leveraging that portfolio across Canada, Europe, U.K. and South Africa, and that will allow us to really ramp up our business in this segment. And we believe in the next 2 to 3 years, this will emerge as a very significant part of our business.So that we do not confuse people with how we were reporting earlier, we have [indiscernible] the Institutional business from the emerging marketplace, so that makes it a lot more easier for everybody to understand. If we look at the Institutional business, our average revenue from the Institutional business has been about INR 600 crores, about $90 million for the last 3 years. The first half of the year, we were tracking above that. We were riding an upside of an overflow of the malarial business -- of the previous malarial tender where [ donors ] were exhausting funds. So we benefited from that. Then the malarial tender was only declining in the second half. There was very little sale of any malarial products. Having said that, the market, as most of you who follow the Institutional business know, has shrunk in terms of donor availability. New -- there are 2 new players in the market. As a consequence, what was a $75 million business has now shrunk to a $15 million business, which is very unfortunate considering that antimalarials is the profitable part of the Institutional business.We have retained our malarial tender, which effectively means that we will still hit our FY '18 number, but it's obviously almost half of what -- less than half of what we did the previous year. The -- we think that we are seeing traction. We're seeing the problems of price increases for all players in this market. Donors understand that, at these price levels, not many companies are able to supply products. There has been some rationalization of volumes. We are trying to renegotiate some of the supply contracts or reducing the exposures that we have. So as a consequence, the API prices in ARVs have increased at an average of 20% with no increase in the selling price. So effectively, the margins have evaporated from the business. But having said that, the volumes in this business make up a significant part of our underrecovery strategy of our manufacturing plants. So we will retain this business. We'll continue to stay invested. What is also happening in the Institutional business, especially in anti-retrovirals, there is a significant shift in the products that are used in new treatment regimes. And we believe in that phase, we will have a better say in our market share and opportunity in the next coming years. So we want to stay invested. We're confident of rebuilding this business. And we think that pricing adjustments will automatically happen if nobody is supplying, and I just think it's a matter of time.Africa has had decent values on a quarter basis, again, solid growth in the beginning. Primary sales was high, but the gap between secondary and primary were ever increasing. Consequently, we took a conscious decision of reducing our exposure, and therefore, there were no primary sales or very limited primary sales in Q4. Business is $41 million. We think we can build this to $100 million business in the next 3 to 4 years. But for that, we need a better discipline. And in H1, we are creating the enablers to get there. So one must expect a soft H2 in Africa while we continue to reduce our primary sales, but our secondary sales growth of 20% to 25% will continue. So while secondaries are not getting impacted, obviously, we'll not be booking revenues from -- on the primary side.And there are -- of course, there's a slide on our financial performance. Clearly, it's been a very disappointing year. Quarter-on-quarter, our performances have been suboptimal, much to our liking. And all I can tell you is that this company is completely rewired. We are very focused on COGS. We are very focused on productivity and outcome. And I and my leadership will get this company rocking again.So thank you, guys, and -- really for listening. And we'll be more than happy to take questions. And I have my colleagues, Badree and Shashank, who will -- who are also available to chip in as and when required. Thank you.
[Operator Instructions] The first question is from the line of from Chirag Dagli from HDFC.
Sir, how would the outcome have changed -- for whatever is happening in -- or whatever has happened in the U.S., how would the outcome have changed had you had your own front end?
Had your own front end on those products?
Yes.
Well, I mean, one is -- we obviously would not have gone -- if we look at our own front-end business, we've had disciplined pricing approach, right. And we would have let go of certain accounts but not let go of price.
So you would have had a lower market share, but the pricing would have held on.
That's right. Which is what we have done judiciously. Even in a product like ranitidine, if you look at IMS, there is no price drop from us, and we now have 35% of the market.
Right, sir. And then, sir, in hindsight whatever is happening with the ARV business where the ARV price has gone up, there's extreme competition and pricing pressure in the U.S. Does it seem that we could have kept the API business within the Strides fold? Would it have made sense? Because that would have given you vertical integration.
We still have -- if you look at -- if we look at all our releases around the exit of the API business, firstly, no anti-retroviral products were manufactured by the API business that was signed off. There was nothing that they were manufacturing. In the new regimen that we spoke about, Solara makes all the APIs, and we have most favored customer status for capacity and price. So we will lose nothing of our intended integrated approach when it comes to the new range of products. In the old range of products, like zidovudine or lamivudine, there was nothing. But all the 7 or 8 years we were in this business, all our APIs were coming from China.
And the last question, sir, if I may. Given the significant uncertainty the next few quarters sort of entail, is there an overall guidance that you want to share, especially for FY '19?
No, I don't. I think if you look at the enormity of what that we have done in terms of giving comfort around the numbers, you can do all the math. We simply are not giving a guidance. Our performance should speak for itself. And be rest assured, there will be comfort coming in sooner than later. But at this time, the company -- not at this time, the company will not provide a guidance.
The next question is from the line of Aditya Khemka from DSP BlackRock.
Sir, you mentioned that the 65% of your revenues in U.S. are partnered. So is it 65% for the fourth quarter or is it for the full year of FY '18?
Full year.
What would it be for the fourth quarter, sir? Because if fourth quarter numbers, if they are so different from the rest of 9 months, it doesn't really give me any sense of what...?
It'll be less than 10%.
Less than?
$2 million or $3 million.
Sir, $2 million or $3 million of your 4Q '18 is from partnered products?
Yes, in that range.
Okay. All right. And you said that of this 65% partnered sales, half of it you are going to bring in-house. So -- and the other half, you'll still probably continue to partner. Why do that?
Sorry, Aditya, can you just repeat?
Yes. So you said 50% of the 65% of U.S. sales which are partnered, you will bring them in-house.
Correct.
So which means balance 32.5% of partnered sales currently will, again, continue to remain partnered sales.
Yes. We are -- we didn't -- we don't have an opportunity on those products to renegotiate. We have brought in stricter controls. [indiscernible] not a supply product if we do not have pricing -- discussions around pricing and discipline around it. But wherever we could, within the first 2 to 3 weeks of my coming back here, I used my connectivity with the leadership in the companies that we've partnered to get these products back. And I think it's the right thing to do. Strides will have 0 partnership by 2020 on almost all products except this one company where we have a good control on how products are being priced. That will end up only till 2022. That's the legacy contract that we had from Shasun.
All right. So this -- again, in the context of the current quarter...
You're okay for so many questions? I'm more than happy to answer as long as the moderator is fine. But otherwise, I'm always available on the call. Just that you and anybody -- everybody else knows.
Sure, sir. I just wanted some color on the number -- on the question I just asked you?
Yes, go ahead, go ahead.
Yes, so you said $2 million or $3 million in this quarter was of partnered sales. How much of...
The reason I lost -- just there's a small correction. It's approximately 33% -- it's about 33% of partnered. Vikesh was correcting me. Apologies for that.
No problem. So out of the $20-odd million that we reported, $7 million was partnered, correct. So which basically -- so what I'm trying to understand is, out of this $7 million, we are going to take $3.5 million in-house and $3.5 million [ to the main ] partner. That's the right way to look at it?
No, that's not the right way to look at it. The right way to look at it is that if you take Q2 and Q3, the run rate is $60 million, right. Almost it's about $70 million, and 60% of that is $40 million. Because we did not supply Par and on Potassium Citrate, that is why there were no partnered sales because there's inventory. We are exiting some of these products. So unless we exhaust inventory, we don't sell. But other partnered products we continue to sell, right, because they are selling or keeping market share.
[Operator Instructions] The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.
Sir, my question is on the U.S. business. I mean, we have, on a quarter-on-quarter basis, seen a very sharp decline as far as the numbers go, both profitability and the sales. Sir, going forward, this business, even as we move towards the front end, I mean, across the industry, we're seeing a lot of price erosion, excess competition getting in. From a strategy point of view, I mean, does it really make sense to go after the U.S. business when both this -- the effort is not really yielding into -- in terms of profitability? Or do you believe that at the same time if you have probably -- if you focus this same investment into, say, an Africa-branded business or an Australian business, where you have a pretty good hold into it, it should actually yield better results?
That's exactly what we're doing. If you look at our business, we are a diversified market. Our biggest regulated market is Australia. We have $150 million business in Australia compared to $120 million in U.S. And if the Apotex deal comes through, that business will more than double. So we're doing exactly what you're saying. But having said that, just because there is a current challenge in the U.S. market, it doesn't mean that the market is not attractive. It continues to be attractive for newer players like us, approvals come faster, and we don't -- we are happy with the price points. But what you really need to understand, Sudarshan, is that there is a minimal critical size that is required in any business for the business to be profitable. In the U.S., considering the R&D spend and the manufacturing and the quality -- cost of quality, the $120 million size does not add up to EBITDA. But after a certain point, when the OpEx -- after a certain point, your costs do not go up in the same ratio because your R&D is flat. You referred -- Sudarshan, sorry, I didn't realize that we lost you. Can you tell me till where you heard me?
Sir, you were actually talking about -- just because in this quarter, the numbers are bad, it doesn't mean that long-term strategy might not be lucrative in the U.S. business.
So what I'm basically saying is this quarter, the numbers are bad by design and not by default. We stopped -- we did not supply to partners because we are disengaging with them, and therefore, we have to exhaust the inventory. And when you are having your own inventory, you cannot make your revenue booking. So it's just a deferment of timing. I was answering also that your point to say that quarter-on-quarter there's been a degrowth in Australia and U.S. is wrong. In fact, quarter-on-quarter, we have been growing, and we are growing nicely in terms of the number. But for these challenges we had on these 2 specific products, the rest of the U.S. business is tracking. Because our base is very small, the issue we had with these 2 products is obvious for one to see. We think it is temporary, and we continue to stay invested in the United States because there is no other market like the U.S. that can give us the growth, the quantum leap of growth that is required. As a new player and as approvals come quicker, we think getting to a critical mark will translate to significant margins in this business. So we are going to stay invested, Sudarshan, to answer your question.
Sure. Sir, specifically, back to the U.S., I mean, earlier we were sticking out to the $50 million run rate by the fourth quarter. Now, I mean, I'm not exactly talking about what time lines would it take for you to get down. But, I mean, where do you think probably 1 year, 2 years down the line, both in terms of profitability vis-à-vis our consolidated business and in terms of scale when you are looking back with the product pipeline that you have, where do you think you are going to be in the U.S. in terms of scale as well as profitability?
Both hard questions to answer. We can't give you a guidance around it. But if we have had a business that has grown from almost nothing to $120 million, with all its problems of price erosion, partnered, all of those things that we spoke in the last 3 years, we think we can build this to an important site, and we can get into our peer group EBITDA margins in the next 2 years.
Sure. If I may, I have just one more question?
Excuse me, this is the operator. Mr. Padmanabhan, may we request you to come back in the queue for a follow-up, please? The next question is from the line of Nitin Agarwal from IDFC Securities.
Arun, on the -- you mentioned about the probably the mistiming of the CHC business launch. So can you give us a little perspective on where the business is and what you intend to do with it going forward?
So we've taken a decision that the CHC business will be -- we will not spend new capital around the CHC business, so which means that it will not add any margins. It's very suboptimal. It's about $10 million in revenues. And we will have 0 EBITDA, 0 cost, 0 cash spend scenario till we get our main business in order. And so we're evaluating options around it, but it will not go through the spend, and there will be a -- the budget for the next year does not include any losses coming from the CHC business.
Okay. And secondly, on this quarter, excluding the -- in terms of the numbers, we did about INR 80-odd crores of EBITDA, excluding the -- INR 85-odd crores of EBITDA excluding the other income. Now this is a quarter, based upon your commentary, barring the U.S., I mean, all the businesses were -- I mean, are at levels where you probably see them continuing going forward. And -- I mean, and Australia did contribute -- and of the INR 85-odd crore, I think Australia contributed a good INR 45 crores, INR 50 crores based upon the disclosure that you've had. So where is this incremental lift in profitability in the business going to come through, given the fact that barring this U.S., all the businesses in Q4 were at pretty healthy exit rates?
Not the Institutional business, Nitin. The Institutional business, for the reasons I explained, with the price increases, do not give us a positive contribution except on the recoveries -- and Africa. Africa is not a secondary standpoint, from a primary standpoint.
So you see margin improvement possibilities in Africa Institutional business apart from the U.S. going forward.
Correct.
The next question is from the line of Anil Shah from Birla Mutual Fund.
The question is while you're not giving any guidances in terms of going forward overall, just one simple question is, how we hit the trough in terms of the U.S. sales of $120 million from a yearly perspective?
Yes, I think, for sure.
Okay. And second question is, since you've been giving a lot of granularity there for demand, could we have a list of -- could we get some more details in terms of the product launches that you are looking for in this year or next year that you would have filed, looking for some target action dates or whatever?
This is -- Anil, this is 90% of your [indiscernible], so [indiscernible] tend with us.
Sorry?
I said we have given 90% of your [ heart ], which you were all complaining that we were not giving any granularity. So we've given 90% of that. We still have some challenges on the products simply because some of them are partnered. We have challenges around it. Give us some more time. Before the end of this year, we will solve for that, too.
The next question is from the line of Anmol Ganjoo from JM Financial.
My question is again related to the U.S. market. Shashank, during the last conference call, you said that the U.S. growth has been upwards of 20%. If you were to adjust for inventory rationalization, what Arun called for, what would that like-to-like number be for this quarter?
Now -- so we're not sure we got your question, Anmol. Can you just repeat it?
So the U.S. growth, as per your commentary during last quarter, was 20%. And if you were to kind of -- all the factors that you alluded to in terms of inventory rationalization on partnered products for this quarter and so on, if you were to adjust for that, what would that like-to-like number be?
So $120 million should have been $140 million.
Okay. And my second question, Arun, is that, when we entered into these partnerships, especially Lovaza, that time, the sense we seemed to get was that we're entering these partnerships because we want to have some kind of a floor as far as market share accretion is concerned. You want this more like a put option on market shares. It has panned out exactly in an opposite manner. What was wrong in terms of assessment? Because if, within 4 quarters, things can move so dramatically, then you don't kind of basically put some kind of a question mark on the confidence we ought to have forming a strategy for the next 4 quarters. So any specifics you can share with us in terms of what was the negative surprise?
So clearly, the partnered strategy does not work in the environment the U.S. business operates because it's clear. This was our biggest learning. In the case of Lovaza or Omega, partnering with a market leader at 29%, we assume it's a logical shift of our -- an ownership of the 29% market share. What we didn't factor, and especially since we didn't have Indian competition, we didn't factor for the aggressive disruption that the other players in the market, and there were no new approvals. So -- and that is what has [ bothered ] us. So we think that because of the rationalization announced by Teva and by Apotex, both of them had this product. We believe that it could have been a stop-and-fix strategy, too. And if you look at IMS data, we're slightly moving up the market share. We think that we're seeing the bottom of it. It's too early to predict, but I think it's a one-off. So if you look at current IMS, you'll see that there's a slow pickup of the -- so we've been completely disrupted, and in my view, Par had to -- if Par had to defend that market share of 29%, they would have probably sold that product at a loss. So I think this behaved rationally, but at the end of the day, it's that our forecast of liability around this opportunity was completely amiss, as you mentioned correctly. So clearly, partnered business product was where we are more confident in us building up own fortunes. Whatever we have done, we have got a track record, although the site is small. We have a track record of having grown businesses, including large products. So if you look at our run rate, now it's close to about $17 million, $18 million. So it's not that we, as a small player, can't handle a large product. In hindsight, we should not have done a partnership. So to answer your point is that no more partnerships, get out of them as soon as you can. We've already been successful with 50% of the value, and we live with the others with better discipline. And those products are not material to impact us.
Okay. My last question, if I may. Arun, as you said, FY '18 has been a year of corporate actions. You've done multiple exits and entries into different segments. Would you be able to give some kind of a comfort that FY '19 will get the final pleasure of comparing the businesses sequentially as well as a year-on-year basis on a like-to-like basis? And [indiscernible] execution as opposed to [indiscernible] various businesses and have you settled down?
So I mean, we have the confidence of providing the data that we have done today. It's because we are able to answer a question as an if. If we have given you quarter-wise sequential growth for every business that we operate, it's for you to get to know that our corporate actions have been settled. We rewired the company to what we want to be, and we have achieved those goals from a strategic standpoint. Our focus, like I articulated earlier in my opening statement, is on execution. It's on frugality. It's on being agile on running this business. And I strongly believe my own personal experience of having been in these situations earlier will ensure that this turnaround will be quick and rapid.
[Operator Instructions] The next question is from the line of Dhaval Shah from Birla Sunlife Mutual Funds.
In the opening remarks, you mentioned challenges in the Institutional malaria side as well as the Africa business because of the gap in the primary and the secondary sales. At the same time, in one of the responses, you mentioned that the key margin drivers would be Institutional and Africa business. So just couldn't connect both of them in terms of what you were trying to suggest.
I was clarifying to Nitin's question that Nitin assumed that all the businesses were making money. So I was clarifying to him that Africa and Institutional did not deliver profits in Q4. And with the course corrections that we have [ envisaged ] in our presentation, it will start delivering results that we want.
Despite the challenges being there in Institutional as well as Africa business for the first half or the fourth quarter...
Yes. Our perspective says that the first half will be soft.
Okay. On the R&D side, how much of the R&D is actually getting spent on U.S.?
So we have about -- so we have what is called a global portfolio of storage in place considering that we operate in so many markets, but you could assume almost 65% to 70% of the R&D spend being attributed towards U.S., and that's mainly driven by the fee structure of the U.S. side and not so much of the product development costs.
The next question is from the line of Anil Sarin from Edelweiss.
We should go ahead. Go on to the next question, please.
As there's no response, we take the next question from the line of Chirag Dagli from HDFC.
Sir, just to clarify, in FY '18, you had an EBITDA loss of INR 45 crores from the consumer health division and that you're targeting at 0 for the current year.
That's right.
The EBITDA you -- the EBITDA loss you've targeted at 0, basically?
EBITDA loss is 0.
All right. And, sir, can you share some thoughts on how the launch schedule looks like for FY '19 for the U.S.?
Product launch schedule?
Yes. Just some broad color, sir, number of launches...
So it's mentioned there in our R&D slide. We have targeted 15 product launches this year. We have 15 product launches, yes.
And all of these will be under our own label -- most of them?
2 or 3 of them will still be partnered. But these are partnered where we have significant control on the decision making.
Right. And the number of filings that we might do in FY '19, sir. Are we now back on -- earlier, we've mentioned that we want to try and get to the 15 to 20 mark.
We have. We have. So although we reported a filing of only 11 files -- 12 files, we did file -- we had 5 filings in April and May. That's mainly just to -- from a quality perspective of the file, I think it was technically fileable in the financials.
Okay. And then just last clarification. What will the CapEx for FY '19?
So about $12 million.
$12 million, 1-2?
Yes.
Ladies and gentlemen, due to paucity of time, we take the last question from the line of Gautam Jain from GCJ Financials.
Sir, looking at Q4 number, Par's current debt is INR 1,700 crores. So can you guide us how that will be next 2 years? Would we able to repay some amount from that?
So I request Badree, my colleague and CFO, to answer that question.
Yes. So currently the debt stands at INR 1,704 crores, and [indiscernible] the operating leverage and the superior cash-to-cash [indiscernible] free cash annual chance. We should be able to get to a situation of about INR 400 crores to INR 500 crores. And what we believe is in 2 to 3 years time, we should have [indiscernible] working capital [indiscernible] in 3 years.
Okay. So next 2 years, do you think we will be able to pay any amount on current debt?
We don't have any repayments on our debt for the next 2 years. Badree was basically referring to your question of debt reduction.
Okay. And on the U.S. sales, this year, we have done $120 million. So can you just have a broad guidance on both -- I mean, will you be able to achieve more than that in current year, 2019?
Yes. We will.
Okay. So Q4 number will not be, I mean, repetitive in Q1 and Q2. As you said, the recovery will happen from Q1 -- H2 onwards?
I'm not making a comment on that. Your question was specific. Will we do more than $120 million? My answer is yes.
Okay. And you said Australia will grow, but a [ little, ] right.
A [ little. ] Yes.
Okay. And how the EBITDA margin will do in 2019? I mean, because in Q4, we have sequentially INR 20 crores of extra other cost. Can you just throw light on that, what was that, from INR 159 crores to INR 179 crores in Q4, from Q3 to Q4?
Yes. So this is definitely -- there are some [indiscernible] which we -- which [indiscernible] target in the current quarter because of which we are able to see the increase in the expenses. And also we also have some operating expenses in terms of the freight and all of that. So broadly if you really see [indiscernible] expenses in terms of the major heads, they will be broadly in line. And in terms of the gross margin figures, it has actually expanded.
So no one-off in other expenses in Q4?
No.
Okay. And what could be our interest cost next year -- full year?
Yes. So we are currently at about INR 38 crores. We hope to maintain it at the same range.
Sorry?
INR 38 crores per quarter.
INR 38 crores per quarter.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Thank you all for your patience and time today. I know there will be several questions. Please feel free to call me or any of my colleagues, and we'll be more than happy to have face-to-face meetings or clarify any questions that you may have. Thank you all, and have a great weekend. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Macquarie, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.