Ladies and gentlemen, good day and welcome to the Granules India Limited Q4 FY 2020 earnings conference call hosted by Edelweiss Securities Limited. As a reminder, all participant lines will be in 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 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Hatalkar from Edelweiss Securities Limited. Thank you. Over to you, sir.
Thank you, Steven. Good evening, everyone. On behalf of Edelweiss Securities Limited, I, Ankit Hatalkar, welcome you all to the Q4 FY 2020 earnings con call for Granules India Limited. From the management, we have Mr. Krishna Prasad Chigurupati, Chairman and MD, Ms. Priyanka Chigurupati, Executive Director, GPI, and Mr. Sandeep Neogi, Chief Financial Officer. Over to you, Richa.
Thank you, Ankit. Good evening, everyone. I welcome you all to Granules India Limited Q4 FY 2020 and full year 2020 earning conference call. I would like to mention that some of the statements made in today's discussion may be forward-looking in nature. The nature involves several risks and uncertainties that may lead to different results. With this, I would like to hand over the call to the management for their opening remarks, which would be followed by the question and answer session. Over to you, sir.
Thank you, Richa. Ladies and gentlemen, thank you very much for joining our Q4 end-of-year results con call. In these challenging times, I hope each and every one of you and your families are safe and doing well. We, as a global population, are today facing an unprecedented crisis. Through all the suffering, which is unimaginable, the world had united to find a vaccine and remedies to deal with the invisible enemy, the coronavirus. I'm hopeful that we as a human race are capable and will learn to live with this situation for some time and finally get through this successfully. At Granules, we had faced innumerable challenges on various fronts but were able to put our best foot forward and slowly get over most of these challenges.
Each of my colleagues at Granules and our various partners across our supply chain had gone through immense suffering during the initial weeks to get back our operations to near normalcy. They could not have done this without the support of their families, and I'm reminded that it takes a crisis to bring people together and bring out the best in them. I would like to thank each and every employee and the families behind these employees for understanding the importance of working in an essential service industry like ours. While as a company, we did everything possible to safeguard our staff and the community around us and also spent more than INR 20 crores towards this, I salute our frontline warriors and their families for the sacrifices they made and stood together as one team with one objective.
Over the next few months, we will ensure to put the safety of our employees first. We'll try our best to ensure we meet the needs of patients across the globe. I would like to address another key point before moving on to the financials. Recently, there has been a lot of correspondence regarding the presence of NDMA in metformin. Earlier in March, we had released a statement stating that the U.S. FDA had tested our samples of metformin from the market for generic Glucophage IR and had concluded that NDMA had not been detected. This was done in response to a citizen petition filed by a company. Post this, we received another IR from the U.S. FDA and were requested to send samples of API and FD of metformin IR and ER from certain batches.
Recently, we received communication from the U.S. FDA stating that the tested samples from a few lots of the company's API and finished those tablets, I quote, "Did not detect NDMA," unquote. That said, there is still some ongoing activity between the company and the FDA, and the company will notify the stock exchange as the communication progresses. Coming back to the financials, let me talk of revenue. Let me first give you the financial and business perspective of Q4. The fourth quarter revenue stood at INR 600 crores compared to INR 613 crores in Q4 FY 2019, which is a decrease of 2% year-over-year. Sequentially, we saw a decrease in revenue from INR 700 crores in Q3 2019 to INR 600 crores in Q4 2020, which is a decrease of 15%.
The main cause for the reduction was the export restriction placed on paracetamol in March. Also, the supply disruptions of certain key raw materials due to shutdowns and logistics issues due to the pandemic. For the year ended FY 2020, revenue grew by 14% from INR 2,279 crores in FY 2019 to INR 2,598 crores in FY 2020. The API sales were flat over the previous year, while that of PFI and FD grew by 9% and 27%, respectively. The increases were mainly from the U.S. and Europe, riding on the higher volume sales of FD. The five core molecules-driven business has witnessed decrease in sale of 5% in absolute terms compared to the same quarter of last year, and has contributed 85% of our total revenue during the quarter. The reasons for this reduction are restrictions on paracetamol, lockdown in the last week of March. Also, increased contribution from other molecules.
The sales breakup as per business verticals and regions are presented in our investor presentation, which is available on the website. Regards gross margin, for the quarter, the gross margins moved from 45.9% to 53.5% year-over-year, which is due to the launch of new products at our U.S. facility, GPI, and also increased the sales from 52% to 57% of the total sales in the respective quarters. For the year ended FY 2020, the gross profit improved by 5.8% over the previous year, from INR 1,024 crore to INR 1,318 crore, which was mainly due to higher FD sales and increased contribution from GPI business over the previous year. EBITDA for the quarter without impairment stood at 20.3%, whereas it was 15.9% in the corresponding quarter of the previous year, which is a growth of 4.37%.
EBITDA with impairment of U.S. Pharma, I'm sure all of you know that we had invested in this company quite some time ago. The EBITDA with impairment stood at 16.7%, a growth of 80 basis points from Q4 of FY 2019. EBITDA for the year stood at INR 525 crore, including the INR 22 crore impairment, of which is a 35% increase over the EBITDA of the previous year, which was INR 384 crore. The primary reasons are increased capacities of metformin, which we had commissioned in the past and are now being used for most of our internal as well as external customers. Better FD margins and new product launches from GPI have also contributed to increase in EBITDA over the previous year. Our API unit number four in Vizag, had also started contributing to EBITDA growth with higher margin products.
PAT for the quarter stood at INR 92 crore, while in the same quarter last year it was INR 64 crore, which is a growth of 44%. PAT for FY 2020 stood at INR 335 crore as compared to INR 236 crore for FY 2019, which is a growth of 42% year-over-year. PAT for FY 2020, without one-time write-offs such as gains or losses from the sale of JVs, impairment, and tax reversals, stood at INR 338 crore, which is still a growth of 43% from that of FY 2019. We have made a clear shift in our strategy to concentrate more on profitability with high margin products rather than chasing the top line. Research and development. We stand committed to continue to invest in our R&D and the overall R&D expenditure for the year stood at INR 108 crore, out of which INR 79 crore have been charged to the P&L in the current year.
From Q3 of the current year, the R&D expenses have been charged off in the profit and loss account on a more conservative basis, thereby increasing the R&D spend. This conservative approach is also making our balance sheet stronger with lesser accumulation of intangible assets in both India and the U.S. JV stake sale. During the current year, the company had divested its stake from both the non-core joint ventures, Granules Biocause Pharmaceuticals and Granules OmniChem Private Limited, has recorded a profit of INR 28 crore. Which is recorded as an exceptional item in the financials. The long-term capital gain tax on the above was INR 28 crore, thereby nullifying the total exceptional benefit in the current year. The cash proceeds from OmniChem deal were received during May 2020. U.S. Pharma. This year we took an impairment of INR 22 crore in U.S. Pharma against our investment.
We took a conservative approach by writing off this amount due to the delays in product filings and approvals. We also took a hit of INR 11.2 crore this year against milestone payments made for certain products, which we licensed from the company. Gross debt. This year we have reduced our gross debt from INR 991 crore from the previous year to INR 884 crore in the current year. Current depreciation of the Indian rupee in March 2020 has increased the year-end gross debt number by INR 36 crore. On a foreign currency basis, the gross debt reduction is 17%, whereas at a rupee basis, this is 11%. We would like to emphasize that we were able to reduce our short-term working capital debt despite an increase in our working capital requirement by improved cash management. Cash to cash cycle.
I'm happy to share the progress we have made towards reducing the cash to cash cycle of the company. We have started the year with 110 days of working capital cycle, which we managed to reduce to 104 days by the end of the year, which has helped in maintaining the downward trend in short-term debt. We are in touch with our key customers and selected set of suppliers to see what best possible payment terms can be achieved, which will help us maintain the working capital cycle. Free cash flow. Free cash generated from standalone business in FY 2020 was INR 265 crore. In addition, we have received the funds from the sale of Hubei Biocause to the tune of INR 112 crore, which is a total of INR 377 crore. This is an increase from the free cash position of negative INR 38 crore for the year FY 2019. Status of buyback.
As most of you know, the buyback was launched yesterday. The letter of offer was sent out to our shareholders. The buyback activities continue to be on track. We expect to complete the process by the first week of July. With this, ladies and gentlemen, I would like to open the floor for questions.
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. The first question is from the line of Ashwini Agarwal from Ashmore Investment Management. Please go ahead.
Hi. Good evening, sir, and the rest of the team. Greetings. Wonderful numbers in spite of very difficult circumstances. I mean, in light of the circumstances, I think these are very good numbers. Congratulations.
Right.
A few questions. One is, how do you see the environment in the coming year? I mean, you had a one-off issue last quarter, which included supply of some raw materials, some transportation bottlenecks, and of course, the restrictions placed by the government on export of paracetamol. How do you see things in the current quarter, and what would you like us to think about when we look at the current financial year?
Hi, Ashwini, this is Priyanka. First of all, thank you. Like you said, yes, there was a gap in revenue in Q4 that has kind of moved into Q1 as well. As you know, there has been an upliftment of the restriction of paracetamol in the recent past, and now we're free to dispatch any quantities of product as needed. That said, we do have a significant increase in demand for paracetamol itself, and we have a very strong order book as we speak. We have started producing product, and that is going seamlessly. There's also increased demand for other products. The primary increase will be seen in the U.S. products, in terms of dispatches. While we do manufacture and supply product in Q1, on a consolidated basis, the numbers might be a little bit lesser because of the sales cutoff.
That's how we're looking at Q1. Going forward, we're hoping that the COVID situation eases out a little bit, and we're hoping to continue manufacturing as we are today. Just give you an indication, today our manufacturing is going on up to 90%-95%, if not more levels, depending on the facilities. During the last couple of months, we did not have any supply disruption except for March. A little bit of February and March, we've had some issues with receiving raw materials that has affected our revenues quite a bit. Going forward, we see that to ease out a little bit.
Okay. You had, a couple of years ago,
Ashwini, I'm sorry to interrupt you. Could you be a little bit louder, please?
Yeah. No, in terms of guidance, you had said that revenue should grow at 20% on a compounded annual growth rate basis a couple of years ago. That should continue to be in place. Would that be correct?
Yes, Ashwini. We're still guiding for the same 20% top line, 25% bottom line growth. That said, I do want to mention two points. One is that our focus as a company has moved more towards profitability. Even if you see a slight dip in revenue, it will be made up in profitability. The second point is that, as of now, we've spent about INR 17 crore, INR 18 crore on employee expenses for COVID-related activities. If this eases out, then we will not see any significant impact on profitability and we'll be able to maintain the guidance. If this does go on for a few more months or quarters, then we will see an impact on the profitability.
Okay. In line with the strong demand that you're seeing for your core products, is there a change to your investment plans? How are you looking at CapEx? Could you give me the CapEx number for the financial year just completed, and what would be the plan for the current financial year?
The CapEx numbers you're talking.
Let me take that, Ashwini. We do see that this year we will be producing much more than what we anticipated, and we see that we will be doing about 1.8 to 1.9 times asset turns. The time will be coming where we'll have to invest a little bit more in CapEx for extra capacity. We are very carefully evaluating the situation, and like we always said, we'll try to control our CapEx, but when needed and when we see opportunities, we also said that we will invest. However, that said, we will never think of debt. We will have enough comfortable cash flows to invest into whatever CapEx is needed in the next few years.
Ashwini, to answer the second part of your question, the CapEx that we spent this year was INR 156.6 crores. In terms of our strategy going forward, in terms of how we're thinking, all the products that we know are going to be an extension of our core molecules are going to be backward integrated to the level we can. Even if you look at the presentation, this year we've started to mention that 70% of our R&D spend will be focused on building our core molecules and further strengthen our core molecules, and the remaining will be spent on some opportunity products that we see going forward. That's how we're looking at the growth for our core business. I hope that answers your question.
Yes, it does. Thank you so much. A couple of housekeeping questions. One relates to the other income number for the fourth quarter of INR 22.5 crores. If I could get the breakup of that's one question. The second one is the capital gains tax of INR 27 crores. In light of if I put the two transactions together, Biocause and OmniChem, it appears to be a little high. If you could help me understand those two numbers, please.
Sure. The capital gains for OmniChem, as per tax, was INR 52 crores, and for Biocause was INR 69.25 crores standalone. This was a total of INR 121 crores. The capital gains tax was 22.8%, which was INR 27.8 crores in actual numbers. With respect to the other income, I will let Sandeep answer the question.
Other income is INR 10.05 crores, which is basically the Dubai money and Forex gain INR 8.81 crores. Basically these are Dubai-related transaction Forex and other transaction-related foreign coming to INR 18 crores.
Okay. Should that be treated as a one-off or operational income? I should take it as one-off.
Yeah. We feel that it should be treated as a one-off because these are all kind of Forex gain and losses. Dubai definitely yes.
Yeah. Okay. Priyanka, just coming back to the capital gains tax, I thought that there was a loss on the Dubai transaction. How does that show up as a capital gains from a capital gains tax perspective?
Yeah. Actually at a stand-alone level, in both the cases, there was profit. As it's a JV consolidation in a consolidation scenario, all your past profit gets accumulated to your investment, and therefore at a console level, there was a less profit situation. When you calculate the taxes, it's based on the stand-alone financial, which based on the numbers both had capital gains taxes to be paid.
Oh, okay. It's a net cash at the subsidiary level which gets netted out in this consolidation calculation, which is why.
Right.
you have a tax.
While the standalone was profitable, at a consolidated level, it was breakeven.
Yeah, because you left value behind. That's right. Okay. Thank you so much.
Thank you.
All the best.
Thank you.
Thank you.
The next question is from the line of Vishal Biraia from NK Ventures . Please go ahead.
Yeah. Thank you so much for the opportunity, and congratulations to the management for an excellent set of numbers in light of this situation and the guidance given earlier. Sir, a few points. Firstly, we have over the last 2 years systematically, I would say, undone some of the investments that we had made over the preceding 5-7 years, right? When I look at OmniChem, we have now sold off. We have also now taken an impairment in US Pharma. If you can just help understand as to, while you have given some commentary around it, if you could just again help us understand where did things go wrong in these initiatives and because we have another initiative coming up in terms of the Onco block, how comfortable should investors be towards the new investment in light of these write-offs or sales?
Vishal, let me tell you, nothing has gone wrong or nothing is negative. It's only a timing. Biocause, as you know, has been highly profitable. The continued expenses on effluent control in China didn't make sense for us to keep on. We are not getting cash from there. It's only profits in the books. With that, we felt it's a wise decision to get rid of it, whatever cash we get, we thought we can reward the shareholders. Coming to OmniChem, it's still a great business, it's long-term. It's going to take a long time for us to start getting returns. Again, it doesn't fit into our core strategy. We thought that there's so much to do in our core areas, we thought it's better that again, we exit that. Coming back to US Pharma.
US Pharma, there's a lot of potential. The US Pharma makes dermal patches and lidocaine patches and other things. NITRODOT is a brand that they sell. They're also making gummies of CBD. CBD, as you know, is the hottest thing now today. There's potential again, that's going to be delayed. We thought, that's not our area. We don't have direct control. We are not an investment company. We are a manufacturing company. We thought it's better that slowly we even get out of that. Since the incomes are going to be delayed, we thought it's very prudent and conservative to sort of impair a little bit of that investment. If the returns are going to be much more delayed, we may impair more, if the returns come in quicker, we may not impair.
Basically, right from charging R&D to our P&L, if you have realized last quarter, 2 ANDAs that were approved, which are in the opioid space, which still have great potential, right now there's a little uncertainty on it. We see a lot of pickup of sales from other manufacturers. Still, we took a very conservative approach and did an impairment of almost close to $3 million.
$2.2 million.
$2.2 million. We are acting as a very conservative company. Definitely nothing has gone wrong. If we just have the patience and if we decide to act just like an investment company, not like a manufacturing company focusing on our strengths, things would go well. We just want to focus on our core capabilities today.
Sir.
Coming to Onco.
Yeah.
Onco unit. Onco is a new area for us. Again, that's also going to be a very long-term return. Like I always said, it's just not Onco. It's Onco cum other APIs. We have a huge block where we spent more than the Onco block. In that block, we have validated about five APIs, which we are going to use for our own internal development. We have already started using them for our FD. There are a lot of products. As we file these products, and before we get approvals, we are going to invest a little bit more money and increase the capacity of these products. We expect to see more revenues and profitability coming out of the API block as compared to the Onco block.
Onco in the long run is definitely going to be good, but now we are trying to ensure that we get in returns earlier than just sticking to Onco. This is the growth engine. As you know, we are an integrated company, and the secret of our growth is being integrated right from APIs all the way to finished dosages. All the new products which we are filing in the FD space, we need to integrate backwards. This unit five in Vizag is going to be the next growth engine for our future growth. Definitely, I think this is going to pay off.
Okay, sir. Just related to this one. We took a INR 11.2 crore milestone impairment also, right? Whatever we paid off, we booked that as a loss. Has that come above EBITDA or where is that sitting in expenses?
I think.
That has come in other expenses, which is pre-EBITDA.
That's over and above INR 22 crores, right?
Yes, that's over and above INR 22 crores.
My EBITDA should therefore be higher by another INR 11 crores?
Yes. At a YTD level.
Yeah. Okay. The INR 121 should actually be INR 132 then. Is that how I read it?
Sorry, our EBITDA is actually INR 525 crores for the year.
No. I said from a Q4 perspective. Have you taken the number in Q4, right?
The INR 11.7 crores that you're talking about is done throughout the year. This quarter, we only took the impairment of INR 22 crores, and the rest of it was done prior to it. As a total, the FY 2020 number will go up by 22 plus 11.2 crore.
Okay. Sure. My next question is related to the R&D expense. Just taking from your presentation, the R&D has been continuously trending down over the last five quarters. You also mentioned that 70% of the incremental R&D would go towards your core business. My concern, or my question on that would be, A, given that the company is now looking at increasing both scale and complexity, and we've been fairly successful for that matter over the last two years. Given that we are increasing scale and complexity, why should our R&D investments actually be trending down? My second question is, what is the nature of this investment in core products, and why are we focusing on products which are already successful?
What is the need for incremental R&D there as compared to a whole host of products that you were looking at in Onco and hypo APIs, et cetera?
Okay. I'll take a part of the question. The R&D expense, if you look at it in absolute terms, hasn't been going up that much, maybe INR 10, 12 crores year-over-year. As a percentage of sales, it has gone down because our sales increased. I wouldn't necessarily say that the focus on R&D has gone down by any means. From there onwards, it will go up as we'll start to see even more realizations coming up that we can spend on R&D. The second question is why core products and why not Basically, why you're investing in core products is that, see, Granules has always said that we are a manufacturing company that focuses on operational efficiencies. We have never said that we are the forerunners in terms of being first to file. That's what you need to be in the complexity game.
Yes, we are focusing on products that are various levels of complexities in the U.S. If you've seen our history and going forward, GPI has and will come out with products that are extended release, control substances, control release products. The number of ANDAs that will be made at GPI will be limited. Going to the core products. Like I said, we're always a manufacturing company that focuses on operational efficiencies. We need a bunch of core products, going forward, to launch across the world globally, to make sure we have a strong base to build upon. When we say R&D, we don't have those products now. R&D is not just going to be focused on finished dosages. R&D will be focused on APIs and also making those APIs more process efficient. That will take a few years.
Only when you have that cost position and are integrated, will you be able to compete at a finished dosage level. If you look at every company today, the products that are non-first-line defense products or products that they're working on to add to our core businesses, they don't have very stable growth. Since our growth is primarily focused on sustainability while making our margins, we did realize that the importance of increasing our R&D spend on core products was more, that's how we're moving as a company.
Let me just add something to this. I think there seems to be a different feeling that core products means only metformin, ibuprofen, and paracetamol. In our discussion, core products are high-volume products where manufacturing efficiencies make a big difference and where integration makes a big difference. While we still will expand our metformins and ibuprofens into other markets like Europe and Latin America and other places, we are concentrating on higher value-add products. Products which are three times, four times more expensive than the current products, but again, high in volume. One of the focus now is on ER products, especially MUPS technology, which is not that easy. There are a lot of people making MUPS, but making them efficiently is a challenge, and Granules has always been good at making anything we do efficiently. We will be making more and more MUPS products.
We have already started filing, and a lot of R&D is going to go into these products. For the same capacity, the revenues from these products will be much higher going forward. Am I clear on that?
Yes, sir. That's very helpful. Thank you so much. Just one on gross margins. Congratulations, the margins are probably the highest we've seen so far. Should we take this as the new normal, as the new baseline for 2021? The 53.5-
This is the new normal. Definitely. Like I always said, 20%, 21% is where we will be. If you are talking of gross, I was talking of EBITDA. If you're talking of gross margins, I can definitely say we'll be a little above or around 50% at any point in time, and we may do better.
All right. What was the impact, sir, of COVID-19? You've mentioned in the call in early April, that there would be some revenue loss due to logistical reasons and otherwise. Can you just help us quantify the, say, revenue loss that would have happened because of non-booking and corresponding EBITDA level impact for us?
I'll address the revenue figure right now. We are looking at anywhere between INR 60 crores and INR 70 crores as the loss from revenue in March alone.
INR 60 crore to INR 70 crore?
Yes.
At an EBITDA level?
About 30% EBITDA margin.
30%? Is it not 40?
30% of that would be EBITDA margin.
The cost for this has not been booked, the operational cost?
No.
I mean, if I take the same gross margin for these products as the baseline for Q4, that works out to about 53% gross margin for the INR 60-70 crores. Is this the gross margin that we should add to the EBITDA overall, or should we add the 30% of the lost revenue?
Yeah. I think the gross margin that we are looking at for Q4 will be kind of as you calculate it will be in and from that revenue.
No. What I'm saying is that let's say you have INR 600 crore as revenue and 53.5% gross margin is the reported number for Q4. You had a INR 60 crore-INR 70 crore lost revenue, I will say because of deferment or whatever reason. If this revenue had been booked, it would have had a gross margin similar at 53.5% maybe.
Yes.
Should I take 53.5% of the lost revenue and add it to my EBITDA? Have you booked the operational cost for this lost revenue in Q4 or have you not booked it?
No. Most of our expenses are fixed in nature. Obviously the manufacturing overhead has not been booked to the products and the MC. All other things which are more or less fixed in nature has to be spent. That has been spent.
Therefore, possibly a higher number, say maybe 40%-45% of this, I should take as EBITDA. Maybe your EBITDA would have gone up by, say, about INR 25 crore-INR 30 crore?
That's what I said, that 30% of 60. How much was the lost revenue?
INR 20. Yeah.
INR 20 crores would have been had.
Okay. Sure, sir. Thank you very much. I'll interact with you.
Thank you. The next question is from the line of Aditya Khemka from DSP Mutual Fund. Please go ahead.
Hi. Good evening. Thanks for the opportunity. Sir, a few questions. Firstly, on the North American sales that we book-
Sorry, can you be a little bit louder? I'm not able to hear you at all. Could you please repeat your name?
Sure. This is Aditya Khemka from DSP Mutual Fund.
Hi, Aditya.
Hi. Yeah. My question was on your North American sales. If your North American sales, do you sell to your own front-end partner only, or do you have a co-distribution agreement with other entities in the United States?
The North American business is divided broadly into three segments. One is our Granules USA, that's a fully owned subsidiary. Granules Pharma is a fully owned subsidiary. Granules USA sells products through our partners. That's primarily a B2B business. Granules USA also has another small subsidiary called Granules Consumer Health, which is our OTC front-end division. The OTC front-end that goes directly to the wholesalers and retailers is Granules Consumer. Granules Pharmaceuticals is our front end for the U.S. prescription products, in addition to being an R&D and manufacturing site as well. The Canadian business is primarily B2B as well.
Right.
We also have two partners that we work with on two of our four molecules. The sales go through India, but they supply the product to the U.S. division.
Understood. In your revenue split, when you give North America as INR 1,400 odd crores for 2020, that is completely your sales to either the distribution in the U.S., as in the three large distributors or the retailers there for the OTC business. This does not involve a B2B element. Or does it involve a B2B element?
It's all inclusive, Aditya.
Okay. Do we know how much is B2B? I mean, are you calling that number out of this?
I don't have the details, but I can have them sent to you. If you could please contact Richa, I can give you the exact details post the call.
No.
Aditya, let me clarify here. When we started our business in the U.S. for RX, we had these two partners, one for metformin, one for ibuprofen. As we progressed with our GPI, our own manufacturing facility, all the products that we were launching are being done by ourselves, our own front end. Since we have a good relationship with the partners for such a long time, we deliberately took a call not to disturb any of that business, but all new businesses going forward will be done by ourselves.
Understood. Got that, Krishna sir. Very helpful. Secondly, if I just look at your revenue trajectory over the last four or five years, the way it has been put in the presentation, obviously, your North America piece has grown disproportionately. Whereas, some of that growth may have come on the cost of your domestic business, your India business, and also maybe to some extent, your Latin American business. Could you help us understand the difference in economics in this business, the reason for the preference to the U.S. or the North American business versus, let's say, a Latin American or an Indian business?
Sorry. I'm really sorry, but could you please slow down and just speak a little bit louder?
Sure. Is this any better, Priyanka?
Not really.
I'm not sure. Okay. I'm trying my best here. Let's see. I'll repeat my question. If I just look at the revenue trajectory for your different segments, your North American business growth seems to be coming on the cost of growth of your Latin America and your Indian business. Any particular reasons you would like to call out for the preference of the North American business over your Latin American or Indian business?
Okay, Aditya, let me take that. Right from inception, maybe 35 years ago, we were always a U.S.-centric company. Even when we made simple paracetamol API, we were selling in the U.S. API. In fact, we were the second company from India to sell API into U.S., first being Dr. Reddy's with ibuprofen. Also, U.S., we have excellent contacts with all the three big distributors, many other companies. U.S. also is quite a profitable business in spite of what people say. Yes, there have been price erosions, but still it's more profitable than other markets. We are not really growing business at the cost of other markets. Other markets are growing, but not at the same level like U.S. Being a U.S.-centric company, we have been focusing on that.
Of late, like I mentioned a little while ago, we have also started filings of our own dossiers in Europe, and also LATAM. We are also trying to grow our business there. What we have leadership in the U.S. today for certain products, we want to extend it into a leadership in the world. We're working towards it, but even going forward, U.S. will still be a major part of our business.
Understood, sir.
I'd just like to add that U.S. and Europe put together, regulated markets have always been a focus of the company and will continue to remain so.
Perfect. Just one last question from my side. I understand the focus on fixed dosage formulations. Conventionally, they have been the higher margin business for many companies. Given the recent turmoil in China, given recent turmoil in the entire supply chain for global pharma majors, have you seen any noticeable difference in the profitability of your intermediate and API business, or it largely has improved across the three segments?
Has there been any increase in profitability in what business? Could you please repeat that?
The PFI and the API business, has there been a meaningful improvement in realization? When I say profitability, I mean to imply realization. Has the pricing, for instance, gone up in the API and the PFI business compared to what it used to be, let's say, a year back or two years back?
Basically, Aditya, we as a company focus on maintaining our profitability. We don't take undue advantages when the market opportunities arise. We also have arrangements with most of our customers that when our raw material prices increase or decrease, we pass on the benefits or dis-benefits to them. Yes, here and there we have some opportunistic businesses, but most of our business is long-term. We have seen some increases, but most of these increases are in proportion to the raw material increases sometimes. As more FDs grow, FDs are a little more profitable, and again, FDs are profitable as long as you're integrated backwards. If you are buying the APIs from somebody else, the profitability will not be the same. As our FD percentage increases, we have seen the percentages have been increasing, the overall profitability for the company is increasing.
Just to add to that, while there was no direct increase in API and PFI margins, like CMD just mentioned, the ability to be able to supply finished dosages through these APIs and being integrated has enabled us to grow our gross margins and EBITDA levels.
Got you. I understand that. Much appreciated. Just, sorry, one last question I had. When it came to the Indian government talking about Make in America or Make in India, and then they're giving incentives to the domestic API manufacturing and intermediate manufacturing, most of the industry is telling me the incentive, although called out too much in the media, is not that meaningful for the industry in terms of size and the way it has been designed. Would you care to comment on that?
I agree with you, Aditya. I think that there seems to be a little more hype than reality here. Yes, the government is very keen on making products in India, reduce dependency on imports. This is not just today. This started actually about eight years ago. Not much progress has been made. Now because of the current situation, there's a lot of towing on. Government has clearly earmarked lots of funds. What it will translate into, we are not sure. As Granules, we are very keen now on investing. If the government is going to help us, fine. Even otherwise, we are very keen on investing some funds as we go by into some of the key intermediates that we depend on from China. Again, the timing is the key. We don't want to invest indiscriminately.
We will monitor our cash flows, free cash. We'll take calls. However, the good news is we have been investing on R&D for most of these key raw materials, key starting materials, to make them more efficiently, not only in terms of cost, also in terms of carbon footprint. We have developed the least polluting processes and also cost-efficient processes. The minute we have very good cash flows, which we now have very clear visibility, we will be taking up some of these projects. We are evaluating everything very carefully as of today.
Right. Sorry, I had one more follow-up, if I may.
Thank you.
Just in terms of our exposure to the U.S. dollar, given that our North American revenues have now grown extremely disproportionately versus rest of our business and our debt profile is also coming down, are you guys planning to hedge your receivables or your exposure to the U.S. dollar? How do you plan to this quickly?
Since we are a net Forex earner all along, not now, last 30 years, we never believed in hedging any of our debts or any hedging at all. Personally, I always felt hedging when you have a natural hedge is more a gamble than safeguarding ourselves. We do not plan to hedge anything going forward, too.
Yeah. Just an input there, and I will be done. Earlier you had enough debt and you had lower sales, so you had almost a perfect natural hedge. Now your sales have disproportionately gone up and your debt has actually come down. That maybe leaves you a little more vulnerable to the fluctuation of U.S. dollar than it did maybe four or five years back. Just something to think about. I think I am done with my questions.
No, this is something that anyway, I will take this into account and we'll have a good discussion with some experts, Aditya.
Yeah.
I'm sure you're all great experts on this, and when you say something, we are going to take this seriously and study this in detail.
Thank you so much, sir. All the best.
Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we will be taking one question per participant. For any follow-up, request you to rejoin the queue, please. The next question is from the line of Darshit Shah from Nirvana Capital. Please go ahead.
Yeah. Sir, thanks for the opportunity and congratulations on your great set of numbers. I understand FDA has recalled some of other competitors' tablets from the U.S. market. Sir, I just want to understand how serious this issue could be. Do you think there could be more recalls or there could be even national recalls like such happened in ranitidine also? Do you think this could be just a normal recall issue, could not be a serious issue that much? Can you please comment on that?
Yes, I'll take your question. From our understanding and our correspondence with the FDA and everything that we've been reading, this is not going to be a ranitidine level of a recall. Right now, the FDA has cleared most metformin IR products, and metformin IR, if I'm not mistaken, is on track. Everything seems to be fine. Yes, there are some. We see the FDA has recalled some metformin ER products from five companies, out of which one company has an active share in the U.S. and they have initiated a recall. Some other companies do not have that much market share. In terms of construction, it's not going to be very significant. I'm not very sure about how much market share these companies have in other markets and what the impact is on the other markets, but I'll comment on the U.S.
The risk associated for us is at the moment minimum. Like CMD addressed in his opening remarks, we have been in constant correspondence with the FDA. That said, they have cleared our product as per the last communication. They have cleared our APIs, our metformin IR and metformin ER. These are samples that have been tested from the market. Actually, let me take that back. These are samples that have been sent by us in response to their request. Samples from specific retained batches that we have. Going forward, there is still some ongoing correspondence with the FDA, as of now, everything looks positive. That said, unless we have official correspondence from the FDA, we wouldn't like to make an official comment on that.
It's okay. There's just a follow-up on this in terms of.
Mr. Shah.
Yeah.
Sir, sorry to interrupt, sir. For any follow-up, request to rejoin the queue, please. The next question is from the line of Ravi Sundaram from Sundaram Family Investment. Please go ahead.
Sorry, I was on mute. Thank you for the opportunity. Let me just quickly put forward the question. Sir, during March con call, you had mentioned there is some impact in the current quarter as well due to COVID. In response to the previous caller, you mentioned the impact is around about INR 60 crore for the March quarter. Even if you don't have an exact number for the current quarter, would it be a number greater than this, or would the impact be lesser than this? A quick follow-up. At what revenue level would you think at a firm level would you need to start with incremental CapEx? Right now you're running at, I think, about INR 2,300 crore, INR 2,400 crore revenue run rate. Let's say, would you look at incremental CapEx when you hit INR 3,000 crore or something?
That's my second question. Yep.
Okay. Just to reiterate from the March con call, we mentioned that if the situation stays as it is with the lockdown that's happening, we would still meet our guidance numbers. If it continues for a longer time, we could get hit. Now, having lost some revenues in March, definitely we can make up for those in this current quarter to some extent, and to a fairly decent extent. That will, of course, also increase our EBITDA numbers and profitability a bit. Still, like I said, for the whole year, I would still like to keep to my guidance, whatever we have given. If we get more, that's always welcome. Now coming to capacity. Like I said in one of the first questions, we are touching like 1.8 times the We are likely to go up a little higher.
A stage will come in the next 1 or 2 years where we will need capacity. We are judging this very carefully, analyzing the whole situation, and definitely we will have to invest. Like I again said, and I keep on reiterating, we will do this out of our own free cash flows. Our free cash flows also, our EBITDA to operational cash conversion also has been pretty decent. Free cash flows also will keep increasing.
Thank you.
Thank you. The next question is from the line of Ranvir Singh from Sunidhi Securities . Please go ahead.
Yeah, thanks for taking my question. Sir, just a clarity on, you said the loss of revenue in fourth quarter was INR 60-70 crore. Was that all related to paracetamol? Secondly, because the situation has started improving from May, from perspective of Q1 FY 2021, can we see similar kind of revenue loss, especially in API segment, which has now restriction is over by end of May. From perspective of that, Q1 2021, if you could guide us on the one.
Okay. To answer your question, the revenue loss in the last quarter was just not on paracetamol. It's paracetamol and a few other products which were due to logistics issues. Definitely, there will be an added revenue and profitability in this year. However, like I said, while we are very positive, I would still like to stick to my guidance of 25% growth in PAT.
Okay. Fine. Thank you.
Thank you. The next question is from the line of Cyndrella Carvalho from Centrum Broking. Please go ahead. Ms. Carvalho, your line is in talk.
Question. Yeah. Thanks for the question. Just clarification I'm sorry.
Ma'am, sorry to interrupt
we can't hear anything you're saying.
Ma'am, can you move to a better reception area, please?
Is this any better?
Yes.
Yeah. On the debt reduction plan, if you could help us with.
Okay. On the debt reduction, I think CFO Sandeep is going to answer this, and he's the most competent person. Debt reduction will be in two ways. One is that the long-term loans that we have that will get paid off on a yearly basis. Then we will also, as we continue to generate free cash, we will be taking less amount of PCFCs and short-term loans, and therefore our debt position will continue to improve.
Any benefits of lower oil prices into our P&L?
No, we don't see anything, ma'am, due to lower oil prices. It's more today, some of the key materials that come out of China, the costs are more related to environmental compliances. Oil definitely has not shown any positive trend towards reduction so far.
Thank you.
Thank you.
However, if we decide to go all the way backwards into the key materials like benzene and other things and start making the key starting materials, oil prices will definitely have an impact, that's still some time away, it doesn't make sense talking about it today.
Thank you. The next question is from the line of Charulata from Dalal & Broacha. Please go ahead. Charulata, your line is in talk mode. Kindly go ahead with the question. As there is no reply from the current participant, we move to the next question from the line of Vishal Biraia from NK Ventures. Please go ahead.
Thank you so much for the follow-up opportunity. Sir, just on a positive note, if the metformin issue persists for our competitors, could this be sort of an opportunity for us to meaningfully consolidate our leadership in metformin in U.S. and regulated markets? Just giving as an example what Strides had mentioned in ranitidine, that they were able to gather as much as 80% market share because of disruption with their competitors. Something, a similar trend for us is possible?
See, yes and no. Yes, because there is definitely a disruption in the market. No, like you said, the 80% market share levels for ER is something that we wouldn't be able to touch because there hasn't been disruption at that level. Now, will we grow our market share? Definitely. I am assuming to the level of 10%, 15% this year. I don't think it would be more than that at this point. I would be able to comment better on this next quarter.
Are we supplying API to any of these competitors who got disrupted?
No.
We use it all ourselves.
We use our API ourselves and for some PFI to some other customers, none of whom have their sugar recovery.
Sure. We look at the guidance, and we look at our performance vis-a-vis guidance the last two years. We've, I think from an INR 136 crore base in FY 2018, we're now at INR 335 crore, INR 200 crore added. Should we consider that as our gross margins trend up this year and with the new launches that we are planning in U.S., I think nine launches is what mentioned in the presentation. Should we expect that the 25% guidance, because our business is not anymore being disrupted due to COVID from a manufacturing perspective, should we assume that we can actually do much higher than 25%? Just a qualitative response.
Internally, we are looking at much higher numbers, but 25 is the guidance that we are providing. To answer your question, yes. Again, there's a lot of parts that we have to be wary of, especially the COVID situation. To answer your question in a word, yes.
When do these new-
Mr. Biraia. Sir, sorry to interrupt, for any follow-up, request you to rejoin the queue, please.
Sure. Thanks.
Thank you. The next question is from the line of Ranvir Singh from Sunidhi Securities . Please go ahead.
Thanks for follow-up. Can you give some indication about profit of GPI for this year?
You're talking about the profit of GPI?
Yeah.
At an EBITDA level, without impairment, we were at INR 57 crores for the year. With impairment of the US Pharma that we mentioned earlier, it was at INR 35.9. At a PAT level, we were at INR negative 8, or negative 3%.
Okay, fine. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Ankit Hatalkar for closing comments.
Thank you, everyone, for attending this call. Stay home, stay safe. Thank you.
Thanks again, Ankit, and I would really like to thank Ankit and Edelweiss for hosting this call. Thanks once again.
Thank you. Ladies and gentlemen, on behalf of Edelweiss Securities Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your line.