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Sun Pharmaceutical Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Earnings Conference Call of Sun Pharmaceuticals Industries Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Dr. Abhishek Sharma, Head of Investor Relations. Thank you, and over to you, sir.
Thank you. Good evening, and a warm welcome to our fourth quarter FY '23 earnings call. I am Abhishek Sharma from the Sun Pharma Investor Relations team. We hope you have received the Q4 financials and the press release that was sent out earlier in the day. These are also available on our website. We have with us Mr. Dilip Shanghvi, Managing Director; Mr. C. S. Muralidharan, CFO; Mr. Abhay Gandhi, CEO, North America; and Mr. Kirti Ganorkar, CEO, India business. Today, the team will focus -- team will discuss financial performance for the quarter, business highlights and respond to any questions that you may have. For ease of discussion, we will look at consolidation -- consolidated financials. The call recording and call transcript will also be put out on our website shortly.
The discussion today might include certain forward-looking statements, and these must be viewed in conjunction with the risks that our business faces. [Operator Instructions] I also request all of you to kindly send in your questions that may remain unanswered today.
I will now hand over the call to Mr. Shanghvi.
Thank you, Abhishek, and welcome, and thank you for joining us for this earnings call after the announcement of financial results for the fourth quarter and full year of FY '23. Let me discuss some of the highlights. Financial year '23 was a good year for us with consolidated sales growing by 12.6% to INR 432,789 million, driven by strong performance across markets led by USA. India, emerging market and rest of the world market. All recording double-digit growths, we posted EBITDA growth of 12% and adjusted net profit growth of 12.8% for the year. For the fourth quarter, consolidated sales were 107 point -- I mean.
INR 107,256 million, recording a growth of 14.3% year-on-year driven by global specialty emerging markets, India and rest of the world markets.
Let me now update you on our global specialty business. In FY '23, we recorded a strong ramp-up in our global specialty sales which were up by 29% to reach USD 871 million. For Q4, our global specialty revenue were USD 244 million, up by 31.7% year-on-year. This included a milestone payment of USD 6.8 million received in Q4 FY '23. Excluding the milestone payment, specialty business accounted for 18.2% of overall sales for the quarter. specialty R&D accounted for 31.7% of our total R&D spend for the quarter. On January 23, we announced the launch of SEZABY in the U.S. for treatment of neonatal seizures. Abhay will give you more details on the specialty business later.
I will now hand over the call to Murali for a discussion of Q4 financial performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our full year and Q4 financials are already with you. As usual, you look at key consolidated financials. The full year FY '23 sales were at INR 432,789 million, a growth of 12.6% over the same period last year. Excluding COVID product sales for the last year, overall sales were up by 13.9%. Material cost stands at 24.6% of sales, lower year-on-year due to better product mix and higher specialty product sales. While staff costs as a percentage of sales are marginally higher than last year, the increase in absolute value is on account of annual merit increase, consolidation of the Alchemee acquisition and the expansion of sales force. Other expenses were at 30.4% of sales is higher than last year on account of higher selling and distribution expenses, higher R&D expenses and consolidation of Alchemee business.
ForEx loss for the year was INR 1,261 million compared to a gain of about INR 1,540 million in FY '22. EBITDA for the full year was INR 116,468 million, a growth of 12% over the same period last year, with resulting EBITDA margin of 26.5%. Adjusted net profit for FY '23 was at INR 86,450 million, up by 12.8% year-on-year. Reported net profit for FY '23 was at INR 84,736 million. As of 31st March 2023, net cash was USD 1.5 billion at consolidated level and USD 196 million at ex-Taro level.
Let me now discuss the Q4 FY '23 performance. Gross sales for Q4 were at INR 107,256 million, up by 14.3% over Q4 last year. Material cost as a percentage of sales was 21% significantly lower than Q4 last year due to better product mix, including higher specialty sales. Staff cost stood at 20.3% of sales. Other expenditures stood at 34.2% of sales, higher than Q4 last year. The increase in other expenses is largely driven by continued normalization of sales and distribution expenses over the past few quarters. The normalization of other expenses happened to a large extent. ForEx loss for the quarter was at INR 272 million compared to a gain of INR 1,610 million for Q4 last year. EBITDA for Q4 was at INR 28,021 million including other operating revenues, up by 19.7% over Q4 last year, with EBITDA margins at 23.6%. Reported net profit for Q4 was INR 19,845 million. Adjusted net profit is up by 36.3% year-on-year compared to adjusted net profit of Q4 last year. Reported EPS for the quarter was INR 8.27 per share.
Let me now discuss the key movements versus Q3 FY '23. Our consolidated gross sales were lower by about 3.4% Q-on-Q at INR 107,256 million. Material cost at 21% of sales, lower than Q3 FY '23 on account of several moving parts leading to change in ForEx mix. Material cost as a percentage of sales should normalize going forward. Staff cost at 20.3% of sales were higher in absolute terms versus Q3 FY '23 due to higher incentives and Concert consolidation. Other expenses of 34.2% of sales were higher compared to Q3 FY '23. EBITDA margin for Q4 was at 25.6% compared to 26.7% for Q3. Reported net profit for Q4 stands at INR 19,845 million.
Let me now briefly discuss Taro's performance. Taro posted Q4 FY '23 revenues of USD 146.6 million, higher by 2.3% over Q4 FY '22, net profit of USD 6.9 million. For the full year FY '23, revenues were USD 573 million, up 2.1% year-on-year, and net profit was USD 25.4 million, lower by 56.4%. Taro's financials for Q4 FY '23 and FY '23 includes the consolidation of the Alchemee acquisition.
I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India business.
Thank you, Murali. Let me take you through the performance of our India business. Our India formulation sales for the full year FY '23 were INR 136,031 million, recording 6.6% growth over previous year. The underlying business has performed well, excluding the contribution of COVID product from previous year, the sales grew by 10.2%. For Q4, the sales of Formulation in India were INR 33,641 million, recording a growth of about 8.7% over Q4 last year. India Formulation sales accounted for 31.4% of total consolidated sales for the quarter.
We continue to witness good growth across multiple therapy areas in the chronic and sub-chronic segment for the quarter. Sun Pharma is ranked #1 and holds 8.33% market share over INR 1,850 billion Indian pharmaceutical market as per AIOCD AWACS MAT March '23 report. Corresponding market share for the previous period was 8.31%. As per SMSRC MAT February '23 prescription report, we are #1 ranked company. Sun Pharma is also ranked #1 by prescription with 12 different doctor categories. For Q4 financial year '23, the company launched 24 new products in the Indian market.
I will now hand over the call to Abhay.
Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. business. Our overall U.S. business grew by 10.3% to USD 16,484 (sic) [ USD 1,684 ] million for the full year FY '20, driven mainly by the strong performance of our specialty business. For Q4, our overall sales in the U.S. grew by about 10.5% over Q4 last year to USD 430 million. The main drivers of growth was the specialty business driven by ILUMYA, Winlevi, CEQUA and Levulan. The U.S. accounted for over 33% of consolidated sales for the quarter. Specialty sales have also grown compared to December '22 quarter, and we remain excited on growth opportunities in the portfolio.
Let me now update you on our U.S. generics business. Over the last year, this business has gained from a combination of new launches and market share gains from existing products. However, those gains were offset by full quarter impact of the import alert at our Halol facility. We launched generic lenalidomide capsules during Q4 FY '23 in the U.S. For Q4, we launched four generic products in the U.S. on an ex-Taro basis.
I will now hand over the call to Mr. Shanghvi.
Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives. Our branded Formulation revenues in emerging markets were at about USD 983 million for the full year, up by about 8.6% year-on-year. For fourth quarter, sales in emerging markets were about USD 221 million, up by 7.5% over fourth quarter last year. The underlying growth in constant currency terms were about 10% for year-on-year for fourth quarter. Emerging markets accounted for about 17% of total consolidated revenues for Q4.
Amongst the larger markets in local currency terms, Russia and Romania have done well. For the full year, Formulation sales in rest of the world markets, excluding U.S. and emerging markets, were about USD 752 million, up by about 2.7% in over last year. On a constant currency basis, the RoW markets grew by 10.6% in FY '23. For Q4, Rest of the World sales were USD 191 million, up by about 7.4% over fourth quarter last year. Rest of the world markets accounted for approximately 15% of consolidated Q4 revenues.
API sales for FY '23 were at INR 19,724 million, up by about 7.5% over last year. For Q4, we're at INR 3,852 million, declined by about 6.9% over Q4 last year.
We continue to invest in R&D, building our R&D pipeline for both the global generics and specialty business, consolidated investment towards. R&D for Q4 FY '23 stands at INR 6,657 million, 6.2% of sales, and this compares to INR 6,700 million, 6% to sales for Q3 FY '23 and INR 5,433 million, 5.8% to sales for Q4 '22. Our current generic pipeline for the U.S. market includes 97 ANDAs and 13 NDAs awaiting approval with the U.S. FDA. Our specialty R&D pipeline includes five molecules undergoing clinical trials. In the future, R&D investments are likely to increase both for our specialty and generic businesses.
The Board has proposed a final dividend of INR 4 per share for the year FY '23. This is in addition to the interim dividend of INR 7.5 per share paid in FY '23, taking the total dividend for FY '23 to INR 11.5 percent (sic) [ INR 11.5 per share ] compared to INR 10 per share for FY '22.
And lastly, on the guidance for FY '24, we expect high single-digit consolidated top line growth for FY '24. All our businesses are positioned for growth. Ramp-up in our global specialty business is expected to continue. R&D investments will continue to be 7% to 8% of sales next year.
With this, I would like to leave the floor open for questions. Thank you.
[Operator Instructions]
The first question is from the line of Chirag from DSP.
Sir, as we look at our $870 million base on the specialty piece. What are the key products that you think will drive growth from here on over the next 2 to 3 years as we look at this business?
Abhay, would you like to respond?
Yes. Sure. I think the three major products for us, which can drive global growth will be obviously ILUMYA, CEQUA and Winlevi. And when you talk about the time frame that you're talking about, we could also have other interesting products in the pipeline.
Understood, sir. And so is our specialty business at this $870 million number, is it EBITDA positive, significantly EBITDA positive? Just some color around profitability around of this business will help, sir.
So I mean you're aware that business-wise profitability numbers, we do not share. So I really can't answer that question, Chirag.
Would it be fair to say that FY '23 cost base for the specialty business has not dramatically changed over FY '22, sir?
That would be a fair statement.
Understood, sir. And just one more question, if I can squeeze up, Duloxetine, do we think this is FY '24 '25 launch event?
No, I think our current guidance is that we should be filing the product by second quarter, which -- I think, because of the FDA hold on 12-milligram. We are relooking at what should be the exact date for us to be able to file. And based on that, we can then once we have clarity, we will give you some guidance as to by what time we can come to market.
The next question is from the line of Kunal Dhamesha from Macquarie.
So first one on the goodwill jump that we have seen of around $200 million from September to March. Could you provide some color there?
So the goodwill in we see a [Audio Gap]
Sorry, I missed you, I think there was some connectivity issue.
Mainly all of the Concert acquisition, goodwill increase, mainly driven by Concert acquisition.
But as far as I see, there is also increase in intangible under development increase, which is roughly $427 million, which is roughly $576 million, minus the cash that they had.
As far as Concert is concerned, we have time to finalize the purchase price accounting 1 year based on the provisional purchase price accounting, there is a share in the goodwill and also the intangibles under development. That's why you see the increase in both.
Okay. Sure. And would you provide any update on Mohali? What is the situation there? It seems that we -- from the press release, it looks like we are fairly confident of resolving the issue. But any time line would you like to provide there?
What is the question?
Mohali plant resolution, when we'll be able to restart the supply from that plant?
Yes. What I think -- we've already received the, what you call, [ AIR ]. And we believe that in a gradual and phased manner, we should be able to start selling products out of Mohali.
Sure. And if I can just squeeze in one more. I think in the opening remark, you said the gross margin with regard to a more sustainable level, would you be providing any range, et cetera, where the gross margin could end up in the next year? Or maybe what is the kind of one-off part that you see here?
So specifically, we are not guiding anything towards gross margins. Over, as you said, that the Q4 expression of gross margins is mainly contributed by the change in product mix and higher specialty rates. However, there are many moving parts between [ this the circuit was increased ] . As we shared in the readout, it will normalize as the first [ year ] of sales going forward.
The next question is from the line of Damayanti Kerai from HSBC.
My first question is, in fourth quarter, we have seen other operating income as well as other income were substantially higher than what you booked in the previous quarter. So can you like explain what has come in incrementally there? And also the milestone income of 6.8 million, which line item is going in?
So as far as the other operating income is concerned, there are multiple moving parts, over it's related to the export related incentives and other OpEx we have. And as far as the milestone is concerned, what we have, it is considered in the revenues.
Sorry. Milestone is considerative in -- I just missed that.
Income -- revenues.
In revenues. Okay.
Yes.
Okay. And my next question is like the deuruxolitinib update where like your 12 mg strength is -- like have got a partial hold back from FDA. So obviously, you are evaluating opportunities. But if doesn't come, do you think the opportunity size will remain similar, if you just have to go by a single strength instead of 2 strength?
We are, I think, evaluating a possibility where we might have to launch only 8-milligram. However, our preliminary analysis indicates that even 8-milligram on a longer-term basis is, what you call -- of course, studies are different. But on different studies has a overall response rate much better than reported by competing products.
Okay. And my last question, can you update us on Phase III studies of ILUMYA in psoriatic arthritis? When the studies will be likely completed?
Yes, I don't have -- I think what indicated is that we will start guiding for when the -- what are the study time lines. Unfortunately, I think we are not ready with that information. Maybe from next call onwards we would give clarity on what is the status of different studies as a part of the readout. But I don't expect the ILUMYA -- I mean, sorry, ILUMYA psoriatic arthriti study to get completed in this financial year. It may take a little bit more than this financial year to complete.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Sir, a couple of questions on specialty side. One is, how does the annual price increase for these products filter down to your net realization? That's one. And the second is on ILUMYA. Given the positive clinical outcomes for oral IL-23, what could be the implication for your product?
So Sameer, I'm trying to understand the nuance of your first question. When you say filter down to the net realization, what could exactly do you mean there?
Yes. Abhay, what I'm trying to understand is, does it proportionately the rebates go out of that? Or is it any different?
So the price increase that we take for the specialty products, at least in the U.S., I can't answer this question on a global basis. It is very nominal. And when you talk about the rebating, it is very product specific again what is it every year that we retain or pass on it is very product specific. So I don't want to give a comment saying that most of it, we are able to retain or most of the [indiscernible] goes back to the payers. And it's like a moving part.
Okay. Okay. But I presume some of that does come to the company.
Of course.
Okay. Okay. And for the second one?
What was the second question, Sameer, if you can just quickly...
Yes, sure. On the oral IL-23, the positive clinical trail. So mean it's 4 years or so away from any launch, if at all, I mean, but how are you thinking about that?
I mean the data that is coming out with the orals are positive, but I think the injectable IL-23 clearly gave a higher response. So there is a place in therapy for the injectable, and especially when you have an injectable, which is only four times a year, administered by the doctor, we don't see a resistance from the HCPs for the use of injectable IL-23 and our product specifically.
Okay. No, that's great to hear, sir. And quickly on Revlimid, I think Sun is the seventh or the eighth player to enter the market. So as it stands, do you think it's a nice good lucrative opportunity? Or is it a lot at diluted?
As of now, it's holding up but the more number of competitors coming in during the course of this financial year, we have to observe and see what really happens.
The next question is from the line of Prakash Agarwal from Axis Capital.
Question on CTP-543, so you mentioned that because of partial or 12 mg is revaluated. But 8 mg -- just a reclarification, 8 mg is on track to be filed by Q2?
So Q2 is already over. So we are studying the FDA letter indicating the [ hold ] and evaluating what is the best way for us to progress with the filing. So that is where we are. I think we are -- and it gives us an opportunity to relook at the data in terms of 12-milligram and what is the differential side effects and all of that. So I think we want to find a way to file the product in such a way that we still have an opportunity to get both the strengths approved.
Okay. If I got that correct. So 8 mg also, you are relooking with respect to the pros and cons of 12 mg.
I think if you see our release, I think what agency asked us to do was to move all the patients of 12-milligram to 8-milligram. So based on the experience and long-term safety study, which we already have, where some of the patients have been on treatment over multiple years, it kind of looks like a very safe product.
So I'm trying to understand the filing time period for 8 mg, sir.
I think what we are trying to do is we are trying to see whether we want to only file for -- well, you can't file for one strength and then file for another.
Okay. Fair enough. Understood. And secondly, on India business, so we had added some field force. I see the growth. But what we pick up from the channel is volume growth is really tepid. Would you...
Hello?
We lost him.
The line has dropped.
Then we'll explain him later.
The next question is from the line of Ankush Mahajan from Axis Securities.
Well, due to the concern, we have a high R&D cost, and that has impacted the consolidated EBITDA margins. Sir, any guidance for the same?
No, I think we are on the lower end of the overall R&D guidance. So what is the question?
Sir, I see last quarter, there is a 100 basis point impact on the margins on a consolidated basis. Due to the higher R&D on the Concert. Sir, just trying to -- just throw some light on it.
No, I think when we are looking at numbers, we don't see what you are asking. So I think it is best that you separately speak to Abishek and get the details clarified.
The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC.
Just one update I wanted on the ongoing molecules -- five molecules, which is there in the pipeline. Last quarter, we had indicated that it will come up with some more additional update on this. So qualitatively, I just wanted to understand in next one or two years, can we see -- or do you see at least one or two sizable products coming to our specialty basket from these 5 molecules and at least if you can share us in terms of size of opportunity on the molecules you are working on currently.
I think indicated that we were to share the development time line for all these innovative products. And what is the plan that we have for these products to be brought to market. So -- and unfortunately, we couldn't do that this quarter. We will start doing it from next quarter so that you as a part of our readout only.
Sure, sure. And lastly, last quarter, you had indicated that we had -- in India portfolio, we had some challenges in our gastro portfolio. Any update on that? Do we continue to feel have that challenge or have you worked on that base?
Sure. Sure. See, in the last call, what we said is both in gastro, we are seeing some challenges. But now it's too early to say, but we are seeing some improvement in this quarter. Maybe we'll be able to update you better after 2 or 3 quarters.
The next question is from the line of Prakash Agarwal from Axis Capital.
Yes. Sorry, I got dropped. On the India business, my question was that on the market level, are we seeing volume coming down quite a bit over the last 2, 3 years? And if so, what are the changes -- actions we are taking apart from the field force addition that we have done and also the field force count, please?
Sure. I would try and help you out. Like if you look at the IQVIA data for March '23 MAT data, so the volume growth for the industry is almost 0 or minus 0.5%. So to compare to that, the Sun's growth is about 11%. And if you divide this 11% growth into three buckets, the 6% growth is coming from the unit growth. That is a pure volume growth, then 2% of the growth is coming from new products for us. And then the 3% growth is due to price increases. And when we compare Sun among all our peers of the top 10 companies, I think our volume growth is one of the best. There are one or two companies which are like Sun only. But most of the other players, they are not growing by even 6% in volume. So I think we are well placed, and this is also a reflection that we are able to generate the prescription in the market.
Any commentary on the new product launches like we are not among the top 5, top 10 also, I think, in the new range of DPP-4, gliptin, et cetera.
No. That's not correct. I think we are the leader.
We -- you don't see our product in new because we already have these products -- we have...
The brand, but the volume and price both would have come down, right?
No, I think price, we're competitive, but I think volume has gone up significantly.
Yes. So just to give an example, I guess [indiscernible], in terms of volume in both sitagliptin and sitagliptin plus metformin market, we are #1.
In units.
In unit terms, yes. In value term, we'll not because we have reduced the price post-patent expiry. And then after, of course, patent expiry, we have launched a good number of combination products, which will also help us to grow this franchise.
Okay. And lastly, the field force count, sir?
Field force, we're close to around 10,000 field force. Yes.
This is despite adding the last year 1,000-plus.
Yes. Yes. See, expansion is a part of our strategy. So we continuously keep evaluating territories where we can add mass. So that's a part of our strategy.
Market dynamics are changing. Consultants are now starting to practice from smaller cities and towns, and we need to find a way to reach out to these people.
The next question is from the line of Krish Mehta from Enam Holdings.
My first question is on the debt and the balance sheet. So could you just provide some color on why we've seen an increase in the debt? And how you sort of see this going forward?
So the debt and the balance sheet increase is being mainly [indiscernible] bridge funding for the Concert acquisition.
Okay. And on the -- can you provide the number for the interest income for FY '23?
Interest income. You are talking about interest income or interest expenses?
Interest income.
We'll get back to you on the specific number.
Sure. And lastly, I just wanted to ask if you could provide a number for the full year ILUMYA sales.
We're not giving product...
Yes, we don't -- we are not providing ILUMYA and [indiscernible] number.
Okay. No, I just asked because we used to get that annual detail. So...
So we will continue with whatever the practice is if we were giving, then we will share that number.
The next question is from the line of Bino Pathiparampil from Elara Capital.
Most of my questions are answered. Just one clarification on Revlimid has that significantly contributed to your 4Q numbers? Or would it be significant in 1Q?
For quarter 4, it was a significant contributor.
The next question is from the line of Punit Pujara from Helios Capital.
My question was on Concert. So via Concert acquisition, we have got a DC platform. So do you wish to continue developing the deteriorated products through this platform?
As on today, I think our primary interest was in deuruxolitinib. And we are potentially looking at additional indications of that product in different indications. We have no immediate plan of working on deuteration as a platform.
The next question is from the line of Cyndrella Carvalho from JM Financial.
Sir, just wanted to understand on the India piece, would we continue the similar growth that we have reported in FY '23? Or do you see opportunities to calibrate this growth further?
No, no. I think what we have said in the past also, it's very difficult to forecast what would be the growth in the coming years. But whatever is the market growth, India business, we want to grow in line with the market or slightly better than the market. That will be our effort.
And we would have some benefits of the new added MR force also, right, in terms of FY '24. Is that a correct understanding?
Yes, yes, that's correct.
On the U.S. piece, I mean earlier participant also asked for the ILUMYA number. if you would want to share that would be helpful. However, if I look at the gross margin, I'm just trying to clarify this again. So -- is that because largely our mix was tilted towards specialty business? And that's the reason we saw this gross margin? Would that be a correct statement?
No. So what we have said is that in Q4, the expansion of margins was contributed by, of course, higher share of specialty, but there are also other parts leading to the [indiscernible] product mix. So both are contributors. It's not only highest [ percent ] sales.
Okay. And sir, in terms of the overall growth of specialty business in the U.S., ILUMYA will continue to be the major driver. And how do we see SEZABY and Winlevi for at least coming 2 years? How is the ramp up? If you could help us understand some nuances there would be helpful.
So all the three products that you have mentioned will contribute to our growth. However, in absolute dollar terms, I would expect ILUMYA to be the largest contributor to the growth.
And any color on how SEZABY is expected to pan out in patients in terms of your neonatal coverage. Anything that you would like to share, sir?
Sorry. I -- your voice was a little patchy for me. were you referring to SEZABY?
I was asking some understanding on the SEZABY products, sir, in terms of the market formation, how are we picking up the coverage?
So it's a niche market. So obviously, it will not be on the same scale as, let's say, ILUMYA. But in that niche, it's a very interesting product. We are right now in the process of growing literally hospital formulary by hospital formulary trying to sell the concept of our product being the only FDA-approved product and trying to get a buy-in from those. So it will take some time, and it will ramp up. But the scale is completely different from a much larger opportunity, like say, ILUMYA or CEQUA or Winlevi. This is a niche play.
That we understand, sir. And on the Winlevi side, sir, anything on the coverage side, do you want to highlight how are we seeing it?
It improved in the last quarter. And of course, it's always a work in progress, and we hope to continue to improve coverage during this financial...
The next question is from the line of Chirag from DSP.
Our other expenses are almost INR 500 crores higher than the past averages. Is there anything specific you want to call out over here? Or is this run rate something that we should see as a sustainable number?
So there we have said that other expenses is triggered by the higher selling and distribution expenses. And of course, from the year-on-year quarter of consolidation Alchemee business also is there. However, what we have said that we have almost reached to normalization to some extent. With the growth in operations, some of what our expenses will be incurred towards the growth. Otherwise, I think we are almost near there.
There is no one-off in the other expenses.
No, there is no one-off as such.
Understood, sir. And sir, second question was on this -- in the notes to accounts, there is a INR 164 crore impairment related to an associate. Can you just provide some color around what exactly this is, sir?
So this is regarding an impairment of a loan on affluences given to [indiscernible] , we are actively monitoring the progress of the [ potent ] factor we have provided for it.
Can we quantify the total outstanding as far -- for towards this transaction, sir? 100% of what we had.
We do not want to comment on the total outstanding or total thing. We have taken based on the current understanding of the impairment provision as required.
Understood, sir. And just if I can squeeze one more question. Sir, this heightened R&D that you're guiding towards, it's almost INR 1,000 crores higher than the current annual run rate. I mean I'm just trying to think what is it that you are kind of thinking about in terms of -- INR 1,000 crores, $125-odd million seems like a fairly large number even for specialty business. Just what is it that you are kind of baking? Are you baking in incremental products like Concert products, et cetera, as well in this? Or just what is your thought process around this incremental INR 1,000 crore kind of R&D budget?
I think like what you identified, Concert R&D would be clearly contributing to a part of that increase.
And future products as well, if at all, you end up acquiring more or...
Or we decide to develop additional indication.
For your existing products?
No, even deuruxolitnib.
Yes.
Understood. And do you expect this to kind of come through in like a year or so? I mean in one full 12-month period, you will see this activity just go up to that kind of level?
No, I think my sense is that some of the clinical studies for ILUMYA will start recruiting rapidly during this year. At the same point of time, we may start additional studies for our GLP-1 as well as the Concert product. So all of that, I think there is a much more clearer visibility of why and how this cost will go up.
The next question is from the line of Neha Manpuria from Bank of America.
Abhay, one clarification on Winlevi. You mentioned that the coverage has improved in the quarter, and it's gradually picking up. But if I were to look at the prescription data that is available, Winlevi has been sort of broadly been in the range what we have seen for the last couple of months. How should we look at improvement in prescription for Winlevi? And is it tracking in line with your expectations, better than your expectation? Are you seeing any challenges in ramp up? Any color there?
So what you're seeing is the outcome and if you're tracking the prescriptions, with the improved coverage and also the change in the co-pay, these are far more valuable prescriptions than what we saw earlier. And the coverage has improved. It is like part of the covered population, right? It's in some cases, other pieces still remain. So when you make the co-pay change. prescriptions will sort of plateau for some time. But with the improved coverage, the idea is to grow the prescription coverage.
Yes. Yes. But when do you start seeing that in numbers, now you've seen that come off. The prescription come off as we change into the co-pay, coverage is improving. So in your view, when do you start seeing the benefit of the improved coverage in prescription numbers stepping up from the current run rate? Is that two quarters away or three quarters away or take longer?
I don't think it should take that kind of time in fact, in our budgeting. I mean we are expecting it to happen early.
All right. And any changes in terms of...
[indiscernible] Q2, Q3 in mind. I would be happy.
Okay. Understood. And we're not seeing any challenges in our ability to get more coverage for the product. That's not a concern.
It's a challenge. I mean it's a process that we have to go through, keep explaining to the payers why it makes sense for them to cover this product. So I mean, getting coverage for any product is always a challenge. And it's a challenge that we are expecting to meet.
We'll move on to the next question from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Most of the questions have been answered. Just if you could quantify the PLI benefits which has been there for this quarter.
So normally, we do not quantify any type of incentives or grants what we see as part of our achievement of data or [ team ] related investments.
Okay. This would be in other operating income, right?
Our other operating on -- what I want to say is that this has been consistent between Q4 and Q3.
Got it. And just on the guidance, while [ ILUMYA ] specialty sales continue to ramp up nicely even we continue to outperform in the domestic formulation market and emerging markets and RoW also continue to grow at a robust double-digit growth. So what's holding on to guide for a single-digit growth for FY '24?
No, I think it's after evaluating all the businesses upside as well as downside. And taking a conscious decision that we want to share a number, which has a certain element of stretch, but at the same time, a certain what you call possibility for achievability. Well we don't want to kind of take a number far out and then say that we couldn't deliver on the number. At the same time, we don't want to give low ball number and over perform.
Sure, sir. So in fact, Revlimid also would be having a full year impact and through certain niche launches as well. That's the reason why -- the question.
Yes. I mean I understand, but we've also shared with you that Halol, we will have certain challenges in terms of being able to sell products -- we've also said that Mohali, we will gradually start reintroducing products. So I think all of those things have potential negative. So that's factored in our guidance.
Sure, sir. And just lastly, if I may...
[indiscernible] say, achievable guidance.
Sure, sir. Sure. So while there was import alert at Halol that time we had mentioned about the sales from that facility. On the similar lines, given the kind of regulatory action that has happened at Mohali, would it be possible to quantify how much was the sales? And how much has that been got destructed because of the recent regulatory action?
I think we actually ourselves are not clear. So we are not giving a separate guidance on that because we don't know by what time, what products we want to bring back and how much of -- we might be able to protect the entire business also. So I don't want to kind of come with a number, which then has no relevance.
The next question is from the line of Nitin Agarwal from DAM Capital.
Given the challenges that we've had this year, I mean how are you seeing the outlook for our business over the next 2 to 3-year period on a qualitative basis? Is there a -- given the fact there is some talk about the market stabilizing price situation improving at the margin in the overall U.S. market?
No. I think -- Abhay, would you like to respond? I couldn't fully hear the question.
No, same here. I also couldn't really understand the question.
I was trying to say...
Were you talking about the generic side of the business or specialty.
Yes. The generic of the business, Abhay.
So could you reframe your question, please? I'm really not sure what was that.
I was just trying to ask is that given the fact that we've had challenges this year in the generic business. But at the same time, there are some positive signs in the market stabilizing from a pricing perspective in general. And given the fact with whatever the pipeline that we have, about 97-odd ANDAs are waiting approval. Qualitatively, where do we see the generic business headed over the next couple of years for us, given where we were in FY '22, '23?
So I don't see the price stabilization that you are speaking about -- and not just from Sun perspective, but also from an industry perspective, I don't see that. So I think you're -- that basic assumption is probably incorrect. So in the overall context, I think if I look at the market in general, it's a low growth or a de-growth kind of an overall generic business in the U.S. Volume growth is there, but value growth, I do not see from an industry perspective.
Okay. And second question, sir, on the acquired assets like the Concert business, what is the typical account amortization policy to be followed sir?
Murali, can you respond?
So normally, it depends for the class or type of uses varies ranges like economic life between 8 to 15 years...
Even for clinical assets, [indiscernible] take such a long period of amortization, sir?
That is also driven by the paid-in expedite factors will consider.
The next question is from the line of Surya Patra from Philip Capital.
Yes. First question is to understand the cost equation better. Sir, the first -- whether the remediation spend on the two facilities, which is under observation. So whether that expenses are fully factored in the quarter.
So the incremental expenses for remediation has broadly been already factored over the quarter.
Okay. Okay. So my -- so practically, the question was that, sir, we have seen already kind of upswing in the gross margin, which -- also, to some extent, supported our margin this quarter. And for future going ahead, we are guiding for a kind of enhanced R&D spend of 200 to 300 basis points from the current year basis. And we are also indicating that the gross margin scenario is likely to be normalizing going ahead. So I'm just trying to understand how the profitability should be for FY '24-- so from that perspective, my first question would be that, how should one really see Taro's performance in the subsequent period because it has been very subdued in the current financial year and possibly that could play kind of a margin-boosting trigger. So if you can share some idea about it? And how should we clearly look at it?
No, I think -- we don't guide for overall profitability because there are so many moving parts. At the same point of time, some of your points about increase in some of the costs that we are guiding for are valid. Also -- however, finally, your question about Taro, I mean if I see the Abhay's statement about overall competition for pricing dermatological products that Taro currently markets has the highest level of new entrants and new competitors coming. So it will continue to see significant price competition going forward.
Okay. Okay. My second question, sir, on the India formulation business, generally haven't seen a kind of a consistent performance during difficult times of last 2 years. So most of the players have either expanded their sales force, enhanced their market presence, product basket, all that. So that is -- it has intensified competition, I believe. So sure, we have expanded our field force as well. And we have penetrated in the existing product basket better. So if you can give some sense versus FY '22 in FY '23, how the profitability would have changed? Not any specific number, but qualitatively also, if you can share something. This will be helpful.
So specifically on the India business or business-based profitability, we do not comment as such.
Sir, I missed your state -- last statement.
So what I said is that business-wise or segment-wise profitability, normally, we do not comment.
Okay. Okay. So that means the field force expansion cost has been reflected in the last year numbers. And with the...
Yes, it has been reflected.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Dr. Abhishek Sharma for closing comments.
Thank you, everyone, for joining us at this late hour. If you have any remaining questions, you may write in to me and then we'll be happy to respond to your remaining questions. Thank you, and have a good weekend.
Yes. Thank you.
Thank you. Ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.