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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 '23 Earnings Conference Call. [Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, sir.
Thank you, sir. A very good evening, and thank you for joining us today for Strides Earnings Call for the fourth quarter and full year ended financial year 2023.
Today, we have with us Arun Pillai, Executive Chairperson and Managing Director; and Badree, Executive Director, Finance and Group CFO, 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 with risk 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 his opening comments.
Thank you, Abhishek. Good afternoon, everybody, and thanks for joining today's earnings call. We're here today to report a very strong performance from Strides and considering how we began this year with starting off with just INR 4 crores of EBITDA in the last quarter of last year. Not only did we come back very strongly, but we've achieved many firsts as in we have now reported our highest ever annual sales. This is at INR 3,700 crores, about 20% over last year. At INR 990 crores, this is our highest quarter ever reported, up 14% sequentially.
At $232 million, our U.S. business has increased from $157 million and has now surpassed the pre-COVID period sales quite significantly, and we are delighted with the performance and also the calibrated reset that we have achieved in the U.S. market.
Also pleasing to announce led by our U.K. operations. The other regulated markets have done -- have also achieved its highest ever corporate $48 million, and at $157 million that again becomes the most -- the biggest year we have done since we got into this market.
In Q4, our gross margins inched very close to our historical peaks of 60%. Our focus to sales while we were pulling revenues up quite significantly was to get to a historic gross margins. And I'm very happy that in Q4, we are just a few bps below that into net target.
During the year, important outcomes included a revenue growth of almost INR 600 crores, an absolute increase in EBITDA of gross margins for almost INR 500 crores and from INR 4 crore EBITDA in the whole of last year. We have grown quarter-on-quarter focusing on costs for Atlantis and the discipline that this business requires to have increased our EBITDA to INR 446 crores and with Q3 EBITDA at INR 160 crores. While the percentage out of that EBITDA is not yet to our targets or our historical targets, which is about 20% to 21%. But I'm pleased that we are inching very close to that and as we reset our business even further and complete all the works that we commenced in April of last year. I'm very confident that we will continue to build momentum from here on.
We have reduced our gross debt by about INR 250 crores during the year. And that is a significant improvement on our debt-to-EBITDA ratio. In Q1 of this financial year, we started at 8.3x, coming from a very dismal FY '22 to an annualized exit run rate of 3.4.
We did call out that our target will be closer to 3, but as you would imagine, bulk of the growth has come from the U.S. which all of us know is high capital and long gestation. So consequently, we are very close. And later, you will see that the guided will be on the previous year.
Also important that while we have had significant challenges with our Sputnik as Stelis associate, we have reduced debt by about [ INR 420 crores ]. Consequently, in the group, we have released about INR 720 crores in FY '23. And this will continue to be a focus for the company in the years to come.
In a very difficult regulatory environment, I'm very pleased to confirm that we have now complete -- received a close out PIRs for all our sites that were inspected during the financial year, namely Chestnut, Ridge, New York facility, our flagship Bengaluru plant, Singapore and most importantly, the Puducherry facility, which are awarding that in 2019, also we completed remediations very quickly, considering COVID and that the plant does not deliver any significant shortage products we had to wait for the new regulations, which allows companies to request inspection, and we are pleased with the inspection happened, and we have now got official confirmation from the FDA that they are satisfied with the renovation that we completed and the one that we have since been listed in the last couple of days.
This will obviously lead to a few more product approvals on the side, but product approvals have never been a confirm for the company considering that we still have 280-odd products filed and approved that we earlier had commercialized approximately 60 products in that region. And that is because we want to have the luxury of letting go of a product or revenue when challenged for price. And this way, we become not necessarily the primary supplier in most times, but in the U.S., that it allows us to keep the margin and the price discipline that we want.
We started out this year internally resetting the organization, recalibrating our growth strategies of priorities, capital allocation methodology, a focus on governance. All of that is paying through. And I'm very pleased with the results, especially during this time. So I touched on the revenues on the quarterly performance. So I will lead for questions later and get to very specific in terms of the markets.
Regulated markets continue to be leading the business. We currently classify our active flash institutional business along with our emerging marketplace. And therefore, we -- you will notice the lumpiness of that facility is very dependent on the contracts that we win, and it's not necessarily a steady state business, it has got lumpiness. Consequently, you will notice in future slides how we propose to mitigate our commentary about going forward from this year, so that investors can get a better view on how we present the pace of the emerging markets. In fact, for the access market, emerging markets is a key focus area for the group and continues to grow.
So, all markets grew well. Emerging markets for the recent that I explained a little while ago. We grew but the core emerging markets actually achieved significant intents out with the base we quite low.
At $232 million, we are somewhere middle of our $220 million to $240 million guidance, up from $157 million. Obviously, that has been a barrier because most of you know the Strides focus on niche therapies go behind us, obviously, means that these bookings have now come back to historical levels.
But interestingly, we see the number of payers actually dropping in smaller 3 therapies where we specialize in. It has been an exceptional growth from the other regulated markets because we are very determined to ensure that our other revenues in markets catch up in the U.S. in terms of revenue so that we have a mirrored market opportunity. So we like the growth, and we believe that we'll be able to continue that momentum.
It has also been a fairly good year from the institutional business. We have been awarded a slightly higher share of the wallet, but the wallet keeps -- in terms of pricing pressures and others in the anti-retroviral business, it's always a business we conduct for manufacturing recovery and overhead absorption rather than us building this into a strategic large business considering that they are not fully integrated unlike some of our peers.
Importantly, our emerging marketplace, especially in Latin America and Asia is going through the filing regulatory and partnering phase. And towards that, we launched a new division within Strides called SynergICE, which is our B2B business that partners with companies worldwide, especially in markets where we don't intend to front end ourselves unless it's a frontier market of Africa where we are heavily focused on building a large pharmaceutical business considering that it is the market still unpenetrated. And we have a lot of success and experience in that market.
Because we have this very large U.S. portfolio of approved products, we see which is recognition quicker approvals coming our way. Of course, we have to do a little bit of -- a little more work in terms of different types of packaging formats that are sold in Latin America and Asia, but we do see this as a pivot for us to grow even stronger. These are traditional markets that we shied away from earlier. But last year, we consciously invested in building out the emerging marketplace.
Coming to market specifics. The U.S. at $232 million. Most importantly, 19 of our 60 products that are commercialized we are #1 in terms of market share. This is something we specialize in defining very niche and small products and then take market leadership to avoid the price pressure that happens as chronic and large early products. This was traditionally until 2019 strategy, we just resetted to what it was, and that's playing out well. We have 60-odd products, which are going through very aggressive improvements before we launch these products. So we are very, very comfortable with the range of products that we have identified that will be launched in the near term.
So most importantly, we like our market share, our price discipline and also the ability to keep 3 consecutive quarters of $60 million plus. That's very important because, as you know, that the U.S. working capital cycle time is about 200 and 200-plus. And we wanted 3 or 4 steady-state quarters before we step up the gas in terms of expanding the market so that we could use the free cash that generates out of the U.S. business for its club.
The U.S. business otherwise is one -- it's almost $1 of new sales, including -- depending on the working capital cycle time based on the working capital cycle time, it is a very capital-intensive business -- working capital-intensive business.
So we continue to stay invested in SynergICE, which is our corporate business. It's a larger part of our growth strategy even in the U.S. And we combine with our very efficient front end, we believe that we are poised for even more success with that strategy, which is highly differentiated from our competitors, especially India-based competitors.
The other regulated market was mainly led by a reset in the U.K. We have trade leadership in the U.K. and in our partnered business. And we does have growth business bounced back to a historical high, and we are delighted to the fact that in the rest of Europe, we have now partnered with marquee names and almost 3 of the top 5 companies are our partners, which would never be the case when we were contending ourselves. The strategic alliances and partnership and leading in several markets that we don't intend to contain is key to our growth strategies going forward.
We are also investing most of our R&D spend in market rates in the U.S. considering that we have a very significant improved portfolio. But having said that, we announced a partnership with other player to develop a range of controlled substance, nasal sprays from our Chestnut Ridge facility, which has those abilities to produce very complex products in nasal spays. And we are very excited about this partnership and look forward with product filings and approvals in the near term.
Our branded Africa business maintained its growth trajectory. It is upscale, but we think that we have established a long-range plan to take that business to an important size. And we, at this time, are not in a position to exactly give more details around it because a lot is still work in progress, but we are very excited about the opportunity, the margins that business provides us and also the IMS leadership position that we have in many markets, specifically in French-Africa. We have now also embarked into the English-speaking Africa, but only in selected markets and we are also happy to progress that as we need.
Now reflecting our effect, we have decided going forward to restate our markets into regulated markets, Africa and emerging markets and access markets. And for the benefit of our investors and the analyst community follow us, we have recast the numbers for easy reference.
And going forward, we will be using this format so that you'll have more granularity on both our strategy and our numbers flowing through.
We have -- we normally don't do a guidance, but we are considering coming back from a very difficult period. A, we want to give all our investors the confidence that the leadership that I am very committed to build Strides to a very significant player, mostly focused on niche portfolio and margin expansions. So we want to give comfort to our investor community that -- and therefore, we have given a framework guidance where we say the continuing business will grow quite significantly, but our emerging markets to grow faster as we get more and more products approved.
We are confident of increasing our EBITDA from INR 446 crores on to about INR 750 crores in the upper range and about INR 700 crores -- INR 750 crores in the upper range. and INR 700 crores at the bottom of the range.
Between Strides and Stelis, we intend to reduce another INR 500 crores of debt. And we are now very confident that Strides' net debt-to-EBITDA will be under 3x. All of this will be achieved through emphasizing our network optimization, new product launches, market expansion, branded business increases in Africa and improved cash flow generation, which will lead to the stellar strong, if I may say, FY '24. And we are all excited about our current order book and our confidence level.
On a high level, I will also take you through the debt book, and then I will leave the house for questions.
Debt, as you can see, we have given a little bit more granularity around debt. Our long-term loans have reduced by about INR 250 crores. Our working capital has not increased in spite of a INR 600 crore increase in revenues. Our gross debt consequently has come down. We have increased slightly our revolver because Q1 for us is about $45 million. But Q2 onwards, we have been hitting approximately $65 million.
Ideally, the revolver has got no recourse to India. This could be akin to a factoring facility, but we are considering our loan agreements we are obliged -- not obliged, what we are doing as reporting them in that our debt focus, the right thing to do. So we continue doing that. But we just want to call out the revolver, which was renewed a couple of months ago for another 5 years. It has got no guarantees, recourse to India. And our focus would be to reduce the long-term loans.
Now the ironic situation for us are long-term loans has got a repayment of only around $15 million to $16 million a year. So even as our cash generation is much more than that, we'll now start dipping our working capital loans considering some of these loans are at good cost and where LIBOR is today, obviously, the cost of money has increased quite significantly.
So our high-cost debt is what we would reduce through a combination of strategies. So adjusted for ForEx on constant currency, there hasn't been any significant net debt increase, while the business has delivered almost INR 450 crores of incremental correspondents.
So overall, a very solid outcome, and we continue to be very bullish about the prospects of Strides and its continued focus on optimizing its business.
I will also address Stelis as it's material. Most importantly, during the year, we reduced peak debt from INR 1,200 crores to now INR 650 crores at the end of March. And this is in spite of a very significant impairment mainly out of Sputnik. And while we have commenced arbitration in London, given the geopolitical situation, we have no clue and idea when this will get done with, but we keep the investor community updated on progress.
We have taken the head moved on, focusing on building a world-class CDMO business, and we have several highs, including 2 U.S. [indiscernible] EU-GMP, our first product approval for PTH, and we have now partnered in over 19 countries, covering almost about 80% of the market opportunity, and we would soon be closing out our partner in Europe and expect to launch the product within this financial year.
We have added 5 new partners in our CDMO business, and I'm pleased to let you know that 3 of these 5 new partners are amongst the top 10 companies globally, and we have now sum total of around 20 partners.
We explained this business earlier with more graphical explanation but start off with what is called a master services agreement, where we start work for a partner, and it can master services to a commercial sale can be -- can take as little as 1 year for a product which is already approved, 3 years if it is filed and approved product -- to be approved product and [indiscernible], it can go up to 10 years in some cases.
So most critical for Stelis is that we can now confirm that we will be EBITDA positive. We will still have a little bit of challenges around the mismatch on cash flows. We are resolving for many of those things. And the Stelis Board has completed -- has appointed strategic advisers for reset. We will announce all of that outcomes with our Q1 results in a couple of months from now.
And also importantly, we've just completed installing additionally 8,000 liters of which 4,000 liters is commission of drug substance and our first multimillion contract for an MSA for a biologics has been secured, while we also have other customers that we have signed up.
Post our FDA approvals, our average size of RFQs have increased dramatically. But like I said, onboarding of a customer takes anywhere from 18 months because it's not only GMP audits, but it's several other audits in terms of computer systems, ESG, EHS, the whole works. But onboarding customers take time. But once they're onboarded, it's obviously is a very exciting business to be. So we are committed to this business.
We are heavily invested in this business, and we'll stay invested here as we believe that the upside opportunities for stakeholders are significant. So based on now -- and I'm also pleased to let you know that our first commercial sales will start in June as one of our partners have now received 2 product approvals from this site for the inspection.
Consequently, while our revenues will be lumpy because our revenue recognition is a function of work done, we should be able to have complete coverage of our operations. From an operational standpoint, we will be not only cash positive, but I mean slightly more than it needs, but we still will have to work on finding the last leg of the solutions related to Stelis, and we're working very hard to ensure we get there.
Bear with us last week of July, first few days of August is when we believe that we should be finally be able to present to shareholders what we think would be a very exciting outcome for the business, which is significantly valuable in the medium term.
So with that, I will -- we will take questions. I have with me colleagues, Badree, our CFO; and Vikesh, and we're more than happy to address your questions. As always, if for longer time or if you have follow-on questions, please do write to us on our e-mails, and we'll be more than happy to address them. Thank you all.
And most importantly, to many of our investors who stayed invested believing in us and believe in the story, we are delighted with our Q4 numbers, and we look forward to pleasantly surprise you with more good news in the near term. Thank you.
Can we take the questions, please?
[Operator Instructions] First question is from the line of Mr. Dhruv Maheshwari, Individual Investor.
Just have a couple of questions. The first one, it's good to see our U.S. business has maintained its quarterly run rate in line with the last quarter and on guidance. Could you give a growth outlook for the same over the next 2, 3 years? What would be the key drivers of growth for the $232 million base?
Yes. So we do -- we have a guidance. We have mentioned that we will grow the business at around 15-odd percent with the emerging markets growing greater. So that is the benchmark guidance.
I got it. The second one is, as per Endo facility achieved breakeven at an operating profit level during the quarter?
Yes, it does.
And the last one, from a portfolio build-out perspective, how should we look at the R&D investments for the business going forward?
Well, considering we have such a large asset of group products, we have redirected our R&D spend to emerging markets and Europe. Consequently, our R&D spend, which historically used to be about $20 million to $25 million has dropped to about $12 million to $13 million.
[Operator Instructions] The next question is from the line of Cyndrella Carvalho from JM Financial.
And can you help us understand the U.S. market from our product perspective today. What has changed, which is allowing us to sustain the ongoing quarterly run rate. If I look at our gross margins, are we entirely supported only by the U.S. market today or you expect this improvement to come from other markets as well? So first on the U.S. market, I can follow that with our strategy...
Cyndrella, You're not very audible. So I would appreciate if you could speak up on the phone, especially with regards to the first question. I got your second question, though.
Yes. So I'm trying to understand the U.S. market from a product perspective, like from our product basket, how is the scenario today? What changes have happened, which has helped us to sustain the ongoing run rate and growth apart from the new launches? Is there any change? Is there any supply issues which are helping us to maintain our market share in the existing products? How should we see this? And from overall, our strategy in the U.S. market has been approach smaller-sized product, but higher in number. So is that -- does that work for us? Or are you planning to change it?
We are not -- in fact, we went back to that strategy. And I think some of our challenges were that the panic during COVID as an organization and focus more on chronic where there's a bunch of players competing for market share. And considering during COVID acute globally dropped over 50% in terms of volumes because acute was not happening, elective surgeries are not happening at that time.
Considering COVID is behind us and probably we are all been struggling and doing all the things that we normally used to do. [indiscernible] has come back quite strongly. What has probably changed for us to be very specific to your question.is we see that the number of players have actually reduced in the smaller molecules because all companies rationalize their portfolio because it's expensive to produce small products.
It requires a great skill in terms of how we set your manufacturing facility, change over time, screening validation. These are all very expensive cost centers given the current expectations of the regulators globally, but we have specialized producing these kind of products.
The most important thing for us is we -- I can now proudly say when I tell you that in 19 products, we are #1 by a very large margin. So we are talking like 40%, 50% market share. And we also cherish the fact that more than 70% of our #1 portfolio has got no Indian competition for several, several years.
So that is a key advantage where you can set price discipline. I'm not suggesting -- it just makes life a lot easier than price discipline is there. You focus on supply chain. You ensure that [indiscernible] is great. We just brought all of that thing, and it's not to blame anybody, but COVID ensured that logistics got very out of whack and costly and we've got all that organized and a failure to supplier have dramatically started coming down. We never used to have one for almost 3 or 4 years pre-COVID, we had less than 0.5%, but COVID changed that for us and for a lot of companies. And supply chain is back, the normalcy is set right, no more exuberant, all of this in place.
As far as gross margins, clearly, for a combined gross margin of 60%. The U.S. is the gross margin leader historically for us. So if the business grew in the U.S. back from this higher than its pre-COVID level, then is just a logical reset of a business that we did well for several decades. We're just doing the same things. I think there would be always competition in specific products, but we are not shy in giving away market share also when we think it's irrational.
It's helpful. [indiscernible].
Strides doesn't work with [indiscernible] business at all.
You were planning to come back, right? That's the reason?
Well, we have plan. As I said, just hang on till we complete our conversations around Stelis and its resets and then maybe that will be more in appropriate time to have this discussion.
And with overall price erosion right now, how much per our portfolio we see for the overall industry, where we are present from a U.S. perspective.
If I say 0, you won't believe me, but that's where I'm going to put my money.
For our portfolio, right?
Yes.
That's good. And in terms of overall cost focus over '25 and beyond, how do you think [indiscernible].
Yes, good idea.
[Operator Instructions] The next question is from the line of Tarang Agarwal from Old Bridge Capital.
Mine's bookkeeping question, I'm unable to reconcile the changes in working capital that's been provided in the cash flow with the numbers on the balance sheet. For instance, increase in trade and other receivables is about negative INR 3,473 million.for financial year '23. But when I go to the balance sheet, the receivables have not grown by that amount. It's grown by maybe only less than $100 million.
Similarly, when I go down and I look at decrease in trade payables are about INR 1,022 million, I'm unable to reconcile. So can you just help me figure out what I'm missing here.
I am going to let Vikesh, my colleague, to probably address this, please.
Yes. So the major difference that is coming is on 2 accounts. One is we had deconsolidated UCL in Q2 -- end of Q2. So that is reflected in opening financials, but it's not there in the closing financials. So that is having one impact. But in the cash flow, it is part of the INR 300 crores impact that you see on receivables.
And also corresponding on inventories and payables, plus there are certain assets that have been identified as held for sale and those assets held for sale is also forming part of the cash flow grid. So those are the 2 major items that are causing the -- that are impacting the difference between the balance sheet and cash flow. The entire transactions pertaining to these 2 items will be presented in the notes in a much more detailed manner.
Okay. I'll have a look and I'll probably drop in an email.
[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.
Congratulations on the turnaround. I'll start with a couple of housekeeping questions. One is, a; there's been a pretty sharp Q-o-Q increase in our other expenses. Any specific drivers for that?
Yes. So Nitin, just to answer this question. The overall, the operating cost has remained the same. We had some exchanges, there has been a decent pace in the Q4, responding there has been increase in expenses, plus there is also an exchange impact, which is sitting here.
And Badree, how much would the exchange impact be?
For Q4, it is INR 15 crores.
But given at where the business today is assuming at this run rate of about INR 1,000 crores of revenues, this INR 250 crores thereabouts is SG&A expense number to go with? Or there is a scope for rationalization over here?
Yes. So overall, we have said that it will be in the region of $208 million last time you said and it will be in that range, $200 million.
$200 million.
This is across staff costs and other expenses?
That is correct, both good figures.
And Arun, on the other regulated markets, there's been a very sharp delta in this Q4. So is there some seasonality in this business or this is a base on vision business growth going forward?
No, there is a positive impact from our Australian business, which is mainly the -- post-COVID, the Australian government mandated a certain level of stock keeping by the leading players in return for better PVS pricing. So we are seeing a significant uptick in Australia. We are not sure if this is -- this will be a yearly function, but will it kind of the big Q4 event every year, we are not so sure. But we are very confident to grow from the numbers that we have achieved in the other regulated market at $157 million.
But, Australia did play a very significant role. But the exit run rate is $200 million on $157 million business, which effectively means that the average last 3 quarters is about 35%. It is really hard to beat this quarter, but we are doing -- we have a very strong pipeline. Over the year, we will still achieve the company guided growth even in this platform.
And on the U.S., you talked about the fact that the U.S. business, currently, the price erosion seems to be almost negligible on the current portfolio. So 2 things. One is, A, is there, again, an element of seasonality in our U.S. business...
Nitin, I'm not suggesting that there is no price erosion. We don't accept price erosion. We have the luxury of portfolio and size on what we want to achieve. So if you get challenged for a $10 million product or a $5 million product or a $20 million product, which is where the challenge is happening mostly, we're happy to let go because we have 14, 15 products being launched every year. If we keep -- if we say that we have not lost business on our base business in the last year, that is not fair. We have, because we have given away business.
But we've also added business because we are now very focused on going back to our historical numbers, which is U.S. business delivers closer to 65% to 67% gross margin. This also addresses the previous question. But to get there, sometimes in your challenge, you have to let go business. So I'm not suggesting the price erosion. Price erosion is when you want to keep your market share. I'm saying we have the luxury of letting go when challenged.
Got it. That's understandable. And secondly, in terms of the pipeline, which is not launched here versus we already have in the market, in your assessment, is there a qualitative difference in the quality of the products that you potentially launch versus what we already have in the market. in terms of qualitative, I mean revenue per product potential.
Yes. So I mean the key element here is that the end of out of the 280-odd products, almost 100 high-quality products came from the Endo portfolio. The challenge we had in the first 2 quarters of the transition was that Endo is still marketing the products for us, and we didn't have control on products and portfolio and pricing because that's how the deal is structured.
Now that they have, we obviously have brought the same level of hygiene and discipline that we are generally known for in the U.S. market, and that's also led to an update because we were bleeding money in Chestnut Ridge, and if I was addressing a previous question that if you make money in Q4 in Chestnut Ridge and the answer is yes it means that we have now solved for a lot of things.
Most importantly, Nitin, we've reduced our Chestnut Ridge cost by almost $15 million during the year. And that complete flow-through will only happen from April -- has happened only from April end.
So that's almost about INR 8 crores to INR 10 crores a quarter, almost $1 million to $1.2 million per quarter, I mean, as the residual costs that we are bearing in Q1. So that also will give you an indication of what Chestnut Ridge could do.
Yes. So we -- if you look at IMS today, you will see us in market leadership on several products. In many products, we are the sole supplier, but we are disciplined in pricing. We don't want to do anything irrational, but we have several products where we are the sole player in the market. But they're small products.
And 2 last questions. One is when will the nasal spray portfolio that we partnered recently coming to the market?
Well, it's got to take a release about 3 years because it's a very complex controlled substance on a very special device. So it's a lot of work, including potentially some clinical to supply.
And lastly, Badree, the increase cost seems to be very high for the quarter. Any specific drivers for that?
Yes. So the interest cost is there are some loans which has been taken in the later part of the Q3, the full impact has come in the current quarter. And second thing is, while we close the transaction on Arrow in December last week just because of the procedural matters of the repayment to the banks in time. So that's the reason the interest cost is slightly higher. But overall, it will be in the INR 65 crore range is what we expect going forward.
INR 65 crore quarterly range is what you should work with?
It's also to do with LIBOR, right, because our [indiscernible] line is into LIBOR, so it's LIBOR going up. There is a 3%, 4% increase on that line cost, too.
The next question is from the line of Sarvesh Gupta from Maximal Capital.
Congratulations team on a good set of numbers on the pharma side. Sir, first question on Stelis, I just wanted some more clarity. I think you have written that we are expecting some outcome to come from the strategic options. So are we in the next -- by the next quarter or so, are we concluding a transaction or planning to conclude a transaction? Or are we just going to be deciding what is the way forward on what to be there and what needs to be done for a stake that we have?
It's more definitive way forward and how to ensure that we become a very important CDMO company of size and scale and the strategic options include that, amongst other things that you mentioned. So bear with us, it's only 2 months away.
Okay. Because in the last quarter commentary, it appeared as if we wanted to conclude a strategic sale or something like that, wherein we sort of get out of our shareholder...
You reading between the lines, but I can't blame you for that. When we -- when the Board appoints advisers for strategic options, it effectively means it could be anything. What I'm trying to tell you is that anything for us in this case is how do we build Stelis to become one of India's leading CDMO companies. And what does it take us to do that.
Understood. So that is what we are expecting, maybe by the time we have the results for the next quarter, right? Okay. And secondly, what is the current level of corporate guarantees that Strides has given to Stelis?
The outstanding debt in Stelis is about INR 600-odd crores after cash and cash equivalent. I think the outstanding liabilities related to Stelis is in the range of around INR 500 crores because you don't need to give guarantees on all the COVID loans. So yes, it is in that ballpark. Although if among the strategic options or refinancing is what we want to do, then we have shareholder approval to issue guarantees up to INR 700 crores.
Understood. And now coming to the rationalization of the cost part. So we can see that our other expenses has come down. But at the same time, some normative expenses would have gone up. So what is the extent to which we have gained in terms of permanent removal of the other expenses from our cost structure?
Yes. So you have to assume Q4 as the base and like we said, $200 million run rate in for the whole year, so $50 million. We are very close to those levels. There would be a little more opportunity for us to reduce, but it won't increase from that.
Understood. Because I think related -- there were some higher expenses related to our U.S. facility also which you were carrying until end of April '23.
Yes. So that was when we issued a WARN notice where we rightsized more than 50 people. There are certain regulations that leads to a fair significant amount of severance. All of that has been taken into account, and that ended as of end of April. So that's all done with now.
The next question is from the line of Zaki Nasser from Nasser Investment.
Congratulations on a fantastic set of numbers. The company looks at the cost of turnaround in '24, as you rightly mentioned in your presentation, sir. My 2 questions, sir, is like we did around INR 1,000 crores on the top line this quarter. Going forward, do you think we could -- I mean, this will become like a normalized quarterly run rate for Strides?
Thank you for your commentary on our numbers. We appreciate that. We did have a good bump up on our institutional business, but we called that out in our deck where there is lumpiness in that business. And that's why we have agreed on a restatement on how we -- I mean how we would present numbers going forward. So I think that the institutional business is lumpy in nature for the whole industry, for those of us who are in this business.
But if you take that off and we have guided numbers, then on that number, you could safely add 20%. So this is a good kind of guardrail number, if you wish, but you would -- I would be cautiously optimistic on the institutional business, because it's not a business in our hands. It depends on donor funding, on the ability for you to deliver at short notice and stuff like that.
At this time, we are building businesses which are more in our destiny, in our strategy. And while the donor business is extremely important from a manufacturing recovery standpoint, it's not a business that is predictable or guidable like the rest of the business.
Okay. But sir, I mean like you -- the word you rarely use like guardrail number. So could we safely assume 6%, 7% from here on the lower end in terms of if you subtract the part of the institutional business also?
If you subtract the institutional business, you can safely count 15% to 20%. If you add the institutional business, 6%, 7% is also very comfortable.
Okay. And sir, in terms of Stelis, the debt number is INR 600-odd crores. And what would be in Strides. And what would your comfort level or going forward by the end of '24 and '25, what would you want these 2 numbers to look like, sir?
Not over 3.5x EBITDA.
Okay, sir. And 1 last question, sir. In Stelis, have we taken the total write-down from the problems on the Sputnik? Or we still have some carryforward things from that?
None.
Is there any possibility of something coming back on the books?
No.
No. I mean in some kind of insight from the authorities or things like that?
No.
Next question is from the line of Siddharth Choudhary, Individual Investor.
I just have a single question. As you have given guidance for FY '24 is around 15% revenue growth with our target EBITDA of around INR [indiscernible]. So could you highlight the key drivers for this top line growth and margin expansion for this fiscal year?
So one is cost, obviously. Second, continued success in the U.S. that is key and synergize our B2B business, converting to -- I mean, customers that were converted moving to revenue recognition. Those are some of the key drivers.
Next question is from the line of Omkar, Individual Investor.
Congratulations to Strides for good gross margin improvement and focus on margin improvement. My first question is price has delivered $63 million revenue in a year. As far as Q-o-Q performance is concerned, there is no improvement in U.S. revenue. Any specific reason for it? And how many products we are introducing this financial year from Endo. In Q3, end products got launched from Endo in U.S.
So it's not launched, it's actually relaunched. So like I said, if we get challenged on pricing, we are happy to let go. So it's not how much we want to grow in the U.S., it's about margin expansion. And with that discipline, we have got to 60% of margin expansion -- almost 59.9%, and we want to focus on that. And this year is all about improving our gross margins and EBITDA and further reducing our debt to a comfortable level, which is what our focus is. So we are not so much concerned if sequentially, we didn't grow 10% or 15% Q-on-Q. We grew 58% Y-on-Y. So if we end up the year 15% growth on $232 million, that's what we need to look at. And are we improving our gross margin beyond 59%. That will be a good indicator.
The next question is from the line of Chetan from [indiscernible].
[indiscernible]
Your voice is low, we are not able to hear you. Please keep your headset closer to your...
Yes. Yes. Can you give us what percentage of promoter stake is pledged? Or is there any guidance for reduction reduce it?
Yes. So see, we did guide that our idea is to reduce our prices quite significantly. But considering -- we had a choice last year to keep the lights on in Stelis. So promoters have invested over INR 500 crores, which to ensure that nothing is called from the guarantees that Strides is delivered, and that was key to our strategy. And absolute loan book on the pledges are not increased, but pledges is a function of the share price. We believe that we will be able to reduce the pledge levels by about 33% to 40% during this financial year.
Ladies and gentlemen, this was the last question. I would now like to hand over the conference over to the management for the closing comments.
Thank you. Thank you all for joining today's call. And like I earlier alluded, thanks for your confidence in Strides, and thank you for your support.
On behalf of Strides Pharma Science Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.