Ladies and gentlemen, thank you. Welcome to Alkem Laboratories Q3 FY 2023 results conference call hosted by Motilal Oswal Financial Services. As a reminder, all participant lines will be in a listen-only mode. 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 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. Thank you. Over to you, sir.
Thank you, Tanvi. Welcome to Q3 FY 2023 earnings call of Alkem Laboratories. From the management side we have Mr. Sandeep Singh, Managing Director, Mr. Rajesh Dubey, Chief Financial Officer, Mr. Amit Ghare, President, International Business, Mr. Yogesh Kaushal, President, Chronic Division, and Amit Khandelia from the finance team. Over to you, Amit, for the opening remarks.
Thank you, Tushar. Good evening, everyone, thank you for joining us today for Alkem Laboratories Q3 FY 2023 earnings call. Earlier during the day, we have released our financial results and investor presentation, the same are also posted on our website. Hope you 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, 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, the same must be viewed in conjunction with the risks of our business thesis.
After the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me. With this, I would like to hand over the call to Sandeep Singh to present the key highlights of the quarter gone by and strategy going forward. Over to you, Sandeep.
Thank you, Amit. Good evening to all of you, and thank you for joining us today for our Q3 FY 2023 earnings call. I will briefly take you through the key operational and financial highlights of the quarter gone by and will then leave the floor open for Q&A. This quarter has been a strong quarter for the company with year-over-year revenue growth of about 16%. EBITDA margin improved substantially from the previous two quarters and came in at 19.7% and the profit after minority interest at about INR 450 crores. During the quarter, I generated cash in excess of INR 500 crores, which has helped us further strengthen our balance sheet with a strong net cash position of INR 1,900 crores as on December 2022.
In a recent development with regards to our biosimilar business, Enzene Biosciences, this company has raised about INR 161 crores and partnered with Eight Roads Ventures and F-Prime Capital. This further instills our confidence and reaffirms our journey towards building a leading global biological company that leverages innovation to enhance global health. After having commercialized key products in India in Indian market, Enzene has launched adalimumab in this quarter. Enzene has also received approval for cetuximab, which will be our fifth biosimilar product in Indian market. We are seeing good traction on CDMO side also, and we expect CDMO segment to make a meaningful contribution to Enzene in the coming years. Building on the pace of quarter one and quarter two, our India business delivered a good growth of 9.7% year-on-year during the quarter. We have outperformed the market in all quarters of the financial year.
In quarter three, our performance is even stronger than the Indian pharmaceutical market as per secondary sales data by IQVIA. While IPM grew by 10%, Alkem grew by 16.7%, thereby beating market by 670 basis points. We have gained market share across all acute therapies, areas of anti-infective, vitamins, minerals, nutrients, pain management, and gastrointestinal. In chronic therapy areas like anti-diabetes, neuro, CNS, and urology, we are growing far ahead of the market. Our growth in these therapy is more than 3 x the market growth rate. We have gained three ranks in anti-diabetic, two ranks in neuro CNS, and four rank in urology during the quarter. Moving on to our international business. After two quarters of subdued performance, our US business posted a strong growth in quarter three on the back of good season in US market.
US business posted a year-on-year growth of 33% and sequential growth of 26% in rupee terms. During the quarter, we filed two ANDAs with the US FDA and received three approvals, including one tentative approval. Our other international markets delivered a year-on-year growth in excess of 15% on back of good performance, majorly from Chile and Kazakhstan. Coming to regulatory inspection conducted by US FDA during the quarter. In terms of regulatory status of the manufacturing facilities, St. Louis was inspected in the month of November, for which EIR is received. All our manufacturing facilities supplying to the US market have an EIR as on date. To summarize, we have delivered another quarter of market-leading performance in our domestic franchise, and we will continue to maintain a leadership position.
A lot of cost optimization projects are underway in our organization, benefits of which will start accruing the coming periods. With this, I would like to open the floor for Q&A. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question, please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions are sent in. The first question is from the line of Saion Mukherjee from Nomura Securities. Please go ahead.
Thanks for taking my question and good evening. My first question on the U.S. market, there's a strong sequential momentum. How sustainable is that? Because there might be some seasonal benefits if you can guide for the next quarter and quarters ahead on the U.S. market.
Hi, Saion. I would like Mr. Amit Ghare to take this question because I think he's much closer to reality. Amit, over to you.
Thank you, Sandeep. Saion, you're absolutely right. Most of the performance in the quarter came because of the season, because especially of the flu season. We do have a lot of anti-infectives and other products related with that. Quarter four guidance certainly will not be similar to quarter three for sure. We are hoping it'll be better than quarter one and quarter two or certainly in line with that.
Okay. That's helpful. Also on the cost front, you know, how you're seeing raw material costs and other expenses are also somewhat, you know, the growth was muted. If you can, talk about the cost, you know, how that's sort of playing out, any changes you've seen in the recent past.
Mr. Dubey
Saion, as you see, it's quarter three. Our gross level margin, sub 100 basis point improvement, is visible. 58.9% margin we have whereas in sequential quarter it was 100 basis points down. As far as cost of material is concerned, I think we have not yet come peak COVID level. Raw material prices, they are on higher side but manageable, unlike what we saw in the months of November and December of last year. Second, going forward also, DPCO price increase because of higher inventory, we were not able to take 100% benefit in quarter two. Quarter three, I think that benefit has also come. These are the two major reasons.
As we guided earlier, I think we are going to remain somewhere close to 58 .5 % gross margin level. As far as your question on other expenditure is concerned, if you are referring quarter three, definitely in quarter three, it is on lower side. In fact, it's 13%. Whereas in earlier quarters, on annualized basis it's higher. There are two major reasons behind it. One, currency fluctuation positive, it has come in this quarter. Because mainly Chilean peso, it got stronger. That was one big factor. Another reason being, some of our R&D-related expenditure, it has got deferred for the period, so not in quarter three. We have a little bit on lower side.
The, there are some marketing expenditure related also little bit on lower side. They are not very significant. These are the major two items. Which has which is increasing other expenses on lower side. If you have any further question, I will be happy to answer it.
Just one clarification, sir. I mean, I think the foreign exchange fluctuation had a negative impact, if I remember correctly, in the first quarter.
Yes.
That has got reversed. Like, what is the quantum here?
Yeah. For quarter three it is to the tune of INR 50 crores.
Okay.
Because in quarter two there was - 20 and we have + 30. Sequential quarter if you see, impact is around INR 50 crores.
That is under other expense?
Yes.
Okay. Just one last point, sir. I mean, with the China opening, you mentioned, raw material prices are high and it will remain there, so you do not expect any moderation in raw material costs? You don't have any signs of that happening?
I think, particularly anti-infectives, Aceclofenac and, I think now price, prices again started going up. Pen-G, we can clearly see prices have started going up. We don't know. Going forward we think it will get normalized and, situation will be in control. Currently, yes, definitely anti-infective especially, we can witness, rise in price of raw material.
Okay.
Question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for taking my question. Just a couple of clarifications. First, I think, you're facing some kind of supply issue with one of the products in U.S., in quarter two, where possibly we also have a exclusivity. Has that been resolved in this quarter and the product contributed meaningfully this quarter?
Amit, Mr. Amit Ghare, you can take that.
No, the supply challenges remain. That product has not contributed meaningfully in this quarter. Perhaps not at all.
Okay. In going forward, how is the competitive landscape there? If, are we able to resolve those challenges and we still see opportunity for that product or once the exclusivity period is over, the competition will be too worse?
The exclusivity in any case was a fair exclusivity. More than two players were there in the market and could have got approval. Obviously they have not got approval because of their own reasons. It's very difficult to say when competition will come in. As we speak today, the opportunity still remains, but we need to get a good hold on our supply chain like we discussed in the earlier quarter.
What is this issue basically? Is it related to API, is it an in-house API product or partnered API product? What is the issue that we are facing?
I don't think I'm at liberty to discuss by that a product-specific level in detail.
Sure. Sure. My second question is on India business. Can you provide some kind of color in terms of what was the growth situation in the business in the quarter or maybe the contribution of rate-generating business in this quarter?
Can you repeat the last line? I couldn't hear.
The contribution of rate-generating business in our India business in this quarter.
Yes. It's around 20%.
Maybe for nine months.
20% of the total business for the quarter.
20%.
20%.
For the nine months?
Almost similar.
Right. Lastly on the cost efficiency side, if I have to attribute it to a particular geography, which geography would you be targeting more from the cost efficiency perspective? Or is it a general, you know, kind of improvement across?
I think that, Sajid, I think that's it. It's general, but, it's more U.S.-led to some extent, but it's overall it's a company-wide kind of initiative which we are taking up.
Okay. have you, any
Sorry to interrupt you.
Sorry.
Kunal, your voice was not audible in between.
I was just saying the last one. Have you taken steps that, you know, which may start flowing through maybe next quarter or maybe, you know, probably couple of quarters, if yes, what could be the quantum?
No, I think obviously we have taken steps which will start benefiting us, but the quantum might not be substantial next quarter or something. I think these are million-term projects, so I think next year you could see a benefit. You know, this is similar to what we have guided in the last call. I think all it is part of that, so there's nothing which can be added on top of what we have said. It's an ongoing thing. We will see improvement in EBITDA margin next year, but nothing substantial in the next quarter or something.
Okay. Thank you and all the best.
Thank you.
Thank you. Next question is on the line of Rashmi Shetty from Dolat Capital. Please go ahead.
Yeah, thanks for the opportunity. As you mentioned in the call that some of the expenses have been deferred to quarter four. Normally quarter four is a soft quarter, you know, where we see most of the expenses coming in. The nine-month EBITDA margin is roughly around 13.6%. Do you think that, you know, the earlier guidance of 15% EBITDA margin achievement in FY 2023 is now looking a bit challenging? If you can update on that.
Yeah, Rashmi. We remain with our guidance on EBITDA margin. We have reasons to believe why we are going to land somewhere 14% -1 5.5%. Reason being, we have a visible pre-lower revenue recognition which is going to happen in quarter four. That is one thing. Second, our business is moving as per our estimate for things. We don't think this year quarter four is going to be so soften as it used to. We believe quarter four is going to be reasonably good. On overall basis, we are confident we'll be somewhere where we have guided.
Okay. sir, on India business, you know, how do you see our India growth? Are we expecting that, you know, quarter four growth be, you know, higher and, you know, we can actually complete FY 2023 growth at around high single-digit growth?
Yes. Certainly we can. There's no reason why we should not be able to do that.
Okay. On India business, you know, have you launched Valsartan plus hydrochlorothiazide product? Have you added any new MRs for that or, you know, segregated, you know, some of your MRs from the current trends, you know, for this particular? How are you seeing the competitive intensity in, on this particular product?
Yeah. You know, Sacubitril Valsartan is new, going to be intense. We have created a separate team where we have done a product rationalization. There we have launched a CP Cardio Diabetes team. We have separated two brands so that we make space for Sacubitril Valsartan . We have been preparing this almost for a year before, so we understand the, the market dynamics, and we are prepared. We should do good here.
Okay, sir. Finally, on the US, if you can update on number of launches that you did in nine months and also on the price erosion, you know, in the oral solid space, you know, how is it for the country?
Mr. Amit Ghare, you can take that, please.
Sure. Thank you, Sandeep. number of launches so far I think have been eight over the nine months, if I remember correctly. The price erosion still continues from a overall, you know, deflation perspective. It is still in double digits for us. It did reduce from 43%, but for nine months it continues to be in lower double digits for us.
Okay, sir. Thank you and all the best.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, hi, good evening. My question is, one is on, some of the cost-saving initiatives that you had taken. You mentioned it is on track. What I'm trying to understand is it like, you know, the INR 250 crore kind of cost saving, is it for the year FY 2024 or, is it, you know, how do we see that, over which, what period of time do we see that?
Prakash, yes, fiscal 2024. Next year.
Which is about 2% of the overall company EBITDA margins. We base off about 15 odd percent this year. How should we think margins for next year broad color will help? What are the levers in terms of base business apart from the cost-saving initiative?
No. I will... Okay. Apart, I will not try to segregate, between usual and apart, of, you know, like special cost savings, because, you know, we always do these things. When we spoke about it last time, we also had in back of our mind. Keep in mind that, you know, we might run to 250, but all might not happen. I would try to curb enthusiasm over there to really say that we can get all the 250. It doesn't happen like that in life. I think same thing, Prakash, that we spoke last time. Whatever we land this year, we could grow 200 basis and above that next year.
Okay. How do we make sure that there is no revenue impact of the cost-saving initiatives that we are taking? I mean, have you thought about that?
Oh, of course. Of course. That's my job, Prakash. I'm paid for that. Obviously I don't cut costs and let go of revenue. That, you know, we are very, very conscious of that, Prakash. We are a sales and marketing strong company. We don't do things for short term and create long-term changes.
Why I'm asking this is like, you know, the Pen G and Pen G prices from the raw material side and some of the loss in the US really shook the margin trajectory. I mean, Halpion 20% India, very steady margin with very steady corporate in the past.
Right.
This last nine months, six months have been little volatile in comparison to history.
Right.
Hence the question, sir.
No, no. No, no. I mean, your question was that whether we'll cut costs such that revenue, and the answer is clear no. If you're coming to on RM and Pen G and stuff, that's a different ballgame. Also keep in mind, Prakash, that within one year's time Pen G will be produced in India. I'm not here to, like, talk about other companies, but we know those large companies doing it. We don't know, Prakash, but I think it will stabilize. I mean, and even if it does not, you know, we have to live with it and there could be other avenues to work on it. I'm still positive, Prakash, you know, it cannot go completely without. You know, the rate, it's an antibiotic.
The cost has to be cut down some way, even at the government level and things like that.
Okay. Possible.
I'm sure that it will not go berserk. Thank you, sir.
Yeah. Secondly, sir, congrats on the Indian team. Can you speak about, you know, what is the career plan here? How many products are in development? And have you taken any product to rest of the world markets? What's the career plan here? And what is the revenue recognition here? Is it captured as, you know, how is it captured in the balance sheet?
Yeah. I think the financial question, Mr. Dubey, you could take this over, revenue recognition and balance sheet, then on the products and market I'll take up.
Yeah. Revenue recognition is still accounting norms, Prakash. If you have any specific question, whatever revenue is approved as you, that is recognized in our financials. If you have something specific, I will be happy answering.
Sure. Change in the, you know, account base or there's no other income impact, right? So...
Sorry. Other income impact. Other income impact on what?
Actual scale of the, you know, equity.
Still I'm not very clear what you're asking.
I'll read the document.
Okay. Cool. Cool.
Lastly, if I may add just one more. January was a little, you know, softer month for everybody given high Omicron waves. So is it just the base related or the market itself was softer in terms of volume? What is our view based on that? Secondly, on the NLEM list which had come with revised prices in December, what is the, you know, what is the impact that we can see for our portfolio?
Prakash, this January month, I'll take this question. It was actually not a softer month. This last year's January we had the Omicron. Some of the therapies, particularly anti-infectives, multivitamins and pain, these three we had an inflated base last year and therefore you might see some diluted growth in the month of January. Overall, if you look at broad therapies, they have shown a good growth. Internally also in line with this, we have done well. Actually, January month overall for Alkem was a good month across therapies.
Okay, the NLEM?
Yeah. NLEM we have minor impact. We have an impact of close to INR 40 crores in quarter. We are certain to compensate this through our unit growth. We should manage this.
Yeah. Prakash, Sandeep here. You had asked on Enzene, so I think we did not finish it. Financials, as you said, you'll take it offline and send it there. You know, we don't give numbers, but I'll tell you for Enzene, we own a small business. We are doubling every year, and next year also we'll do the same. We've got three products going for global development. One is in clinical trial stage. One is in pre-clinical, the other is about to enter clinical. We are not doing a lot of it because, you know, the costs are very, very high on this.
What we try to do is we try to out-license the product to at least one key geography so that that is in key kind of fun-front amount of clinical trials. That's how we plan to kind of keep it, like, not say very high those clinical trial costs in terms of impact on P&L. In India, we have got a pool of 5 biosimilars that have been launched. I think it's going great and Enzene has a strategy of working with everyone. It's B2B business, which is larger, you know, larger than what it's up to Alkem or close to that. Enzene, independent company, we wanted to do business with everyone and it's growing well. I think in the next two quarters-three quarters we'll be able to share a lot more color to you.
Okay. Lovely. Thank you and all the best for Enzene.
Thank you, Prakash. Thanks.
Thank you. The next question is on the line from Damayanti Kerai from HSBC. Please go ahead.
Hi. Good evening. Thank you for the opportunity. My first question is on India. Trade generated around 20% as you highlighted earlier. Between these two, like, what is the growth differential? Are we seeing more growth in the branded portfolio or it's similar for both? How should we see growth profile for these two segments going ahead?
No, our branded portfolio has grown faster than generic. Generic is roughly around 5%-6% while combination is healthy double digits. you know, so our combination is growing much faster than generic. Yeah.
Question from the slide which you shared earlier. You have outperformed markets in most of the therapies, which Sandeep also highlighted earlier. One segment I believe, cardiac is one where you have grown below market. What exactly is happening in that particular segment? Anything to point out?
I think, cardiac, to be very honest, we have to address this strategically, you know, this is a good question you ask. We were focusing more on very niche products, particularly products for atrial fibrillation and anticoagulants, you know, like dabigatran and all. Though we did very well there, from the volume point of view, it is not bigger market. What strategic change we have done is that we'll focus more on mass molecules like telmisartan, olmesartan and all those, which are big volumes, and of course your lipid regulators, your Rosuvastatin. These three constitute close to around 60%-70% of cardiology market. We will slightly restructure our strategy and see that, you know, from quarter onwards you should see a better trajectory in cardiology as such.
Okay. Shift in strategy here to move towards the higher volume products.
Yeah. Because niche, although niche we create good impression, it doesn't give us volume. There we'll do a strategic change and this will show us results soon.
Okay. Got it. Okay. My second question is on your margin guidance for FY 2023. You mentioned you should be maintaining somewhere between 15% to 15.5% outlook for the year. You mentioned about some spillover sales between this. Can you clarify? Like, you said some spillover sales will be there in the fourth quarter.
Damayanti, I think, you're talking from margin of FY 2023, state.
Yes. Yes. Yeah.
As we discussed and we reconfirm, our EBITDA margin is going to be in the range of 15%-15.5%. As far as spillover of sales is concerned, as per accounting norm, if whatever revenue recognition we cannot recognize because of non-completion of entire revenue recognition cycle, and in that, it's a very specific delivery of goods, whatever you have sold. That needs to be recognized when you deliver it and the risk and reward is associated with that.
In quarter three, as of 31st September, we have material sales, which needs to be recognized revenue in quarter four, in the month of January itself. Since March, most of the company, they complete their sales order cycle, dispatches and everything before year end closure. Speedload is hardly anything for the month of March. That's the reason I mentioned 1 sizable material amount will have to be recognized as revenue in Q4.
Okay. Understood. My final question is on how do you see R&D cost moving ahead? Now, like, Enzene obviously is have sufficient funding. How should we look at this part moving ahead, and where you'll be spending most of your R&D budget?
Most of the budget would still, I mean, be for small molecules because that's traditionally a large business. We will manage, as we said last time, everything within 7.5%, including biosimilars, R&D, clinical trials, everything.
Sorry, Sandeep. Within 7%.
No, 5.5%. No, no.
Okay. 5.5% .
5.5% . Yes.
Despite progressing in some of the clinical programs.
Yes, despite. Yes.
you should be sustaining that.
Yes. Don't say seven, everybody will follow up to share over here.
Okay. Sorry. That's why I was saying.
No, no. I'm just kidding.
Yeah.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my question. Amit, on the U.S. business, you know, we've seen a lot of our peers indicate, you know, great business improvement, you know, because of supply disruptions, peers exiting, et cetera. You know, is Alkem also seeing similar trends in our existing products which play out, you know, in the near term?
Most of the improvement in business in quarter three actually came from all the legacy products, but those were because of the seasonal effect. Coming to your question, in general, overall, not just seasonal products, but overall, we definitely are seeing, you know, a lot of customer inquiries and calls coming through in terms of because of either discontinuations or regulatory challenges and competition. However, how much of it will actually get realized to us as ongoing business remains to be seen, because essential roadblocks is pricing. I'll leave it at that. As our performance comes through for quarter four, we will be able to witness it or not witness it.
Understood. Just to clarify, obviously Alkem taking up the additional revenue could depend on repricing versus the existing for some of these products. That would be a fair assumption?
Yeah. What I mean is that, you know, obviously there are. The customers need product. You know, if the existing supplier discontinues or has a different challenge, the customer will look for an alternate supplier. The question is that alternate supplier Alkem or someone else takes that position is what kind of remains to be seen. Yeah.
Understood. Understood. Got it. My third question is on the cost optimization. Sandeep, I know you mentioned cost optimization and the amount, you know, given that you're making progress on it, could you highlight the three areas, in terms of where this cost optimization is being implemented and the key progress that we've made, just so that for us to understand when it could be adding or contributing into margin.
Right. Right. You know, these are, as I said, computer initiatives. 20%, 30% of it kind of we have identified, rest we are identifying. A lot of it is getting implemented. These are from manufacturing to R&D, and these are manpower in both of them. It could be even kind of, some project reduction in some pipelines. We're most stringent about what kind of products to do. It's an inter-crossing, and we're looking at the whole stuff. Largely R&D and manufacturing, I would say. Then some amount of rationalization we could even look at, going forward in other areas as well. A manufacturing cost restructuring goes also on the play, and we will disclose in the next, couple of quarters.
When you say rationalization, could this be, like, re-rationalization in markets like US?
It could be some kind of, you know, plant optimization, those kind of stuff. Letting go of good products may not be, like, right for us. Yeah, we could find better ways to do it for sure.
Understood. Thank you so much.
Thank you.
Thank you. We'll move to the next question from the line of Binod Ramji from Emkay Capital. Please go ahead.
Hi. Good afternoon to all. Just a couple of follow-up questions. One on Dabigatran in the US. You have these supply issues, which you are working on. Do you have any visibility of sorting that out in a quarter two or so, or is it still through execution?
Amit, over to you. Binod, what you want to say? Amit, over to you.
Sure. We're working on two strategies to, you know, restore our supply chain. We think it is still going to take about 6 months to do that. There could be a few regulatory pathways which could make it sooner, unlikely, but could delay it as well.
Okay. Is this a difficult product or is it one of the components that's very difficult to source, thing that, you know, not practically nobody is getting approval, nobody is then being able to launch, or samples, et cetera? Is it a technology challenge or a sourcing challenge?
For us it's a supply chain challenge. For others, I would not like to comment.
Understood. Okay. The second question is about the Forex gain of INR 50 crore. It's there in other expense. We would just like to understand the accounting there. Is this INR 50 crore, is it related to some hedges that you make?
No. It is not hedges. It's a currency conversion. mainly it is out of Chilean peso to dollar conversion to Thai baht. it is not related to hedging.
Okay. If I understand, you would have booked, the sales related to this maybe in a quarter, last quarter or, the quarter back, when you finally realize the receivables, you get a higher amount. Is that correct?
It's a conversion. When we prepare our financial statements, local currency needs to be converted to reporting currency. Currency difference needs to be accounted as income or losses in financial statement. Yes, you rightly mentioned in earlier quarters there were loss, whereas now CLP is firmed up, firmed up against US dollar, and that has given us benefit. If you recollect in our earlier quarters also, when we recognized notional loss in our financial statement, deliberately we kept the remittance on hold because we wanted currency to get reversed. After getting reversed, we started actual realization. You can say in earlier quarter to a certain extent it was notional. Current in quarter three also unwind has happened.
Now Q4 actual realization is happening where we found it becoming profitable. Am I whether it was I was able to clarify your queries?
Just one follow-up. Is it that, you have a subsidiary in Chile which you are consolidating and that is why this is seen?
Absolutely.
Okay. It's basically balance sheet consolidation coming from.
Yeah.
My impression was that that gets clubbed with the other income.
No. If you have gain, it will go in other income. If you have losses, it will come under other expenses.
In this quarter we have a gain which has gone in other income, right?
Here we are talking quarter-to-quarter actual currency fluctuation. When you see YTD, ultimately reporting is going to happen at YTD level. Quarterly of course there is a gain. YTD there are still some small amount of negativity is there, that's why it has gone in other expenses.
Okay. Understood. Thank You very much.
Most welcome.
Thank you. Next question is on the line of Sumit Gupta from Motilal Oswal. Please go ahead.
Hey. Hi. Good evening. Thank you for the opportunity. I just want to know regarding the overall investment till date, which has been done in Enzene by Alkem and other investors.
Other than investor, our investment is INR 915 crore, if I'm not wrong.
915.
Other investors invest INR 1,961 crore. You can say somewhere INR 1,170 crores.
Okay. sir, what are the biosimilar sales in India for the nine months of 12 months basis?
you mean to say Enzene sale or total biosimilars?
Overall, Enzene and biosimilars.
It is in the range of around INR 90 crores-INR 95 crores on YTD.
On YTD.
On YTD. Here we are considering whatever Alkem has sold and whatever Enzene has sold to third party, not intercompany.
It includes CDMO.
Yes.
It's not just
Yeah. CDMO input is also included here in this.
Okay. It is Enzene plus CDMO.
Yes.
That is Enzene CDMO. Enzene's non-biosimilar work as well.
Okay. Okay. Sir, last question is, regarding the currency benefit which was there in the third quarter. Do you expect it to continue in the fourth quarter as well?
Sorry.
Currency benefit.
Currency benefit nobody can predict, sir. We hope, similar kind of trend is going to continue in next quarter also. Nobody can say with confidence.
Okay, sir. Thank you.
Thank you. Next question is on the line of Yash Tanna from Third PMS. Please go ahead.
Hi. good evening. Thank you for the opportunity. Congratulations on a good set of numbers from this quarter. My question was around diabetes. Over the last two years it's jumped significantly from, I think, 21, now they're 15, 16. They're also growing significantly ahead of market. What is our ambition here to get into the top 10? You know, what will get us there? Are we looking at any sort of brand acquisitions or will it mostly be organic?
This is, you know, we are doing strong there. What has led us over here and will take us to future is our success of new products, particularly, you know, dapagliflozin and Alyd, and then sitagliptin and vildagliptin. All three we have done good there. We have done exceptionally good there. We now intend to build this molecule to big brands of INR 100 crore plus size. These three brands we are investing heavy and we should do good. Along with that, we have a, you know, a legacy brand like Gliclazide which will keep on competing. Overall, we expect from rank 15, our aspiration is to be amongst the top 10.
Oh, okay. Any time period you would like to share for the same?
I know it's, you know, it is going to be challenging, but around three-four years we should be amongst the top 10.
All right. That's one question on MR productivity. I wanted to understand at what number the operating leverage starts paying out in MR productivity. You know, establish the parameters. Last quarter you mentioned about INR 3.8 lakh-INR 3.9 lakh MR productivity we have. After what number would we start seeing operating leverage and margin improvement for?
See, number of reps is, you know, very subjective, but a headquarter gives us a breakeven at around close to 2 lakh INR size. If headquarter does a close to INR 2 lakh productivity, we get a breakeven. In line with that, the divisional breakeven starts, yeah.
We are already much higher than that. Anything more would just start contributing to the margin.
Yeah, correct. Any additional productivity now will contribute to the net margin.
Okay. All right. One question on Enzene. I think, we've spoken a lot, but, you know, we've raised money, right? Am I audible?
Yes.
Yeah. We have raised money now from independent, you know, from listed investors. Is it right to understand that going forward, Enzene will be independently funding its sessions as well? What is our long-term outlook? I mean, do we see it as a separate independent entity in the next three to four years?
I think it is already a separate independent entity. I mean, your question I'm not very clear. Do you mean that will it need to raise funds? I'm not sure what you're saying.
Not will the parent support in terms of development.
No, I think we've evaluated if it's kind of attractive, we continue to invest in Enzene. I think it will continue to be a very attractive, I think growth engine for Alkem. I mean, it's possible we'll keep investing. It's also possible that we'll keep taking outside money as well. I mean...
Yes. Okay. That's it from me, Sandeep and
Thank you, sir.
Thank you. This is the last question from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Hi. Thank you. Just a follow-up. Couple of questions. First on the trade generic, we are losing like double or 3%, 5%, 6% growth. I believe it's kind of, you know, multi-quarter low kind of growth. Is it a function of more competition or high base from the last three quarter or, basically, you know, the market being slow?
I think it's a combination of the first and the last one you said. The base is very high this year. Well, because of last year, we all know the base, acute sales and trade generics and all that was substantially high. It's coming off a high base. The market is also slow, I mean, because of the same kind of reason. It's an one-off. I don't. There's nothing. We cannot anticipate. Just like how U.S. high sales we don't think will continue, similarly U.S. generic low sales will not continue. They're both aberrations.
Okay. you mentioned the trade generic.
Yes, yes. Of course. Yes.
Okay. Secondly, I think on the new business opportunity in U.S., you know, which we are still not sure whether that is approved, some of that, those products will come to us. Let's say hypothetically that does come to us. Does that kind of, you know, delay, the cost efficiencies that.
No, no.
impact the margin?
No, it will not delay any cost. It's nothing to do with the launches and things like that. No, it won't.
If you
Yeah.
They'll be focusing on manufacturing rationalization at this point.
Right.
If you get more products, which means more-
No, no. I told you no. Sir, I understand. It will not matter.
Okay. Perfect.
Thank you.
Thank you.
Thank you. I now hand over the consult to the management for closing comments.
Amit here this side. Thank you everyone for attending this call. If any of your queries are unanswered, please feel free to be in touch with me. Thank you and have a great weekend.
Thank you very much. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.