Ladies and gentlemen, good day, and welcome to Ajanta Pharma Q2 FY 2024 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Yogesh Agrawal, Managing Director of Ajanta Pharma Limited. Thank you, and over to you, sir.
Thank you. Very good evening, and welcome to all of you. With me, I have Mr. Rajesh Agrawal, our Joint Managing Director; Mr. Arvind Agrawal, our CFO; Mr. Rajeev Agrawal, our AVP Finance and Investor Relations. So friends, I hope that the results are already there with you. We will take you through the business-wise performance for the Q2 and H1 for the year, along with the comparison for the previous year, same period. So our three verticals of business, branded generics, U.S. generics, and institutional business in Africa generated a total revenue of INR 1,028 crore against INR 938 crore, posting a growth of 10% in Q2, and INR 2,049 crore against INR 1,889 crore, posting a growth of 8% for the first half.
During the year, 73% of the total sales it came from the branded generic business, which is spread across India, Asia and Africa. This business exhibits assurance, sustainability, and potential for the long term performance. The sales stood at INR 743 crore against INR 711 crore, posting 4% growth in Q2, and INR 1,475 crore against INR 1,399 crore, posting 5% growth for the first half. Let me now first, let me take you through the international business. And in the international business, I will start with the branded generic business in Asia and Africa, which contributed to 39% of the total revenue. So let's begin with Asia. In Asia, our presence spans across the Middle East, Southeast and Central Asia, encompassing about 10 countries.
During the Q2, sales were INR 230 crore against INR 251 crore, de-growth of 8%. In the first half, sales were INR 484 crore against INR 492 crore, posting a de-growth of 2%. During the first half, we launched seven new products in Asia region. During the quarter, there were some supplies which got pushed out from the current quarter to the next quarter, adversely impacting the quarter-over-quarter numbers. However, on the full year basis, we are confident of posting a low-teens growth. Let me move to Africa. Africa business is spread across 20 countries. During the Q2, sales were INR 157 crore against INR 146 crore, posting 8% growth, and in the first half, sales were INR 316 crore against INR 314 crore, posting 1% growth.
During the last four, five months, we've seen the slowdown in overall market in Africa. Hence, correspondingly, our growth rate also got impacted. However, in last few months, we've seen the growth coming back in the market, and coupled with various initiatives we have taken over last 12 months or so, we are looking to deliver low teen growth for the full year. Let us now talk about the two other verticals of the international business. I'll move to U.S. generics. So U.S. generics contributed 22% to the total revenue. In Q2, with the sales of INR 237 crore against INR 185 crore, we posted a robust growth of 28%, and in the first half, sales was INR 451 crore against INR 364 crore, posting a very healthy growth of 24%.
Going forward, for the next two quarters, we expect the revenues to be at a similar level. In the first half, we have filed five ANDAs, and we expect to file about three ANDAs for the rest of the year. We have received six final approvals and launched two ANDAs during first half of the year, and we expect to launch around three to four products more during the rest of the year. We have 42 products available on the shelf, and 21 ANDAs are awaiting approval with the U.S. FDA. Let me take you through the Africa institution business now. This business contributed 5% of the total revenue, which comprises of anti-malarial product. In Q2, the sale was INR 37 crore against INR 33 crore, posting 14% growth. And during the first half, sale was INR 102 crore against INR 110 crore, posting 7% de-growth.
As we have been guiding in all our calls, this business remains unpredictable due to reliance on the procurement agencies' funds and the schedules. I now invite Mr. Rajesh Agrawal, our Joint MD, to take you through the India business. Thank you, and over to you.
Thank you. Good evening to all of you. I'm delighted to share the key highlights of India business with you. Our performance has been excellent on the back of increased volumes, price increase, and new product launches. India business contributed 33% in the total revenue. In Q2, sales was INR 355 crores against INR 314 crores, growth of 13%. And in H1, sales was INR 674 crores against INR 593 crores, posting a healthy growth of 14%.
India business includes revenue from sales generic of INR 45 crores against INR 38 crores in Q2, and INR 81 crores against INR 71 crores in H1. In first half of the year, we launched 10 new products, including four first time in the country. Our medical representatives' productivity has shown marked improvement aligned with our revenue growth, while maintaining consistent MR levels. We continue to outpace IPM by 400 basis points, with Ajanta growing at 14%, surpassing the IPM growth of 10% as per IQVIA MAT, September 2023. This places us as the third fastest growing company in the IPM. This trend extends to most of the therapeutic segments we are engaged in, whereas our growth has consistently outpaced the segment growth. In the covered market, we continue to be fourth largest in the IPM and among top 10 in all our therapeutic segments.
As per IQVIA MAT, September 2023, we have four brands appearing among, amongst top 500 list. In our sales breakdown, cardiology contributed 39%, ophthalmology contributed 31%, dermatology contributed 21% of the India business, and remaining 9% came from pain management segment. With this, I invite Mr. Arvind Agrawal, CFO, to take you through the financial performance of the company. Thank you, and over to you, Arvind.
Thank you very much. Good evening, and warm welcome to the second earnings call of FY 2024. We will look at the consolidated financials and provide year-on-year comparison. The key financial highlights for Q2 and H1, FY 2024, are as follows: Total revenue in Q2 stood at INR 1,028 crores against INR 938 crores, posting 10% growth. In H1, revenue was INR 2,049 crores against INR 1,889 crores, a growth of 80%. Our gross margin came at 75%, in line with our guidance. Continuous favorable shift in API prices and normalization of the euro against INR resulted in this improvement, which is expected to persist for whole of FY 2024.
Personnel costs increased by 19%, part of which about 8% is on account of the regrouping of related expenses from selling expenses, as explained in earlier earnings call, and balance for regular annual increments. R&D expenses was 5% of total revenue. In Q2, expenses was INR 50 crores against INR 59 crores, and in H1, it was INR 105 crores against INR 113 crores last year. Other expenses stood at INR 259 crores in Q2, reduction of about 12% over previous year same period. In H1, it stood at INR 534 crores, reduction of about 5% from previous year same period. International logistics costs have returned to pre-COVID level, contributing favorable impact of about INR 20 crores in Q2 and INR 45 crores in H1.
This works out to about 2.5% and 3% for the Q2 and H1, compared to average of FY 2023. We expect higher marketing and R&D expenses next two quarters, which will increase overall other expenses in H2. EBITDA margin improved to 28% in both Q2 and H1. EBITDA stood at INR 291 crores against 196 crores in Q2, and in H1, at INR 572 crores against 418 crores. This positive performance was attributed to the combined benefit of improved gross margin, reduced logistics cost, and INR depreciation against the Euro. However, as mentioned earlier, higher other expenses in H2 would limit EBITDA in the range of our guidance of about 26% for FY 2024.
Other income was at INR 21 crore in Q2, and INR 43 crore in H1, predominantly driven by FOREX gain of INR 13 crore and 23 crore respectively. Income tax stood at 29% for Q2 and 26% for H1. For FY 2024, tax is expected to be around 25%. Profit in Q2 was at INR 195 crore against INR 157 crore, 19% of revenue, and in H1, it was INR 403 crore against INR 331 crore, 20% of revenue from operations. We incurred CapEx of INR 46 crore in H1 FY 2024. CapEx, including maintenance CapEx for FY 2024, is estimated to be around INR 150 crore, which also includes part of new corporate office. There was good improvement during H1 FY 2024 to improve in working capital days from March 2023.
Inventory stood at 71 days against 80 days, and trades receivable at 103 days against 104 days. ROCE and RONW continue to improve and be comparable to the best in the industry. ROCE stands at 31% and RONW at 23% at the end of September 2023. In H1 2024, we have generated a healthy cash flow from operations of INR 399 crores, with cash conversion ratio of 70% and free cash flow INR 350 crores with 89% cash conversion. With these highlights, I open the floor for the question and answer. Thank you very much.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions, may please press star and one on the touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking your questions. Ladies and gentlemen, we will wait for a moment while the questions queue assembles. We'll take the first question from the line of Yash Korenka from Awriga Capital Advisors LLP. Please go ahead.
Hi, am I audible?
Yes, please.
Yes.
Okay. So the first question is on the U.S. business. How do you see USA business turning out in the next three to five years, as we intend to reduce the capital allocation, but in H1 our sales are up by 22%?
So U.S. business, the market landscape is changing, evolving from what it was 12 months back. We've seen the price erosion to be stabilized into the normal levels. In fact, there have been shortages which are reported in various markets. So overall, the environment is changed, and it is looking quite positive in the U.S. So our outlook still remains that, as we have not taken any major reaction or decision back then, we don't intend to do anything on the similar lines. Our outlook remains to be filing around eight ANDAs ± going forward for next two to three years. Our outlook is that I think the market should probably hopefully remain at the similar level of the price erosion, and it's more stabilized.
Okay, thank you. And so what would be the optimum working capital level for the company? And is there higher working capital attributable for the U.S. business compared to past trends?
Michelle, we are not able to hear you clearly.
Sir, your voice is not clear.
Am I audible now?
Yes, sir. Please continue.
Okay. I wanted to ask on working capital levels, compared to past trends, is there higher working capital level now attributable for the U.S. business?
Yes, earlier, the whatever working capital increase was there, that was mainly because of U.S. But as you are seeing now, the inventory levels are coming down. Even the debtors level are also getting stabilized. So hopefully now we are not seeing any major increase in the working capital levels.
Okay, thank you.
Thank you.
Thank you. The next question is from the line of Rashmi Shetty from Dolat Capital. Please go ahead.
Yeah, thanks for the opportunity. So, just on the R&D expenses, you know, last quarter, you all mentioned that, you know, 6% of R&D is something which we are going to spend in FY 2024.
Yes.
But your first half is just 5% of sales now. So is it that in the subsequent quarters, the R&D will be very high, or you feel that it would more or less remain at this 5% level?
It will depend. Of course, you know, like, when the projects are on, so naturally there will be some expenditure. But what is happening is that, this year, in the beginning of the year, we have brought little bit of focus on the cost optimization. So we are able to get out of the same money, the same work or little more work. So because of that, you are seeing this little toughness, but we expect this to little go up, you know, not much, but maybe it may go little up.
So, probably, it's fair to say that for FY 2024, R&D guidance should be below 6%. I mean, it should be around between 5%-6% for us?
Yes, absolutely right.
Going ahead in FY 2025 and 2026, it should increase or it should remain more or less in the same range?
More or less in the same range.
Got it, sir. And so on your other expenses, you know, do we have any forex cost as a part of the other expenses or, or you have forex income which is coming in the other income part?
Yes. FOREX loss is not there in this quarter. H1 only INR 1 crore, but otherwise there is no FOREX loss in the other expenses.
Okay. You mentioned that,
You know, last year it was there, this year it is not there, so that's why you are seeing other expenses getting reduced.
Okay. And will this be the new base, or you feel that, you know, other expenses will be high in quarter three and quarter four? As you mentioned, that your marketing expenses will be high. So like, by what quantum, by how many basis points, from this, excluding R&D, your other expenses is 20% of the sales. So, you know, by what quantum it should increase in the subsequent quarter if the additional marketing expenses come?
Honestly, that much granularity I will not be able to give you now. But what I can only say is that it will be little higher as compared to what we have seen this trend in the last two quarters. It will be higher than that.
So, will you be upgrading your EBITDA margin guidance for FY 2024 from the earlier levels of 25%?
Yes, that's what I mentioned in my call just now, that, we are expecting now to be around 26%.
Okay. And, you know, annually, how much expansion we should expect for every year, because the business is like back on track and, you know, all the markets are doing well, for us. So in FY 2025, 2026, what is the kind of number that we can build in?
Will be difficult to give you the number as such. One thing which we can only say is that it will improve, certainly.
Got it, sir. And sir, on your Asia branded business, you mentioned the guidance for low teen growth. Why in Africa branded business, since now we are doing flattish growth in first half, and you also mentioned slowdown in the industry growth. You know, for the full year, are we maintaining our guidance of high single digit growth, or here we can see some kind of challenges coming in?
No, Africa, we are seeing the revival. I think we will bounce back to the growth. So for the whole year, we are very optimistic to post low teen growth. So we'll cover up in next two quarters.
Okay, sir. Thank you. That's it from my side.
Sure. Thank you.
Thank you. We'll take the next question from the line of Harsh Bhatia from Bandhan AMC. Please go ahead.
Yes, thank you. Good afternoon. One or two questions from my side. Firstly, in terms of the India growth, could you help us understand the bifurcation between volume, price, and new introductions for the second quarter?
So as far as volume and value is concerned, price increase and, you know, this one is almost the same.
Correct.
As compared, as far with the industry. Only the volume has grown three years. So the industry has grown at 2%, we have grown at 6% in terms of volume. So that is what is the biggest advantage which we have. So, as far as, you know, price and new product is concerned, it is same as 3% and 5%, in line with the industry.
The price is 3%? Okay.
New product is 3%, price is 5%, and the volume for industry is 2%, ours is 6%.
Okay. And, one clarification in terms of the U.S. business. In the first quarter as well, you mentioned that the sales would largely be, sort of range bound for the next two, three quarters.
Yeah.
The second quarter is slightly higher as well. So should we assume this to be sort of a relevant base for the next two quarters? Again, on this, the assumption is Chantix.
Yeah, I think, we should be able to deliver the numbers on the current quarter basis going forward for next, rest of the year.
Okay. But this would again not be inclusive of the expected launch of Chantix?
Everything is factored in this. It's a mix of whatever, the new launches, market share, loss, increase. All put together, we are, I think, we look reasonably comfortable to post the, the numbers what we have done for this quarter, going forward for the next few quarters as well.
Sure. That's helpful. And one last clarification on a broader perspective. If you look at these three, four, therapies in the India market, would it be fair to work with the assumption that at the gross margin level, the cardiac, would continue to be the highest gross margin provider, purely from the, India market perspective, if at all we are disclosing therapy-wise?
No, we are not disclosing therapy-wise margin, so that will not be disclosed. But one thing which we can definitely tell you is that, every segment is contributing almost at the same level. It's not something which is much different. Only the thing is, cardiology has got more, contribution. So the 39% of the sales is getting contributed by cardiology. That's the only thing which will be there.
Sure. So you mean that at the operating margin level, it wouldn't be anything significantly different?
Exactly. Different.
Okay, sir. All right. Thank you. Thank you.
Thank you.
Thank you. We'll take the next question from the line of Abdul Kader Puranwala from ICICI Securities. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. So, firstly, on the Asia branded business, so in your opening remarks, you mentioned that there were some lumpiness, due to which there was a spillover from this quarter to the next quarter. So, would it be possible to quantify what was the spillover? And, also, if you know, we would be on track on the mid-teen growth, adjusted for the spillover in this particular quarter, because you know, H1 itself, if you see, the business had not grown much. So what gives us the confidence of the mid-teen growth in this particular segment as well?
So we are talking about Asia, not Africa-
Mm-hmm.
Where the spillover effect for the.
Right.
This quarter to the next quarter. I think let me tell you in another way. As I said, for the Asia, for the whole year, we look comfortable with giving the guidance of posting the low teens, growth. So next few quarters would be making up for whatever we have not done in this quarter. So that is, I think, comfortable, guidance we can give. And Africa also, I think on the same lines, we are looking to post the mid-teen, the low teens to mid-teen growth for the next, for the whole year.
Okay, okay. And, so possible to quantify this spillover?
No, unfortunately, I can't give exact data number, but you can do the math. It's not very difficult.
All right, sir. Sure, sure.
Yeah.
Secondly, on the India business, so the 10 new products what you've launched in the first half, I mean, which are the therapies that are catering to, are these existing four, or you are entering into a few new therapies as well?
They are in the same therapy, existing four therapies. Most of them are cardiovascular diabetic segment only. There are a few in derma, and one in ophthalm.
Okay, sure, sure. And so this last one on the bookkeeping side, so the tax rate for this quarter was slightly higher, and then, for the full year as well, we are guiding for almost 25%. So any particular reason you would like to highlight for this rise in the effective tax rate?
Basically, I think for the quarter it is, because of the, dividend which we got from the subsidiary, so that is the major reason for the quarter that it has gone to 29%. But in the other quarters it is not going to be there, so it will come down to that extent. And, overall, 25% is basically because the profitability has gone up, by compared to last year, so naturally the, tax rate also has gone up.
Understood. Thank you, and wish you all the best.
Thank you.
Thank you. The next question is from the line of Bharat Celly from Equirus Securities. Please go ahead.
Hi. Good afternoon, thanks for the opportunity. So sir, just wanted to understand on the US business, so you mentioned that there is some structural change which is happening in the US, so just wanted to get a sense-
Excuse me, sir. Sir, your volume is too low. Can you please increase it a little?
Is it any better?
Yes, sir. Please proceed.
Yeah. So what I was saying here, so we have been referring that there has been some change in the U.S. structurally. So just was trying to get a sense that how the overall market is shaping up, whether you are seeing that people are ready to pay higher price considering the shortage in the market or the volume growth has been more of leading the growth.
Yeah, it's a combination of all the things. The customers are valuing the consistent supplier of high quality with high compliance rate over the prices of reducing by a few cents or few percentages. This is getting valued much higher than before, we are seeing. And in line of that, Ajanta is positioned extremely well to take advantage of such situations. So I think there's a combination of things. As you know, COVID, the supply chain was became the center of focus for everyone, so product availability was at all-time high. There were no inspections, so there were no disruptions because of the inspections. So all in all, I think the market has gone back to the pre-COVID level, where inspections have started. That is causing some disruption in the market.
Because of the COVID experiences, now the customers are seeing more value working with the companies, having a very high compliance rate. It's a combination of all that, all of the things. I think this kind of thing that the market is kind of stabilizing and shape getting better now.
When the customer is coming to you, are they asking for a longer duration contracts, or these are more of a shorter term contracts, till the time new players who are calling new volumes also, new supplies also join in?
It's a mix of both. Product to product basis, where there are uncertainties on the product, customers are wanting to lock up for the longer duration, contract so that they are assured of the products. We've seen last few years there's been huge disruption. Some of the major products which are, let's say, for the flu, last year there was a big shortage of the product, and that created a lot of, you know, disruption in the market. A lot of patients didn't get the product. So children, they were not, you know, they were suffering. So product to product basis, the customers are looking to do a longer-term partnerships with the supplier.
And sir, actually, what we have seen over the past is that whenever there is a shortage, probably, six months or nine months, down the line, new supplies come in the market. So are you foresee any sort of similar trend to emerge this time, or it will be more of a permanent lock which we are referring to?
It's very difficult to predict so far in the future. But what we are seeing is, the pre-COVID kind of market scenario is coming back. So pre-COVID also, we are on the similar, scenario where product to product, because of various reasons, there were supply disruptions creating the shortages. And those are company who is at the right time and the right place, they would benefit from that. So we are seeing a similar kind of scenario.
I think it's very difficult to predict too far away, next two years, three years, how we're going to pan out. But we remain optimistic. We believe that the worst is behind us. Market has stabilized to a great extent. There's been realization all across on the supply side, buyer side, to value the partnerships more over the price. We see, I think there is some kind of structural mind shift which is occurring in the industry.
Makes sense. And, sir, when we refer to probably that we are getting back to pre-COVID levels, so what sort of price erosion we are seeing? Either it is between 4%-5%, or it is high single digit. And how do you see it going forward?
High single digit is what we are seeing, and we would like to believe it would remain in the similar vicinity going forward also.
Okay, so high single digit is sort of a number which we are-
Yeah.
- entering in for.
Yeah, yeah.
Okay. And thanks. And sir, just wanted to understand on the, on the India business, so, we have almost like 10 to 60, sorry, top 10, contributing almost like, 60% of our revenues in the domestic business. So just wanted to get a sense that how the, when we are looking at almost like 13% growth for the domestic business, what sort of growth, the, the top 10 products have seen over during this same duration?
There's been a very healthy growth, actually, including brands like Met XL, even though we were impacted due to the price reduction that happened by NPPA. But the volume growth is very healthy, and the other brands also in the top ten, known as the family extensions, they've also posted robust growth. So all in all, we've posted robust growth in the top ten. Otherwise, we would not have achieved 6% volume growth in our core product portfolio as against two percent volume growth of the industry. So it is very positive.
Sir, actually, what we are seeing is that our growth in IPM has been laggard when we look at in a cardiac division, and our focus has been largely pertaining to four therapies largely. So how do you plan to outgrow the market growth over the longer duration? Here I'm referring to probably five, six years. Considering our focus has been largely four, so are we looking to get into other therapy areas to keep growing and keep outpacing the market?
So, cardiology has not been a laggard. We've been growing faster. Only what you see in the last six months, as I mentioned, the largest brand in cardiovascular for us, Metexcel, has got impacted because of the price reduction that NPPA has done. If you normalize that, then we are growing as far or faster than the cardiac segment growth rate, right? Secondly, to answer your question on the therapies, I think that we have a long way to go in the existing four therapeutic segments itself. Like the way we have bounced back in dermatology in the last two years. You know, that's again, because we have had a sharp focus on the current four segments. I think there is a lot to be done, and we are not exploring any other specialty to enter into.
It is mostly diabetic, but we have also increased our thrust, which also goes hand in hand with the cardiology segment, in which we have a strong presence. So beyond that, no, we are not exploring anything else. But even in these four segments that we are present, if we are able to outpace the sub-therapeutic segments of each of the specialty in which we are present, I think we would have done a good job, and there is a lot of headroom for us to keep growing in that.
Sure, that helps. And before I join, join that queue, just wanted to understand, what's our ranking in the derma division are at this point?
In the covered market, in dermatology, we are ranked third, and overall, I think, can you see the overall ranking of dermatology? We may be ranked 15. Our rank is 15.
Sure, sir. Thanks. Thanks a lot.
Thank you.
Thank you. We'll take the next question from the line of Kunal Sharma from Nuvama. Please go ahead.
Hi, good evening, sir. Sir, are you seeing any kind of structural shift or softening of the branded pharma market in India? Maybe because a lot of companies are launching their own trade generics, so there has to be some level of cannibalization happening, at least on the volume side.
Very hard to say that, because we don't have any kind of data to prove it. It may be happening, but at a very negligible or minuscule level, this is my presumption. So that may not be the prime reason, for any kind of slowdown. Yes, we have had couple of soft months for the IPM. Previous month, month before last has been quite soft. I think, now that we begin, forget October, October typically may not be a strongest month because of the festivals that take place in the country all across, in North and East.
But, November to February should be a strong four months, and March also maybe a strong five-month period, in which we could see good amount of recovery, because from IQVIA, we don't see any major reasons why the IPM will slow down dramatically. The forecast still remains high single digits or very low double digits.
Got it, sir. So it would be fair to assume that in the next three to four years, you expect the market to maybe grow at around 10% kind of rate?
Yeah, I would say, I think their forecast is let's say 8%-9%. So that's what, that's what IQVIA says for the next three years.
Sure. Sure. The second question on the Asia branded business. Now, I think the last few years you have been trying to, again, enter new markets and maybe diversify away from the Philippines and Iran. So maybe can you walk us through on some of the markets that are doing well for you or the new markets that you are targeting in Asia?
So we don't give the country-wise data. But in general, it's, as I said, the 10 countries block in Asia, which are spread across Southeast Asia, Middle East and Central Asia. Some of the countries are mature for us. Despite being mature, we are doing good there. They are posting different growth. Some of the countries are particularly in Central Asia, where we're building that business. So all the various countries are in the different block of the maturity curve. But overall, I think there will be a good headway growth for us to grow in the Asia market. And I think Asia also the big part of focus is getting shifted from acute to chronic. So a good part of our business in the Asia is coming from the chronic.
That's also a very good, high quality business to be in.
No, sir, and any kind of, you know, maybe now, since you are a fairly big player in Iraq and the Philippines, what's the kind of competition is increasing over there? Or I just want to understand a bit more. Or is there, you know, a generic kind of, thing happening? So just, just your outlook on how some of these markets, you see in the next three to four years.
So, both of these markets, there is a high amount of competition. There are all sorts of multinationals, that are present, just like the way in India, and more importantly, the local companies are, in themselves, very competitive and very strong. In the Philippines, for example, you have the likes of United Laboratories, which controls more than 12% of the market share. And so it is in Iraq, all the companies from in and around GCC countries also. So competitive pressure is very high in these countries. Having said that, we are quite confident with the kind of, competence that we have built over the years, the understanding of the market and the team that we have in these countries, to be able to withstand.
There could be a quarter or two, in which there may be some kind of drops that may happen, but, but that is not to say that that's going to continue for a very long period. I think that's a very natural thing to have. If we are alone in the market with any particular brand and suddenly you have five, 10 competitors, naturally, you know, the first six months you will see some pressure happening. But, over a longer period, we are able to quite successfully defend our position and retain our leadership positions.
Got it, sir. Thank you.
Yeah.
Thank you. A reminder to all the participants, anyone who wishes to ask questions may please press star and one. We'll take the next question from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. So just on the capacity utilization currently at different plants.
Should be in the range of over 60%-65%.
So effectively, that would trigger more CapEx, maybe in the next 12-15 months?
No, not really, because I think we are still comfortable for next two years. After that, maybe we may have to start thinking and, you know, putting some waiting back on the drawing board. But otherwise, I think immediately there is nothing which is major. Some small additions will keep on happening, which is normal CapEx, which will happen, but nothing really major.
According to the Asia, Africa geography, if you could share, how much is outsourced from the local manufacturers there?
We don't have the breakup of times with that on plant-wise territory-wise. But overall, I think you can see the sense as Arvind was saying we have done our forecasting for next two to five years in terms of what growth and capacities and new product launches. And with that planning also, we know what CapEx to do at what point in time. So as Arvind said, in the near future, we don't see a big CapEx outlay coming up. Maybe after a year, year and a half or two years, we may have to get back to the drawing board and see again how the forecast looks with the growth and what capacities we need.
I think the near visibility which we have in the next 18-24 months, there could be some light additions here and there, but nothing of a very significant CapEx.
Understood. Lastly, on the OpEx side, apart from this increase in the marketing expenses, which probably would offset decrease in the international logistics cost, any other factor that can, you know, further increase this aspect, maybe in FY 2025?
Not really, because there is nothing which is, you know, known to us. And, I think all the expenses are at the level which are appropriate, like port, logistic costs, et cetera, everything. Now, unless, you know, unless the situation worldwide gets into some, problem, et cetera, then in that case, what happens, we really don't know. But today, at least, as far as our, you know, planning or our, expectation goes, I think we are going to be at on the similar line.
Okay, sir. Thank you. Thank you.
Thank you. We'll take the next question from the line of Aman Kumar Singh, an individual investor. I'm sorry. Please go ahead.
Yeah. Hi, good afternoon. My question is related to our growth pattern, what we have seen in Africa. I think our Africa business is going down, both at the institution front and even at the larger continent front. What can be the probable reason for it?
I don't know what data you make that statement, because if you see 2019, our Africa sales was INR 317 crore, and last year we did INR 560 crore. So cumulatively, we have delivered a CAGR of 14%, which is mid-teen, then which is what we've been guiding. Currently, as I told you, during the quarter also, we posted a not very bad number. It was 8% growth, despite the market going down. And as I have shared for the whole year, we are looking to deliver the low-teen growth, against the mid-teen growth, which we had guided at the beginning of the year. I think structurally, we are fundamentally very, very strong.
We have all the building blocks in place of having right product, right team, right people, and right training. So I think the story should not be seen in one quarter or two quarter, it should be seen in a longer horizon of few years. And in the last five years, we've delivered a 14% annual growth. Going forward also, we're feeling very confident of delivering similar kind of growth for next two to four years. So that, that's where the position is. Don't have to worry about the, the low. Don't look at one quarter of number. I think in the long-term story, we are confident of delivering all the, the numbers we are finding. Low teens to mid-teens.
Okay, thank you. One thing I just wanted to point out, when we have little bit of cash on our book, why don't we deploy this cash more meaningfully by acquiring, doing some lateral acquisition or something that will help our company to grow further? So this is what the suggestion I wanted to put forward.
Your suggestion is well taken, and we are looking out. Every time I am mentioning that we are looking for acquisitions. Unfortunately, the valuations and the product qualities which are coming to the market, they are not, you know, getting satisfied at our preliminary level. So because of that, we are not able to do any acquisition. Otherwise, we are definitely scouting, and we are there always for any deals which are happening in the India market.
Okay, thank you.
Thank you.
Thank you. A reminder to all the participants, anyone who wishes to ask questions may please press star and one now. We'll take the next question from the line of Harsh Bhatia, professional investor. Please go ahead.
Uh, hello.
Yeah, we can hear you.
Am I audible now? Hello.
Yeah, yeah, you are.
Perfect. So congrats for the good set of numbers. My first question is on our India operations. So in the past few years, most of our growth premium over IPM has come due to higher volumes in our India branded business. Can you give a bit of a around this? Have we expanded our distribution network, or are we going into smaller cities? So some color of why we are able to grow higher on volumes in India.
No, we've not expanded in terms of the number of reps, and therefore, there is no expansion in smaller villages or smaller towns. This is primarily coming from the same markets in which we are operating. Essentially, it is the increase in the MR productivity that is driving the volumes. The increase is taking place because of sharper focus on customer relationship management activities that we have been conducting in the last two, three years. And of course, being very competitive at a basic level to fight back and retain the market share. So that is what is contributing on, one is the retention and two is the growth in terms of volumes.
Okay, thanks for answering that question. My next question is about our trade generics business in India. I think in the past calls, you guys had guided for 10%-12% growth, but we continue to see very high growth of 15%-20% in this division. This is not something I'm complaining about, but we also see a lot of other companies entering into this segment and seeing-
Yeah, but I think from INR 35 crore, INR 13 crore, we have gone to INR 45 crores in this quarter.
15% growth. 15% growth is there.
For quarter.
Yeah.
So, you know, some part of it may be better than what we were actually aiming for, which is a good thing to happen. And of course, we are doing better than most of the companies in the market. Again, primarily because of the product portfolio that we have. Well, as you said, we are not complaining either. Hopefully, this growth rate continues, even though we had set out to achieve a growth rate of low teens, but sorry, low double digits, but mid-teens is always welcome.
Okay, thanks for that. Also, my next question is about the U.S. operations. Given that the U.S. has grown at a faster pace in recent years, to see that the U.S. required higher working capital investments, especially in terms of maintaining inventory near the customers. Have you seen any change in this trend, where we do not have to invest so much into inventory?
No, not really. But, it only depends on how efficiently you have your entire working capital managed, how many days. If you have a consistency in the production, output, you can have a lower inventory in the front end, and that is, that, that has been, in last 12-18 months, we've been striving for that. And that is where you see that despite the sales going up, the number of days inventory remains the same for us for the first half. Though U.S. has grown pretty, robust, which requires the highest working capital level. So no, I think in generally, the outlook remains the same. You need to have a decent amount of inventory, if you want to encash the opportunities which market throw up, at times.
You need to have a decent inventory that the facilities here in the RM/PM. So U.S. remains to be a high working capital market, but there's a trade-off on what you want to keep and how ready you are to encash the opportunities if they come your way.
What is the kind of price erosion we see in our base portfolio in the U.S., currently?
It's a high single digit. High single digit, yeah.
And my last question is, is about the emerging market. So we have seen a lot of companies facing pressure on FOREX exchange, especially in the last few, few quarters. But for some reason, Ajanta hasn't seen that. So how have you managed, our FOREX, so well, so that we haven't seen any large FOREX losses? I think we have actually made gains, net FOREX gains, over the last year, and that too, quite systematically across quarters. How have we managed to accomplish this?
Simply be disciplined. You see, we have a FOREX policy in place, which is approved by the board of directors, and we follow that very, very strictly. And that is what has really helped us to manage it very well. Because, see, ultimately, it all depends on how you will get lured with the, you know, movements in the FOREX. You know, sometimes you take a call which is, may not be, you know, very, you know, disciplined way. But I think, we have been very disciplined, and we have been able to really maintain that discipline all through. And that is helping us to really, you know, manage our exchange risk very well.
Our policy has been maintaining 75% of our receivables hedged and keeping the remainder as open. Is that our policy?
It is given that 50% is minimum, which our policy prescribes. More than that, it will depend on how we really see the market and how we predict that market is going to move. Depending on that, we take the call.
Great. Thank you for answering my questions.
Thank you.
Thank you. The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.
Sir, thanks for the opportunity. I joined the call a little later part. Sir, as we have seen in the PPT, in the Indian business, the cardio division is showing some decline. So what are the reasons, and, sir, what is the outlook for it? And looking to also the U.S. business, the growth is there. It's a quite commendable growth. And what are the reasons behind it?
For the cardiac business, it is not showing a decline. It is growing slightly lesser than the cardiology segment in India. The reason is only because our lead brand, Metaxalone, which contributes the majority to the cardiovascular business for Ajanta. There has been a price reduction done by MAM in the month of March, which is what is affecting us. Because if you normalize the price of Metaxalone and create as per the previous old price, which was prevailing until March, then we are growing at par with the segment growth rate or slightly better than the segment growth rate. So honestly, I don't see any reason for us to worry about it. These growth rates will bounce back next year once the price, this price becomes the base price as such. So that's what the-
And anyone is taking market share from, from the cardiology?
Come again?
So, any competition or any competitive advantage, we are losing market share in the cardiology.
Are we losing market share?
In cardiology.
As far as the complete cardiovascular segment is concerned, no, we are not losing market share. There may be one or two brands where the market share may be going up or down, but nothing that worries us, largely.
Okay, sir. Sir, maybe the U.S. business, sir?
So, can you come back with your question again? What was the question on the U.S. business?
So it's quite the very strong growth in the U.S. market. What has contributed to it, sir?
So it's a combination of two, three things. One, we've seen the price erosion to be normalizing, which we expected. We've had a number of good launches, and we've done fairly well in those launches. We've increased the market share for a number of our products. So combination of all the three things, it has resulted into the. Yeah, and a very high level of compliance, supply compliance. Our fill rate is one of the highest in the industry. So combination of all these three, four things, it has resulted into a very good set of numbers for the quarter and for the first half.
So when we are going to launch the Chantix?
Chantix is still work in progress. So as I shared with you in the last conference call, it could be Q4 or Q1 of the next year. Still, we are awaiting the final approval from the FDA. We believe we are at an advanced stage of, you know, we've met all the requirements, whatever they've asked for. So now it's just a wait-and-watch game, and once we get a go-ahead, we should be able to hit the market very, very quickly. Because we've seen there are some other competitors also who have got approval, so the name of the game will be who can come to the market first. So yeah, yeah.
Any update on this Topiramate?
Topiramate, no, I think it is in the. We've settled it under confidentiality. Yeah, but I think we are not giving out the. It's a, we've signed a confidentiality agreement, so I think we are not able to share the launch date for the product.
Thank you, sir. Thanks so much.
Sure.
Thank you. We'll take the next question from the line of Harsh Bhatia, a professional investor. Please go ahead.
Yeah, thank you for the follow-up opportunity. I have a question about the diabetes franchise in India. Recently, we have seen a lot of patented products going off patent. Can you talk a little bit more about our diabetes product offerings, and how have you managed to gain incremental market share in these new products that have come into market?
You're absolutely right. There are many molecules that are going off patent, and, I mean, every company along with us also are launching the same molecules and same combinations. There are the typical SGLT2s, there are DPP4s, that are being launched. There are combinations with that. There are combinations with metformin. So our product portfolio will, pretty much be similar to what other companies are also launching in the diabetic segment. Since we have had a late start in antidiabetic, for us, it's increasingly, more difficult to gain the market share. But having said that, we have started on time, I still feel, and, we have a long way to go in the segment.
So I think next couple of years, we hope to be having some kind of a meaningful presence, at least within our own sales contribution. It should have some meaningful contribution to our internal sales. So that is what the aim is.
Another question on this: In the past, Ajanta used to do a lot of these clinical trials within India to launch, to bring to market newer products. How is that segment proceeding? Earlier, we used to have a very large proportion of our new launches as new product approval or as first to market in India. How is that strategy panning out?
The last three years, three to five years, the regulatory requirement of the Drug Controller General of India has become very, very stringent. Getting approvals has been increasingly difficult in the last few years. We still have new products first time to the market, like, for example, in cardiovascular, we have had a triple drug combination product that we have launched in Q2, which is the first-time product in the country, and for which we have conducted clinical trials. So, so that's the requirement, regulatory requirement of the country, if it's a first-time product.
All the new launches that we are making, along with many other industry players, have a combination of both internal new product development and approval, as well as sourcing it from other channel partners, in which case then either they do it, the clinical trials, or then we partner with them to conduct the trials. That is how it is.
Okay. And yeah, I have one last question, if I'm allowed, which is,
Okay.
So Ajanta is a formulation company, which doesn't have much backward integration in terms of API. We have presence in institutional segment as well as generic segment. Despite that, we maintain one of the highest gross margins that I've seen in the industry, which is close to 75%-80%. How do we do that?
It's outlook of the business, right? We said the strong focus on the branded generic business, 73% contribution, which is there. In U.S., we've been very selective in the product portfolio. So our outlook has been not necessarily to just build the volumes at the cost of the margin. So that's a discipline which we have followed for, I think, over a decade, and I think, yeah, that's the result. We're trying to continue posting, I think, slightly above industry EBITDA margin or margin. Yeah.
Great. Thanks for answering my questions.
Yeah.
Thank you. Ladies and gentlemen, as that was the last question for today, I would now like to hand the conference over to Mr. Yogesh Agrawal for closing comments. Over to you, sir.
So, I want to thank each one of you for joining this call. If there are any questions which got left out or remain unanswered, please feel free to reach out to our investor relations team. Once again, thank you so much for joining. Bye.
Thank you, members of the management. Ladies and gentlemen, on behalf of Ajanta Pharma, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.