Ladies and gentlemen, good day, and welcome to the Alkem Laboratories Q2 FY 2022 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 zero 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, sir.
Thanks, Faizan. Welcome to 2Q FY 2022 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 Mr. Gagan Julka from Investor Relations. Over to you, Gagan, for the opening remarks.
Thank you, Tushar. Good evening, everyone, and thank you for joining us today for Alkem Laboratories Q2 FY 2022 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 our 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. With this, I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter gone by and strategy going forward. Over to you, sir.
Thank you, Gagan. Thanks a lot. Yes. Good evening, everyone. I would like to thank all of you for joining us today for our second quarter earnings call. For the Q2 FY 2020 has been a healthy quarter for the company during this quarter and for the company year-on-year as well. Year-on-year revenue growth of about 18% and net profit grew by 15%. During the quarter, we also generated healthy cash flows, which has helped us further strengthen our balance sheet with net cash position of about INR 1,150 crores as on 30 September 2021.
Talking about our India business, it registered a growth of close to 26% year-on-year during the quarter and 43% for the half year, which was majorly driven by strong volume-led growth in our acute therapy areas, appetite, infections, vitamins, minerals, and nutri-nutrients, pain management and gastro as well. Most of our large mega brands continue to outperform in their respective markets, thereby maintaining their leading positions. Our chronic portfolio also deserved a market-beating performance with an increase in market share and improvement in market rankings. Our growth rate in chronic therapy areas of neuro, derma, and anti-diabetes was more than 30% for the first half of the year as per IQVIA data, which is more than double the therapy growth rate.
Our trade generics business also grew well in this quarter, thereby carrying on the momentum of the last financial year. During this quarter, we launched our Pulmocare division, which focused to improve our presence in the respiratory segment. Moving on to our international business, our U.S. business with the quarterly sales of $83 million was almost flat year-on-year and quarter-on-quarter. The significant pricing pressure that we witnessed in our base portfolio was largely offset by new product launches, which included limited competition products like Albuterol/Ipratropium. During the quarter, we filed 6 ANDAs with U.S. FDA and we received 7 approvals. Apart from the U.S., our other international businesses delivered a robust year-on-year growth of 27% with good performance in Australia, Chile, and U.K.
Updating on our progress in the biosimilar segment, during the quarter, we launched two products in the Indian market, bevacizumab and Ranibizumab, and have plans to further expand our portfolio going ahead. We are also making good progress towards taking some of these products to regulated markets over the next five years, which would be the key to unlocking our potential in the biosimilar segment. In terms of regulatory inspections during the quarter, we had a remote and virtual U.S. FDA inspection of our Bioequivalence Center, Taloja, which was successfully closed without any observations. Also, all our manufacturing facilities supplying to the U.S., with the exception of St. Louis, has an EIR as on date. Our new manufacturing facility at Indore is awaiting pre-approval inspection by the U.S. FDA. With this, I would like to open the floor for Q&A. Thank you for listening.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, thanks, and good evening. Sandeep, can you throw some light on the India business? How, you know, how should we think about growth? The last quarter had a lot of acute demand because of COVID. I would assume that would have calmed down, but still the overall revenue has been strong. Is there a seasonal pickup that happened this quarter? How do you read it? If I look at from a two-year CAGR basis, it's around 12 to 12, just above 12% growth, which also, you know, is a normalized, looks like a normalized growth rate. Should we assume a low double-digit kind of a growth now? If you can give some color, and also, you mentioned about trade generics. How large is that as % of your revenues now?
Thank you, Saion. There are, like, few questions on that. I'll answer one by one. The first part is, you know, that, yes, there was some seasonality to it, but also, we had added, you know, people last year. We had restructured our large divisions, if you recollect, especially of our large mega brands. All that is playing out well. Unfortunately, you know, last year, because of what was impacting us, it did not play out, but we laid the ground stone. Therefore, I think, the growth is also coming new because we are gaining market share. It's not just, you know, with tailwinds and good seasonality. How we should look at it going forward, I think, you're completely right.
We cannot expect it to have the same growth rate which we had in the, you know, this, you know, this H1. Overall, I think we continue that we should, you know, look at growth of 12%-15% mid-teens, are only things we have already maintained that. I think that continues to be, you know, our guidance going forward, Saion, on that. Sorry, there was another question, Saion. I kind of
The trade generics segment is. Yeah, yeah, Sandeep. Sandeep, so I understand last year.
Yeah.
It has grown, the segment grew faster than your domestic business. How was the growth this year and this quarter so far? And what percentage of revenues is now coming from trade generics?
I think this year also, the trade generics has grown very well. It's in line or slightly higher than our domestic business. As a percentage, it continues to be the same percentage it was last year and last quarter. It's in excess of, like, around 15%. It's close to that.
Okay. Just one another question, if I can ask. On the other international markets, there seem to be some step up in growth. Is there any one-time sale that is there? What is happening in that market? We are kind of closing on INR 200 crores a quarter. If you can, you know, throw some color on the dynamics in the ROW or international markets.
Sure. I'll invite Mr. Amit Ghare to comment on that. Amit, please. Thank you. Sure. Thank you, Sandeep. Saion, there are no one-time sales there. It's a combination of four or five key markets that we operate in, Australia, Chile, Europe, Philippines, and Pakistan. These are predominantly our dominators. To answer your basic question, there are no one-time sales there. You would have noticed that in the first quarter and second quarter, the sales are fairly similar.
Okay. Thank you. I'll join back. Thank you.
Thank you. The next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead.
Yeah, thanks for the opportunity. I actually missed out the initial comments. I'm not sure whether you've covered. One, I wanted to know the reason for a very high other expense, both YOY QoQ, I understand that. Second, also wanted to know what has been the base business erosion in the U.S. business, even excluding the launches we made in this last quarter.
Mr. Rajesh Dubey, you can take the first part, and Mr. Amit Ghare can take the second part. Sure. Other expenses, if you compare with last year's quarter two, yes, definitely it is on higher side because last year it was just 17-18% of revenue. Last year it was not normalized kind of quarter. Normally, it's quarter two is somewhere close to 95% normalized. I think other expenses, barring the pandemic period and pandemic impacted time, I think we are in our range only. Generally our other expenses is in the range of 23%-25%, and we are 22.5% this time.
I think we are within the range because our marketing expenditure and all these, now it has come on normal position.
I see. I mean, I was looking at the absolute figure, which is probably the highest in so many quarters, maybe eight or-
Yeah.
12 quarters or whatever. Yeah.
If you see absolute figure also, last year's quarter two, it was INR 420 crores. Now it is around INR 620 crores. Last year's INR 420 crores, we cannot categorize this as a normal kind of expenditure under other expenses because marketing expenses, as you know, last year it was not totally on normal.
No, understood. Okay. I mean, just a little bit pushing on that. In Q4, for example, we did, I think, roughly INR 5 crore-INR 6 crore. In there, you mentioned that it is little higher because you were preparing for, you know, some of the launches, et cetera. In other words, it was, we were under the impression that INR 5.50 is in the higher side. Now, INR 6.23 is much higher than that. That was the reason. Should we consider INR 60 as a normal range going forward, something like that will continue being incurred every quarter?
As far as, between 23%-25% of revenue is normal range for other expenses, and that is normal, if you see our history.
Okay. The U.S.
Other than, you know, just looking at the absolute number, looking at the percentage will make more sense because it has a percentage to sales, you know. Some, a good part of this expenses is, you know, related to sales. Where sales goes up in absolute terms, the, you know, absolute costs will also go up. I think
Sure.
You should look at percentage terms rather than absolute numbers.
Fair point. No, understood. On the U.S. business, U.S. business division, that would be helpful.
Yeah, Amit, you can go ahead.
On the U.S. Sorry, Sandeep. Go ahead.
No, Amit, seeing Amit, you can go in. That's all I would say. Thank you.
Okay. All right. Thanks, Sandeep. On the U.S. business, as we have reported, we are about, you know, 2.5% down year-on-year on the quarter, that is. The primary reason for that has been, you know, price deflation, which is in higher single digits for us, almost pushing to the 8%-9% levels on our overall portfolio basis. This has also led to some kind of, you know, market share losses in unit terms, that is, so that has kind of multiplied. You know, obviously, we've not been able to cover all of these or both of these losses through our new products, and that's basically the reason for, you know, where we stand. A comment on gross margin would be helpful.
I mean, this quarter it is 200 basis points higher than what it used to be. Again, Q2 or I mean in general we are in the range of 60%. I think now we are in the range of 62%. Again, is this sustainable? Because we are under the impression that the raw material price would actually have a negative impact on the gross margin, but there seems to be a positive impact. Any reason for that?
Yeah. Sandeep, do you want me to take this question?
Yes, Rajesh Dubey.
Yeah.
Yes.
Yeah, you said, very correct. At this time, gross margin, we have advantage, and our gross margin is on higher side, 62.2%. Basically, when you have better domestic sales because that sale is having better gross margin, that is one impact. In domestic also, our product mix, what we sold, it was on better side. Both these, it has impacted and it bettered our gross margin. Yes, in U.S., an adverse impact, it is there. But in U.S., we have positive impact on material cost and COGS. That also, it has given advantage to us. As well as in U.S., we sold products having better margin.
All this put together, around 1.8% or 1.9% kind of advantage we got in gross margin this time. As far as forward, I think you must be knowing API prices now a lot of pressure is going on that. It is going to be quite challenging. In second half, it will be quite challenging for most of the pharmaceutical company. I think we have various levers with us, and definitely we are going to try to normalize whatever impact we are going to have on material front. Our expectation will be somewhere in the range of 60% kind of for the year.
Understood. Okay. That's very helpful. Thank you very much.
Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.
Good evening, and thanks for this opportunity. Sir, my question regarding the U.S. I believe you've got 12 approvals in the first half of the year. If you can just, you know, maybe let us know how many have you launched in the U.S., and what is the expectation, how many are you expecting to launch in the second half of the year?
Amit, over to you, Amit. I think you are best suited to answer this.
Sure. Of the 12, we had three penetrated obviously, so those are obviously out of question from launch perspective. I think of the remaining 10, we have been able to launch eight of them, you know, so far. So that's the answer to your first question. What was your second question? How many approvals or launches can we expect in the second half of the year? Right. I gave you the answer so far, and the two other, you know, which were approved, we launch those also. So that certainly will, you know, make it to 10. By the end of the year, we are hoping that we launch at least 12.
We are expecting 3-4 more launches over the remaining 4 months.
Sure. Any kind of limited competition expectation?
Nothing.
Right. Sure. My second question is on the domestic business. Your turnaround has been very strong. Now with COVID largely behind, and you know, assuming there's no third wave, so would you like to call out any of the therapies or brand that may see a slowdown because it has benefited more during COVID?
Yeah. You know, this is, I think that's built upon the first question of Saion, and I'm happy to answer it. Yes, because of COVID, I think we had certain, you know, situations and, you know, coming out of a low base last year. I think there might be some slowdown in nutritionals and multivitamins and things like that, or maybe even antibiotics, because this time the doctors did prescribe them, you know, a lot of antibiotics, also curing secondary infections.
There might be a slowdown, but we don't see a, like, a dramatic, you know, kind of a shift downwards because I think, you know, we are very good to have this growth rate of, you know, that we maintain, like good to stand up. Yes, nutritions will obviously, you know, straight might see some slowdown, but I think awareness has also gone up, so it might not be very, very significant, honestly.
Okay. Just one more, if I can squeeze in. The tax rate was fairly low in the quarter. You know, the reason behind it, the expectation for FY 2022 and for 2023, that would be very helpful.
Sure. Mr. Dubey, I think you can take this. Yeah. Sure, sir. Yes, you are very right. For the quarter we took some very lower side. Actually, we need to see the effective tax rate for the year. Earlier our guidance was tax rate between 13%-15% kind of. As we are talking, actually, we have better domestic sale, and domestic sale around 65%-70% we cater from our Sikkim plant, which is having fiscal benefit. That profit is exempted from tax. That is the reason why it has changed dynamics of effective tax for entire year. We now we are revising our effective tax rate guidance for the year from 13%-15%.
Now our new guidance is somewhat close to 10%-11%. Since in our quarter one, normal tax it has gone because by that time situation was not very clear. Impact of YTD it has come in quarter two, and that is the reason why we see 4% kind of effective tax in quarter two. When you see half year, it is somewhere close to 9%.
Perfect. Thank you very much, and all the best.
Thank you. The next question is from the line of Prakash from Axis Capital. Please go ahead.
Yeah. Hi. Good evening. My first question is a clarification. I think Sandeep mentioned that there's a lot of initiatives in adding people, restructuring mega brands, et cetera, apart from the seasonality and some of the COVID benefits that have come through. Having that initiatives taken, do we say that, okay, I mean, obviously that high growth is behind us, but one of the participant also said 10%-12% growth is still doable given we are seeing growth across the new launches, chronic, et cetera. Would that be a fair thing to expect?
Was it 10, 12% or what? The first answer is yes, but you mean to say for the balance of the year, for the full year, next year? What is the question?
Second half of the year, which
Yeah, for sure, Prakash. Yeah, definitely for both of them, but I just was clarifying. Yes, we will. We can maintain that very well.
Okay. Fair enough. Again, on trade generics, you mentioned the share is 15% plus or the growth is 15% plus or both are 15%?
No, the share. Both obviously, because I said the growth is in line with our domestic business or slightly higher. Yes, both of them are.
Given the very strong cash flow that you are doing for the last two years now, and the cash pile up of more than INR 1,000+ crores, with the backdrop that many, you know, chronic side, especially diabetes, a lot of brands getting off patent date, they would be available for sale. One of the companies in the morning call, you know, said that we'll be buying 3 of the brands. What is our strategy in terms of like chronic, where we are growing very healthy but on a very small base. Are we open to buying some of the brands?
Yeah, Prakash. We are open to buy and acquire some brands, but I just think the likelihood of it happening, I would still say low because, you know, we don't. I mean, we are conservative. We don't like to overpay. I'm not saying that others overpay, but we are pretty cautious. I would not count on that completely. I think we maintain that we will grow our business organically with what we have done. You know, clinic business going by 30% in this quarter is a good sign even though it's on low base. I mentioned that we have started to do very well in some of the segments, and Yogesh maybe can throw some light on it if required, but I'm not sure whether that's part of the question.
We have done. They are desperate to acquire something honestly on this side. Now, you know, Prakash, like, what's your question? Your question is,
How do we plan to scale up further on the chronic side? I mean, obviously on the opioids we are growing very strongly. Yeah. Is there a, you know, a plan to
We might acquire. I mean, most likely we'll not. We are looking out, but if we get something at a you know valuation which we think is you know makes sense to us, we will. You know, the company will be aggressive on the chronic side. We have some green shoots in the you know within the last one year. Yogesh, maybe you could comment on that. You know, Yogesh is aggressive regarding you know we are doing extremely well. We might add a few people here and there next year, but I think we are doing good. Yogesh, you wanna comment on that?
No, Sandeep, you rightly said that, you know, post patent, all those brands which are coming out of patent may not be a good business proposition because the prices go down by almost, you know, one-fifth or one-fourth of the original price. Buying those brands instead, as you rightly said, that we have an aggressive approach towards launching those molecules and make them big instead of acquiring others and then do firefighting and, you know, managing those brands, which is going to slow down by at least one-fourth of the original cost. Instead you launch those molecules and make them big, and we have demonstrated this in last couple of years. We are pretty confident that all those molecules we will launch in diabetes and cardiac areas and make them big. That is our approach.
As Sandeep said, organic will be our way of, you know, developing chronic business.
Perfect. Helpful. Last question for Sandeep on, you know, you mentioned about good gross margins on sales mix and product mix in U.S., sales mix higher India, and also cautioned on the going forward raw material and all those costs which are increasing. But on the EBITDA front, since we are talking about double-digit growth, also we had good launches in the U.S., do we maintain our 20%-21% margin guidance? Or despite the beat, is there a scope for increase?
Yeah, Prakash. You are on. I was expecting this question from your side. The EBITDA margin, if you see for quarter it is 22.5%. As I talked to you, similar the gross margin maintaining going forward, it will be big task for us. Still we believe whatever guidance we have given you earlier, we will be in that range only. Not 21%, but somewhere around 20% I think, we still believe we'll be able to achieve.
Okay, perfect. Thank you so much. Have a good evening.
Thank you. Reminder to the participants, anyone who wishes to ask a question may press star then one. The next question is from the line of Gaurang Sakare from Motilal Oswal. Please go ahead.
Hi, sir. Thank you for taking my question. I hope I'm audible.
Yes, you are.
I just wanted to ask you about the market share that our company has in doxepin and what would be your outlook on the same?
Amit, do you wanna take that Amit? Sure. Difficult to determine what kind of market share we have on doxepin, because, you know, ultimately you need to refer to IQVIA to get the market share. We are estimating somewhere in the 20%-25% range. Sorry, what was the second question related with that?
I was asking on the outlook on the same. How do you see the market share going in, yeah?
Yeah. We have obviously three competitors who have come in, and including us three now. There's authorized generic and another generic have come in. You know, we have to maintain our market share at least.
Okay. Thanks. Second one on the number of MRs. Can you give the split between MRs for acute therapy and chronic therapy separately?
I will answer this, Sandeep. Yeah, please go ahead. Go ahead. Thank you. Our acute is around 80% of our team force, and chronic is around 19%-20%.
Okay.
Total, yeah, we are around 10,500. Out of it, 80% is acute and 20% is chronic.
Okay. Thanks a lot, sir. One more thing. So basically, I just wanted to ask on your growth breakup in domestic formulation business, like price, volume and new launches for second quarter of FY 2022, and maybe for the first half as well, if you can.
First, yeah, Yogesh, maybe you can go ahead. I was taking your name. Volume growth is 17.8%, price is 3.9%, and the new product introduction is 2.8%.
you know, on the CapEx side, what would be the CapEx till date in the year, and what would be your guidance for FY 2022?
Mr. Dubey, you can take that. Sure, yeah. For half year, we are somewhere close to INR 200 crore, which cash has gone in CapEx. We expect somewhere around INR 450 crore-INR 500 crore by year-end. We are trying to optimize that, but I think we'll be in the range of INR 450 crore-INR 500 crore. Basically this margin would be all towards maintenance or some of it will be growth. Growth CapEx margin? It's a mixed kind of, and maintenance CapEx as well as expansion is also there. It is all across domestic as well as international requirement. Even some CapEx in R&D also.
It is all of those. Okay. One last thing on the last participants, I mean, when you explained the tax rate guidance. I just wanted to know, so this Sikkim facility, the benefit that we are receiving, as far as taxation is concerned. How long do you think that will continue beyond FY 2022? Actually, till the assessment year 2026-27, that is March 2026, we are going to have this advantage. Okay. Thanks a lot, sir. Thanks a lot. Thanks for answering my questions.
Thank you. The next question is from the line of Yash Tanna from ithought PMS. Please go ahead.
Hi, team. Am I audible?
Yes, you're audible, Yash. Go ahead.
We come to know from the annual report and the AIOCD reports that, you know, most of our top ten brands, which are INR 100 crore plus sales, they are mainly in therapies of anti-infectives, gastro, VMN. My question is, do we have INR 100 crore plus brands in the chronic therapies as well? If yes, how many? If not, I mean, when can we expect some sizable brands in the chronic side? I'm asking from a 2-3 year perspective here.
Yash, you can go ahead. Yeah. Yash, we expect at least one brand, Clavam, which is an antibiotic range, antibiotic therapy, to you know exceed INR 100 crore this year. That's a good news from chronic side. We still have a long way to go, because most of our brands will be in a range of around INR 50 crore-INR 70 crore. You can expect 100 crore brand in another 2-3 years' time, a couple of more brands to join 100 crore bracket. Yash, just one point there. On IMS or IQVIA, whichever you wish to add, there the brands are reported as one group. There we are not fully visible. That is something you must point out. Yeah, yeah. Clavam actually you know internally we as a group we say 100.
Since IQVIA has split the SKU also, in that way, you know, the largest brand will be Clavam O, which will be roughly around INR 60 crore. That will take another three years to become 100 crore. We have certain new launches which will also take around 3-4 years' time to be 100. From a SKU point, you know, you can say that at least 3-4 years' time, we should have at least 2-3 brands on a 100 crore bracket.
Sure. Which therapies would these brands be in?
Mainly in, mostly in diabetology and cardiology.
Sure. Sure. Thank you. My second question would be like, in the last call we spoke that, you know, we have three biosimilars launched in India, and now two more as you mentioned in the opening comment. You also said that, you know, you would out-license to Lupin, Zydus or even globally we would try to tie up with some of the best partners for our biosimilars. With this increasing share of biosimilars in the product mix, and we are also, you know, widening reach with all these tie-ups, we should see a positive impact on the margin side. If yes, by when can we start seeing this effect?
Sorry, your question is, are the biosimilars impacting margins positively? Is that correct?
Yeah. The gross margin.
Just to-
Yeah, yeah.
Yeah.
In how much time frame? I mean, like just a ballpark figure.
You know, to launch anything meaningful that biosimilar will impact, let's say, the sales and gross margin, we'll have to do that in the regulated markets, let's say. That's a fair assumption. That would take at least four years from now. Please don't expect any change in gross margin colors because of biosimilars for the next, I would say at least, four to five years.
Okay. Sure, sir. Just one more question, if I may. On the biosimilars, we have invested around INR 650 crores over the years. I mean, how much incremental CapEx do we need for this segment over the next 3-5 years?
I think incremental CapEx might not be, I mean, the way to look at it because some CapEx, most of the CapEx on our usual business is almost done. In CapEx cycle we are through. I think overall we maintain that we do INR 500 crore CapEx overall for Alkem as a group. I think it is very well within it. How much now we'll do for biosimilars and things like that, I think that is something which we keep it flexible because it depends how we scale the business up. Because we're also watching for some key milestones before we kind of invest further or needing to invest. I think I'll refrain from splitting it up between biosimilars and, I mean, biotech and Alkem as a group, but it is not something significant, honestly.
Sure, sir. Thank you very much and best of luck.
Thank you. The next question is from the line of Vishal Thanvi from ValueQuest Investment Advisors. Please go ahead.
Yes. My question is on domestic business.
Vishal, you'll have to speak a little louder. We can't hear you.
Yeah, just one minute. Yeah. Can you hear me now?
Yeah, it's much better.
Yeah. My question is on the domestic combination business. We have two segments over there, acute and chronic. Can you give the breakup, how much is acute and how much is chronic?
Yeah. We have 85% in acute and 15% chronic.
In last 3, 4 years, the same percentage or it has significantly changed?
No, not significantly, but there is a gradual change. From around 11 odd %, this has become 15% in last 4-5 years' time.
Understood. One more thing that in your initial comment you mentioned that, you have launched, two products in India. Can you name them, please?
You're talking about biosimilars, sir?
Yeah, yeah.
I think that's what you're talking, right?
Yeah.
Yeah. It's Ranibizumab and bevacizumab. These are two molecules we have launched in the last quarter, and I think that was mentioned. Yes. Thank you.
Yeah. Thanks a lot.
Yeah.
Thank you. The next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead.
Yeah. This is actually a follow-up from previous participant's question. You mentioned that in the U.S. you have one more competition. What I understand is that Teva has yet not launched and the case is still ongoing. Because of the stay on the approval, they may not be able to launch for another 1+ year. Do you still expect that, you know, you will see competition? With that background, what do you then see the outlook?
Mr. Amit, I'm understanding very clear.
Sure. I don't want to comment upon, you know, what Teva's position is, but they don't have any mandated 30-month stay because they were not sued in time by the innovator. They're free to launch, and based on what we heard back from the customers, they have started launching their product and made efforts. This is why I factored them in the competition. They're already launched. Okay. We believe so, but I can't be certain.
You can assume, but that wouldn't change your outstanding. I think Amit is very clear. The market share will have around 20%. Whatever he has, he'll maintain. Yeah.
Nice. Okay, understood. If I may, how many low competition launches you expect in the next two years? Some ballpark, two or three or whatever. Some guidance on that will be very helpful. Thank you.
Amit, you wanna take that, Amit?
Right. I can. Very hard for us to say because, you know, by the time we get approval there could be, you know, 3 other companies along with us before us. So hard for me to tell you, but our aim will at least be to have 1-2 products every year, at a very broad level. I also remember, the definition of low competition could be very different. So anyone less than 3 is what I would consider as limited competition.
Right. Right. Yeah, yeah. Same here. Anything less than three would be low competition.
Right. Okay. Understood. Broadly 1-2 per year. That's how it is. Okay. Thank you.
That's our ambition, yes.
Yeah.
The next question is from the line of Prakash from Axis Capital. Please go ahead. Mr. Prakash, your line is in off mode. Please go ahead with your question.
Yes, sorry. Am I audible?
Yeah. Yeah, you're audible.
Yeah. I was just saying that I missed your growth expectation for the U.S. I mean, I heard there's a base business, high single digits, high teens. At the same time, you also had good launches. Do we expect stable or marginally upward trend which we had your guidance or how do we see the U.S. growth trajectory?
Amit, you could take that, Amit.
Sure. Thank you, Sandeep. Prakash, I never guided for anything. We only talked about what the history was. You know, the quarter year-on-year has indeed grown at 2.5%. That's what I said. I'll go ahead and answer. This year, of course, it's gonna be extremely tough for the entire industry. I think on a complete year basis, fiscal year basis, we are looking at mostly flat sort of a scenario, at least at this time, sitting in November.
You're not audible. You're expecting what?
A flat. I'm expecting the year will end, the entire fiscal will be flat compared to last fiscal.
Okay. We have enough pipeline to grow from there?
We do have enough pipeline to go from there. Even this year we will have 12 launches, at least 12 launches. Basically, I think the problem has been, like I mentioned before, that, you know, whatever we are losing out on the market share and the price deflation, we are not covering enough from our new launches. It remains to be seen how it will be in the fiscal going forward. History tells us that we have done better on that count.
Going forward, we need to see how the deflation really does it settle down? Does it come down? Where does it end really for the overall industry and of course for us as a portfolio.
Fair enough. That was all. Thank you so much.
Thank you. The next question is from the line of Vishal Thanvi from ValueQuest Investment Advisors. Please go ahead.
Yeah. Thanks for the opportunity again. My question is on U.S. business. Can you give us some numbers on margins of domestic business and U.S. business? EBITDA margin or gross margin?
No.
It is a difficult thing that I think because the comparison.
We never do the margin. We never give segment-wise gross margin or EBITDA margin of our businesses. We always talk combined.
Okay. Okay, thanks.
Thank you. Participants, to ask a question you may press star then one.
I think, Faizan, we are done.
Yes. Yes, I think that was the last question for the day. Okay, there are two more questions I think have come up. Faizan, can you go ahead?
Sure, sir. The next question is from the line of Ritika Agarwal from Valuequest. Please go ahead.
Thank you for taking my question. Sir, my question is on cash utilization plans for the company going ahead. Could you give some understanding on that?
No, I think we have always maintained that, you know, we'll have a dividend payout ratio of 25% and acquisition, I don't see any large acquisitions happening. So, you know, we are gonna maintain business as it is. It's not that, you know, we have some different scenario because cash is accumulating. I think when the time comes where we have really a lot of cash and, you know, that time we'll take a call. Right now it's business as usual. Thank you.
Okay, sir. Lastly, on U.S. business, last quarter we had guided for high year-on-year growth of 15%-16%, and now we've stated it to be flat for FY 2022. Would pricing erosion be one of the major reasons for doing so? Or we've seen also-
Listen, it is good. Amit could comment on that. Amit, I think it's good if you comment on that. Thank you.
Sure. Yes, that has been our reason. Our pricing erosion has been in the range of, you know, 9%, 8%-9% in the entire portfolio. Some of it has also led us to let go of some market share. There has been a market share de-growth as well. Overall impact, you know, obviously is offset by all the new launches that we do. Like I mentioned, we are now for this year, this entire fiscal, the new product is just about offsetting the losses that we are having because of price deflation and market share losses, which is why for this year, this entire fiscal, I broadly guided that we will remain flat.
Right, sir. Post FY 2022, 2023, 2024 or the medium, more medium term, how should we be seeing this U.S. business?
Tough for me to say at this moment. Obviously, going in our history, we've certainly grown at a much faster rate. Of course now our base is bigger, so we will not discuss in percentages in terms of the growth rate that we've had historically. But, you know, we need to really see how long this price deflation phase is gonna remain, because this is a problem for the entire industry and, at least some of us like to believe that it can't be at, you know, at this level going forward. It will be very difficult for many players to sustain at this level. At some point of time it will decrease. That timing kind of remains a bit of a question mark.
Is there any major reason why this has accentuated in the last few quarters in your sense?
Your guess is as good as mine. I think we talked about it last time also. I think it's COVID and some COVID cascading effects overall. There's a de-growth in the market itself in unit terms, which we all know. Certainly the therapy mix has changed, you know, or it's changed in the, you know, from a growth perspective or de-growth perspective. There will be some cascading effects because of that.
Right. Okay. That's it from me, sir. Thank you so much.
Thank you. The next question is from the line of Prashant Kothari from Big 4. Please go ahead.
Yeah. Few questions from my side. One was on the CapEx front. I think earlier whenever we was talking with under the assumption that the company had done large amount of CapEx in the recent few years, and therefore we had spare capacities, and we need to kind of increase the CapEx spending. From the CapEx level going down roughly around the range of INR 300-400 crores. So this number of INR 450-500 crores comes as a bit of a negative surprise to me. I'm not sure maybe I'm not completely updated, but is there any change in terms of our plans there? Are you trying to kind of invest into something new that we have not researched earlier?
Rajesh Dubey
No, I think we always maintain what we said, Prashant. Rajesh Dubey, what do you guys think that? I'm not sure what's the reason of negative surprise, but yeah. If I'm missing a point, Rajesh Dubey, please go ahead.
No, sir. We have covered it. Actually, we never gave any guidance of INR 350 crore CapEx for 2021-2022. Actually, since beginning, our guidance is INR 500 crore-INR 550 crore. I think we are as per our guidance only, and we are in that range only.
Okay. Second question was on the inventory front. Our inventories are kind of running at a higher level than what they used to be in earlier years. Do you think this will remain at a high level because of whatever kind of supply chain issues we are seeing across the industry or this is going to come down?
The inventory level is high. It is intentional one. Actually, in this uncertain scenario, even inventory of raw material, we wish we have larger inventory. As well as for finished goods also, we want to have sufficient inventory. We grab opportunity, whatever is available in domestic as well as in international market. Working capital, we understand our inventory level is on higher side, but it is intentional. I think few days more we have right now compared to historical inventory days what we had earlier. That is intentional, and we are confident that is going to help us.
All right. Okay. Thank you. Just the last question is on these rise of digital pharmacy chains in India, even not especially, but also digital pharmacy chains which are growing very fast. I mean, do we have a separate division, separate strategy for kind of managing these, let's say, what we could call it, the modern trade or the internet kind of channels? Or are we kind of deploying the similar philosophy, similar channel strategy as we used to have for the traditional clinicians?
Yeah, that's a good question. First things first, we are not deploying any special division or strategy for this because please remember that as long as the prescription is honored and the doctor's prescription, it has a supreme say. I don't think you know, companies have to especially worry about it, doing something special for online pharmacies. Because the prescription matters and what doctors pen is right has to be honored any which way, whether any pharmacy or you know, brick and mortar pharmacy. It's business as usual for us. Obviously we are watching out. Nothing special we are doing for these things right now.
All right. Okay. Thank you very much.
Thank you.
Yes. Faizan, I think we'll close it now, sir. Thank you, sir.
That was the last question. I would now like to hand the conference over to Mr. Gagan for closing comments. Thank you, and over to you, sir.
Thank you everyone for attending this call. If any of your queries remain unanswered, please feel free to get in touch with me. Thank you.
Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.