Ladies and gentlemen, good day, and welcome to the Torrent Pharmaceuticals Limited Q1 FY23 earnings conference call. We have with us today Mr. Aman Mehta, Executive Director and Chief Marketing Officer, India Business, Mr. Sanjay Gupta, Executive Director, International Business, Mr. Sudhir Menon, Executive Director, Finance, and Chief Financial Officer. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhir Menon. Thank you, and over to you, sir.
Yeah. Thank you, Faisal. Good evening and welcome everyone to quarter one FY23 earnings call. Quarter one continued to witness strong growth momentum in the branded generic markets led by robust India performance. The branded generic markets constituted 70% of our total revenue and on an overall basis grew by 15% on YOY basis, aided by market share gain performance of top brands and new launches. Sequentially, there is an improvement in EBITDA margin mainly led by the cost initiatives which we had guided earlier in the previous quarter. In terms of the financial performance during the quarter, revenues were INR 2,347 crores, up by 10% on a YOY basis. Gross margins at 71.9%, improved by 1.1% on a sequential basis.
EBITDA was INR 742 crores, up by 3% on a YOY basis and up by 21% on a sequential basis. EBITDA margins at 31.6%, improved by 2.9% on sequential basis. The other operating income includes a one-off of INR 38 crores towards a settlement income in the U.S. Adjusted for this, the EBITDA is INR 704 crores, and the EBITDA margin is 30.5%. Now I request Aman to take us through the India performance.
Thanks, Sudhir. India revenues at INR 1,245 crores grew by 14%. As per AIOCD data, Torrent's Q1 FY23 growth was 17% versus the IPM growth of 2%. Growth was aided by new launch momentum, robust performance of top brands, and market share gains across our focus therapies. During the quarter, Torrent added 300 MRs, bringing the total field force strength to 4,200. At the end of the quarter, Torrent has 18 brands in the top 500 of the IPM, with 11 brands more than INR 100 crore sales. I'll now hand over to Mr. Sanjay Gupta for the international business.
Thanks, Aman. Let's start with Brazil, our largest branded generics market outside of India. Brazil revenue was at INR 184 crores, up by 20%. Constant currency revenue was at BRL 117 million, up by 8%. Adjusted for the discontinued tender business in the previous year, the growth rate is 10%. Our generics business in Brazil now accounts for 12% of our overall Brazilian sales and is growing at a fast pace. For our branded generics business, Q1 growth came primarily from our new product launches as well as strong price increases from April onwards. IQVIA's June data is indicating that Torrent's Q1 growth rate is 13%, which is in line with the overall BG market growth.
With the market growth of high single-digit to double-digit, we expect Brazil to continue its growth momentum backed by performance of top brands, new launches, and our new second field force in the CNS therapeutic area. Going on to Germany revenues were INR 214 crores, down by 18%. Constant currency revenue were EUR 26 million. Growth was adversely impacted due to the loss of high-value tenders that started in February of 2022. The German generics market has become a lot more competitive due to the entrance of new players. Future growth at Torrent will come from new tender wins and new launches. We have incremental tender wins on hand, which will start adding sales progressively from Q3 onwards.
We have launched four products in Q1, of which one of them was a day one launch, and we will be further launching four products in Q2, of which we expect three of them to be day one launches. We are also taking measures to become more cost competitive to be more successful in future tenders. Lastly, for the U.S. revenues were at INR 299 crores, up by 13%. Constant currency revenue was at $39 million, up by 7%. Revenue was, as indicated by Sudhir, positively impacted by the settlement amount received from an innovator. This was complemented by the strong performance that we are seeing from Dapsone, our anti-acne medicine. We continue to await the US FDA's re-inspection of our facilities.
To conclude, our BGX markets, particularly the two largest ones, India and Brazil, remain on a strong footing, and we expect the strong growth momentum to continue. We are optimistic that the initiatives undertaken should progressively revive growth in Germany from Q3 onwards. Faisal, we can open the call to questions now.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Tushar Manudhane from Motilal Oswal. Please go ahead.
Sir, just on Germany market, while recently there has been certain media news flow about shortage of medicines in that country. Is this kind of a temporary shortage or you think that there's a good opportunity out here?
I mean, honestly, we have not seen any impact of any shortages in Germany. From our side, we've been adequately supplied, and we've not experienced a one-time bump in sales. On the contrary, we've seen the German government reduce reference prices. As you know, in Germany, a good chunk of our business is not tender sales of pharmaceuticals. The German government's reduction in reference prices has had a negative impact on non-tender sales. That is what we are seeing.
Got you, sir. That's it from me, sir. Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, thanks for the opportunity. Good evening. The first question is on this clarification, this INR 38 crore settlement income. It's where is this sitting? Is it other operating income? What is this relating to?
Yeah, this is other operating income, Prakash. It's basically related to some patent settlement, which we've done with one of the innovator. That income is sitting in other operating income.
Okay, this is non-recurring, right?
Non-recurring.
Okay, perfect. Just trying to understand this R&D, that we are, you know, doing every quarter, every year. I understand a large part of it is for the U.S. I mean, what is the filing run rate here, from these existing plants? Or you're already doing some site switches. If you could update on the R&D utilization, as, you know, these two plants are stuck without any, you know, much from the U.S. Correct our understanding and more color would be appreciated.
In a normal year, we file about 10-13 ANDAs. Last year, our filing rate was just five. This year we expect the rate to pick up. Given what is happening with the inspections, we have started filing some products from alternate sites. The impact will be down the road, not right now, because these filings will get reviewed and then, you know, whenever we're supposed to launch them. I would say that we've taken steps for future filings, but the past filings are from the facilities at Indrad and Dahej.
Okay. Is there any update in terms of USFDA inspection, you know?
Unfortunately, no. Honestly, we have not heard anything.
Okay. Fiscal 2023 onwards, you're expecting double-digit filing again or similar to 2022?
I mean, either double-digit or close to double-digit.
Okay. Lastly, what is our current capacity utilization? As I understand, U.S. capacity utilization from these two facilities will be low. What are our capacity utilization and asset turns, and how do you anticipate that to improve?
All the facilities put together, we should be around 54%, Prakash.
Okay. Is there an expectation of USFDA resolution by end of this year? Any broad plans or, you know, thoughts you have?
Yeah, probably. I mean, the internal understanding which we are carrying is that it should happen over the next three-four months, but can't say for sure. That's the minimum expectation, I think internally we are guessing. Prakash, as you probably have seen and we are seeing also, the pace of inspections since September of 2021 has been quite robust. We kind of keep track of how many and how much they are doing. Since the pace has picked up, our expectations also risen as to that they would be here sooner rather than later. We have no direct indicator to share.
Okay, lovely. Lastly, in terms of the breakdown of the India growth, so very strong growth in India. Volume of late was very low, but I think June and forward, I think April, May has also rebounded. What is the broad breakdown here for volume and price for you?
Yeah. Our AIOCD growth reflection is 17%. Breakup is, volume at 5%, price at 9% and new products at 3%. The price reflection is a bit of an over reflection because of a product mix change from last year. There's a bit of a base effect. Maybe it would be close to 8%. That's why there's also a bit of a gap between the AIOCD re-reflection and the internal growth.
Okay. Thank you, and all the best.
Thank you. The next question is from the line of Dheeresh Pathak from White Oak Capital. Please go ahead.
Yeah, thank you for the opportunity. For the Brazil business, 12% is generic. There is zero tender now and balance is branded generic. Is that the correct understanding?
Yes, that's correct. About 88% is branded generics and 12% is generic.
Like, can you share something like what are share of top brands like you give, you know, for India, 11 brands and more than INR 100 crores. Can you share something on Brazil like, you know, the skewness towards the top brands?
It's a very specialty business. We do only CNS, diabetic and cardio brands. About 83% of our prescriptions are generated from specialists. How we look at it is brands above BRL 20 million. Roughly, close to $4 million. I would say 88% of our business is coming from brands above BRL 20 million. The number of brands that we have over BRL 20 million is 10.
Okay, understood. Germany, what is the tender cycle? You know, what do you mean by being more cost competitive? Because the manufacturing would be done in India, so I'm just trying to understand what do you mean by that and what is the tender cycle?
For the tender market in Germany, let's say there are ten insurance, state-owned or private, which issue tenders. The duration of a tender is two years, but each large insurance company will issue tenders three or four times a year for different sets of products.
Mm-hmm.
It's a perpetual activity. You get so like the largest insurance company is AOK. They might issue four tenders in the year, and each tender will have a set of products, but also they will divide Germany into 25 sectors, and you can choose which products and which sectors you want to bid for.
Understood. What did you mean by cost competitive, being more cost competitive?
In the generic markets of Germany and the U.S., one key, I would say, feature to be successful is continuous cost improvement and cost reduction. You have to keep working and improving your cost because the competition is increasing and everybody is doing the same thing. That's what I mean. Essentially there are ways in pharmaceuticals to improve costs, which either come from, you know, buying a cheaper API, developing a better route of synthesis, or increasing your batch size in your plants, or finding, you know, shorter manufacturing cycles or doing something where you minimize changeover timing. There are various ways, and it's a continuous process.
For Germany, we need to accelerate this cost improvement process so that we can be more competitive in this, I would say, within this market where there are more players than ever before.
No. What I meant was the competitive positioning is deteriorated for us because somebody else with better cost structure, more vertically integrated, is beating us or the margins in general, because the market is more competitive. You might win more tenders, but your margins will be lower versus what they were in the past. What is the case?
Your second statement is correct, because any market which has more players, there is obviously a higher competition on price, which leads to some kind of margin compression.
U.S., this INR 38 crore segment income, is this part of the U.S. revenue?
Correct.
Understood. Thank you.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi, thank you for the opportunity. My first question is, what are your observation on some of the macro headwinds which is impacting the sector, such as like raw material prices, feed costs, et cetera? Any moderation from last quarter number? Any updates from your perspective?
Damayanti, you're asking for the general cost inflation seen on material prices?
Yes, broad basis.
We are not seeing a higher cost inflation impact quarter on quarter. There has been an impact, general increase we are seeing across the raw material prices, but not very significant I would say.
From your portfolio or from market perspective, quarter-on-quarter there has been no notable changes?
Correct.
Okay. What will be key margin driver from current levels? Because, you have already, I guess, reverted back to the normal levels after disruption in the previous quarter.
Oh, it's a difficult question actually, because I think all the levers are more or less there, right? I mean, from April, that's what we had guided. I think from here, what can really happen, Damayanti, is that if the top line growth is better than quarter one, that could enable some operating leverage benefit to play out. That's one. Some amount of cost efficiency, which is continuously happening. But that won't be significant, I would say.
It's mostly.
I think.
The top line growth, which will be driving the leverage.
The operating leverage. Yeah, absolutely. Some amount of cost efficiency may come in quarter on quarter, which may not be that significant.
Okay. My second question is on Brazil market. Can you update us on your new launches and MR addition plans there? And how should we look at growth perspective in the Brazilian segment?
In the last six months, we've launched five products in Brazil, and that is a result of the large number of filings and approvals that we've been able to get in Brazil. Just to give you a background now, last year we got eight approvals and this year already we've received two approvals in Brazil. Currently we have about 11 products which are under approval. We will be making double-digit number of filings in the current fiscal year in Brazil. All of that results in a good new product momentum. We've launched five products in the last six months. Just to share with you, two of them are in very fairly large markets.
One is rivaroxaban, which is about a $150 million market, but the level of competition is quite high. We have 11 branded generic players that we are competing with. We'll see how that goes. Secondly, we've launched in CNS a very large product called duloxetine. Again, the number of players is 11, which is a fairly large number going by historical trends. But given our past track record in these areas, I would not be pessimistic. We generally target a market share in branded generics close to double-digits at the end of the 12-month period. It's a kind of generic statement I'm making.
As the quarters go by, we will communicate on market shares as to how they are progressing. Right now it's too early. Most of the new launches have been between November and April, and our market shares are less than 5%. It's kind of too early to comment, but we'll see how it goes from there.
In new launches which you have done in last six months, you said market share is currently around 5% or lesser, and here you expect pickup to happen in coming quarters or so. In the established products, market share will be in the double-digits.
In the core products, like the product sides where we are, our market shares are actually pretty. I mean we have to look at product- by- product, but the minimum threshold for it to be a lead build brand in our company is at least 15% market share. We have that threshold in quite a few products. I was mentioning that earlier in the call that you know, one way we measure product is how many of them do more than BRL 20 million, which is close to $4 million of revenue in a year. We have a fairly large number of such brands, close to 10.
Got it. In terms of growth, any indication like how?
I think the IMS reflects fairly well the growth of Torrent. It's a little hard if you look at primary sales quarter on quarter because the stocking, de-stocking, impacts it. Like I mentioned, IMS is showing a 13% growth for Torrent branded generics business, and which is I would say a reasonable expectation you can have.
Okay, sure. Thank you. I'll get back in the queue.
Thanks.
Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, thanks for taking my question. Just continuing on Brazil. You know, in the branded market, you're focusing on the specialty of CNS, diabetes, cardio. How large is this market and how are you positioned in, you know, in this market, and how much of the market you currently cover?
Correct. Our coverage in this market is currently around 20%-23%, and we are aiming to double it in the next three years. That's where we are targeting, and that's where the new launches come in. We are playing in a narrow, let's say, space in this market. We are playing in a, let's say, more recent products, and we have a good track record of doctor relationships and prescriptions here. I'm sorry, you said something else you wanted to know about it.
Yeah. Just once Sanjay on the, what's the size of the market, I mean, these three therapy segments, and what would be your position in the market, in the branded generics in these three segments? Like, what would be your rank in the market?
If I take the overall area of cardio, diabetes and CNS, the market, I mean, I would say the overall market size, I don't have the figure with me, so I will revert to you. The overall branded generics market is roughly $20 billion and a good portion of it, I just don't have the data in front of me. The market, this covered market is growing currently at about 5%, and Torrent's growth in this, these areas is about 13.7%, so in the last quarter. We're growing pretty fast. I'll revert. I'll just come back to you. Give me a few minutes.
I'll come back later in the call about what is the exact size of these areas.
Sure, sure. You, would you know the rank, like, you know, would be the top ten player or, you know, what would be your rank in this, I mean, how based on the market share?
Yeah, sure. Currently our rank in the therapeutic area of cardio, diabetes and CNS is 10. Our overall rank in Brazil is 20.
Understood. On this INR 38 crore of other operating income that you mentioned about settlement, can you give some color? Because typically we don't see this kind of. Is it like some kind of payment you received or some kind of a litigation? If you can give some color.
No, these are not litigation-related settlement income. This was basically one of the patent assignment which we had done earlier, somewhere in 2010, 2011. There were certain milestones which were defined based on certain events.
that event happened, and therefore the milestone got triggered.
Understood. Okay. Just one final question, Aman Mehta. There has been this news of Torrent Group entering into the diagnostic space. We have seen other pharma companies getting there, leveraging their pharmaceutical franchise. Why it's not being done through the, you know, domestic formulation business if you see synergies, you know, for a diagnostic rollout there?
Firstly, as you said, you're right that this is a group level venture and not a Torrent Pharma venture. The kind of overall skill set required for this business, only a small part of it has to do with the field force and existing customer relations. A large part of it has to do with operations and back-end processing, which requires a whole different kind of team and investment mindset. That's why we haven't really considered having it part of the pharma company.
Do you think or at a later stage, do you think it would make sense to integrate, because you already have a large presence on the pharma side, and you have the doctor connect?
No, that's not the plan as of now.
Okay. Okay, thanks.
Just to complete what I was saying earlier, the size of the CNS market is BRL 8 billion. Diabetes is about BRL 8 billion, and cardio is also close to BRL 7 billion, between BRL 7 billion and BRL 8 billion.
Okay.
Okay?
Thank you.
Thank you. The next question is from the line of Kartik Mehta from ICICI Securities. Please go ahead.
Yes, I'm from Klay Capital. This is Kartik here. Yeah, hi. I have a question on the. Hello? Am I audible? Hello? Hello?
Yes, please go ahead. We can hear you.
Yeah. This is on India business. This is a slightly longer term question. You've acquired a few products from a pharma company in India very recently. If we have to look at it from your perspective for India business two, three years and beyond, do you feel that there are so lesser opportunities of larger size or due to issues of, let's say, valuation or product mix, et cetera, where in which you have to acquire smaller businesses and scale them up? This is only for the India business. Hello? Yeah.
No, inorganic remains kind of a core focus for us as we go along now that we've successfully integrated the Unichem acquisition and you know have also taken over four of the brands from Dr. Reddy's in the previous quarter.
Yeah.
It's not about size, it's really about the strategic fit. Any kind of small to mid-size acquisition is something that we're open for in the next couple of years.
Yeah. Which I understand, and we are not, I mean, yeah, all the assets that you acquired in the past have been very well integrated. We're not talking about the ability to do that again. With the India business top line that you have now, acquiring smaller assets will take a fair amount of time, effort from the top management, and there will be a lot of investments required on the ground. In the past, when you have acquired inefficient businesses or businesses which had lower investment from erstwhile owners, where you were able to turn around. We are talking about a different thing here.
If you do this, is it fair to assume that you will acquire a lot of these assets and in the interim, your profitability, I mean you will be building it at your cost, but the ROI, ROE, whichever metrics you use, will take some amount of time for us to see?
Kartik, if these are brands which are being acquired and goes and sits in existing division, then I think the return profile would be much better, right? I mean, because you are taking some brands and the gross margin is driving your overall profitability, right? That's something which plays out. Same thing is happening as far as those DRL brands are concerned.
Yes.
Where you don't acquire a new division, it goes and sits in some existing division. That way, these kind of acquisition, which fills up the product portfolio gaps and certain things, which we are looking at in terms of, you know, smaller therapies, we want to enter so on and so forth. I think this should be bottom line positive, Kartik.
Yeah, which I understand. I mean, is this done because again, just to ask for, just to repeat my question in case I was not clear. Is this something we are looking at because the larger or the more attractive assets are still not available at the right value or probably here you see some amount of opportunity here? I'm just-
I think that's too.
Trying to look at-
That's too speculative in nature to comment on. Well, at least the only kind of guidance that we can give on this point is that an acquisition size something that was of the size of Unichem relative to a market share four years ago. Opportunities of that scale, if they come up, we will certainly be evaluating them.
Okay. Thank you. Thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
All right, thanks for taking my question. Sudhir, you mentioned that the U.S. plants are currently operating at 54% capacity utilization. So, you know, can you give us a sense of maybe the, you know, if there is any element of under-recovery in these plants at this point of time?
Yeah. Just a correction to be made. I said all the facilities in India put together, the capacity utilization is 54%. It's not only for the U.S. facilities which we are talking about, right? Having said so, I mean, what we try and do, Nitin, is on a continuous basis evaluate and try and trim the capacities which are there, so that, you know, wherever possible, wherever there are pockets of cost optimization, we keep on doing that. For me to say they're still under-absorbed overheads which are still there in the P&L, maybe no, at this point in time, after we've done all those things, starting quarter four of last year.
From our increase in the capacity utilization, you know, the drivers would be what? The U.S. and the German business or any other businesses also can meaningfully impact this?
No, absolutely. I'm with you on that. The volumes can come only from the generic side, which is Germany and U.S.
Okay. Secondly, Aman, on the India business, how can you just give us some sense of your new product launch plans for the year?
Yeah. The Q1 new products have contributed to 3% growth overall. Some of the bigger contributors here have been from the CNS and Gastro brands, which were launched in probably the latter half of last year or January this year. Going ahead, of course, there's the wave of launches. One of them has already happened in the first week of July, sitagliptin. There's a few more cardiac launches coming up in the second and third quarters. Additionally, we have some product extensions coming up for the rest of the year. About seven-eight products per quarter is what we're looking at in India.
Seven-eight products per quarter going forward?
Yeah.
On the sitagliptin market, I mean, in your assessment, I mean, how has that played out? Does it give a sense of how some of these incremental diabetes oral diabetic product patent expirations gonna play out?
Obviously this is a competitive market, so it's hard to say how, you know, quickly the share is shifting to the new launched brands. Our recent launches in diabetes have been fairly positive indicators of our performance, vildagliptin to name one example. We hope that at least our market share should be somewhat in the range of those recent diabetes launches, and similar for cardiac going ahead.
Okay. Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Good evening, and thank you for taking my question. Just the first one on the medical representatives, I think we have added 300 for the quarter. Last quarter, we added 300. It was 600. So are we done in terms of the MR additions? I remember you said it's for the new launches that are coming in the pipeline. So are we right-sized, if I can use the word? And if you can talk about how some of these MRs are actually, or the first quarter, at least the previous quarter ones, how are they integrating?
Yeah. The integration has been completed now, 600 reps in the last two quarters, and our new divisions are all in place, and the new products have also been launched in these divisions. Early to say right now, but in terms of the launch plan and MR integration plan, things are on track. Going ahead from here, it'll only be incremental expansion that we see for the rest of the year, if at all needed, which we'll be reviewing probably every quarter or so, but that would be small numbers compared to what we've done so far.
In terms of the cost of the MRs, when I look at 1Q, you think most of those expenses or there is like, maybe they got added later half of the quarter. How should we think of the cost bit of it?
I think substantially in the quarter done.
That's helpful. Just going back to your previous quarter guidance of the 300 basis points of margin expansion from 26. I'm just trying to see what has played through and what has not. I remember we had the 150 basis points that was coming from the Levittown shutdown, right? The fixed cost there. We also have higher MRs. We have had this INR 5 million payment that has come through. If you could kind of help us understand how much of that organic has come through, Sudhir, and maybe what is pending or we think the 30.5 is the level that we need to kind of keep in mind.
No, no, Shyam Srinivasan, all those factors which have been talked about, which is what, the price increase benefit starting from April for the branded businesses, that started playing out. The other one we had said is we had carried out a cost optimization at, our plants in India.
By maximizing at one side and bringing down the shift working on the other side, that's implemented, so that's playing out. The Levittown cash burnout, which was there, has already started coming into the margins.
Mm-hmm.
I would say largely everything playing together except for the freight expenses, where the impact in quarter three and quarter four was also around 1.2%. There's some amount of recovery which is seen in quarter one, but still, there's good amount of room to improve on that.
Got it. There is still upside, you think? You think just from that particular last bit that you just called out?
Yeah. Shyam, I would still wait for that to happen before we really start talking about it. Yes, we've seen a small recovery happening in the freight expenses.
Fair enough. Just a last question on just going back to the German tenders. You know, you've done the, again, some kind of a restructuring. You've looked at cost options. What gives us the confidence that from Q3 I think you've got everything right? And also, can you comment on the competitors? Are these like Indian, large Indian manufacturers that you're competing against? What gives us the right to win against them now versus say, non-Indian manufacturers?
No, I won't say that everything is behind us. Cost optimization is a permanent exercise. Maybe we are fallen a little bit behind. But what I was saying is that we would be caught up on a set of products where we expect to win the tenders. In terms of competitors in Germany, the biggest competitors are the large local companies. Sandoz through Hexal, Teva through its German affiliate and Zentiva. Those are the three big, I would say, gorillas in the German market. What we are seeing is an influx of players from India. Legacy players are Aurobindo and Dr. Reddy's from the acquisitions that they've made in the European space.
You have a newer crop of companies who are coming. So far, I would say the highest market share that I've seen Indian companies achieve is close to 3%. Torrent's reference market share is usually between 6%-7%. The larger three players have a market share in Germany closer to 10%-12%. Torrent is ranked No 5 in Germany with a 6%-7% market share. You know, we have won a few tenders whose impact will start to come in October onwards. That was the guidance I was giving because these tenders get renewed every two years.
We had, in the last round for these particular tenders, we had incremental wins as compared to what was the run rate in the past. This incremental wins would start to show in our numbers from Q3 onwards.
Got it. Very helpful.
Yes.
All the best.
Yeah. Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, just couple of clarifications. The U.S. business in Qs actually come down, right? If you remove that INR 38 crores, which is about $6 million-$7 million, it would have come down a bit.
Correct.
For the last quarter.
Absolutely.
The Dapsone opportunity is coming down, so the base business would be what, $32 billion, $30 billion, $32 billion?
I would not say that. I would say that the business has come down a little bit to a large extent from price erosion and compensated handsomely by Dapsone.
Moving into margin levers. You, Sudhir mentioned about, you know, that, you know, if we exclude that INR 38 crore, again, it's 29.2%, which is 300 basis point improvement. We are there. In the past, we were at 31% also. Little bit on the freight, but operating leverage is something which can clearly kick in. What is the time period we're talking about moving to 31% and then 31%, as seen in the past?
Prakash, I think I would be able to respond to that question maybe one quarter down the line.
Okay. Lastly on the M&A side, in the past you have talked about net debt-to-EBITDA around 1, you usually get comfortable in looking at assets. You've done smaller deals. How's the environment or the, you know, the what do you call, the M&A side assets? Are the assets available? Is it the stretch that's why you are waiting and seeing for the right opportunity? Or you already have few assets which you're looking at?
I think, Prakash, as far as the leverage is concerned, I think we should be, thirtieth June, around 1.2x, right? That gives us enough room from a balance sheet perspective to look at good assets now. All the assets which are there in the market, we do have a look at those assets, no doubt about it. If something is going to play out, only time can tell us that.
Okay. Lastly for Aman, vildagliptin, you're fairly successful, top three, top five generic players in that molecule. How is sitagliptin's market competition playing out? Is it more competitive, or is it similar to vildagliptin? Do you expect some, you know, cannibalization in vildagliptin as well?
It's very early days, only 20 days since launch. Let's wait for the AIOCD data to be out in August. At first glance, it does seem that it's probably a bit more competitive than the vildagliptin launch. Probably better to see how our performance has been in the end of the July data set.
Okay. All the best. Thank you.
Thank you. The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.
A question on the Brazil market. When we see this quarter, let's say excluding the tender business, we've grown about 10%. Would you just break it up between volume and price?
Sure. Essentially, in April of this year, the government as usual announced the price increases. This year we had inflation-adjusted price increase. The pharmaceutical market in Brazil is divided into three categories in terms of the level of competition that exists in Brazil. For the first time, we saw that the price increases allotted by the government was 10.83% for all the three categories. There's a strong recognition on the part of the authorities about the inflation component in our business, and it was reflected in the price increase that was granted. Price is playing an important factor in our business in Brazil. The second component which has played out for us is the new product launches.
Volume in this particular quarter, I would say is not growing much. The reason for that is usually when we look at sales in Q1 get impacted, particularly in April from the high stocking the wholesalers do in anticipation of price increases. The business model of wholesalers, it usually takes into account this type of a trading profit, and they try to buy as much as they can in March so that they can take the price increase on the inventory. We control that. To some extent, it's part of the partnership that we have with wholesalers as to we have to let them buy some more in March and agree to sell less in April.
So far in Q1, you also don't see the full benefit of the price increase that we've taken on the majority of our portfolio. As we go forward, you'll see the growth trend in volume and new product terms normalize and come to reflect more closely what you see in IMS. That's why I think it's kind of hard to judge one quarter's performance based on internal sales or I mean, primary sales in Brazil. It's better to use secondary sales for a general evaluation of the trend of business.
Sanjay, for the rest of the year, what kind of price increase at the portfolio level? Are we talking about close to 10% or close to 5%-6%? What kind of price increase at the portfolio level you've taken?
I would say that, generally it's similar to in India, in the sense that what you do is, you evaluate the competitive scenario for each, molecule. I'll give you an example. We launched rivaroxaban, right, which is a big market. It used to be BRL 800 million. What happened is, that we saw the new competitors come in until they reach 11 in terms of branded generics. The competitors would, you know, have their own pricing strategies. We have to remain cognizant of it while we are doing pricing actions. We don't necessarily take the price increase allotted by the government on all our products. Generally, our price increase across the portfolio would be between 5%-10%.
In the past, with the new product momentum, volume growth you will expect to be high single-digit to double-digit here?
In terms of overall growth?
For the full year. Just the volume growth.
No, I would not give you guidance on volume, and you know, the split, but our volume growth would be in line with the market or greater than the market. Overall our growth would be in the high double-digits. I mean double-digit figures.
You mentioned about expanding your coverage, doubling your coverage in next 2-3 years. Are you thinking of going beyond these three areas you present in right now, cardiac, CNS and diabetes to introduce some more therapies? Or only within these three areas you want to double your coverage?
Actually I'm following Aman's footsteps. Essentially what we will do is we will expand our coverage over a period of time. I'll give you an example. We set up a brand new oncology facility in India. Ideally I would like to leverage this facility for our business in Brazil also. It's a progressive journey, but we would be expanding but remaining very close to specialty therapeutic areas which require, you know, lesser of a footfall and, but it also allows us to expand in our institutional business.
Okay. Basically, but largely it looks like from the current areas, what's your MR field force in Brazil right now?
Right now we have two teams.
This is the operator. Ladies and gentlemen, we request you all to please stay connected while we reconnect the management line. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you. Mr. Agarwal, please go ahead.
Yes. Since you are answering the question on the MR, field force in Brazil right now.
I'm sorry, where did we get cut off?
You were just about to mention about you have two teams in Brazil.
Oh, yeah. We have two teams. Size of a team is generally between nine and 10, nine and 20 people. Over a period of time, you know, without going into specifics, we would need to add additional field forces in Brazil. We do it in a conservative way. We would do partial increases and get some results and then expand into other parts of the country. Our I would say in a three-five-year objective would be to have full double teams in CNS and cardio.
Okay. Just the last question on the India business, Aman. The 600 people you added, you started new divisions. How many divisions you put in place here? Are these largely promoting new products or a combination of, I mean, there will be some mix, but largely new products or, largely existing products?
You mean how many new divisions?
Yeah.
Two new divisions. It's a mix of both. We've shifted some of our existing brands into the new divisions as well. It's kinda spread across existing plus new divisions.
These divisions are targeting which therapy areas largely?
Across CVD and CNS.
Thank you.
Mr. Agarwal, does that answer your question?
Yes, it does. Thank you.
The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yes, thanks for the follow-up. Sudhir, on the PLI scheme, the incentive, which starts from FY23, so how should we think about the incentive? Will it be front-loaded, evenly spread over five years? Has that started already kicking in the numbers?
Yes, the number is quite insignificant in quarter one. As we go quarter-on-quarter, I think the numbers will keep on increasing.
Okay. That on an average is around INR 150-160 crore, right, Sudhir?
That's the potential, Saion. We'll have to see how much you are eligible for based on the incremental sales on the approved products which you can get.
Mm-hmm.
It just started. It's too early to talk about it. Maybe one or two quarters down the line, we can try and give you a color around it.
Okay. First year it will not be significant anyway.
It's a very small number, Saion.
Okay, understood. Just one more on the trade generics part. How is that been, you know, updated? What's the contribution?
Sorry to interrupt you, Mr. Mukherjee. The audio is breaking from your line. Please check.
Yeah. Is it better?
Yeah.
I was asking on the trade generics. What's the contribution now in the overall numbers for India?
The contribution would be around 2.5%. As the base has gone up for the overall India business, it's around this range of 2.5%, but the trade generics business itself is growing quite substantially. We expect that over the next few quarters, it should increase in contribution from here as well. A little bit more from here.
Yeah. Aman, have you shared any numbers in terms of what is the expectation, like where you want this number, where this number would be eventually?
No, we haven't shared anything, and I believe that it's still a bit premature to say on what kind of ambition we have yet. As of now, we are quite confident of maintaining this level of contribution and increasing probably incrementally from here.
Okay. Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah, my questions have been answered. Thank you.
Thank you. The next question is from the line of Dheeresh Pathak from White Oak Capital. Please go ahead.
Yeah. Thanks again. On other countries, I have an understanding that U.K. and Philippines are a large part of that. Outside of that, which are the other bigger countries, and just giving a better understanding of some of those?
Of course, in terms of revenue, U.K. and Philippines, but also Mexico is on the same type of size. You're talking about countries with revenues. Philippines might be a little bigger, but mostly between $10-$20 million a year.
There will be like a long, you know, good enough tail of countries because U.K., Philippines are like INR 150 crore each, and the total size of other countries is close to like INR 1,000 crores. Mexico is only, I think, INR 70-INR 80 crores. You'll have a bunch of. These will be largely distributor-led or you have your, you know, branded presence in these countries?
Business outside of our four major geographies is fairly concentrated. Let's say that, in the rest of the world countries, we focus on seven major markets.
It's all branded generics.
Which are all branded generic.
Right.
We have boots on the ground. Usually these boots on the ground are either Torrent employees or through distributors. In countries like U.K., Mexico, we built up our own subsidiaries. For example, I can share with you in Mexico, we have close to 50 reps in the CNS space, and we're building a specialty company in CNS, which is growing quite well, but it is still, let's say, between $10 million-$50 million a year. You know, we are trying to build a future Brazil for Torrent in Mexico. Ballpark, Mexican market is 50% of the Brazilian market. There's no reason why in a few years' time down the road, we cannot have a $50 million-dollar business in Mexico.
At least that's the type of ambition that we fixed for ourselves. We are working on it behind the scenes, and I think as it grows in visibility, we will communicate more about these markets. It's a focused effort. It's not a 50-market effort. It's a focused effort in our ODW around a few key strategic markets where we are making investments, and the rest of it is just incremental where we partner or distribute our products.
Okay. U.K., Philippines, Russia, Mexico, Malaysia, these are the five. Which would be the other two? Sorry.
No. I won't comment upon that. For us, like, Malaysia, Thailand, even Nepal is an important market for us, which we consider in this area, Sri Lanka, and a couple of others.
Okay. One last question. The Brazil, like you said, for you it is 12% generic and 88% branded and zero tender. But for the market, let's say your covered market, which is CNS, diabetes, cardio, what would that mix be? It'll be roughly similar or it'll be more, you know, more tender and more generic and less branded?
It's kind of little bit. What happens is that the volumes in branded generics and generics are fairly similar, but the values are very different. I'll give you an idea about the size of the overall Brazilian market. In terms of branded generic, the size of market is roughly BRL 42 billion. Yeah. And in terms of the generic market in Brazil, it's about BRL 12 billion. Also the marketing structures are very different. In branded generic, you have reps and all kinds of marketing expenses. In generics, you have a very small team. It's not, you know, when you're looking at these businesses, the bottom line might be the same.
Mm-hmm.
Because you're operating different businesses with different economies, and you have to learn to operate them, in an efficient way.
What would be the size of the tender market or that is included in the generic BRL 12 billion that you told?
Tender market is a separate market which is classified under hospitals and tenders, and it's roughly BRL 40 billion. That's in the hospital and tender.
INR 40 billion. Okay.
INR 40 billion. The retail market is about INR 90 billion.
Understood. This is for the overall market, but like your targeted therapies would have a similar mix, I'm assuming, you know, like tender.
Well, I-
Tender would be lesser in that?
No, the tender is a separate component which I put to you in the tender and hospital market. It's a tender for government hospitals, private hospitals, municipal, district level, state government hospitals. Usually, that is the business.
The reason I'm asking is some years back there was this thing, right, where government had run a program, and they were giving certain medicines. I'm forgetting the name of the program.
Oh, yeah, yeah. That's called Farmácia Popular program.
What happened to that? Has it gained more popularity or something like that?
No, no. That became a victim of government budgetary constraints. It still exists and with the portfolio of products which are in it are fairly limited and it is subject to the vagaries of government's budget allocation.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Sanjay Gupta for closing comments.
I'd just like to close today's conference call by thanking all of you for your interest in Torrent for the insightful questions. We hope to keep the dialogue going, and we'll be available through our investor relations group. Thank you. Good night.
Thank you. Ladies and gentlemen, on behalf of Torrent Pharmaceuticals Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.