Q1 21/22

Jul 28, 2021

Ladies and gentlemen, good day, and welcome to the RP Drugs Limited Q1 FY 'twenty two Earnings Call. This conference call may contain forward looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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. Please note that this conference has been recorded. I now hand the conference over to Mr. Adesh Patel, CFO, RT Drugs Limited. Thank you, and over to you, sir. Thank you. Hello, everyone, and a very warm welcome to all of you present on the call to discuss our financial results for the Q1 of financial year 2022. So from RP Fresh Linked today, we have our Joint Managing Director, Mr. Harshpit Sowla then the whole time director, Mr. Harit Shah and myself, CFO of the company. We hope all of you and your loved ones are healthy and safe in the wake of ongoing pandemic and floods across the country. The downward trend of COVID-nineteen cases is certainly a good sign and we sincerely hope that the pandemic gets over soon. I would also like to highlight that the company has not faced any major disruption in terms of supply chain or plant shutdowns due to ongoing flood situation in Maharashtra. We are happy to share that RC drugs delivered a resilient performance despite facing multiple headwinds during the quarter. Our consolidated revenue stood at INR581.6 crores as against INR545.9 crores year on year. Revenue mix between domestic and export revenues stood at INR59:31 percent. This time the domestic share was little more than previous year. I will now take you through segment wide performance. First, we will discuss standalone business performance. Standalone revenues stood at INR505.8 crores, a growth of 6.4 percent year on year. This contributed approximately 85% to the consolidated revenue. 69% of these revenues came from the domestic market and INR 31% from the export market. Domestic revenue grew approximately by 12% and export contracted marginally by around 4.1% year on year. However, contraction in exports can be attributed to the fact that around 9 thirds of exports from March 20 quarter was accounted in June 20 quarter due to lockdown in last year. So if we take out that base, then export has grown marginally. Approximately 13.2% volume growth was observed in the API segment in the Q1. Within the API segment, the antibiotic therapeutic category contributed around 43% antiprotasol around 13% anti inflammatory around 11% anti diabetic around 10% antifungal around 9% and the rest contributed around 14%. To the total standalone revenues, the share of acute therapies remained subdued due to second wave of COVID-nineteen induced lockdowns. A Tarapore plant, which witnessed a shutdown during Q4 FY 'twenty one, is now completely functional and operating normally. The company is well on track to mitigate this kind of risk in the future. The company has converted additionally 4 of its manufacturing locations in Talakur to 0 liquid discharge category in current calendar year. Further, the company is in process to achieve ZLD operations for more facilities in Talapur by the end of financial year 'twenty three. This has marginally increased factory overheads, which we plan to overcome in future by making more byproducts from the waste and use high color, fit value waste in waste utility boilers. Now we will discuss about the formation segment. For the quarter, Formulations revenues stood at INR86.5 crores, a growth of 6.7% year on year. Approximately 19% of the Formulations revenue came from exports during the quarter, which we expect to grow in near future. Sudden increase in the raw material prices. Now we'll talk about business in general, about the EPS segment as well. Sudden increase in the raw material prices driven by demand supply mismatch, increase in crude oil prices and plant shutdown at the supplier level affected the gross margins. This was coupled with reduced demand for acute therapy products because of the 2nd wave of COVID-nineteen induced lockdowns. As a result, passing on the increased input to customers both However, the average rate is lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate is expected to be lower than the average rate. We believe that the worst thing behind us is that we are seeing a significant improvement in the market at normal levels in coming couple of quarters. We remain confident of achieving the EBITDA margins in the range of 18% going forward for the current quarter. Profit after tax for the quarter, we recorded a few short sales figures as of Is it okay? No, sir. Let me disconnect your line and call you again. Just give me a minute. Ladies and gentlemen, we have the management line reconnected to the call. Please give me a minute. Thank you. And over to you, sir. Pardon? Yes. You're in the main call, sir. Yes. I will repeat the last few lines which I was talking about. So the sudden increase in the raw material prices driven by demand supply mismatch, increase in crude oil prices and plant shutdowns at the supplier level affected the gross margins. This was coupled with reduced demand for assist therapy products because of the 2nd wave of COVID-nineteen in this market. As a result, passing on the increased cost to customers for the fixed challenge in this situation. However, the average realization for most of our products have increased compared to Q4 FY 2021, but it was only partial as compared to the increased input cost. And that is why our gross margin contracted in this particular quarter. We believe that the worst is behind us in terms of raw material size hikes and EBITDA margins are expected to come back to normal levels in coming couple of quarters. We remain confident of achieving EBITDA margins in the range of around 18% going forward for the current quarter. Profit after tax for the quarter assumes has received INR48.8 as against INR85.5 year on year. However, we know that June 20 quarter was an exceptional one in terms of margin and we have discussed that last year as well. The company incurred a CapEx of INR 40 crores during the quarter and claiming a CapEx of INR 150 crores to INR 200 crores for the remaining part of FY 2022, which might get affected in case there is 3rd COVID-nineteen gain. The balance sheet continues to remain strong with our comfortable net debt to equity of around 0.54x as of June 30, 2021. The net debt to equity ratio is expected to improve going forward driven by strong international sales in forthcoming quarters. Credit rating agencies like ICRA and CRISIL have reaffirmed the debt credit rating on long term facilities to AA- with a stable outlook and A1 plus for the short term facility. The strong credit ratings will allow us to further lower our rate of interest, which in turn would reduce our interest outgo thereby improve our ROE further. I'm happy to announce that the share buyback concluded during the quarter witnessed a massive response from the U. S. Sale and was oversubscribed by almost 111 times. The company bought back 6 lakhs worth rupees INR 60 crores during the buyback. With this, the company has distributed around INR 195 crores, almost 26 percent of net profit in the form of dividend and buyback of shares over last 6 years to our share business. I would like to highlight here that the promoters also participated in this guidance. The company is well on track of growing the contribution from lifestyle and chronic therapeutic areas and reducing share from acute therapy from the API business segment. Our recently expanded chronic therapy capacity has already started contributing to the growth. We have a robust pipeline of products and the development and for both KPI as well as PACE with more focus on antifungal, anti diabetic skin treatment and anti Secondly, we remain confident of overcoming the near term challenges. Our growth trajectory is expected to be robust, driven by robust demand, experienced operational execution and capacity expansion. Through a combination of brownfield and greenfield traffic in API and services segment. Our margin, profitability and return ratios are also expected to improve due to operating leverage and backward integration in coming quarters. The company will continue to explore various opportunities in terms of risk addressing assets and geographic expansion. We can now begin the Q and A session. Thank you very much. We will now begin the question and answer session. The first question is from the line of Pranav from Invesco Mutual Fund. Please go ahead. Hello. Hi. Good afternoon. Hello. Adesh? Hello. Am I audible? Yes, sir. You're audible. Mr. Abi, can you hear me? Yes. Okay. So basically just wanted to understand, you alluded to the thing that you've taken price increase even in the current quarter. But if you've taken price increase, all I'm trying to understand is why is your volume growth then higher than the pricing growth or the value growth, if you've taken price increase across segments? So, Sorry to interrupt, Mr. Patil. So this is a conference operator, but your audio is not clear, sir. We are unable to hear you, sir. Is it okay now? Yes, sir. You may go ahead. Thank you. So I was saying that, yes, if you compare with June 2020 quarter, then the prices have gone down because June 2020 quarter was at that time the selling prices are exceptionally high. But if you take the normalized quarters of December March and with respect to the December March, the prices have now gone up of the raw material and so does the selling prices have also gone up. But then the increase in the selling prices is not proportionate to the increase in the input process and that is why there is a squeeze in gross contribution. Okay. So let me sort of highlight. Quarter on quarter, you saw what 13% volume growth. Is that the right number? No, that was a year on year volume growth. And quarter on quarter, how this thing have moved actually, say volume and value? So value wise, there is growth. In fact, quarter on quarter, there is more growth because last time on control, we had done INR502 crores of sales and this time INR581 crores of sales we have done. That is quarter on quarter, March quarter versus June quarter. Okay. And how much will have been the volume growth rate? That quarter on quarter, I don't have the numbers right now, but I have the numbers for YOMY. Okay. And year on year, it is around 13% more than 13%. Have you taken any inventory write offs or write downs in this current quarter? No, no. This is purely because of the raw material prices and almost around more than 22 raw we have seen hikes in almost more than 20, 22 raw materials. And the hikes were also quite drastic in the sense of in some cases more than 250% hike, more than 100% hike like that. Okay. Thank you. Thank you. The next question is from the line of Amanda Padmanabhan from PJM Mutual Fund. Please go ahead. Thanks for taking my question. Am I audible? Yes, sir. You may go ahead. Yes. Some more color on your raw material price increase. So in terms of in the last quarter, you had given a guidance of around 38% kind of gross margins. So by when would you expect to reach those kind of margins? And in terms of price increases, by Q2, should we expect how are the raw material prices as of now? Have they started stabilizing? Or are they continuing to grow? Yes. So one thing I would like to answer that in couple of quarters, we are expecting that our gross contribution should improve by 4% or so. As far as the current raw material pricing scenario is concerned, I will ask Mr. Harid Bhai to answer that question for you. Yes. Out of our 20 raw materials, prices are tapering down in almost 50% of the cases. But since 50% of the cases' price is still at the same level as of Q1, but we expect that also to be slowly coming down by another month or so. So we expect in 2nd part in this quarter, we expect even 1% or 2% raw material price coming down, definitely. Okay. And are you continuing to even in current quarter, you have you are continuing to take price hikes in your product to your customers? Or how is that working for you? So is there any for what portion of your business there would be a formula based mechanism for passing through Papa Sue or raw material prices? Yes. What has also happened is due to first in Q1, due to COVID, demand scenario was also very weak. So we were unable to pass on the price increase to the customer due to competition. And also one more point is like in actual container rates have gone up by almost 600% in most of the cases. So there also we are being affected. So in overall situation, we expect we should do better than Q1, yes, in Q2. And one final question before I get back to the queue. So in Q4, you had mentioned that there was some spillover of sales from Q4 to Q1. So in Q1, what portion of could you quantify that portion for Q1? How much is it? How much of the sales are in Q1? So it's like last year, we are accounting exports from a bill of lading date. So unless that material is shipped, we are not taking it as a sale. And because of that, last year, a lot of March sales, almost for 9 to 10 year worth of sales, got spilled over in June 2020 quarter. 9 to 10 years. Yes. And this year, in fact, the opening inventory of port was lower than the closing in. So this year, actually, we had shown a couple of crores of sale less in exports because of the same BL accounting. Okay. Thank you. Thank you. I will get back into the queue. Okay. Thank you. The next question is from the line of Abdul from Anand Rati. Please go ahead. Yes. Thank you for the opportunity. So just two questions. Firstly, on the product mix size. So as I heard in your opening remarks, export to sales had been quite lower in this quarter. So how should that pan for the entire year? Is there any sort of a demand contraction which is happening from overseas client or those were just a temporary phenomena from a quarter basis wherein the priority was given to domestic customers? So one thing I would like to say that going forward the export demand is looking strong. We have a lot of pending orders also. So it was more of one off case because of more dry team being into a domestic market, but we have a lot of big pending order list for exports. So it's not that of a worry for us, excluding. Okay. Sure. And second, so I'll refer to the presentation where you mentioned that the investment what you're doing in 2 M and I backward integration, that number is slightly lower as compared to what we're doing previously. So any color on that front and whether this INR 600 crores CapEx guidance for 2, 3 years, is that entirely intact? Yes. So the only thing is in some cases, because of the improved process, you can say, we might be able to reduce the CapEx number in absolute sense. But that doesn't impact anything related to the capacities we are planning to install. That plan is still on. Understood, sir. Okay. Thank you. Thank you. The next question is from the line of Ranbir Singh from Suniti Securities. Please go ahead. Yes. Thanks for taking my question. Sir, in this quarter, do we have contribution from metformin facility, new metformin facility Phase 1? No, no. So that facility is not yet constructed. The what we are talking about from 1,000 to 2,000 tonnes per month, that is still not yet commissioned. So when is likely to when actually will 6 revenue coming from this facility? So it will take around because of this COVID thing, conservatively safely you can say 10 to 12 months more. Okay. So all these new projects will start earlier, we anticipated that at least by second half of FY 'twenty two, the Phase 1 will start contributing. So I think this is pushing towards the towards the Yes, correct, correct. Slightly, there is a delay because of this construction activities getting delayed. Okay. And earlier participant asked about that gross margin outlook. So you said 4 percentage point improvement may happen in next couple of quarters. Is that what you say? Correct, correct. Next couple, correct. From 31, it can go to 35, that is the max we can see in this financial year? Yes, for this correct. For this kind of product mix, that is what we are estimating. It's around 18%, 19% EBITDA levels. So even so that 38% kind of gross margin estimation we had, so that is that seems not achievable in this financial area? In this financial issue. And this price increase is the passing on price increase you talked about. So what is actually about how what proportion of our contract is based on long term where we can have the price increases cannot be passed on in a smaller time? And how much is the business where we can pass on? So that will give some understanding going forward That's because price is likely to remain volatile for most of raw materials. So can you give some light on it? Yes. Typically what happens, our exports contract, the prices are fixed for 2.5 to 3 months on an average. So we already carry fixed orders for almost around yes? Hello? You can hear me, right? Yes. Yes. Yes. Okay. Yes. So the export orders are usually 2.5 to 3 months. So that is there. So there we cannot do much. Then our domestic orders would be somewhere around 1 month. But then for few of the MNCs, we are fixing up price contracts also in domestic market for a quarter, for 3 months period and then we revise it. So in some cases, it is difficult to revise immediately. And as I was saying that especially the acute therapies like antibiotic and antigrotasone because of this lockdowns, at one side, there was increase in raw material prices, sudden increase in raw material prices and severe hikes are there. So it is very difficult to justify to the customers, especially in this market, to get very severe hikes in our selling prices. So it's like a little slow process, but it is happening. So it is more of temporary gross margin contraction right now. Okay, fine. Thanks. Thanks a lot. Thank you. Thank you. The next question is from the line of Bob from Falcon. Please go ahead. Hi, a couple of questions regarding your products. You're a leader in furofenolones, but there's been quite a bit of backlash against that because of the side effects. So I'd like to understand your comments regarding this. And similarly for Nimisulai, again, there have been some negative articles around the side effects on liver, etcetera. So how do you see the demand panning out after such products? Yes. So as you said that company as a whole, we have for new greenfield CapEx, we are focusing more on chronic lifestyle diseases and less of acute therapies. So that is the way of derisking ourselves from such kind of things happening in future. But as of now, what we see so we have 5 fluoroquinolones, Cipro, Enro, NOGLUVO and ofloxacin. So they treat different kind of acute, you can say, symptoms. So we haven't seen much of a problem. But right now, what has happened that because of lockdown, this particular infection has spread and some of them are respiratory, some of them are spread through waterborne amelic infection or bacterial infection through water. And because people are not going out, not meeting other people, not eating out and because of all these things, the demand has been slightly low, not mainly because of the size picks, because these molecules are quite stable as of now. And since they are used in very short burst, what I'm trying to say is, it's not like we have to consume lot of doses of this particular molecule. So that is some form of insulation in terms of for the demand of this product. And as far as Nuysulide is concerned, so long back, in fact, if I'm not mistaken, more than 5 years back, can you check this drug is very effective molecule, but it is banned in pediatric use. But that thing happened long back. But even after that ban for adult purpose, it is being prescribed quite imminent. So we are not seeing that much of a problem as far as the demand of minicilide is concerned. And in fact, minicilide has done quite well in last financial year for us. Right. So you're not seeing year on year contraction in growth. You're actually seeing the demand increase year on year for these molecules, fibrofluxine, imicillin and all that? Yes, very much, yes. Okay. And the other question I had was, you have a large scale and you have been one of the leaders in metronidazole and tinedazole, etcetera, because you have been producing these molecules for a long time for the past 15, 20 years. I understand that. But how when you're venturing it in these new IP APIs, how do you establish leadership because you wouldn't have scale in the beginning and there would already be established players. So how do you compete on price with them? Right. That's a good question. The thing is when we launch a particular molecule, we see through that what is the competitive landscape of a particular product. So most often when we entered, there were like 6, 7 players in that particular molecule, which in turn also means that the market share is quite fragmented. So there is no clear cut dominant player in the market. Obviously, there will be top 2, top 3 players, but there is no means clear cut dominance as such. So if the market is fragmented like that, it is easier for new player to enter. And then obviously, because of what you can say process R and D, the way we improve the processes, our engineering skills are also very good, especially when it comes to handling products where a lot of material movement needs to be handled. A lot of material movement is there. So whatever you manufacture, they are manufacturing like Hello. So that is how we try to become cost leader. Then obviously backward integration is always there. Always one of the key, we can say, factor for achieving that cost of production leadership. And that is how we start getting more and more market share. So initially, there is there are price wars. So we have seen that whenever we try to expand in a meaningful way for any particular product, there is a little bit of margin contraction. But in the longer run, the margins revert back to mean. So that is what our main strategy is. I see. Okay. And finally, we've been hearing from a couple of players that have announced their results recently in formulations that they're seeing a lot of price erosion. So if there is price erosion in formulations, would that not feed back to APIs and lead to lower prices for you as well? So the 5 means price erosion in terms of the final prices of the retail trucks that we haven't seen in at least in the developing markets as such. And moreover, the for the API content, the cost of API visavis the retail price of a particular tablet, a strip of tablet is very, very low. So actually, the more margins are there in the distribution chain of the formulation, the wholesalers, the retailers and all the stock list. So in fact, even if they try to save in API, it won't be meaningful for them, most of them. I mean more in the export markets like U. S. And more the developed market? So actually, we haven't seen any pressure as it because ultimately, the API side generally, historically, they are driven by the input prices because more even if you take 3 manufacturers for any API, for all of them, the input prices more or less are similar. So everyone is in the same boat. So typically, if there is any movement in the input prices that is of the basic chemicals, then the API prices do get revised. And accordingly, the ultimate formulation prices should be getting revised finally. Okay. Understand. Thank you very much. Thank you. Thank you. The next question is from the line of Namish Mehta from Research Delta Advisors. Please go ahead. Yes. Thanks for the opportunity. First, the basic question about raw material pricing, Amit, what is the reason behind the increase in the price? I mean, I can't get it in the initial comment If you can, this is really helpful. Harish, would you like to answer this question? I didn't get the question. Can you repeat? He's asking the main reasons for the raw material price hikes. Yes. One is there is a couple of plants which were taken as shutdown and there are some 1 or 2 plants in U. S. Had accidents. They had some issue on the power and the situation. So that has caused delay and they are not able to operate for the last Q1 almost. So 3 to 4 months, they were plants were shut down. So that is one of the reasons. And overall, the crude prices also has gone up from $50 to $75 a barrel. And all demand supply mismatch was there. So all put together, this has created a very big price increase in major raw materials. So this plant that got shut down you're mentioning is in which country, China or in U. S? China. And is it for all the products? Because we have been seeing pricing. It's part of the product, yes, some of the products, yes. So after 'twenty, 5 or 6 products were affected because of that. And there was supply mismatch also, supply demand mismatch due to sudden demand caused the prices wind up also. Okay. Okay. The other thing, I mean, following up on the last question as well, like I'm trying to understand how do we select products and in the presentation, you mentioned that every API company should have some niche. So what is the niche that we are talking about in a technical sense? And how can this niche help us expand or how much can it help us expand beyond where we are currently in terms of number of products, let's say? So the main niche for us as far as the API segment is concerned is the cost of production. So that is the main thing. And the cost of production comes from multiple things actually. Manufacturing efficiency, of course, that is important. Process is important, that is the ROS. So R and D is important. Engineering skill sets are important. Then the quantum means once your cost of production is less, then you should expand very quickly to scale up your operations because once you scale up the overheads also go down per kg. So that also helps in bringing the cost of production further down. And apart from being a price leader in APIs recently, in the last 5, 6 years, the quality of API, the impurity profile, the regulatory requirements, that has also become very stringent. And because we have been in this business since last 36 years and all our customers are repeat customers, so there is a good branding of our team in formulation space. So and that also helps us in getting more market share from our and our customer base is also very high. So whenever we launch a new product, we get that much easier access to those purchase managers because many of the formulation companies have a basket of products. So if they're buying a certain set of APIs from us, then obviously they will give us preference for the newer launches also. So that is one. Then for expansion, we are saying that the thing is we have big list of products. So top 13, 14, we have already established leadership, whereas in some cases, the leadership is very, very, very, when second say, we are much larger than the second next best player, you can say. So that kind of leadership, we want to achieve for almost all the products because so we will capture more and more market share for older molecules because then it will give further stability to our margins for those products. And meanwhile, we have a big trail of molecules like 15th to 40th API which we manufacture, and they are contributing very less. The top 20 molecules must be covering almost 94%, 95% of the standalone sales for the API and the spectrum segment. So all these trailing molecules like next 20 molecules, they're contributing only 5%. So those are the molecules which will grow in future. And then by doing R and D, we'll keep on adding new molecules also. So that is the way we are trying to explain. Yes. So are there any processes or technology where we have developed any expertise, which is what is Yes. So what you say is correct. So when you manufacture, say, a certain state of product, now we manufacture wide range of products like antibiotics, also flurosemulones. Then we manufacture anti diarrheals in a big way. Then anti inflammatory also we are manufacturing in a big way. Then cardio protectant, antifungal, anti diabetic also. So what I'm trying to indicate is that a lot of the chemistry, not all the reactions, but a lot of chemical reactions, we are very well versed with and that too at a very large scale. So we are manufacturing all these products, which I talked about in a very large scale, means the very, very large scale. Even the few of the smaller when I say smaller products, I still mean 25, 30 tonnes per month of capacity. So that level of production I'm talking about. So obviously, we get, you can say, expertise in keeping the cost low for these reactions. And that is what we use. When selecting a new molecule, we also see that the chemistry involved in manufacturing that new molecule is somewhat similar to what we are already doing because that helps us a lot in launching a product with so much. Understood. So what would be common led among the top products in terms of chemistry or process or technology, other than some sort of processes would be common among the top whatever 5, 7 products? I'm just trying to understand like what is common across all these various products? No. So there are different synergies like, for example, a particular we manufacture 1 particular intermediate which grows in 2 products. Then one particular intermediate which goes in 3 or 4 products. So when you have such kind of ecosystem, then you can manufacture that intermediate to a large scale and then be a cost leader. So those kind of efficiencies we do, look, I'll search for. Next question is from the line of Ranjan Jain from Nirmalbank. Please go ahead. Yes. Thank you for the opportunity. So just one question I have. One thing that there was sudden price increase what we have seen. Is it possible for you to quantify what kind of overall price increases, what we have seen in the raw material? And against that, what price increases what we have taken, which probably would be reflected in coming quarters? Thank you. It is slightly difficult that how much will come back because there are cyclical events also. But what I will give a very rough idea that when I compare gross margins of few of the products from December quarter versus June quarter, then we almost could see more than 30 crores of difference in purely in terms of gross contribution for this quarter. Okay. So that is the kind of price increases you are seeing. And the benefit of any price increases, what you have already taken, is not reflected in this quarter at all? To some extent, it has been reflected to some extent, but not completely. Okay. Thank you. Thank you. Thank you. The next question is from the line of Rajdeep Singh from ASK Investment Managers. Please go ahead. Hello. Hi, Adesh. Am I audible? Yes, yes. I just wanted to understand your opening comments here better. I just said the demand for such products are lower in the second wave of COVID. Sorry, I am not suggesting that your voice is breaking, sir. Just one. Is it better now? Yes. Yes. Adesh, just wanted to understand your opening comments a little better. You said the demand for acute products was subdued in the 2nd wave, where this is really contrary to what the IPM is reporting and the companies with more acute focused reporting supernormal growth. So where is the disconnect? Just wanted to understand this. Yes. The thing is, it might be related to particular products or a particular company getting market share from some other company or something like that. But the kind of molecules which we manufacture that many of them go for therapies like bacterial infection, respiratory bacterial infection or your UTI, urinary tract infection, stomach, stomach updates because of waterborne diseases. And because of that, I think this particular product might be affected. So it's see, the thing is one of the antibiotics has though I won't name because we don't disclose product wise, but then I will tell you one of the antibiotics products has been phenomenally well, which the sales has been doubled as compared to last year, but then the rest were subgroups. So it was more of a holistic statement than applicable for all the Okay. Product specific has picked up. And given the onset of Monsoon also, the demand should remain strong, you're seeing, for your kind of products? Yes. So usually, this Q4, Q1 and Q2 are the stronger quarters for us. Right, right, right. And one last question from my side. Sir, our new capacity would come on stream by FY 'twenty three end. So prior to that, for this financial year and for next financial year, FY 'twenty two and FY 'twenty three, can we grow at 15% on the top line? Would that be comfortable or that is a little stretched? So the thing is we are targeting that much growth. So right now, we still had 13% volume growth. We will still target for that 10% to 15% growth and Yes. Value growth. Yes. Okay. And gross margin, you said 35% to 36% and margins at operating level in the end of 18%, 19%. Is that correct? Correct, correct, correct. Share, share, yes. Okay, okay. Thank you. That's all my comments. Thank you very much. Thank you. The next question is from the line of Abdul from Anand Rati. Please go ahead. Yes. Hi. Thanks for the follow-up. So would it be possible to quantify the impact of the 0 discharge cost, which is there in other expenses as well as the cost pertaining to the share buyback? See, approximately a lot of OpEx might have gone up per quarter for that. And buyback would be also to the tune of similar expense, 50 to 75 something like that. 50 to 75? Yes. Okay. And secondly, on the Europe side, any update from the FDA who do we have or any partnerships that we have in the Europe for APIs that you would like to highlight? Update? Yes, FDA. So the thing is FDA, we have been receiving few communications from them. But because of this, we were planning for a mock audit from ex USFD inspector back in April May only, but because of this shutdown in travel from U. S, they were not able to travel. So we are planning for this now August or early September. We already we already identified and everything is final and just the travel arrangements have to be made. And the report of that would be submitted to the FDA directly. And then that might lead to either a virtual audit or I don't know, how the FDA will proceed further. But because this will be ex U. S. FDA inspector and those that too from U. S. Itself, it will carry a lot of weightage that we would. So maybe that would happen sometime in the second half or the system. Is that something right? Yes. By the next quarter, I think we should be coming up with at least some update on the results. All right. Understood. Thank you. Yes. Thank you. Thank you. The next question is from the line of Ram Krishna, an individual investor. Please go ahead. Mr. Ramkrishna, your line is unmuted. Please go ahead with your question. Can you hear me now? Yes. Hello? Yes, we can. Hey, Adesh. This is Ram here. So, Adesh, we have I believe that you got the approval for PLI scheme from Government of India, right? When do you think you will start taking the benefit of this scheme? That's the first thing. And second question I would like to ask you about, do you have any blueprint being a shareholder? We have a lot of expectations from you guys, okay? Okay. So do you have any sort of blueprint so that you can be a market leader in next few years? If you have, what is the timeline I would like to ask you? Yes. So the thing is, it will become market leader in any product. It takes time and it also depends upon the product to product because some products are more export oriented, some are more domestic oriented, some are like import substitutes. So in products like import substitutes and more domestic oriented products, it is fairly faster. If everything goes right, then 3 to 4 years, you can become a market leader for a particular product. But for export oriented product, maybe you can couple of years more because approvals and everything takes time for that. And in exports also, it depends whether it is more it is going more in ROW markets, regulated market, either European market or U. S. Market, that also decides how much time it will take to achieve leadership in a particular product. And as far as the first question was concerned, we realized the 1st year of benefit ideally should be simultaneously. There is a disturbance coming from your line, Mr. Krishna. Mr. Krishna, there is a lot of disturbance coming from your line. Request you to rejoin the conference, sir. Mr. Krishna? The line for the current participant is disconnected. The next question is from the line of Ranveer Singh from Suniti Securities. Please go ahead. Hello. Yes. Thanks for follow-up. In this quarter, you had additional overhead expenses related to liquid discharge thing. So what was the amount? How much we have assigned additional? Yes, approximately a crore for the quarter, but that too going forward, we are having a lot of ideas in terms of using it for waste rate recovery and for the utility purpose and deriving more byproducts from it, which can add some amount of revenue stream to the waste. So in longer run, we will reduce the cost, but approximately it was increased by, you can say, INR 1 crore per quarter. So it's still 1 crore or 1 quarter would be an incremental spend on related to this? Yes. Okay. So just I was calculating like currently we have INR 84 crores kind of expenses in this quarter. And even if we maintain, if that run rate is maintained going forward and we assume that 34% gross margin happens every quarter after this, so from second, third and fourth quarter, And still, your EBITDA margin will not be 18%. So it will still be 17% kind of thing. So Actually, really what happens, I mean, one is, once we start selling more, immediately the operating leverage will take in in terms of the fixed expenses. So 3% 3% to 4% increase in the gross contribution and a bit higher sales, we'll definitely take it to 18%, 19%, 34% gross margin. Okay. So chances are on gross margin front, we can see then better than what we are anticipating. Yes. So the thing is definitely there is a scope of improvement in gross margins. Okay. That clarifies. Yes. Thank you. Thank you. The next question is from the line of Umang Shah from Asian Markets Securities. Please go ahead. Hi, sir. Thank you for taking my question. Sir, are you observing any capacity increase in top 10 molecules from your competitors in India? For me, people have increased capacities. Sure. Arid, is it would you like to answer this question? For top 10 molecules, whether any company has recently increased any capacity? No, except metformin, I think yes. Thanks, sir. And sir, would you say that you've reached a stage in your antibiotics that it would be detrimental for any of the competitors to put any additional capacity since it uses scale? Yes, yes. It looks like yes. Because nobody yes, we already reached at a very high scale. So to enter any new entrant, it would be very difficult. Right, sir. Thank you, sir. And just one more question. Sir, currently, RTSR has the highest margins in last 20 years. So sir, would you be able to roughly attribute what percentage of your margins are structural and what percentage will be cyclical? It is difficult to say because, see, last year, initial part of the year, the margins were exceptionally high. But after that, from December quarter onwards, they were fairly, you can say, structural, not much of a success. The thing is, apart from this sudden price hike, there was no reason and there was no downfall in selling prices of the products or anything like that. So whatever there was structural as such. Absolutely, sir. Sir, that would be all. Thank you so much, sir. Thank you. Thank you. The next question is from the line of Cinderella Thomas Carvalho from Centrum Broking. Please go ahead. Hello, Cinderella. Hi. Thanks for taking my question. Just 2, 3 clarifications. Adesh, can you please help us with how is the status on the recently expanded Clifton's and Clopidogrel? I mean, if you could update us how these products are doing? So Gliften, we just launched one of the product, Gliften. Then clopidogrel, that product is going strong. As far as the sales are concerned, the product is doing good. And yes, we believe that going forward, this clopidogrel should be a blockbuster molecule for us. Okay. And if you could help us understand how do you see the ramp up of lift ins overcoming 2 to 3 years' time? So the thing is we are coming up with a multipurpose facility, first of all. So it will be more though okay, it will it can add up 70 to 90 crores of revenue. But then the major thing would be the next level of expansion once this product grows after going off patent. It has gone off patent. So now the product will start growing. At that point of time, we will require a second phase of expansion, more like a dedicated facility for this product line. That's helpful. And if you could speak something more on the specialty chemical expansion that we've been talking about largely on the chlorosulfonation side? And what is the status? How is the CapEx coming up? Yes. So there are 2 greenfield sites, in fact, 3, I would say, that way. 1 is in Tarapore, other 2 are in GIDC. We recently acquired the 3rd one in last quarter itself, and that's our biggest land parcel we acquired till now. And another one, wall is also very big. And there, the plot development has already is almost lower. Now this foundation, all this work will start for our backward integration project and intermediate plant project. And then Specialty Chemicals, the greenfield project that will plot development will start maybe in few months. But what we are doing is we are going ahead with a brownfield expansion for spec chem in one of our current intermediate facilities in Tarapore itself. So there itself, we'll come up with a big capacity, almost more than 400, 450 tonnes per month kind of capacity for specialty chemicals. And that we are doing mainly from the point of view of entering the market early. So what kind of expansion in terms of overall share from Specialty Chemicals we can envisage over 2 to 3 years? So, see, this current facility, maybe 2% or 3% will go up because that category is also growing. But once that greenfield project comes up and the utilization of that capacity goes up, then it should become little meaningful. So it can go to around 15% or so. Great, yes, Azesh. Thank you so much. This is Sai. Thanks a lot. Thank you. The next question is from the line of Rajesh Srivastava from Incred Asset Management Company. Please go ahead. Hi. Thanks for taking my questions. So just to clarify, you said 15% top growth on the APIs or overall top line? Overall top line. And if I have to talk about only the APIs, then how do you see the growth going forward for next 2 to 3 years? The thing is it is similar. In fact, formulation will also grow maybe even at a faster pace because of the base effect. But then if you take the average, then more or less it will be similar because API is right now API segment as in the API plus taken is right now around 85% of the console business. Got it. That's all I have to say. Yes, sorry. If I have to break this 15% growth into price hikes and volume growth, I'm sorry, it might just be a repetition, but I missed the opening remarks. Okay. The thing is more or less what we are assuming volume growth only, frankly speaking, because price growth we cannot estimate. So usually we try to avoid including price growth in. But even if you want to take it, it will be very minimal. That is what we will be seeing. So we are expecting around 15% of volume growth basically? Yes. And sir, on the formulations, what percentage of the capacity is currently utilized? Like I think we are doing a 350 crores roughly 350 crores of sales, right? Yes. Rajesh, you can tell. We are right now operating at 80% of the capability. And incremental metformin capacity is coming in the formulation, right? No, right now, yes, it's an API. Okay. So any incremental CapEx on formulation? Yes, sir. In formulation, we are expanding in oncology product with product expansion and product development, we are going to we have a budget of INR 55 crores. And this will commercialize when? It's from the scratch place, it's a greenfield project. So it will be we are talking about 2 years' time. Okay. So basically for next 2 to 3 years, growth is going to be almost flattish for formulation because we are already nearing peak capacity, right? Growth, yes, growth will come from existing products, which we have registered in different part of the world, about 250 products has been registered. So the growth is will come from there also. We will be growing at the rate of about 15% to 20%. I would like to add here that our formulation model is slightly different. So it is not like, you can say, asset specific. It is more about IP specific, which we have our ICANN intellectual property and we can get it manufactured outside also. Outside also. So it is not restricted by capacity. Okay, got it. And so last question, like what is the capital employed over here, like 10% of total capital employed at the moment? Not more than INR 40 crores, I believe. Okay. Thanks. That's it from my side. Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Abhish Patel for closing comments. Thank you everyone for participating in the call. Always enjoy answering your questions. So one of the key concerns going forward is that many scientists have predicted a possibility of 3rd wave of COVID-nineteen. We sincerely hope that this wave to be a mild wave or in the best case doesn't arrive at all, like the vaccination happens very quickly for most of the population. We would also like to assure you that employee safety and hygiene remains company's priority in this period and company remain fully geared up to face any disruption going forward. In fact, in 2nd wave also, we were able to manage our production to the full extent by taking care of all the social distancing and fumigation, etcetera, transportation of impulse. And thank you everyone for joining us on this call. Please reach out to us either directly or through our IR consultants, that is Strategic Growth Advisors, should we have any further queries. Stay safe. And now we can close the call. Thank you. Welcome. Thank you. On behalf of RT Drug Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.