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Torrent Pharmaceuticals Ltd
NSE:TORNTPHARM

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Torrent Pharmaceuticals Ltd
NSE:TORNTPHARM
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Earnings Call Transcript

Earnings Call Transcript
2023-Q3

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Operator

Ladies and gentlemen, good day, and welcome to the Torrent Pharmaceuticals Q3 FY '23 Earnings Conference Call. [Operator Instructions]I now hand the conference over to Mr. Sudhir Menon.

S
Sudhir Menon
executive

Thank you. Good evening, and welcome to quarter 3 FY '23 earnings call. Quarter 3 registered revenue growth of 18%, led by strong growth in the branded generic markets and steady performance of the generic markets. Branded generic markets constituted 70% of the total revenue base. The growth in the branded generic markets were primarily driven by new launch momentum, performance of the top brands and integration of acquired portfolio.In terms of financial performance during the quarter, the revenues were INR2,491 crores, up by 18% on Y-o-Y basis. Operating EBITDA was INR724 crores with operating EBITDA margins at 29.1%. There is a one-off impact on gross margins by around 0.6% for the quarter due to under absorption of manufacturing cost as there was a temporary stoppage of manufacturing in the month of October for around 15 to 20 days for carrying out cleaning validation of certain equipments as a follow-up to the USFDA audit. Today, the Board of Directors have approved an interim dividend of INR14 per share.With this, I would request Aman to give his insights on India business.

A
Aman Mehta
executive

Thanks, Sudhir. India revenues at INR1,259 crores grew by 17% and included revenues from the integration of Curatio Healthcare. As per the AIOCD data set, the Torrent's growth in Q3 was at 12% in line with the IPM growth of 12%. Our growth was aided by new launch performance, particularly in the chronic segment, performance of our top brands and strong growth of the Curatio portfolio.At the end of the quarter, Torrent has 19 brands in the top 500 of the IPM with 13 brands now more than INR100 crores sales as of MAT December 2022. Our field force has been further expanded and MR strength now stands at 5,300. This is inclusive of the Curatio division. Our base business MR strength stands at 4,700, which has also been expanded in the current quarter. For YTD December FY '23, revenues were INR3,728 crores, up by 15%. We expect the India business to continue its growth momentum, backed by new launch performance, top brand performance, increase in field force productivity of the expanded field force and continued performance of the acquired portfolio of Curatio Healthcare.I'll now hand over to Mr. Sanjay Gupta for the International business.

S
Sanjay Gupta
executive

Thanks, Aman. Let's start with our biggest branded generics business outside of India, which is Brazil. So Brazil revenue was at INR248 crores, up by 36% on a Y-on-Y basis. Constant currency revenue was in Brazilian real, BRL159 million, was up by 17%. As for secondary data set, Torrent's growth is 19% versus the branded generic market growth of 13% for the quarter ended November '22.On a MAT December '22 basis, Torrent's growth is at 15% versus a BGx market growth of 12%. Strong contribution to growth has come from our CNS franchise and the generic business, which now contributes about 14% to our Brazilian revenues. We have launched 6 products in the last 12 months. The two biggest markets are for Venlafaxine and Rivaroxaban, where our market share in prescriptions in the month of December is at 8% for Venlafaxine and 9% for Rivaroxaban.Our plans to increase our coverage of CNS in cardio markets from the current 19% to 35% by 2025 are on track. This year, we have received seven approvals. There are 10 products pending approval with ANVISA, and we would be filing an additional 10 plus products before the end of this fiscal year. IQVIA projects a retail market growth of 11% in 2023 and 2024 and we should be growing at a rate higher than this.Moving on to Germany. Our German revenues were INR241 crores, up by 1% on a Y-on-Y basis. Constant currency revenue were at EUR29 million, up by 4%. We have started growing again, thanks to the start of business of some new tenders that where won earlier in the year as well as four new launches in Q3. For the coming year, we anticipate single-digit growth coming from tender wins, some of which have been realized already. In 2022- '23, we would have launched more than 10 new products in Germany. The new products help us compensate the pricing pressures due to increased competition in the market.On the U.S. side, U.S. revenues were at INR291 crores were up by 24%. Constant currency revenue was $35 million, up by 13%. We have received OAI classification for our Indrad facility. For Dahej and the oncology facility, we continue to wait for the USFDA inspection. Future outlook of the U.S. business is linked to our ability to get new products on the market. We expect to file about five to six products in the current fiscal year. As of December 31, '22, 48 ANDAs were pending approval with the USFDA.To conclude, while the BGx markets shall continue to lead the growth, Germany shall continue to witness steady sequential recovery. For the Indrad facility, we are actively engaged with the regulator for resolution of issues at the earliest.Operator, we can now open the call for Q&A, please.

Operator

[Operator Instructions] The first question is from the line of Saion Mukherjee from Nomura Securities.

S
Saion Mukherjee
analyst

Sir, can you indicate the growth without Curatio? What is the organic growth for India in this quarter?

A
Aman Mehta
executive

The base business growth is 12% and the reported growth that we have is 17%. So the remainder 5% is coming from Curatio.

S
Saion Mukherjee
analyst

And on the Indrad facility, is there any communication that you've received from the FDA? And what's your outlook there in terms of timeline? And if you can indicate what's the level of contribution from that side to the overall revenues?

S
Sanjay Gupta
executive

So what we have received is a letter stating the status of the facility as OAI. So the agency kind of will take some official action in a time period of 45 to 90 days from the date of the letter, which was day before yesterday. And the official action ranges from a regulatory meeting or a warning letter or something of that sort. So we shall wait for them to decide before company getting further. And Indrad revenue contribution is -- we haven't disclosed the revenues by plant so far, right?

S
Sudhir Menon
executive

Correct, correct. Saion, maybe I can come back to you on that.

Operator

We'll take our next question from the line of Damayanti Kerai from HSBC.

D
Damayanti Kerai
analyst

First on India, can you split the base India growth into volume price and new launches contribution? And related question is, what I understand, price increase has been the significant driver for India sales this year. So from this high base of price increase, how should we see a growth scenario in the coming year?

A
Aman Mehta
executive

So the AIOCD growth is 12% for Torrent in Q3. Out of that, volume is 0.2%, price is 8.1% and new products is 3.5%. So this 8.1% is against 7% of the market price growth. So it's pretty much in line with the market growth and we think this range will continue. This has been pretty much our MAT range for price increase and we think next few quarters also this should continue.

D
Damayanti Kerai
analyst

Coming quarters also 7% to 8% price increase is doable, right?

A
Aman Mehta
executive

That's right. That's right.

D
Damayanti Kerai
analyst

And on the new launches, can you comment on some of the key launches which has supported the 3.5% contribution, because I think in the past we have mostly improved and took a 0.5% contribution from new products?

S
Sanjay Gupta
executive

Yeah. So the new launch contribution is calculated on a trailing 24-month basis. So in this period, we have launched relatively high number of brands in the chronic segment. Recently, the launch has been of Sitagliptin, as shared last quarter, where we continue to be the number one franchise of the newly launched brands. We should be doing roughly around INR4.8 crores to INR5 crores a month based on AIOCD. So this is strengthening our market share in diabetes. Similarly, in CNS, we had launches this time last year in the Pregabalin franchise, which continue to do quite well and remain the number one market share. So these are the key three, four launches that are adding the incremental new product growth.

D
Damayanti Kerai
analyst

And secondly, on Curatio integration. So can you talk about the progress which you have done since integrating the portfolio to your India business? So you mentioned you have a separate team and then you have added more people, et cetera. So a few more color would be helpful.

S
Sanjay Gupta
executive

So the business is on track. It's been two and a half months in the quarter that we have got the sales from Curatio. October 14th is when we had integrated. So two and a half months of sales in Q3. Pretty much continuing the same division, same strength in the business. We have started realizing synergies on the cost front in distribution where there were overlapping cost, let's say, distribution and CFA, warehouse set-up, which has all been merged and some back end functions which were overlapping.So this synergy has started playing out. I think about 3% to 4% margin improvement has already seen in the first quarter. Top-line delivery continues as per the exist -- the ongoing performance and we think this should sustain. So I would say better to wait another quarter, at least Q4, once we have the entire quarter under our performance, we can share further insights to the performance of Curatio.

D
Damayanti Kerai
analyst

My second question is on Germany. So you mentioned now the supplies have started for the new tender. So this tender is for like what period? And do you anticipate any more tenders coming in say next two or three quarters?

S
Sanjay Gupta
executive

So in Germany, how it works is that tender duration is two months. And usually, you win some tenders and they start six months later. So what happens is that the Q3 increase in sales, we flagged a few months ago. And saying that you had tenders which would start in Q3. So subsequently, each quarter, we win a few tenders and which is what has led me to tell you that we expect single-digit growth next year.

Operator

Our next question is from the line of Sumit Gupta from Motilal Oswal Securities.

S
Sumit Gupta
analyst

Just want to know on the price erosion update in the U.S. market. So what...

Operator

Mr. Gupta, sorry to interrupt. If you are on a hands free mode, can you switch to a handset and speak. Your audio is not very clear.

S
Sumit Gupta
analyst

Just want to know on the price erosion update in the U.S. market. So what kind of trajectory that you are seeing?

S
Sanjay Gupta
executive

So year-on-year, we are seeing high-single-digit.

S
Sumit Gupta
analyst

And what is the capacity utilization overall?

S
Sanjay Gupta
executive

Overall, it depends upon the plant. So Indrad is a multi-country plant, right, much more than Dahej. So Indrad capacity utilization is in the high-70s. And for Dahej, we are more in the mid-55%, 56% range.

Operator

Our next question is from the line of Shyam Srinivasan from Goldman Sachs.

S
Shyam Srinivasan
analyst

Just again focusing back on the Curatio acquisition. You talked about cost synergies, but I remember in our acquisition call we talked about revenue as well. At some point of time, we look at the top five brands, Teddybar, Etogla, Spoo all of that and just see where they are priced with respect to market, and if necessary take price increases. So is that something that we -- it's early to comment about that or you think we have selectively started doing that as well?

A
Aman Mehta
executive

So that's also started. Already one round of price increase which was already taken before the acquisition that was to offset the increased raw material cost, that has been affected and that new stock will be on the market in this quarter. So that should also start reflecting. And otherwise, I mean, revenue -- the Curatio revenue growth was about 20% for the quarter, the Curatio standalone. So the growth is pretty much on track.

S
Shyam Srinivasan
analyst

Sir, but I thought we were expecting to go faster relative to the segment, right, or maybe it's too early days for the two and half months, do you think for this 20% growth? I was under the impression that that segment is growing maybe 20% and Curatio is probably growing faster.

A
Aman Mehta
executive

No. I think the segment that we especially are covering, which is the prescription-based pedia-derma, this is significantly faster than that. But either case, next quarter should give a better picture. I think this mid-to-high-teens growth is something that we feel is sustainable for this portfolio and rest will be the levers that we mentioned earlier, which should start playing out probably by end of the next financial year.

S
Shyam Srinivasan
analyst

Just on the -- Sudhir, on the financial side. So what is the kind of debt position now after the deal? And if you could just reiterate some of the cash flow numbers that we are generating? And how we plan to kind of reduce debt over time?

S
Sudhir Menon
executive

Yeah. So Shyam, I think by 31 March, 2023, the net debt position should be around INR4,300 crores. And as per the repayment schedule, next year we should be repaying roughly INR1,200 crores. And probably in FY '25, a major chunk of the cash flow will get allocated towards the repayments of all these loans.

S
Shyam Srinivasan
analyst

So there is no -- so it's largely from internal accruals, right? So essentially you are going to divert -- what about CapEx? Sorry, I think that's the other question I had. INR1,200 crores you're going to repay. And what is the rest of the operating cash flows going towards?

S
Sudhir Menon
executive

So roughly you can say the EBITDA should be close to around INR3,000 crores, let's say. Of which, the conversion to operating cash flow should be 80%, which is INR2,400 crores. And CapEx over the next three years on an average should not be more than INR250 crores, max INR300 crores, I would say, per annum.

Operator

Our next question is from the line of Prakash Agarwal from Axis Capital.

P
Prakash Agarwal
analyst

Just trying to understand gross margin better. So 3Q gross margins are little down versus 2Q, while our higher gross margin business, India and Brazil, have done fairly well. Can you explain that?

S
Sudhir Menon
executive

Yeah. So Prakash, I don't know if you've heard the opening speech where I had explained [Technical Difficulty] So what I said is there is a one-time impact of gross margin by 0.6% for the quarter and which is primarily because of under-absorption of the manufacturing overheads in the month of October, wherein immediately after the USFDA audit, which ended On 28th of September, there had to be some cleaning validation of certain equipments which had to be done as a follow-up to the USFDA audit. Because of that, there has been an under-absorption of overhead which has impacted the gross margin by 0.6%.

P
Prakash Agarwal
analyst

Any other reason? I mean, because Brazil also has done fairly well, which is a higher gross margin business.

S
Sudhir Menon
executive

No other reason, Prakash. This is only one-time impact which we have seen.

P
Prakash Agarwal
analyst

And what do you attribute is Indrad facility, the [Indiscernible] have come and now the OAI, it had gone in that status earlier. And we have seen other facilities, other companies also seeing observations coming back. So I mean, it's been three, four years now, so what's really -- that as a company or as an industry we are missing here?

S
Sudhir Menon
executive

So you're right. I mean, as far as this recent OAI is concerned, we are still working on it, right? I mean, trying to get in touch with the USFDA to understand better. So it would take couple of weeks, I would say, for us to get a better hang of what would be the next thing which we should be looking at. So maybe, post one to two weeks, we'll have a better clarity to give you some feedback on that.

P
Prakash Agarwal
analyst

And one more for you on the interest cost side. So you mentioned INR3,000 crores EBITDA with 80% conversion. So the debt repayment should be much higher than the INR1,200 crores you talked about or how do you think it -- that's a conservative number or it's a realistic number?

S
Sudhir Menon
executive

No, it's a scheduled repayment which is there for the next year. And I agree, I mean, if there is additional cash which is there on the balance sheet, it will be used for repayment of the loans to the extent whatever is possible. What I was saying even if I take a scheduled repayment which is happening next year of INR1,200 crores, that should end most of my previous acquisition funding. And therefore, FY '25 whatever cash flows are getting generated, considering the growth over the next two years, most of that can be allocated for repayment of Curatio loans.

P
Prakash Agarwal
analyst

And lastly for -- if you can also give some color on the market formation of Sacubitril Valsartan. I understand not many players have come in or it's too crowded as was seen in other diabetes products like, Vilda, Sita, et cetera or still market is getting formed?

A
Aman Mehta
executive

Market is still getting formed. I think the matter is still subjudice. So would want to wait till this -- there is further clarity.

P
Prakash Agarwal
analyst

And you expect that in next three, six months, Aman?

A
Aman Mehta
executive

It should be hopefully within this next six months.

Operator

Our next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.

N
Nitin Agarwal
analyst

On the other ROW markets, there's been a pretty strong growth in this quarter, it's INR290 crores number versus INR240 crores, INR250 crores we've been doing. Any particular driver for the growth in the quarter?

S
Sudhir Menon
executive

I don't think, Nitin. It's been quite a good quarter, I would say. There are one or two geographies where there were some incremental opportunities which was seen which we were able to take it. That's the reason for ROW the growth is little higher. But otherwise, even a country like Mexico is doing fine, I would say, growing double-digit for almost last four to five quarters, high-double-digit. So yes, I mean, to a certain extent, there was some incremental opportunity which has come in quarter 3 in, I would say, Russia, basically, which has helped in getting such a strong growth.

N
Nitin Agarwal
analyst

But this shouldn't be -- we should not take this as a base to model going forward numbers?

S
Sudhir Menon
executive

But Russia is a very small market for us, Nitin. So although there is -- yes, I mean, possibly 1% or 2% contribution to the overall incremental growth, but not major.

N
Nitin Agarwal
analyst

So this INR290 crores can -- can we take it -- the point I was asking is, can we take this INR290 crores as a base for this business or from a modeling perspective?

S
Sudhir Menon
executive

Nitin, it's a little difficult for me to give any guidance on that. Maybe two quarters or three quarters, if that number is sustaining, then possibly I can confirm that. But I think it's better to wait for one more quarter to see whether this number is sustaining. But nothing as of now which can indicate that this can go up or down now.

N
Nitin Agarwal
analyst

Secondly, on the Curatio costs, on SG&A and staff cost, I mean, has -- we've built in only one and a half months of these costs, right? Some more costs we should [ pencil in ] for the next quarter?

S
Sudhir Menon
executive

No, it's almost two and a half months which has been factored. So not major even if you take a full quarter, I would say.

N
Nitin Agarwal
analyst

So that's -- at least on the overhead front we largely now all the costs are basically for base?

S
Sudhir Menon
executive

I would think so.

N
Nitin Agarwal
analyst

And lastly on Brazil. Sanjay, you mentioned that the market growth is guided to grow 10% for the next couple of years. Was it correct?

S
Sanjay Gupta
executive

Yeah. So IMS projects generally next five years 8% to 12% growth. Next two years, it's projected at 11%.

N
Nitin Agarwal
analyst

And given the fact that we are in the process of launching multiple new products, we should be in a position to considerably outpace the market?

S
Sanjay Gupta
executive

Correct. So we have three growth drivers. Essentially, last one year, we've increased the number of CNS reps. So that has given a good momentum to our CNS franchise. Our generic business is doing very well. And then thirdly, the new launches.

N
Nitin Agarwal
analyst

And what proportion of the business would be generic right now in [Indiscernible]

S
Sanjay Gupta
executive

14%.

N
Nitin Agarwal
analyst

14%?

S
Sanjay Gupta
executive

Yeah.

Operator

[Operator Instructions] We'll take our next question from the line of Neha Manpuria from Bank of America.

N
Neha Manpuria
analyst

Sanjay, on the Brazil business we saw a good set-up in this quarter. I heard the commentary that you mentioned. But it's fair to assume that there is -- this number is sustainable, and as we launch more product, we should continue to see growth from this day?

S
Sanjay Gupta
executive

So Neha, the previous two quarters, local currency growth had been 8%. And essentially, that growth was on the lower side, but IMS was showing this mid-teens growth, which is the underlying growth of the business. Q1 in Brazil generally gets impacted because of Q4. There is over-stocking from the wholesalers. So Q4 of last year was showing a growth of 21%. So Q1 is a little bit impacted number. Q2, we had some shelf stock adjustments because of which primary sales were on the lower side, but the IMS sales continued in mid-teens. So I would say that double-digit north of 10% is given, given the market growth and we should be reasonably higher. So I would tell you that it looks like this is the trend.

N
Neha Manpuria
analyst

Understood. And did I hear correctly that you are planning to file 10 more products by the end of the FY '23?

S
Sanjay Gupta
executive

We would file a total of 10 plus products in this fiscal year.

N
Neha Manpuria
analyst

So the 10 pending which includes part of the filings, right?

S
Sanjay Gupta
executive

No. The 10 pending are as of today.

N
Neha Manpuria
analyst

Understood. So by the end, we'll have probably 20 products pending for approval?

S
Sanjay Gupta
executive

Yeah. I would say, at least 16 to 17 products, maybe 20.

N
Neha Manpuria
analyst

And by when should we start seeing commercialization of these? I mean, what's the approval timeline now like in Brazil? Has it improved?

S
Sanjay Gupta
executive

Yeah, yeah, it's usually now 24 months. And what you would see is five -- at least -- see, it's quite heavy to launch branded generics. So I think what you would see generally is four to six products a year.

Operator

[Operator Instructions] We'll take the next question from the line of Krishnendu Saha from Quantum Mutual Fund.

K
Krishnendu Saha
analyst

Just understanding the 24% growth in the U.S. is mostly from the third-party filings, is it?

S
Sanjay Gupta
executive

No, no, this growth is because of base impact. So if you go back to the same period last year, the sales were on the lower side, $31 million. So -- and while generally for the last, I would say, six, seven quarters our sales have been $35 million. So that particular dip in the same period last year is what results in the percentage growth this year.

K
Krishnendu Saha
analyst

How many products do we have in the market actually?

S
Sanjay Gupta
executive

So we sell about 55 products.

K
Krishnendu Saha
analyst

[Technical Difficulty]

Operator

Mr. Saha, I'm sorry to interrupt, but your audio is not very clear. Could you repeat your question?

K
Krishnendu Saha
analyst

Yeah. How many products do you have in Brazil itself?

S
Sanjay Gupta
executive

Brazil, we have about 22 products. Sir, did you get my answer? It's about 22.

Operator

Mr. Saha, are you still there?

K
Krishnendu Saha
analyst

Hello.

S
Sanjay Gupta
executive

Sir, I answered your question. We have about 22 products.

K
Krishnendu Saha
analyst

Yeah, I got that. Just on the acquisition front, how much of our revenues will be on the OTC front in India right now?

S
Sanjay Gupta
executive

So right now would be small percentage because...

K
Krishnendu Saha
analyst

With the acquisition also?

S
Sanjay Gupta
executive

With the acquisition. That's right, yeah.

K
Krishnendu Saha
analyst

Any percentage you could give us?

S
Sanjay Gupta
executive

We'll be able to share better next quarter because there is only two and a half months. But the idea is to focus on the Rx piece first and then ramp up the OTC for the acquisition as well.

Operator

[Operator Instructions] The next question is from the line of Cyndrella Carvalho from JM Financial.

C
Cyndrella Carvalho
analyst

Just wanted to know your thoughts on U.S. market because of Indrad now. How do you see? What is your thought process in terms of getting the new launches to the market? What is the plan going ahead? Any changes that you intend to make? Any third-party sourcing? Any other thoughts that you can help us understand?

S
Sanjay Gupta
executive

So this OAI kind of is a setback for the organization. We would have greater visibility, 45 to 90 days down the line as the range of options before the FDA is quite wide. There can be -- so depending upon the decision they make, we are kind of building up various scenarios as to what is the best way forward. I would say that it looks challenging to bring new products to the U.S. market in the near-term, especially because of what happened to Indrad, but also that we have not yet had the inspectors come over to Dahej. So we are waiting for that inspection to happen.As of today, I'm sitting on 55 filings for the U.S., out of which, I think 19 up from Indrad and 16 are from Dahej. So there's a lot of filings from these two facilities. And as with the passage of time, the value of these filings gets depreciated. So we'll have to kind of decide how we want to proceed. But I won't be able to share that with you today. It's sufficient to say that we are in the scenario building phase depending on how the FDA outcome goes.

A
Aman Mehta
executive

And I think, Cyndrella, the only thing I wanted to add to what Sanjay said. So Dahej, we have enough capacity. It's quite underutilized. And if things go positive as far as Dahej re-inspection is concerned, many of the products which are there in Indrad can really shift to Dahej without any issue because the filings for getting approval for all these products have already been done or it's just waiting for submission and which would take a very short time to get an approval.And additionally, we are also looking at some of the CMO options for certain high volume products which we initiated to optimize the overall cost and be more competitive. So there are options which we are looking at, at least for the existing product base. But as Sanjay said, the new product filing which had been done from Indrad, that's something which we need to understand whether something can be salvaged out of that plant.

C
Cyndrella Carvalho
analyst

And one more question is on the Indian derma space, you mentioned that the Rx market you will be focusing first. So what is -- if any thoughts that you can share in terms of strategy that you are going in for the derma, specifically for the Curatio acquisition? If you could highlight our strengths, what are we trying to build-up would be helpful.

A
Aman Mehta
executive

So we had mentioned in the last call that Curatio has a strong presence in pediatric derma. And they also have a very strong presence in the south and west markets. There is a lot more opportunity in the north and east markets, but those markets are just smaller in size compared to the south and west. But there is still quite a big headroom for increasing the share in these regions as well.So overall, while the existing markets will continue to grow, we can add a reasonable share from these non-covered markets, which we will be taking up probably in the next couple of quarters. All the brands -- the top five brands are continuing to do quite well as of now. And we believe that the top three brands, whether its Teddybar or Etogla, they continue to see more and more market share gain even in the Rx space. So hopefully that should continue in the same range of growth for the next couple of quarters, and the additional initiatives should add to the incremental growth.

Operator

Our next question is from the line of Tushar Manudhane from Motilal Oswal.

T
Tushar Manudhane
analyst

Sir, just on this inspection at Indrad. So what regards this instructions? And basically, will that also help in getting the other sites inspected?

S
Sanjay Gupta
executive

So one site is not linked to the other. And this inspection is actually a follow-up on the inspection which happened in March of 2019. So it is the second inspection post the observations which were made in 2019.

T
Tushar Manudhane
analyst

So basically we still kind of wait for the other sites to get inspected?

S
Sanjay Gupta
executive

Yeah, yeah. That's independent of this site.

T
Tushar Manudhane
analyst

And clearly the issue which we may be you guys have highlighted this site is kind of taken care of at the other site so that if at all the inspection happens, this doesn't recur?

S
Sanjay Gupta
executive

Absolutely. And even the observations this time at Indrad are not the same as the ones from last time. They are not repeat observations.

T
Tushar Manudhane
analyst

And how much of the gross block so to say is associated for the U.S. business? I understand it's a multipurpose or multi-geography sales, but broadly how much of the gross block can be called out for U.S. business?

S
Sanjay Gupta
executive

At Indrad plant?

T
Tushar Manudhane
analyst

Combining Indrad, Dahej, both.

S
Sanjay Gupta
executive

I think around 45% to 50%.

T
Tushar Manudhane
analyst

Dedicated for U.S.?

S
Sanjay Gupta
executive

Correct, correct.

Operator

Our next question is from the line of Kumar Saumya from Ambit Capital.

K
Kumar Saumya Singh
analyst

I had just a book-keeping question. What as the ForEx loss during the quarter?

S
Sudhir Menon
executive

So ForEx loss during the quarter was roughly INR40 crores.

Operator

Our next question is from the line of Nitin Agarwal from DAM Capital.

N
Nitin Agarwal
analyst

Just one housekeeping question. On depreciation and interest costs also are largely factored in the transaction?

S
Sudhir Menon
executive

So amortization costs for two and half months, yes. Interest cost for two and half months, yes.

N
Nitin Agarwal
analyst

And in terms of cost optimization measures, are there anything that we can look forward to from a various costs perspective next year?

S
Sudhir Menon
executive

Well, absolutely, right. I mean, what we said is -- so we've applied for the merger scheme, right, between Curatio and TPN. And once the merger is happening, maybe two or three or four months down the line, then the synergy value will start coming in.

A
Aman Mehta
executive

And additionally, procurement synergies also are likely in the next financial year. So procurement synergy plus as the PCPM increases from this base should be further levers for margin expansion for the next at least two to three years.

N
Nitin Agarwal
analyst

I mean -- this is from a Curatio perspective. I was also interested ex of Curatio, are there levers in the business we group, the core business ex of Curatio approximately? Are there any levers that we are working on?

S
Sudhir Menon
executive

Nitin, If I tell you anything, it wouldn't be a scientific calculated number. But what I can tell you is that it's a continuous process in trying to find out whatever cost efficiency is possible. So that happens in very continuous way I would say. But the only thing I recollect now is that the freight expenses which had gone up substantially since quarter 3 of last year, that's still to normalize, I would say, by 0.5%, 0.6%. So that's one lever definitely going forward because the increase in freight expenses which had happened in quarter 3 of last year, at least, what we see is last one or two quarters, it started falling actually. But there is still some amount of recovery which is pending, which should happen probably over the next two to three quarters. So that's something which could be certain. But otherwise, on an overall basis, we keep on working on whatever cost efficiency is possible.

Operator

Our next question is from the line of Saion Mukherjee from Nomura Securities.

S
Saion Mukherjee
analyst

Sudhir, just to follow-up -- following up on the cost pressures. So on the raw material side, any trend you're seeing with China re-opening? And any color or any trend you want to highlight?

S
Sudhir Menon
executive

No, Saion, I mean the input cost increases, it was not a significant impact as far as we were concerned. So nothing much to talk about from that perspective. If I recollect when the costs have started moving up, we said that the impact could be roughly 0.5%, 0.7%. But nothing significant I would say.

S
Saion Mukherjee
analyst

And just one more question. You mentioned about one-off cost this quarter, 0.6%, that's around INR150 crores. So I'm just wanting to understand how would you ascribe this? Do you mean the lower revenues because of the shutdowns to that extent?

S
Sudhir Menon
executive

No, no. So 0.6% is roughly, Saion, I think INR12 crores to INR15 crores, not INR150 crores. So Saion, I mean, just to put it in a very simple way, whatever direct cost you incur for manufacturing has to be balanced with the revenue. So there has to be a cost revenue matching. And how does that happen? You have to inventorize all this cost on your manufacturing. So there is a balancing in by way of inventory or when it is sold, it is balanced by way of sales.So what happens is, you determine on an annual basis, the per unit cost for each product. So what typically happens is when you manufacture, let's say, only 50% instead of 100%, the cost absorption is only 50% on the inventory. So the rest 50% is not getting absorbed. So that's the one-time cost which comes and sits in your P&L. So that's what has happened in October basically after the USFDA audit was completed on 28th of September, there was a shutdown which was taken for almost 15 to 20 days in the month of October for doing all those cleaning validation of equipments and stuff.

S
Saion Mukherjee
analyst

Understood. And just one last question if I can on the U.S. We have a delayed resolution, I mean in both in Indrad and Dahej, how should we think about U.S. revenues given the price erosion and new launch from other facilities? If you can give some color around the expectations in the U.S. market?

S
Sudhir Menon
executive

So I think it's too early, Saion. So I think one is the price erosion year-on-year which Sanjay spoke, I mean, high-single-digit. That's something we believe should be the worst case as far as base business is concerned. From a new product perspective, at least from Dahej and Indrad, those things cannot come in until -- at least for Dahej with the re-inspection is happening and getting clear, then possibly yes. But till that point in time, there is no visibility on the new product coming in. There are few external products which will come, maybe a couple of them over the next two years, but not significant revenue contributor is what I can say. So at the most, I would say, U.S. would be flattish to declining sales for the next one year.

Operator

Our next question is from the line of Prashant Kothari from Pictet.

P
Prashant Kothari
analyst

My first question was on the India chronic [Indiscernible] One of the thesis is that during COVID times, the diagnosis of patients [Indiscernible] and that should have picked up in the last one year enabling more patients for us. Is that happening? Do you think that can become a little stronger volume growth driver for us in the coming years?

S
Sanjay Gupta
executive

Yeah. Compared to last couple of quarters, we are seeing an increase in the chronic growth trend. So I think on a MAT basis, the chronic market grew at about 8%, 9%, which in the quarter is 11%. So sequentially you can see that it's increasing. So we do believe that it may stabilize at an 11%, 12% level. But it does provide a significant volume opportunity for a player like us who has already got this much contribution from the chronic business.

P
Prashant Kothari
analyst

And on the U.S. OAI, you mentioned that you can shift product from Indrad to Dahej. Was that comment in regard to the existing product basket or was it for the new product launches?

A
Aman Mehta
executive

For the existing, for sure, subject to Dahej getting cleared is what I said. Sanjay, for the new products which have been filed from Indrad, a parallel filing can happen for the same product from Dahej?

S
Sanjay Gupta
executive

So for the filings which have been made, let's say, a few years ago, I don't think we will make the investment to ship them. But for forthcoming filings, yes.

P
Prashant Kothari
analyst

But for kind of existing large products coming out of India, you can shift them on to Dahej?

S
Sanjay Gupta
executive

Correct.

Operator

Our next question is from the line of Prakash Agarwal from Axis Capital.

P
Prakash Agarwal
analyst

So couple of clarifications. So one, you mentioned on Germany, you already started to see Q-on-Q with the corrective action and the new tenders, et cetera that you won, but how do we see the fiscal '24? I mean, do we see mid-teens kind of growth given the low base and then normalize to high-single-digit? How do we see this business for next two years?

S
Sanjay Gupta
executive

So Prakash, what I have is visibility on the basis of the tenders which we have won. And we have a strategy in place to win more tenders every quarter. So what I indicated is, as of today, for next year, mid-single-digit is something that I have visibility to. If I win additional tenders, it could be high-single-digit to close to double-digit, but that is right now not in the bag.

P
Prakash Agarwal
analyst

What's in the bag is mid-single-digit?

S
Sanjay Gupta
executive

Correct.

P
Prakash Agarwal
analyst

Despite the low base?

S
Sanjay Gupta
executive

The base is EUR29 million a quarter, which is I think almost close, because I think at some point we have crossed EUR31 million, but not more.

P
Prakash Agarwal
analyst

And secondly, I think Sudhir mentioned giving example of INR3,000 crores EBITDA. I mean, if I see consensus, my numbers, et cetera, it's 10%, 12% higher. So it's a rough number you are guiding or it is a...

S
Sudhir Menon
executive

Yeah, yeah, approximately INR3,000 crores I said. That is the number and this is the way to look at is what I was trying to.

P
Prakash Agarwal
analyst

But if I look very broadly next year, so India, Brazil and other ROW markets, 70% of your branded generic business is good to grow 10%, 12%, 13%. Is that fair assumption to build models?

S
Sudhir Menon
executive

I would think so.

P
Prakash Agarwal
analyst

And on the margin side, you see levers for margin expansion given profitability of Curatio will increase plus costs are coming down, would that be fair?

S
Sudhir Menon
executive

I would think so, Prakash. I mean, what we have been seeing is because of this branded generic pieces, there are one or two levers which keep on coming every year provided other things have been constant. So one is the price increase driven gross margin improvements and the other is the operating leverage, which should continue I believe. That's the Curatio upside on the margins here.

P
Prakash Agarwal
analyst

And lastly for Aman. So for next year if we see India, what are the -- I mean, last year you mentioned about the CNS launch, one in diabetes, one in cardio. So how is the pipe looking in terms of decent size brands which you plan to launch which gives us confidence of 12%, 13% growth?

A
Aman Mehta
executive

The upcoming financial year won't have as many launches as the previous year in terms of number. There are a few significant opportunities in diabetes which will still be there, but the numbers will definitely be lower. Instead, the focus will be on increasing the traction and size of the recently launched brand. So there is still enough headroom for us to continue the new launch momentum in the next year from the existing launches.

P
Prakash Agarwal
analyst

You mean the line extensions, et cetera, from the...

A
Aman Mehta
executive

No, no, even the recently off-patent launches that have been done. So the new launches take time to gain reasonable scale. So like, for example, we've done INR5 crores now of Sitagliptin in about six months, INR5 crores monthly. We would hope that maybe by the end of next year we'll cross INR100 crores overall and that should continue growing at a high grade. So that contribution should continue to increase on the new launches. The new year -- for next financial year, we don't have as many number of launches. So that new contribution will probably be lower than the previous year.

P
Prakash Agarwal
analyst

So I'm just trying to dissect it here. So 12% -- so we would again see about say 8% price and about 3% kind of new products and maybe 1%, 2% volume?

A
Aman Mehta
executive

Yes, that should be doable in the next year.

Operator

Our next question is from the line of Krishnendu Saha from Quantum Mutual Fund.

K
Krishnendu Saha
analyst

Yeah. Just a follow-up on the last question I asked. If you remember correctly, a couple of years back, we had 36-odd or 40-odd products in, what you call, in Brazil. So right now we had 22, so just wondering that. And this is the fact that we'll be having some supply procurement benefits for acquisition, but I believe that we also had a three your manufacturing contract with them, if I'm right. So could you just elaborate on these two, please?

S
Sanjay Gupta
executive

So on the first part, so Brazil, we have more approvals, but we focus on 22 products which are in our lead build brand category. So essentially, the idea is to follow the model which has worked well for us in India, which is to build large brands and invest behind those that have the potential to grow. And we have taken a series of brands into a kind of automatic mode where we don't promote them and we kind of let them just continue on the base that they have because it's not worth putting money and resources behind them. So I would say, 22 brands are actively promoted and invested behind in Brazil.

K
Krishnendu Saha
analyst

[ CNP ] products are the focused products then?

S
Sanjay Gupta
executive

I believe build product that we call them inside the company. The rest are more in the maintain or I would say category. And then your second question was what?

K
Krishnendu Saha
analyst

We had a sourcing agreement for acquisition in India. So we talk about the fact that we will be having some sourcing benefits next year. How do we see [Indiscernible] sourcing agreement for three years with us after we acquire companies?

S
Sanjay Gupta
executive

That would not be for all products. So for the full portfolio, there is still enough headroom for finding alternate suppliers and getting better pricing.

K
Krishnendu Saha
analyst

And just the last question. The EBITDA margin is far better than our overall company [Indiscernible] realized last time on the call? Is it not far better than the overall Torrent Pharma?

S
Sudhir Menon
executive

Yeah. So what we've said is, it's not dilutive to the overall margins of Torrent Pharma, which would mean that Curatio has similar margins. That was the thing which was spoken last time.

Operator

Our next question is from the line of Kunal Randeria from Nuvama.

K
Kunal Randeria
analyst

Just one question. Any visibility you can give us on Revlimid launch timelines?

A
Aman Mehta
executive

So we are not in the initial phases. So for us, it's a little bit of a distinct launch. So it's not in the next 12 months.

K
Kunal Randeria
analyst

And should I assume that it's nothing to do with plant issues?

A
Aman Mehta
executive

No, no, it's not made at Torrent. It's made at a third-party.

Operator

Ladies and gentlemen, that was the last question. I now request Mr. Sanjay Gupta to add a few closing comments.

S
Sanjay Gupta
executive

So I would just like to thank you for your interest in Torrent and for joining today's call. For any additional questions, please feel free to call our Investor Relations group. Thank you very much, and look forward to hearing from you soon. Bye, bye.

Operator

Thank you members of the management. On behalf of Torrent Pharmaceuticals, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.

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