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Strides Pharma Science Ltd
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Ladies and gentlemen, good day, and welcome to the Strides Pharma Science Limited Q4 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.
Good morning, and thank you for joining us today for Strides earnings call for the fourth quarter and full year ended financial year 2020. Today, we have with us Arun, Founder and Chairman; Dr. Ananth, Chief Executive Officer and Managing Director; and Badree, Executive Director of 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 investor presentation, which have been uploaded on our website as well as the stock exchange. The transcript of this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to the risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team.I now hand over the call to Arun to make the opening comments. Over to you, sir.
Thank you. Thank you, Abhishek. Thank you, everybody, for joining in and appreciate joining us early this time, considering that we are in very unusual circumstances that we all live in. We had to -- we completed our Board meetings late last night so that there was enough time to upload the presentations and also send it across to a wider community so that we could have a more informed conversation this morning. I hope all of you are being safe at home and the lockdown, especially in Bombay, is going -- is panning out to be a little more brighter than what we hear here in Bangalore.So with this, let me just start off, as Abhishek would have -- thank you, Abhishek, for the introductions. And like he said, I do have my other colleagues here who will address parts of this opening commentary.So I ended my watch as an Executive Managing Director of the company on 31st of March. It's been a great year from several of the objectives that we set out when we went about course-correcting the company both strategically and financially, but for a setback based on the Ranitidine withdrawal request from the FDA, which came on the last working day, it's been a stellar year of performance, and my team and I are very proud of what we have achieved at Strides in the last 12-odd months. We strongly believe there's great footing for Ananth and his team to build from here and strong foundations that's been laid across businesses as we transform this business even further.Two very important elements that have been achieved in the year is a very significant uptick in the gross margin levels. We improved our gross margins, adjusted almost by 11% and reported almost by 10%. And we have delivered 2 consecutive quarters where our gross margins have exceeded 60%. Now appreciating the fact that we still have 25% of our business in the institutional and emerging market space where the gross margins are not as reflective, this is a phenomenal shift in our focus on product selection, execution and absolute 0 failure to supply. Some of the principal business rules that we set about in terms of capital allocation, return on capital employed and also working capital management have played out well, and my colleague, Badree, will talk to you more about those matters. Later in the conversation, Ananth will give outlooks -- as we live in very unusual circumstances, he will give you an outlook on COVID as we cease at Strides the opportunities and the challenges. And therefore, we would not have specific guidances, but we will generally give outlooks, which we will endeavor to update every quarter so that we make it more sharper and more focused based on the ground realities that we face.So if I look at the whole year, the biggest upside, obviously, continues to be the U.S. market. We guided in the beginning of the year to -- for a performance range of between $220 million to $240 million. Adjusted for Ranitidine, we are at the high end of that range. Very important to us has been product selection, product introduction and market share. We haven't lost market share of any product. We haven't had price drops on any products in the last 6 quarters continuously and that's simply because we are not in the commodity products that we -- most companies operate. We believe there's a lot more opportunities to continue this model. We've guided you several years ago that we believe that the U.S. business with this strategy would get to about $400 million. We were hoping that we will get into a $100 million run rate about 18 to 24 months when we last spoke to you. This probably, because of Ranitidine, may get shifted by a quarter or 2, but it's not going to be significantly different from where we originally guided. I would like to strongly believe that the margin profile of the company will stay or improve even from here, and this is an endeavor that we constantly apply at Strides across our businesses.What we have done for the benefit of -- for our investors and for those who are on the call today, we have given a lot more granularity on our numbers so that there's a lot more -- I mean not that we are not willing to answer questions, it's just that we avoid a lot of confusion. So if you could see the U.S. numbers that we've had, we grew this business in the last 8 quarters consistently from $25 million to $62 million. Adjusted for Ranitidine in the last quarter, as you all know, the Ranitidine was withdrawn after working hours on the 31st of March. So we couldn't do much to course-correct that. So we have delivered an average of around $60-odd million of revenues per quarter. Considering that we've had a few product launches, and we've now got introduced into the VA system, you will see that building this business back to where it was is quite easy, and Ananth will give you more granularity around that.We grew the business in the last 5 years by 5x from $50 million to $240-odd million. And the U.S. business will continue to be a key focus for us. Added to our Singapore facility, getting VA status and the Palm beach facility going commercial in a couple of quarters from now, we believe that the tailwinds of Made in America and the VA opportunity will actually be more beneficial for Strides than ever before.The -- we have a full page on Ranitidine so that we just kind of reiterating all what we've been communicating. As you all know, on 31st March, the FDA requested all companies, both in OTC and Rx to withdraw the products. The work that they've asked us to do will take several, several quarters. We do not believe Ranitidine is going to be back in the market for at least 2 years with all the work that the FDA has asked us to do. We still believe in the molecule. We will continue investing time and money to see if we can bring the product back. But for us, this is clearly a setback. As you know that when the FDA allowed us to sell the product on November 22, we were running an annualized run rate of $75 million in the product. So obviously, that's -- that would have been a significant uptick from where we guided all of you. But more importantly, it would have added significant -- I mean it would have reduced the time for us to get to the $100 million per quarter run rate. But having said that, this is very typical of the market and the businesses that we operate in. This is an act not created by us, and we chug along. We're very focused on introducing new opportunities. And I just also want to take away federal questions around Ranitidine. I just want everybody to understand that we didn't price gouge. The numbers that you have -- that you see here are without adjusting for other operational costs and other costs that have been attached in the Ranitidine withdrawal cost of $17 million because 100% of the gross margin has been deducted. So it is quite normal for you to assume that our gross margins are significantly higher in the U.S. than the reported numbers, and several of our products will meet this criteria, so we're very confident of filling this gap fairly quick.Coming to the other regulated markets, they have had a stellar performance. The business grew from $70-odd million -- sorry, $80-odd million to $118 million, delivering 47% growth. This business will continue to benefit from 2 elements. One is, supplies now to the Arrotex Group in Australia has peaked to what we had expected to get to the $20 million EBITDA run rate when we announced the transaction. The fungibility of the Australian portfolio that we acquired is playing out. We've got -- 20 products were filed and 16 approvals were received. Bulk of it were fungible products on the Australian portfolio so that's played out extremely well. So not only are we benefiting from additional supplies to Australia, but more importantly, we are benefiting from a significant scaling of our filing and approvals in the European market. Regarding filings, U.S. -- as we guided a year ago, we reached a plateau of what we think our model will need to deliver the $400 million run rate, and we don't see the need for us to keep investing on more products. We will continue to look at opportunities, but they will not be as profound as they used to be in the last 3 years in terms of portfolio. So that's generally about the other reg markets.The emerging markets and the institutional businesses, although you see a drop of 33%, what it clearly did for us, it delivered course-correction. So our branded business in Africa is now completely operational from a hygiene perspective, from a productivity perspective. We may have some challenges this quarter because of the lockdowns in Africa. But having said that, this is a business that has bounced back to its full potential, and we are very delighted with the work that we have done in the last 24 months.The emerging -- the institutional business is -- has been tepid, as we have been guiding everybody, but what it did for us is that by focusing on products which are profitable, we have delivered, it has also added tailwinds to our gross margin run rate.With this, several financial outcomes have been achieved. And while growth -- while significant new growth in the U.S. has been achieved with limited expansion of the debt book or hardly any expansion of the debt book, this has been another year of tight financial controllership and great work from Badree and his team.So I'll now pass the thoughts on the -- the phone to him to speak about the key outcomes on the finance side before he passes it back to Ananth. Thank you.
Thank you, Arun, and good morning to all of you. So in the next 2 to 3 minutes, I'll cover some of the key financial highlights. And financial year 2020 has witnessed a strong execution with superior balance sheet. Withdrawal of Ranitidine was beyond our control. And we also laid a strong foundation for sustainable EBITDA margins in future. And profitability, efficiency and growth have been our focus through the last year and we demonstrated consistency across all parameters of balance sheet. And for the year, we demonstrated solid operating leverage, which led to significant EBITDA margin expansion of almost 740 basis points in one single year despite Ranitidine. Interest and depreciation is at a very consistent trend, indicating a better financial leverage.ETR, that is, effective tax rate, on the reported PBT is at 7%. We had guided the market that it will be between 10% to 12%. We have done much better than that, and we expect to maintain the same 10% to 12% in the future. We also reported a strong operating cash flow of INR 2,500 million, leading to a conversion from EBITDA to operating cash of almost 50%. And this was achieved despite a scale-up of U.S. business from $150 million to $217 million. And we also completed all our CapEx programs, except some small program, which is in West Palm Beach. We spent about INR 1,300 million in the last financial year. Post Arrow transaction, we [ exited ] a debt that will be within the range of INR 10 billion to INR 12 billion, and we are in the lower end of the range. We completed the year with INR 10.2 billion. Our debt levels have been very comfortable, and we believe that we are at a ratio of 1.9, and we hope to maintain the debt-to-EBITDA ratio within a small range. We have a significant uptick in ROC percentage because of the asset sweating and also better operating leverage.And from a balance sheet standpoint, one of the significant points we have done is that we have reduced our contingent liabilities by almost INR 13 billion. We reduced the Watson guarantee, the guarantees what we gave for the corporate actions. We believe that we have the right pilots in place to continue on the growth trajectory, and our focus will be on generating free cash and improving the return ratios going forward.With this, I'll pass it on to Dr. Ananth to make his comments.
Thank you, Badree. Ananth?
Thank you, Arun; thank you, Badree, for the detailed commentary on the FY '20 performance, and hello, friends. I feel privileged to have the opportunity of leading Strides starting this financial year. Clearly, Strides has achieved significant milestones with its contrarian strategies and perspectives on the business. And I strongly believe that my team will do its best to take this legacy forward and deliver on the expectations that the shareholders have from this company.Like Arun impressed earlier, notwithstanding the minor aberration in manufacturing due to the lockdown, our business in quarter 4 FY '20 did not have any extensive impact in the business from COVID-19. This is predominantly because of the way we manage our supply chain and our inventory levels in market, so the minor aberrations in manufacturing have only led to some depletion in our inventory and stock, but have no impact -- major impact on the business. Having said that, there is no denying the fact that COVID-19 is still an unknown element for the future of all businesses globally. We stay resilient as it is difficult to predict the challenges of the industry, should there be further worsening of the situation. As a company, we've maintained our agility and responsiveness to the emerging trends and have periodically brought forward necessary changes in the way we run our operations. Our immediate response was to pursue a people-first approach and focus on the well-being of our employees. We've been adhering to all government and health authority guidelines that have been prescribed for each of the jurisdictions we operate in to safeguard our workforce globally. In various preventive measures, we've been carrying out deep cleaning, sanitization, disinfection programs across all other locations as we adhere to social distancing norms, including allowing a significant fraction of our employees to work from home. All of these have been a momentous shift for us in the way we operate as an industry. Still, we are pleased that a combination of these efforts led us to focus on continuity of the business such that we could discharge our duties towards the patient population. I'm extremely thankful and very appreciative of all my colleagues across all our facilities globally, to ensure continuous operations during these challenged times and to ensure continued delivery of products for our patients. Our team has chartered a business continuity plan for Strides, which intensely covers aspects such as how we conduct our manufacturing, how we secure our supply chain, approach our customers and manage our workforce in line with the evolving landscape. We stay focused on conserving capital and identify austerity measures, along with many areas for improvement.In summary, we are pursuing our commitment to our 3 Ps, that is, patience, people and purpose, as we continue to monitor this situation. Even though uncertainty exists in the magnitude and impact of the COVID outbreak, we strongly believe that our businesses are well positioned to deal with this, and we look forward to a promising performance in FY '21. Let me now take you through outlook for FY '21 in some of our key businesses. First, the U.S. business. We stay positive and are very confident of our performance in the U.S. markets going forward. We clearly believe that we can grow our business by 25% to 30% on the adjusted FY '20 revenue of $192 million, even without Ranitidine. Our U.S. market will benefit from improved market share for its base portfolio, introduction of new products, including the ones that are already approved and not commercialized and through enhanced market penetration and opportunities, including the VA program, in which 2 of our global sites qualified to be in the designated country. To give you some more clarity on this, we launched 6 products in Q3 FY '20, which delivered revenues of about $20 million for FY '20. These products have an annualized revenue of about $45 million, which we will clearly realize in FY '21, and our focus is to grow our market share in all of these commercialized products. As I said earlier, we also have a basket of about 35 products that are approved but not commercialized. We clearly look forward to introduce about -- at least about 5 new products from these already approved product basket as we build out our strategy play in the evolved business landscape. And all of these products, clearly, on introduction meet our new supply chain and our financial thresholds to be able to ensure that we maintain the margins that we have been able to build in the U.S. market. We also expect a significant ramp-up in the supplies under the VA program with at least 5-plus additional products. We expect about 10 to 12 new product approvals in FY '21, and we also expect to file about 12 to 15 new ANDAs during this year.Our other regulated markets also have shown a significant improvement in the business, and this strategy will continue to play out well. We expect the growth to continue in the ongoing years as we target higher operating leverage and a large pipeline of approved products with market fungibility. We do expect about 20-plus new filings in this year for the other regulated markets with about 15-plus new product introductions across several markets. We have also achieved significant improvements in gross margins in 2 quarters consistently across -- in the organization. And with that consistent performance, we are reasonably confident on maintaining that level of gross margin for the company.In summary, I would like to sum up by reassuring all of you of our commitment and confidence in the business as we progress into FY '21.With this, I hand it over back to Abhishek, our moderator. Thank you.
We can take the questions, please.
[Operator Instructions] We have first question from the line of Alankar Garude from Macquarie.
Sir, you achieved about $111 million of U.S. sales in the first half. Now this includes about $9 million sales from Ranitidine, which makes it about $102 million ex of Ranitidine. And in the second half, without Ranitidine, we did just about $90 million. So what explains this lower ex Ranitidine U.S. sales in the second half versus the first half?
Yes. So Alankar, basically, you know that we allocate capacity based on our business model, right? So when we knew the uptick of -- when we knew there was an uptick of the Ranitidine coming our way with the sole supplier status, we were allocating capacities. And don't forget that we had this issue at Pondicherry. So we had a certain limited capacity that we had to allocate. And therefore, we were obviously producing Ranitidine simply because it made up for lower unit volumes, but significantly higher margins. So in absolute terms, while the revenue numbers would have been lower, the gross margins between H1 and H2 are almost similar.
Understood. So in this context, Arun, how should we look at this 25% to 30% number? Is it more of an aspirational number? Or should we take it as a firm guidance, that $240 million to $250 million sales number for FY '21?
I think, Alankar, all guidances are aspirational. The only thing is that when we told you some things, we have done it. So I'll leave it to you to decide if it's aspirational or guidance.
Understood. And one final question from my side, Arun, for you. So now that the Sequent deal is completed, should we expect your side of the pledging in Strides to go down to 0?
Yes, you can.
We have next question from the line of Chirag Dagli from HDFC Asset Management.
In your opening remarks, you mentioned you have 35 products approved that have not yet been launched, and you will launch at least 5 of those. Did I get that right, sir?
That's correct, Chirag.
So what is it that has changed, sir, in this environment? Is this external environment where pricing has changed? Or is it that Strides is now internally geared up to supply chain challenges for those products? And how many more can we expect through the rest of -- let's say, over the next 2 to 3 years, how many out of these 35 can we expect launches?
Yes. Sure. So as you know, it's clearly our strategy that when we get a product approved, it's not necessary that we may launch the product immediately. There are some products that we launch, but many of them -- there are several factors that we consider: one is building up our supply chain strategy, number one; number two, to ensure that we are able to maintain our gross margins in the products that we launch. And if these criteria are met, then we certainly take a look at launching the product. So all of these products that we are saying we are going to launch now have been a buildup of all the work that we've done over the last 2, 3 quarters to be able to be ready for launch, and it comes up now for launch and, therefore, we are saying that we will be able to launch these products from the portfolio.
So Chirag, just one other point to consider is that we've done a few transactions, as you know, the events and acquisitions, the Vivimed acquisition. And along with them come ANDAs, which they don't commercialize, right? And that could be because of poor API posing poor capacity building or even a poor process. So when you do all those changes, typically -- it's a typical strategy of large changes of 1-year process. So when we get to that position of doing all those changes, we are sure of meeting all the financial outcomes that we want because we don't want -- we are not chasing top line in the U.S.
Understood. Understood. And sir, in your opening remarks, you also mentioned that you have achieved peak EBITDA that you guided for Australia. This is like on a -- in the fourth quarter you achieved that annualized run rate.
What I said in my statement was that we now have the run rate this year, this financial year, to get to a peak EBITDA that we have guided on the Australia transaction.
[Operator Instructions] We have next question from the line of Nitin Agarwal from IDFC Securities.
Arun, on the business, as we look forward, post the adjustment -- post the Ranitidine-adjusted quarter, I mean, the normalization process, is it going to be essentially a H2-loaded sort of trajectory? Or we see normalization -- normalized numbers in the business for coming -- right from the early start -- early part of the year itself?
So this will keep building up over the quarters, Nitin. It is not -- this will keep building up. And of course, it will have a significant play out -- as we move from one quarter to the second to the third and to the fourth, the impact will start getting even more firmer.
Okay. And secondly, you mentioned something in the presentation around certain a HIV drugs and all getting repurposed for COVID-19 as well as you've already announced launch of Favipiravir. So any sense -- any color on how should we look at this opportunity landscape for us going forward?
Yes, please, Arun.
So basically, repurposed drugs are all up in the air. Several countries are creating their own protocols. And as we can see, many countries have taken off HCQS from the protocol, but yesterday Brazil has put HCQS as a primary treatment regimen. So everybody is creating protocols based on signs or lack of it. And at this time, we live in a world of ambiguity. Favi, as you know, is not approved anywhere, including for innovative -- for the use -- for emergency use. Yet -- in Japan. Yet, it's being a part of a major protocol because of what the studies that Favi went through in China. So it's a wait-and-watch situation at this time. We are not factoring any significant upside as yet on any of these programs. So the fact is that we have antivirals in our portfolio, which can be repurposed. We have a whole basket of products right from all the virs to the oselta, to favi and all of them. So we just -- at this time just -- we are ready with everything, but it depends upon which country, what protocols, what's the next wave looking like and all that. So we can't give you a definitive color on the opportunity around the repurposed drugs.
If I can squeeze in last one. On the ARV business, we had talked about our TLD -- dolutegravir formulation approval coming through. What is the status on that?
So we're still awaiting the regulatory approval on that. So once the approval comes in, of course, we'll certainly have an opportunity to participate in the TLD.
Ananth, how is that going to work? Once approval comes, is it going to be a lag before the orders begin to come though? Or how does the cycle play out on that account?
Sorry, could you come again?
I'm saying, once the orders -- once we get the approval, is there a significant lag time between from when the approval comes and when we start translating into business linked to the tenders, I presume?
It is -- so I think as soon as the approval comes, we'll, of course, let the agencies know about the approval status and then we should start seeing the opportunities flowing.
So to answer, specifically, your point, there are 2 sets of procurement. One is the annual contracts. Those are typically already issued out. We won't be part of that anymore. But then there are country procurements and the procurements of the USA. All of that are spot. So spot opportunities we will get. And then there are several countries that buy TLD outside of the donor business. So it's still a very large product. About 50% of the total ARV spend is now on this particular product. There are supply chain issues, as you know, on this product. So we still believe that it's not too late. And as soon as we get approvals, we should see some of them.
[Operator Instructions] We have next question from the line of [ Ravi Sundaram ] from [ Sundaram Family Investments ].
Sir, a couple of questions. So the first question is just a quick follow-up on what the previous participant asked. So on TLD, right, do we have the capacity to support the orders if they come through? And if -- what approval are we waiting? Are we waiting for the PEPFAR approval? Or is it the global fund approval for TLD? That's my first question.
Yes. So the PEPFAR approval is not yet due. What we are getting now is the WHO approval, which will give us access to about 50% of the opportunity, and there is -- we have enough capacity.
And what did you say about capacity, sorry, sir?
I said we have dedicated capacity for antivirals.
Okay. My second question is on the supplies for API. You see the current quarter had a significant lockdown, especially in India in the first half of this quarter, April and most -- some part of May. I know pharma companies are not impacted as some of us were categorized as essential. My question is, was there any significant impact in the current quarter due to API supply?
No, we did not have any significant impact on account of API. As I said, we've been managing our inventory levels and supply chain reasonably well on that. And currently, in this quarter, we did not have any major impact.
Okay. One last question, if I may. How has been the pricing in U.S. this quarter? Because previous quarter was one of the best quarters that we have seen for the entire pharma industry as such. But how has it been this quarter, sir?
This quarter has remained pretty stable. We have not seen any impact on erosion. This has been a pretty stable quarter on pricing.
[Operator Instructions] We have next question from the line of Hari Belawat from Techfin Consultants.
Congratulations for the good revenue and EBITDA compared to FY '19. Now sir, this ranitidine was withdrawn in the last -- on the last day of FY '20, then how come this reported and adjusted figures are so much different?
That is because we have estimated for returns. See, we don't know how much returns will come. So we have made an estimate for returns. And if it is lesser than that, then we'll write it back. But at this time, we have no idea on how much returns will come back. It takes -- it's a -- any recall is a long drawn process.
Okay. So the official figure is the reported figure presently as on date?
Yes.
Correct.
[Operator Instructions] We have next question from the line of Anuron Mitra from Thomson Reuters.
Sir, my question is regarding Favipiravir. So in the last press release that Strides had put out, they said that you will apply to the Indian authorities to commence necessary studies. So I just wanted to know whether there's been any update on that. Have we got the approval and nod to conduct trials?
We have the approval to conduct human study, and we will be starting the study soon.
And this is in India, right?
In India, correct.
From DCGI?
From -- yes.
We have next question from the line of Nitin Agarwal from IDFC Securities.
So 2 things. One is, a, on -- in the presentation, we highlighted that adjusted for Ranitidine, our gross margin for the quarter was about 60%. So is that fair to assume that for the whole of next year -- going forward, rather, I mean, that's like a base number to run with for the business gross margin?
That is a fair estimate, Nitin.
Secondly, Arun, on the VA business, you talked about there is an incremental $20 million to $25 million opportunity on the existing launches if done, and there are a few more launches which are lined up. Now these are all launches that will be largely coming in from the Singapore as well as the Palm Beach facilities?
That's right.
That's correct.
Okay. And we also did buy a bunch of ANDAs from -- which you announced, I think, about 6, 7 months back. How should we -- I mean, can you help us understand how should we look at that part of it playing out?
So it typically takes a year because these ANDAs, except for 1 product, didn't have any sales. And we have already transferred the product that is -- where there is a significant sale. And this particular product has got a VA orientation, too. So we are making it at Singapore. That will be filed very soon. And all the other products, if they were not commercialized, it's because either the process was inefficient or the API source was not cheap, I mean, competitive enough for us to get to our targeted margin. So typically, the work that we do, and this is where we say that either we have -- typically in our ANDAs, we are able to launch very quickly, but on the acquired ANDAs, we take approximately a year to get our supply chain right, our process corrected, and in some cases, even do another restudy if required, and that takes up to a year to launch. So we -- the whole portfolio gets relaunched over a period of time. That's why we have a fairly long tail of uncommercialized products. But every quarter now we are bringing 1 or 2 product package.
Okay. And if I can just squeeze in one last one on this. When we look through the next year, across various business sort of segments, I mean, qualitatively, where could there be a potential of sort of meaningful surprises that can really come through in the business? Or are there opportunities like these in the business qualitatively? And what could be the nature of these kind of opportunities?
So you're talking about positive surprises or negative surprises?
I'm hoping of positive for now.
So I think the reg market, Nitin, is all set. I think it will be fair to assume that 80% of the business will have a very solid growth profitability and cash flow. The business which is still ambiguous would be the donor business because we think there would be a shift of attention, not less capital to COVID. And I think the lockdown will significantly increase impacted people with TB and malaria, unfortunately, and HIV. But I just think that the donors will be more preoccupied on COVID given the -- I mean, for all good reasons. So if donor funding doesn't come through the way it normally should, then there will be probably reduced allocation to all companies, but these are early days.
We have next question from the line of Sachin Kasera from Swan Investments.
Can you give us some sense on the CapEx for the current financial year? And any debt reduction plans if you have?
So CapEx for the coming year, we plan to do about $15 million, $20 million, which is more of a maintenance CapEx for the coming financial year.
Okay. And how do we see the net debt figure, sir?
So we expect to maintain a similar range -- in a small range. So currently, we are at 2. So we expect to maintain with a variation of about 10%.
Net debt to EBITDA you're referring, right, sir?
Yes.
Yes.
Secondly, sir, any more investments we need to do in the 2 associates in FY '21?
There's a committed investment into the biotech arm. That is going to be announced once shareholder approval is received. So that will continue this year.
Okay. Any sense you can give us, sir, what is the approximate number we need to put into these 2?
$40 million.
Yes, $40 million. We said last September that it will be over a period of 18 months and we have done about 12, so the balance will be done in the current year.
Okay. And this net debt figure you are referring is assuming all the -- including both the CapEx as well as the investment in the associates, right, sir?
Yes, it's a debt, net -- it's a gross debt minus the cash.
We have next question from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just a clarity on U.S. side. So including 4 to 5 from already approved, how many total launches are we expecting for FY '21?
So we are looking -- as I said, we are looking for about -- at least about 5 -- 4 to 5 new products to be launched from the already approved portfolio and we are looking also to get at least 5-plus products into our VA program.
Okay. So from the new approval, say, for FY '21, probably, the launches would be a year later. Is that the right way to...
That -- among the products that we have we said we will launch during this year, a couple of them could be from the new launches that we would get during the year.
Okay. This VA program, now that it's been just started, so any color on how much of the business can be expected from -- specifically from this VA program?
So on the VA program, again, as we said, we gave color to how our new product launches that we did in FY '20 ramp -- is likely to ramp up in this year, we see and believe that the VA product can also have a similar kind of a ramp-up.
In terms of value?
So it could also be in the $20 million to $30 million range.
And the OpEx associated with this facility is already only in, let's say, the Q4 numbers or there is going to be an incremental operational expenditure associated with this, too?
No, we've already done all the work that is needed from site transfer. There's no additional expenditure that is needed for these products.
We have next question from the line of Chirag Dagli from HDFC AMC.
When you think of the business today, you talked about maintenance CapEx of just 20 -- $15 million to $20 million. Are there any white spaces that you want to fill in now? How are you thinking about any large -- so you've mentioned about biotech, which is part of an associate. But outside of that, are there any large white spaces that you think you will need to fill? Or is this how you think business will be run?
No, I don't see us looking at any large white spaces right now. I think given the current scenario under the COVID circumstance, we're looking clearly to also focus on cash conservation. And therefore, our focus is really on the maintenance CapEx for this year.
Understood. And is there a tax rate guidance you want to give, sir?
Badree?
It will be between 10% and 12%.
Okay. All right. And sir, this quarter, most companies have done very well in Europe. Are there any thoughts that you want to share with us on what's happening with the market in terms of pricing, volumes? How are you seeing this market develop in FY '21?
We have been doing very well in Europe for the last 4 quarters, but it's only now, when the herd also does well, that you've started recognizing it. The fact is that if you look at our commentary, we mentioned that we have build-out on the U.S., and our focus is in Europe. We had a great run in Europe. We've already built that business from almost $0 to $100 million in the last 3 to 4 years. We see the opportunity to be significant, more challenging because of some of the smaller fringe players getting out of the business. Serialization, Brexit, all are playing positively, and we are benefiting from that. And you'll see significant growth coming from Europe for Strides, too. And as you can see, we've got 20 filings, 16 approvals. So it's significantly more. It's just that everybody gives too much attention to the U.S., but Europe is equally becoming an important part of our strategy.
Have you called out Europe separately in your -- for FY '20, sir, in terms of the size?
Our other reg markets is all about -- yes, we have done that in our previous presentations.
I will pick it up, sir. And sir, any thoughts on pricing in the U.S.? Are you seeing a turnaround or flattening out, bottoming out?
It's steady and positive. Stable.
We have the last question from the line of Deepak Poddar from Sapphire Capital.
Just my line got disconnected, just in case you have already answered. So what's the near-term impact of COVID you're seeing in your business overall in the supply chain or maybe on the business front?
Yes. So we did answer that. From the COVID perspective, at this point of time, we've seen only a minor aberration in manufacturing. But as I said earlier in my commentary, it's also because of our supply chain planning and managing the inventory levels. So there has been only some depletion in the inventory levels, but we have not seen any major impact coming in because of that. Having said that, it's an unknown element, and we'll have to keep continuing to watch and see how it plays out.
Understood. So that you expect to continue into first quarter as well, right, like in terms of minor -- no major shock for our business, right?
Correct.
Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for closing comments. Sir, over to you.
So thank you, everyone. Thank you for the call. And as we said, again, we continue to reassure you of our commitment and confidence in the business and look forward to having the conversation back at the end of Q1 as we progress positively into the year. Thank you.
Thank you, all.
Thank you, and be safe.
Thank you 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.