Ladies and gentlemen, good day, and welcome to Alkem Laboratories Limited Q1 FY 2024 earnings conference call, hosted by Motilal Oswal Financial Services Limited. 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 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services Limited. Thank you, and over to you, Mr. Manudhane.
Thank you, Michelle. Welcome to 1 QFY 2024 earnings call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director, Mr. Rajesh Dubey, CFO, Mr. Amit Ghare, President, International Business, Mr. Yogesh Kaushal, President, Chronic Division, and Mr. Amit Khandelwal from the finance team. Over to you, Amit, for the opening remarks.
Thank you, Tushar. Good afternoon, everyone, and thank you for joining us today for Alkem Laboratories Q1 FY 2024 earnings call. Earlier during the day, we have released our financial results and investor presentation, and the same are also posted on our website. Hope you have had a chance to look at it. To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem. Before I proceed with this call, I would like to remind everyone that this call is being recorded, and the call transcript will be made available on our website as well. I would also like to add that today's discussion may include forward-looking statements, and the same must be viewed in conjunction with the risks that our business faces.
After the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me. This, I would like to hand over the call to Sandeep to present the key highlights of the quarter gone by and the strategy going forward. Over to you, Sandeep. Thank you, Amit. Good afternoon, everyone. In quarter one FY2024, we witnessed good revenue growth in operations with an impressive increase of 15.2% year-on-year. This growth was primarily fueled by strong performance of our business in international markets, wherein we have crossed INR 1,000 crore for the quarter for the first time.
Several key factors, including the softening of select raw material prices, a favorable currency impact, easing of freight costs, and the successful implementation of our cost optimization efforts, has led to better operational performance, resulting in a EBITDA margin of 13.1% for the quarter. We remain focused on optimizing our operations and driving profitability for sustained long-term success. The quarter also witnessed good cash generation, resulting in robust cash position of INR 2,430 crore. Coming to India business, we remain highly optimistic about our continued progress and firmly believe that we are well-positioned to deliver market-leading growth as we have always done in the past. Our growth in chronic therapy segment continues to outperform the market, delivering sales of 15.8% year-on-year, whereas the industry only grew by 9.9% year-on-year for the quarter.
During the quarter, we also gained one rank, both in antidiabetic and also in Neuro CNS therapy. Thank you. With this, I think we are open for Q&A.
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 their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press Star and two. Participants are requested to use handsets while asking our questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take the first question from the line of Saiyon Mukherjee from Nomura. Please go ahead.
Yeah. Hi, good evening. Yeah, my first question would be, you know, in the light of the first quarter results, you know, with respect to your guidance that you had given of double-digit growth in India and around 16% EBITDA margin on a consolidated basis. How should we think about that, and are you sort of revising any of these numbers?
Yeah. On the guidance of revenue growth side, I think double-digit growth currently seems challenging, but it'll be very high single digits for sure. It also depends because the acute focus on seasonality of Q2 and all, so we'll have to watch out for that, to be honest, Saiyon. If your question is also because on the EBITDA margins, there we feel confident that the guidance of 16% EBITDA, we feel confident of achieving that, Saiyon.
Okay. On the raw material pressure easing, is there more room for it to improve, gross margins to improve in the coming quarters?
It's quite possible, but, you know, we'll have to watch out for that.
Okay.
I mean, yeah, it seems to be that there is some relief there.
Okay, thanks. My second question would be the pickup in international market, both in U.S. and other markets. If you can give some color as to what is driving, are there any one-time opportunities? There's a very steep rise or any country, specific country, which has contributed. Any more color if you can provide on the ramp-up that we are seeing in the international business and how sustainable it is going forward? Yeah, thanks.
Mr. Amit Ghare, can you take that, please?
Thank you, Sandeep. There's no particular market per se, which has contributed to this growth. Of course, the overall growth in the U.S. has been much more than the previous quarter, certainly more than the last 4 quarters that we've seen sequentially or even year-over-year. That has kind of overall contributed, but you'll also see other international business crossing INR 300 crore. Not one particular market has helped the growth. I think a lot of markets, working together, as in, growing very well, has contributed to the final numbers.
Okay. So you think this number is sustainable, the, the, the international business revenues, both in US and ex-US, we, we should have this, you know, sustainable going forward?
For sure it's sustainable. Obviously, the pricing pressures or how the price deflation works, particularly in U.S. and in a few other markets, will kind of define going forward. As, as you asked in the first question or the first time, there is no opportunistic business, included here or no significant opportunistic business here. No one-time businesses here.
Okay. Cool. Thank you. Thank you. I'll join back, please.
Thank you. The next question is from the line of Foram Parekh from BNK Securities. Please go ahead. Ms. Foram, I have unmuted your line. Kindly proceed with your question.
Am I audible?
Yes, ma'am. Please proceed.
Yeah. My question is, we have good net cash of INR 24 billion. Can you just share on your capital allocation plan? Like, how do you, you, how do you intend to utilize this cash? Do we see any sort of M&A activities, or do we only want to expand on, you know, MR front? If you can just give some sense on, you know, how, on your capital allocation plan.
Right. Ma'am, capital allocation plan is the same as we have already discussed in the last few quarters. Nothing has changed. That's number 1. Obviously, you, you can't deploy capital of this kind on this, you know, employing or deploying medical reps, so that's out of the question. We also think we are, we are more than adequately already deployed medical reps, so there is no expansion happening there as well. Mr. Dubey, would you add something on that, I think?
No, I think, you have already covered that. In fact, in, in most of the quarterly earning, earnings call, similar kind of, clarification is provided. Yes, of course, if we get some better opportunity, then definitely we have resources.
Okay. My second question is on the U.S. front. Can you just give us some color? Are we seeing any easing of price erosion or stability in price erosion? What kind of price erosion, you know, are we seeing right now?
Mr. Ghare, please, can you take that?
Yes, sir. Thank you. Yes, we have seen some easing of pricing pressure. In the whole of last fiscal, it may have been different quarter on quarter, but overall, in the entire fiscal last year, we had double-digit price deflation. For this particular quarter, our pricing deflation was in single digits, though it was in higher single digits. Now, currently in the middle of Q2, the pricing deflation still is in the higher single digits, but it's not in double digits, so it's better than what it was last fiscal.
Okay. The margins, EBITDA margin is one of... It's kind of the lowest, you know, in the industry. In this kind of, you know, good track times when we are seeing easing of freight cost and, you know, API cost is easing. Do we not see us expanding our EBITDA margin guidance, you know, from 16% ±1%?
No, no, absolutely not, ma'am. We knew this. I mean, see, freight was all-time high last year, so obviously there was some indication it will come down. All this is factored in when we gave a guidance of 16%.
Okay.
We acknowledge we have one of the lowest EBITDA margins, so work is on on that, but we are not upgrading our guidance what we gave last time.
Okay, in, in, near future, like 2-3 years' time, do we see it going back to something in 20, what we saw earlier achieved?
We were never in 20s, as far as I remember, but you all can correct me. We must be like, from one freakish year, it could be where we could be close to that. Every year, let's say, we have given 50 to 100 basis point, we'll try to increase, and that's what we stick with.
Okay. That's helpful. 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.
Hi, sir. Thank you for the opportunity. My first question is on the St. Louis facility. Is that completely shut down or-
If you can be a bit louder.
Is, is this better?
Yes. Yeah.
Yeah. Yeah. My first question is basically on the St. Louis facility. Have we completely shut down that in Q1? Is the cost savings now reflective into this 13% margin what we have reported?
A large part of it, but not all of it. Plant is on, is on the winding up stage, so it's not completely shut, but we have, like, one-fourth of employees which we had last year. Maybe we'll taper it down the next couple of months. We could potentially have a buyer or shut it down.
Sure, sure. So your single-digit guidance for, growth guidance for India, is it possible to break it down between the branded generics and trade generics as to, you know, what could be the scenario for 2024?
I think the percentage we have given first, it would remain. The percentage of ratio will not change between trade generics and branded.
Okay. In terms of your revenue contribution, how much would be that in trade generics for the current quarter?
It's, it's, it's high, high double digi... High, it's in-
19, 19.
It's close to around 17%-18%.
All right, got it. Arjun, thank you. Thank you.
Thank you. We'll take the next question from, from the line of Saurabh Kapadia from Sundaram Mutual Fund. Please go ahead.
Yeah, thanks for the opportunity. Sir, if you can talk about the NLEM impact on your Q1-
Excuse me, sir. I'm sorry to interrupt, sir. Your voice is muffled. May we request you to use your handset please?
There you go. Sir, if you can talk about the NLEM impact on the Q1 numbers.
If I heard you correctly, Saurabh, you are asking NLEM impact?
Yeah.
Yes, N, NLEM impact, actually, we have a, a opportunity. Actually, we already exercised that opportunity to increase our DPCO covered products price increase by 12, 12.24%. In this quarter one, it has come later part of the quarter, from the month of June. Still this price, increase impact in totality is, is, is expected to be there in quarter two and going forward.
Okay. Second question, now, what was the CapEx for Q1, and what has been... Is there any additional investment which has gone to Enzene?
CapEx for the quarter is somewhere close to INR 80 crore, INR 78 crore, INR 80 crore. We have already given guidance of INR 300 crore-INR 350 crore for entire year.
Okay. any additional investment in the biosimilars?
This INR 350 includes even biosimilar CapEx also.
Okay.
Major chunk is for biosimilars only, for your understanding.
Okay. Okay, okay, fine. Yeah. Thank you.
Thank you. We'll take the next question from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Hey. Hi, thank you for the opportunity. The first question on the trade generic number that you suggested around 18%, 17%, 18%, is that percentage of total revenue or is it percentage of India revenue?
Total domestic, sir.
I mean, as far as I was aware, we were somewhere around 21%-22% on an annual. Is there a seasonality in the business or?
Yeah, there is, there is, there is a full seasonality. There are a lot of other things, yeah. You know, 18, 20, it could hover around that quarter-to-quarter, year-to-year, yeah.
Okay. Would you say the growth rate of the branded business and trade generic business are now moving in-
Sorry?
Growth of branded generic and the trade generic is moving in tandem, or would you say trade generic is still faster?
This quarter has been lower for both. I think this quarter will not be a good answer to answer that.
I'm, I'm not saying this quarter, like, you know, maybe for last 12 months.
Yeah, trade generic is always higher, Chief.
Yeah.
It's like that in the past.
Okay. Okay. Okay, perfect. Let's say our cost efficiency measure, you know, I'm not sure, I might have missed it, I joined little late. Has that kind of contributed in this quarter or is it going to contribute?
It has contributed, Chief.
It has contributed.
Okay.
We are basically, let's say, to achieve that 16% EBITDA margin guidance, generally Q2 and Q3 needs to do much better than what we are doing, right? Which is generally the case because of actually it being higher.
Right.
Okay. Okay, perfect. Yeah, I have more questions. I'll join back you. Thank you.
Thank you. We'll take the next question from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good afternoon. Couple of questions. One, on the, on the depreciation and amortization, I see a decrease year-over-year. Is that because of the write down that we took in the last quarter?
Voice is not clear. Bino, you are not very clear.
Yes, sir.
Sorry. Is it better now?
Yes, sir. Please, please proceed now.
Okay. Okay, there is a YOY decrease in depreciation and amortization. Is that because of the write-off that we took last quarter?
There was, there was some 1-off related to our U.S. entity. Actually, we took additional depreciation in quarter one of last year.
Okay. Okay, so this is the new base. Okay. Second, in the U.S., there was this double action product, which you couldn't launch because of supply issues, et cetera, et cetera. Any update on that?
Amit, you want to take that?
Sure. I guess you're talking about double action, and double action, we are still not in the market. We are still working on sorting our supply chain.
Okay. Also an update on Suprep, if you planning to launch any time soon?
Am I-
Do you want me to take that?
Yeah, yeah.
Yeah. Okay. Okay. Yeah, yeah. No, no, we are not in the market, in the recent future for generic Suprep.
Oh, okay. Thank you.
Thank you. We'll take the next question from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Thank you for the opportunity. My first question is, if you can update us on your cost saving initiative. You mentioned earlier annual target around INR 200 crore-INR 250 crore savings. How you are doing there? Like for, say, 2024, are you confident about achieving the entire savings or it will be gradual move to that stated goal?
Our CFO will take that question.
Yeah. Definitely, our cost saving exercise is going as per our plan. In this quarter also, we have sizable amount in our bottom line. Your second question was whether we'll be able to achieve INR 200 crore in this year. I think, for sure, INR 110 crore we have already taken in our budget. We'll see. Our endeavor will be to have maximum, but.
Not all of it.
I, I don't think it will be INR 200 crore, but definitely we'll try to add maximum.
Okay, but say, if not in this fiscal, that's your, I'll say, medium-term goal, and as you progress more there, we should be seeing, gradual upticks from the 16% margin target, which you have, indicated for FY 2024. Should we work with that assumption?
Well, I think she would. We've we already said that, you know, go every year we'll try to increase by 50-100 basis point, and that, that's actually what we are doing.
Okay. Okay. My second question is, you talk about softening raw material prices. Does that include softening prices for Penicillin G also, or that remains elevated?
I think that's non-Penicillin G. Penicillin G is still tough. Cefoperazone is still tough.
Okay, still tough. My last question, if you can state the current MR count and your productivity for India business?
Sure, Yogesh, yeah.
Total, we have now 12,000 representatives, okay? Our productivity average at Alkem level is around 5.4.
INR 544 lakhs. INR 5.4 lakhs.
Yeah.
That's our average.
Yeah.
If you can split that among acute and chronic, that will be also helpful.
Acute around 5.9 and chronic 3.5.
3.9. Okay. That's all. All the best.
Thank you. Thank you. We'll take the next question from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, thanks for the follow-up. Isn't it, you know, on the capital allocation question, you know, given the continuous generation in cash and historically, Alkem is very conservative, is there a possibility to significantly increase the dividend payout going forward?
Going forward, I mean, never say never, but as of now, we don't. We have not revised our dividend policy, so nothing in the near term or as in, science. Yes, if this cash becomes, like, swelled up in a couple of years' time, we are still conservative in acquisition targets, yes, then we will revise this side. We are still away from that.
Okay. Okay. One more, if I can, on biosimilar initiative. You, I mean, have been talking about, you know, certain technologies which differentiate you. If you can, you know, give some more color as to how do we think about Enzene going forward from, let's say, INR 140-150 crore that you have over the next two, three years? Thanks.
Yeah. Saion, thanks for that. I think Enzene will continue to grow rapidly, and we are looking at Enzene not just for biosimilars right now, but we also, we also think the CDMO part of that business would, would also look pretty healthy. Obviously, in early days, we can't be dead sure that this would be right, but I think CDMO and bio technologies are also a huge opportunity. I think the business from this year will be close to INR 150-INR 135, I think. This, I think we can dou- double this in a couple of years' time, maybe. Let's watch for a time, take it with a pinch of salt. I think CDMO is a lumpy business. We really don't know how much will come, what, what, what's going to happen.
I think in the next six to eight months, we'll be very clear on, because this is also a new segment we are trying to learn and build it.
Okay. Based on the traction in CDMO, is it with the innovators, biotech companies, or with the biosimilar companies, where are you seeing?
Biosimilar is the award, because any biosimilar is a low price business for them to, you know, make it as someone else's plant is difficult. Most of them are innovators, but obviously small biopharma to some subsidiaries of a large innovators company also we're working at. Yes, we are, we are in talks with some mixed, like, large and small, both. Some of them seem to be finalizing also.
Okay, great. Yeah. Thank you. Thank you.
Thank you, Saion. Thank you.
Thank you. We'll take the next question from the line of Rashmi Shetty from Dolat Capital. Please go ahead.
Yeah, thanks for the opportunity. You mentioned that, you know, we are running Enzene biosimilar plus Enzene CDMO segment, sales are around INR 150 crore-INR 175 crore. How much have we done in this quarter one?
Right. Actually, you know, thanks for bringing it up. I think I stand corrected. I think this will be at close to INR 240 CR in the end of the financial year.
This financial year, you will end up doing INR 240 crore. That is what you-
INR 250 crore. This quarter one, we did a sales of around INR 57 crore. Quarter one.
Okay. At the EBITDA level, you know, are we doing still losses or, I mean, expected to do losses at the end of the year?
Yes, mild losses end of the year, in Enzene, yes. We'll not be breaking even this year.
Okay. We should expect that, that should happen, in the following year.
Yes, that's right.
Okay. How much of the R&D expenses is allocated to this business, you know, out of our total R&D? I mean, in percentage terms, if you can explain.
One-third of our R&D budget is for biotech right now.
Okay, got it. Just on India business, you know, I'm just, feeling that, you know, you're giving a very conservative number of high single digits, because normally for Alkem, second and third quarter is very good in terms of the domestic business. That is what I understand. Don't you think that, you know, with the anti-inflammatories and everything is picking up in next two quarters, you know, we should actually, be able to do at least, low double-digit sort of growth in domestic business?
I hope what you're saying is totally right, and we pray for it. Look at quarter one, we have slowed down compared to the IPM. I think it would be prudent to temper our expectations. We have no incentive to give a lower guidance or manage it, but, yeah, we really think that it's going to be tough to go to double digits. We might. I, you're right, Azevi, we are a acute-based company. The season really supports, but that's like hoping that everything will go right.
Okay. We are in the middle of the second quarter, so are we seeing any sales pick up, or you feel that still it is less than your said?
We don't see a very significant uptick compared to quarter one.
Understood. Got it. Thank you. That's it for me.
Thank you. We'll take the next question from the line of Kunal Randeria from Nuvama. Please go ahead.
Hi. Hi, good afternoon. Mr. Gadiyada, on the U.S. business, you said there was no one-off opportunity, right? Where did this such a sharp growth come from? Were there new launches or, you know, some market share gain in some products, if you can just highlight?
No, it came across from the, more from the existing business than really from the new products, but new products obviously did contribute to the growth. I just want to make sure that, you know, it's understood correctly. Q1 of last fiscal was down quite a lot. If you really compare, you know, 2 fiscals back, the growth is pretty modest or, you know, more or less like little bit of growth. Really that's where we are. Whatever kind of we lost last year, we have sort of gained back.
Got it. okay, but I mean, I mean, just, just to push a bit more, while I understand Q1 base was unfavorable, but it's nothing out of the ordinary. I mean, by that, I mean, maybe some competitors withdrawing from some molecule or anything of that sort. This is just normal business.
That's correct. There's nothing abnormal here or unsustainable here, to be honest. Like I said earlier, the easing in pricing pressure also helps us overall.
Right. Got it. My second question is on the trade generics business. Now, in the last 12 months, several new, you know, big pharma companies, domestic pharma companies have entered this business. Do you think in the longer run, it could cannibalize the branded business for the industry?
Sorry, your question was on trade generic? What was it?
Yes, yes. I'm saying a lot of people, a lot of big pharma companies from India have entered this business. Could it cannibalize the branded market that would like to grow branded market in the longer run?
I think in the long run, there would be some impact, but in the long term, there could be some structural impact. I think one is trade generics, private labels from pharmacy chains, all that we keep hearing. Yeah, long term, there could be some impact.
Sure. Since, Sandip, you are maybe the largest or second largest player in this, is there any moat to this business? If so, so many players entering.
That's a great question. You know, actually, these are brands in itself, because, see, they have the brand names also, and the, the chemist and the retailer, the retailer and the stockist push it. Your moat is your relationship with the stockist and retailer, which is built over a long, many years. Even the consumers, I mean, I mean, who consume the medicine, they know about these companies. It's not only a pricing game. It's, you know, that's a misconception. In fact, as I kind of said some time back, I think trade generics is also not a great word for this business because these are brands actually. These are trade brands, we could call them. Lot of pro-products from Alkem are picked up by the consumer by taking the brand name.
We don't call on the doctor, but we call on the stockist and retailer.
... Great, great. Got it. Thank you, and all the best.
Thank you.
Thank you. We'll take the next question from the line of Chirag from DSP Mutual Fund. Please go ahead.
Yeah, sir, thank you for the opportunity. Sir, have you taken any price hikes in the trade generic business also?
Mr. Dubey, you can take that.
Yeah. Yes, definitely price hike is there. That is, one component of, growth, we forecasting trade, trade generic. There, there, a lot of analysis needs to be done, to what extent we can, take price.
We have taken in the quarter, 1 just 1.
We have.
That's a great question. Again, it proves it that we have a brand, it's not just pricing.
You know, when we think of the business longer term, in general, when we think of the branded business, we think about it as a 3%, 4%, 5% kind of price hike, you know, generally. Is that true for trade generic also? Although it may not be as linear, but generally, when you think of it in blocks of, say, 3 or 4 years, does that kind of price hike come through?
I would say not like the brand, branded, like prescriptions. It depends on the segment. If it's has an OTX component, you can have a price rise 3%-5% every year. On the others, it depends on some, some dynamics of competition and things like that also.
Sir, my question is based on historical data. Over the last 4, 5 years, have you seen low single-digit kind of price hike in your portfolio?
We have, we have, but it comes in lumps.
Correct. Understood. you've seen, but you've seen, you know, mid-single digit or low single digit kind of price hike, in that business over a 4 year?
IRR, yes, we kind of take a hike, yes.
Understood. Okay, fair point. Sir, you also talked about, you know, the India business growing in high single digit this year for you. In your assessment, how much will IPM grow this year?
In my assessment, IPM will grow by maybe 8%.
In that context, you are thinking about, Alkem's business growing in, a similar, you know.
Similar to maybe 100 to 200, maximum 200, make us reach double digits, but yeah, close to that.
understood. Okay, fair point. you know, when you typically, your procurement for, you know, for your large molecules in the coming season, when does it start, and how does this play out for penicillin G based products for the coming seasons?
Mr. Dubey, yeah. Yeah. Our raw material procurement and other excipients or packaging material, it keeps on, on continuous basis. Normally, we build inventory of RMPM for our production schedules. I think, but wherever we foresee and we get indication prices are going to increase, definitely we try to make inventory little bit on higher level. Beyond certain extent, you can't have inventory. Just to answer to your question, it, it is continuous exercise. If Penicillin G prices are on higher side, and in fact, you, if it is expensive, you cannot avoid. Instead of one and half months or 2 months, raw material, and excipient, you can go and add for another 15 days, not beyond that, or a month or so.
Answer to your question, if prices are on higher side, definitely it will be part of our COGS.
Understood. Okay. Just the last question, sir, if I can, please. The chronic business today, is it contributing to EBITDA?
Yes, yeah, it does. chronic almost contribute close to 20% to the business. I mean, you know, to overall chronic business, if you ask, chronic contributes to itself around 18%-20% EBITA.
EBITA margin for Chronic.
Yeah. This is EBITDA margin to the chronic business, I am saying.
Chronic business margins are also similar to what you make on a in the India business basically?
No. I mean, yeah, overall, yes. Yeah. That's beginning, it should be make far higher. I mean, I'm sure you know. Yeah.
Mm-hmm. Perfect. Thank you so much, sir. Thank you so much for it.
Thank you. We'll take the next question from the line of Mehul Sheth from Axis Capital. Please go ahead.
Yeah, thank, thank you for the opportunity. Sir, first question on domestic side. When we see around 7% growth in Q1, can you break it down between the volume price and new launches, how the growth was? Similarly, you are expecting high single digit growth, so will it be like a volume price and what are your expectation on these growth drivers for the IPM?
Yogesh?
Yeah, quarter, if you ask me, then the, the volume growth is close to 1%, new launches is 3.7, NRE is 2.3.
For the full year, like when we say a high single digit growth, say, around 8, 9% or 8 at par with market, then what will be your expectation like? Is your volume recovery visible or?
Yeah, you can expect a reasonable good recovery from NRV because of our DPCO impact. You know, the price impact will be seen more in quarter two onwards. Large impact will come through NRV, and a reasonably good amount will come through volumes as well. These two will contribute to the growth factor in the next two to three quarters.
Sir, last, last on some tax rate side. This quarter was around 18%, so what will be the annual ETF for the coming?
Yeah, actually, we are revising our guidance on effective tax rate. It is going to be in between 17%-19%. If we compare with last year, definitely it is on higher side because of some compliance related things related to marketing services. Now, some of the marketing expenses we considered as disallowances. Second thing, our profit from no non-exempted plant, it increased. That, that is mainly our export business. If that mix is going to change, then definitely we are going to have higher effective tax rate. To conclude, for this year, we are going to be in between 17%-19% on effective tax.
Sir, one last, like, one more question. Any, like, any impact on other expenses or other, because of your take, subsidy?
Sorry, I'm not very clear on, on your question.
Because of your subsidy.
Your voice is breaking, sir, now.
Am I audible now?
Yes, sir. Please proceed.
Yeah. Yes, so,
Please keep your mic little bit farther from your mouth as we please.
Yeah. The question was like any Forex impact in other expenses side because of this subsidy?
No, it is, it is not there in other expenses, at least for this quarter, because, we have positive impact of Forex, and it has not gone under other expenses.
Okay, sir. Thank you. Thank you, sir. That's all from us. Thank you.
Thank you. We'll take the next question from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.
Yeah, good evening. Am I audible?
Sir, your audio is too low.
Is this better now?
Uh.
Little bit louder.
Please proceed.
Okay. Sir, the first question is around the other expenses for the quarter. It's up 21% year-on-year against the sales growth of 15%. You know, if I adjust for R&D, which is actually slightly lower year-on-year, then the other expenses, excluding R&D, are actually up 28% year-on-year. Can you explain and elaborate there? I mean, I would have thought that you are undertaking cost-cutting exercises, this should reflect in the other expenses line item.
Yeah, generally, it, it depends on what kind of phasing you have for your marketing expense. In, for this year, in quarter one, phasing related to marketing expenses on little bit on a higher side. Definitely, to a certain extent, it got neutralized because of softening of freight, especially export freight. That's very true. Yes, even R&D spending is, is on little bit on the lower side, but it's, it's a phasing of marketing expense, so we spend little bit higher in quarter one. Definitely quarter three, quarter four is going to have impact of that to a certain extent.
I mean, are you suggesting that, in the coming quarters of the year, the other expenses line item can actually be lower because you've upfronted a certain amount of your marketing expense in the first quarter itself?
Yeah, obviously, because, our annual EBITDA target, is, guidelines is 16%. Definitely, that is, going to, reduce, going forward.
I mean, this quarter, your sales mix, you know, India to exports is 2/3 to 1/3, whereas normally, you know, for the full year, I think it's, it's, it's higher for India. So the sales mix would also, you know, have had some impact on, on margins. Would it then be fair to assume that as the sales mix normalizes, it should show up in margins going ahead in, in the, in the quarter?
Yeah, you are very right. Actually, sales mix, if it improve, improves for domestic, then definitely we are going to have better gross margin as well as EBITDA margin.
Okay. You indicated that, you know, you were able to take the DPCO linked price increase only in the month of June for the first quarter. It was not effective for the first 2 months. If that is the case, then again, sequentially in the second quarter, even that should help your gross margins and EBITDA margins. Would that be a fair assumption?
Yeah, Gagan, actually, in fact, our guidance of 16%, we have factored all these things. Increase in DPCO price, whatever it has not come in quarter one, that also is factored. I think you have given answer to most of the thing. If our product sales mix is changing, definitely we are going to have better margin. Right now, our projection and our guidance of 16%, most of the thing we have already factored.
Right. Right. I take that, sir. Last one, if you could just clarify, I, I didn't, I didn't hear the, the, the Enzene top line number. I was not able to hear it clearly. You indicated a certain sales number for the year and for the as- aspiration for the year and, and actual number for the quarter. If you could just kindly repeat that?
INR 240, INR 240 for the year.
Yeah, yeah.
Yeah.
Yeah. For the year, total top line, for Enzene on consolidated basis, it is going to be INR 265 crore, or INR 260 crore around.
In what, last year?
Last year it was around INR 160 crore.
You recently launched, I think, 3, you know, additional products, Cetuxa and, and some, some more. Is there anything more in the pipeline that you intend to add this year?
Yeah, yeah. Every year we intend to launch two to three products. There's certainly something coming up in the next quarter.
Okay. You foresee a break even in Enzene, in the coming years, right?
Next year, yes.
Right. And, and how have, how has been, you know, the, the reception of your, of your ophthalmic portfolio? I, I, I know it's early days, but if you could give some idea on ophthalmic and also on the diabetes and cardio side. I think last year, cardio was, was, was weak, if I, if I recall it correctly.
Ophthalmic is very early. I would refrain from answering. I would love to answer you, but just give us a quarter more. Cardio and diabetes, Yogesh, you can.
I think you're right. Diabetes, you know, that we are, we are outperforming the market reasonably well. Cardiac, I think we have significantly improved now. Compared to last year, where our EI, evolution index, was below 90, now in this quarter, we have reached 98, and for the month, it is 101. If this trend continues in the next quarter also, we have an EI more than 100, and that is, you know, outperforming the market. Cardiac is reasonably settling.
For the chronic portfolio in India, would it be reasonable to assume, you know, that, that you can sustain a mid-teen sort of a growth for, for the, for the year? You've already got that sort of a number in the bag for the first quarter or do you believe, you know, there's potential for it to be better?
No, we should be in around that. We will aspire for better. Mid-teens is what we should be surely driving.
Okay. Thank you. I'll get back in the queue. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants in the conference, please limit your questions to 2 per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We'll take the next question from the line of Punit Pujara from Helios Capital. Please go ahead.
Yeah, hi. Thanks for taking my question. I hope I'm audible.
Yes.
Yeah. For the quarter, you added $12 million-$13 million in the U.S. business, both on quarter-on-quarter and year-on-year basis. I just wanted to know, because of that and cost-cutting measures would have aided your EBITDA profile. I wanted to know, are we in profit in the U.S. right now? I'm not looking for a number, but just directionally, is it profitable at the current juncture?
Mr. Dumet.
Yeah. Answer to your question, at business level, are we profitable? Yes, definitely we are profitable without taking few of the overheads. Here I'm referring corporate overhead or similar kind of overheads. Definitely we are in profit. And I'm sorry, what was your first question?
No, that was, the question was on profitability only. I was not slicing or dicing anything. After RNP and overheads, everything put together. That was my question, sir.
At business level, we are in positive.
Understood, sir. Sir, last... Updated on Enzene, I mean, you had communicated that you are incurring CapEx.
I'm sorry to interrupt, Mr. Pujara, your voice broke. Can you please repeat your question?
Sure, sure. Is it better now?
Yes, sir. Please proceed.
Yeah. Sir, last quarter, you had indicated that you are incurring CapEx for Enzene in the U.S. What are the project commissioning timelines, are you anticipating?
We are one and a half years away, at least from that. One and a half years away.
Sure. A quick last question from my side. What's the R&D guidance for the full year, considering the revenue, guidance revision?
I think we... 5% is a good estimate.
Understood, sir. That, that answers my question. I'll join back the queue. Thank you.
Thank you. We'll take the next question from the line of Akash Dobaria from Motilal Oswal Financial Services. Please go ahead.
Thank you for the opportunity. Just want to know the gross margin guidance for the year?
Gross margin guidance, we have already given 59%-59.5%, and that we maintain.
Okay, thank you.
Thank you. We'll take the next question from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead. Mr. Mourya, I have unmuted your line. Kindly proceed with your question.
Yeah. Yeah. Sir, my first question is on the, you know, the MR strength. What would be the breakup, broad breakup between the acute and chronic?
We have, you know, 20% of our, you know, overall, reps is chronic. Out of 12,000, 2,400 for chronic.
Okay. basically, sir, I think earlier, the productivity level, if I see, has significantly improved in the Chronic.
... versus the acute, which we were expecting to improve further, I think that has not inched up to the level which we were expecting. Any specific reason for that, sir?
This is largely because of expansion. While at broad level, blended level, you might see a productivity is, is stagnated, you know, but this is because of in-increase in manpower. Last year, we expanded close to around 800 odd reps, so that dilutes our productivity. That's the reason you might be seeing a, still, you know, stagnated productivity.
Okay. Now, now, given the pickup and all, it should improve from here on?
Yes, sir. Yeah, yeah.
Okay. Fine, sir. Thank you.
Thank you.
Thank you. We'll take the next question from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Yeah, thank you for the opportunity again. I just wanted to understand on the Enzene business. Right now it's all revenue coming from India. Secondly, on the same Enzene business, if you could help us understand the economics of the business as to the gross margins right now and the fixed cost, fixed operating cost. Once you grow, how much improvement can come from there? That is the first question.
Sure. I think we'll answer not all of it, honestly. It's too early to answer on gross margin and fixed cost and all. We'd love to answer it when it's a larger business. We'll give you a split between international and India. It has international components, not on India.
Okay.
International is 20% and domestic is 80%, including CDMO and products both.
Okay. The plant, you know, if you can help us with the, let's say, bioreactor capacity, and has it been inspected by which agency till now?
Yeah, it's inspected by the TGA, Australia. We have five EU, so they would also come in in some time. TGA approved in in, regulated markets, it's TGA approved. Inspected, yeah.
Sure. The capacity front, bioreactor capacity?
We'll come back on that. We don't have it offhand. We can answer you separately on that.
Secondly, on the EBITDA margin improvement, let's say beyond FY 2024, which we are suggesting 50 to 100 basis points every year. Now, the way I see it is there are three, four drivers, right? At least for FY 2025, we would see incremental cost efficiency and then Enzene profitability improvement, then the general operating leverage in India. I mean, so my question here is, does this 50, 100 basis points incremental improvement, would that also assume raw material prices of some of our key molecules going down?
Yes.
Or-
For some part of it, that would have to play out.
I see.
Operating leverage would play a large part of it beyond 2025.
Okay, sure. The last one, if I may, on the trade generic business, you said that we can take price increases, et cetera. Generally, I mean, when I look at our trade generic, you know, prices as compared to the branded prices for the same molecules, they are generally only around 10%-15% cheaper, right? To that extent, we don't have that much kind of leeway. Is it a fair assessment or I'm wrong here in terms of numbers?
I think we don't have that much of leeway compared to branded, for generics for sure. That's a fair assumption.
Mm-hmm.
We stand by what we said. There is, we do take a price increase in trade generics as well. Not as structured as branded generics, but they do come, and they, they come in lumps.
Mm, mm, mm.
Yeah.
At, at any point, have you thought about, you know, some of our peers have changed their strategy by, you know, putting this, some of the big brands into the consumer healthcare bucket. Would we also plan to do this at some point? Then what-
Certainly, we'll do it, and we do think about it, and that's very interesting. We also have to think that, you know, it's a huge franchise. We have the doctors, so we have to be careful on that, but we certainly think about that to answer you. As a possibility in the next couple of years, we might see more of that.
What benefit could it bring for us? You know, on a broader level, I'm not asking for exact benefits in terms of margin, et cetera, but like strategically, you know...
I think just a larger consumer base. Whenever this is done, normally you do see a dip in the first year, year and a half. There are a lot of examples what it happened in Ranbaxy, when they was in Ranbaxy, when they went from RX to OTC, they did become large brands, Revited and the other painkillers of Moveran and all that stuff.
Mm, mm, mm.
Yeah.
Sure. Thank you and all the best.
Thank you.
Thank you. We'll take the next question from the line of Rashmi Shetty from Dolat Capital. Please go ahead.
Yeah, thanks for the call. Sir, do we have any claims of overpricing from DPCO or NCP, NPPA, where they are considering this amnesty scheme?
Not, not any significant, as it has come to our notice. The DPCO, they keep, keep on communicating, and then we clarify them. Nothing significant as such.
Okay. For the U.S. market, how many launches have you planned for this year? Any specific numbers you would like to call out?
... Mr. Ghare, you can take that, please.
This year we have planned, about 8 launches in the U.S.
Okay. These are all mainly OSD, right?
That's correct. Like we have said in the past, we also do liquids, we do powders, we do nasal sprays. So yes, they are spread across these dosage forms.
Perfect. Sir, on international business, can we take this as a new base of, quarter one of roughly INR 319 crore? You know, as you already mentioned, that all the markets are contributing to the overall growth.
Yes, there is nothing which is one time here, so to that extent, this base can be taken. Of course, quarter on quarter, some variance will always come.
All right. Thank you, sir. That's it for now.
Thank you. We'll take the next question from the line of Mehul Sheth from Axis Capital. Please go ahead.
Yes, thank, thank you for the follow-up. Sir, just one clarification. When you said your tax guidance of 17%-19%, it is for FY 2024 or even for FY 2025 and FY 2026?
The, this was for FY 2024. FY 2025, we'll come back to you, after, after, seeing, 2024. This 17-19% is for 2024.
Okay. Sir, just one more like, when we talk about capital allocation, do you have any plan like to foray into ventures like consumer healthcare or anything like your peers or some of the peers are doing that?
No. Sorry, your question was, our plan is on what? Consumer, what?
Consumer healthcare is kind of a ventures like.
Yeah. I mean, we think about it every day. It's interesting, but the better margin is impacted, so I think we'll have to think about that because, you know, the first two, three years would be, Marketing spend would be high. We'll time it adequately, but right now we don't have any plans to foray into it.
Okay, sir. Thank you, thank you. Thank you for the clarity. That's all.
Thank you. Ladies and gentlemen, this will be the last question for today, which is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, yeah. Thanks for the follow-up again. Just 1 clarification on the international business. I mean, typically, we have seen a lot of volatility with many companies, but for Alkem, it has been a very steady growth. If you can give, you know, some idea as to, you know, is this entirely branded generic kind of business, or you also have some tenders which can go up and down? The nature of the business at an overall level and, you know, some of the markets like KD and all, which is a large market, we have seen consistently 30%-40% CAGR kind of a growth in the last 4-5 years. How are you sort of driving this, if you can, you know, give some idea on that?
Mr. Ghare can take that.
Sure. There, there are businesses which have the institutional component, so no two things about it. The overall business is obviously achieved based on each market, looking at their numbers and, you know, looking at all the areas that we can expand or grow in. And the first point really trying to answer your question was, we have a bigger slice of the interchangeable generic business versus the branded business. So that clearly is our split, or that's clearly the way we operate our asset base. There's no one particular market which kind of jumps out, and there is, like I said earlier, there is no one-time business that came into these numbers. So we strongly believe that these are sustainable. Having said that, there will always be some variance quarter on quarter.
Okay. What is the split between institution generic and branded generic, approximately?
There's nothing like institutional, so I don't want to split it that way. Interchangeable generic versus branded generic, that split is 90% is interchangeable generic, 10% is branded generic. This is overall international business.
Okay. Thank you. Thank you. That's all. Thanks.
Thank you. As that was the last question for today, I would now like to hand the conference over to Mr. Amit Khandelwal for closing comments. Over to you, sir.
Thank you everyone for attending the call. If any of your queries are unanswered, please feel free to get in touch with me. Thank you.
Thank you very much, sir, and the members of management. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.