Q1 21/22

Aug 6, 2021

Good day, ladies and gentlemen, and a very warm welcome to the Alkem Laboratories Q1 FY 'twenty two Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manodhane from Motilal Oswal. Thank you, and over to you, Tushar. Thanks, Ali. Welcome to Q1 FY 2022 earnings call of Alcan Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director Mr. Rajesh Dube, Chief Financial Officer Mr. Amit Garay, President, International Business Mr. Yogesh Kousal, President, Chronic Division and Mr. Gavan Boraanov from the Investor Relations. Over to you, Gavan, for the opening remarks. Thank you, Dushyant. Good evening, everyone, and thank you for joining us today for our Q1 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 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 Air Care. 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, Bhavan. Good evening, everyone. So without further delay, I'll get into it. We have had a strong start to the financial year with total operating revenues growing by 37.1% year on year, EBITDA margin coming in at 21.7 percent and net profit after tax growing by about 11% to INR 4.68 crores. During the quarter, we also generated healthy cash flows, which has helped us further strengthen our balance sheet. And now we have a net cash position of INR 980 crores as on June 20, 2021. Talking about our India business, it registered a growth of 30 sorry, 65.3% year on year during the quarter, which was majorly driven by strong volume led growth in our Q30P. Even adjusting for the low base of last year, the company delivered a robust growth over quarter 1 FY 2020 base, which was more of a normal quarter for the company. Moving to international business, our U. S. Business reported a sequential growth of 11.2% year on year, a decline of 9.3% in the quarter. During the quarter, we filed 2 ANDAs with the U. S. FDA and received 5 approvals. Apart from the U. S, the international markets delivered a strong year on year growth of 56.4%. Tracking our progress in the biosimilar segment, I'm happy to share with you that the last month we have received market authorization for 2 more products for India market. We will soon be launching these 2 products, taking a total of 3 product launches in India from Enxene platform. We have also signed a few important licensing and supply agreements in the biotech space worth INR 100 crores. They are based on milestones going forward with global pharmaceutical companies to monetize our product path line globally. In terms of regulatory status of our manufacturing facilities, St. Louis facility was inspected in June 2021 and post inspection we received 2 observations. We have already replied to the U. S. FDA with a corrective and preventive action plan to resolve these observations. Apart from St. Louis, all other 5 manufacturing facilities supplying to the U. S. Markets have an EIR as on date. Our new manufacturing facility at Indore is awaiting pre approval inspection by U. S. FDA. Also very recently, we had a remote and virtual U. S. FDA inspection of a bioequivalence center at Taloja, which we successfully closed without any observation. With this, I would like to open the floor for Q and A. Thank you very much. Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yes. Hi. Thanks for the opportunity and congrats on good numbers. Just on the sales growth outlook, especially for India business, given that it's a very high growth, how do you see the rest of the year panning out for you? Suresh, you can go ahead. See, the first 2 months certainly were supported by COVID and all that stuff. So it was a very healthy growth. But now yes, so with now industry settling to around 11% to 12%, we expect that balance 9 months and by end of the year, we should be in the high teens. That's what is our projection by March. Okay. You mentioned COVID, right? So I mean apart from vitamins, which is indirect COVID use, do you have did you have any other COVID products? No, no, no. We don't have any antiviral or anything to do with the COVID except for multivitamin, A to Z, yes. So it's all code portfolio, right? It's all code portfolio. Okay. And 2 quick ones for Mr. Rajesh, on the one is on the gross margins. It seemed a little low despite a strong growth. Are there any one offs, if you can explain that? And secondly, on the free cash flow and net cash flow for the quarter, same thing. So Raj, I will take your first question that is gross margin, yes, gross margin in this quarter, it is having one off. And that one off is we have extended our provision related to near expiry. If you recollect in Q4 of last year, we revised our policy for taking provision for near expiry from 6 months to 12 months. And that was 1 quarter where we took sizable near expiry provision. When we are taking provision, we conclude or we estimate we'll not be able to sell this product at normal price. And but possibilities are there. It may get realized also. But right now, we expect we are not going to sell. Sell. So some of the inventories, which are all due as per our policy within 12 months, it's the self life period, and that also is considered. So I think definitely, we see this as a one off because going forward, then again, it will come in our normal cycle of 12 months. So this time actually, NRV provision and the year expiry, if we put both this together, so definitely, it is going it is impacting our margin by 1.5%. Okay. Yes. I think that is a major reason behind it. And free cash flow and cash flow of operations? So we have free cash flow of INR 9.81 crores as of 30th June. In this quarter, we generated more than INR 450 crores free cash. Just on the year end, if you want some guidelines, we'll be crossing 1,000. So INR 450 crores is after all the CapEx and working capital, INR 450 crores? Yes. Yes. Okay. Okay. Perfect. Thank you. I'll join the meeting. Thank you. The next question is from the line of Nitya Balasubramaniam from Bernstein Research. Please go ahead. Yes. Thank you. So in India, I presume other than the VMS portfolio, your anti infectives portfolio, as is romizan, doxycycline, etcetera would also have seen the benefit because of Wave 2. Is it possible to strip out the growth from those kind of products and tell us what's the true underlying growth of your base portfolio ex COVID? Other than COVID, in fact, didn't really impacted our core portfolio. So other than so other than multivitamins and all, yes, there was, in fact, impact on anti infectives. But the anti infective also grew because this time the lockdown was not for patient and doctors. The patient flow was almost normal. So that's the reason because of base effect also, we got a high growth and because of patient flow also, it was a good growth. Growth. So of course, in the coming quarter, we should be coming back to, as I said, in a normal growth trajectory, if we projected around high teens and all. Got it. In terms of your critical care portfolio, how is the recovery looking like in that part of the portfolio? We as far as if you're asking me portfolio which is for critical disease management, then we are mainly into hospitals, okay, and which are injectables. So our critical care portfolio is largely major antibiotics like meropenum and all. Other than that, we don't have any cardiovascular portfolio, which is used in critical care management. So as hospitals are opening up, COVID, there were very high uses of high end antibacterial. So there were some traction we have seen in injectables. But in the coming time, as elective surgeries opens up, we will be able to see a similar trend. Understood. Thank you. And one on U. S, I think a couple of calls earlier, you had guided for about 15% to 16% growth for the next 2, 3 years, driven largely by new launches. But we are seeing the growth kind of cooling off a little bit, though Q o Q still looks healthy. Anything can you still stick to that guidance? Any color on why the Y o Y growth was in that as you would have expected? Yes. Mr. And Mr. Garik, can you please take that? Sure. Thank you. Yes, I agree with you. The raw guidance still remains broadly what we had given. And year on year quarter growth, of course, there has been a big growth. A couple of reasons obviously affected. One was, obviously, we had a lot of a strong quarter last year, mainly because of some of forward buying done by our customers, a bit of stockpiling and panic buying as well affected that. The reason so that's one of the reasons. The other reason has been some loss of market share and obviously price deflation, which has sort of depressed this particular quarter compared to 12 months ago. But our broad guidance remains similar, and we are looking to grow at those numbers. Got it. Thank you so much. Thank you. The next question is from the line of Abdul Kadir Puranwala from Anadarachi. Please go ahead. Hi. Thank you for the opportunity and congratulations on good set of numbers. So would it be possible for you to provide some color on how the growth in India would be within acute and chronic and the pre genic segment? I think broadly we kind of not give freebie break up, but I can tell you that acute grew outperformed our growth overall in spite of a high base. And chronic and trade generic both grew like very substantial, about 50% both of them. Understood, sir. Yes. And yes, thank you. And my second question is on the U. S. Business. So recently, we got approval for DuAxis. So any color on that? I understand the product size is not very huge, but since you own exclusivity and you are maintaining your guidance, would you assume a similar SKF opportunity play an important role in maintaining our guidance for the U. S. T? I think I will let Mr. Gari come on that. So Mr. Gari, over to you. Yes. Thank you, sir. Yes, we have launched the generic doses, the thymotidinibrophin. And obviously, we will look at acquiring as much market share as we can. Please remember this launch is at risk. We are still mitigating in the asset sector. But beyond that, I would not like to comment anything further at this time. Thank you. The next question is from the line of nimesh Mehta from Research Delta Advisors. My question is again related to the U. S. Market. Can you tell us we have we are likely to launch this product, which is Abigail Tram at the end of this calendar. So if you can let us know as to whether we will be having limited exclusivity on that or and will it be a limited product for us? Yes, sir. Hari, please. Yes, we will launch this product. I'm not sure whether the launch is December or has been pushed back by 6 months because of pediatric exclusivity, so I don't want to comment. But certainly, we'll be the 1st to launch the product in the market. We will have a 180 day exclusivity. The first launch and the 180 day exclusivity will be shared amongst all the first filers. And in terms of whether the product will be significant for us or not, I would not like to give any specific guidance on any particular product in any case launch is few months away. But we will obviously try our best to get common share of market share. Understood. And given that we have at 2 high value launches that is generic, nazlamine and the excess as you just mentioned, which I would assume that it's a very high margin minimal documentation. Would you not think that the lower gross margin guidance that we had given last quarter needs to be revised upwards? Any thoughts on that, that will be helpful. Yes. So Yes. So, go ahead. Yes. So, Amit, the question is for you rightly. Both products are for U. S. So go ahead, sir. Okay. Sorry for that, Sameet. Thank you. Look, the overall guidance given by CFO, obviously, he will explain. But generally, the new product always comes with a better margin profile. And when we look at our overall product mix, we obviously factor that. So certainly, the new products will come at a higher margin. I guess that's all that I can answer on this question. Yes. So if CFO can tell me about the lower gross margin, will that still be maintained or will you think it will increase? Yes. I think our guidelines is not on our side. Our guidelines, it was 60% to 61%. Of course, we are not factoring product to product. It's a basket gross margin guideline. There are so many factors which affects margin and particularly gross margin. Margin. But we strongly believe what the gross margin we had Q1, we are going to work towards that. In this situation, even this gross margin, we might feel little bit pressure kind of situation because of API crisis increasing. But all claims put together, we feel will be there what guidelines we have given up 60% to 61%. Is this okay? Yes. This helps me. And yes, obviously, if you can also comment on EBITDA margin, that will be even more helpful. EBITDA margin, our guidelines, it was from 19% to 20% for this year because our endeavor was to improve by 100 basis points after a year. So we remain with our guidance. Looking to better quarter 1, we believe 5,200 basis points we try to improve on that. How much? Sorry, how much will you try to improve? 200 basis points we try to improve. 5,200 basis points. Okay, understood. Just to clarify, last year's guidance was RMB 19.5 I mean, last call, we guided for RMB 19.5 to 20%. So this 50 basis point improvement is over the guidance and not be Okay, understood. Understood, yes. That's okay. Thank you. Okay. Thank you. Thank you. The next question is from the line of Neha Manpuria from JPMorgan. Please go ahead. Yes. Thank you for taking my question. First on the Chain Generics business, how has this business momentum been over the last 3 quarters? We did see some pickup during the pandemic. Has the growth rate for the business slowed? And related question, we are seeing more players enter these various segments. Does that make it difficult for us to continue to grow this business at double digits that we've been seeing over the last few years? Yes, yes. I'll take that question. So there's no so to answer you, Trade Generics continues to grow at very healthy pace and the growth is not slowing down. And this question specifically of large presenting Trade Generics, I think it was expected because this is kind of growing very, very handsomely for the last few quarters. But you said can will this double digit growth continue? The answer is emphatically yes because keep in mind, we don't really grow in double digits, we grow in very high double digits. So achieving double digits and maintaining that over the next few years, we don't see it as a challenge at all. And what would drive this for Philippe despite the competition in your view? Sorry? What would drive this double digit growth, the strong double digit growth that we're guiding to despite the competition that you don't see? Sure, sure. So I think a lot of people underestimate trade generics business and that's also a franchisee and a brand business actually. It might seem like an oxymoron, but it's not. So the relationship between Joy with the trade generic trade channels is something which can't be replicated overnight. It takes many, many years. We have reached where we have reached in 20 years didn't have an overnight. So all the best people have come in, but they will also take the time, ma'am. And we got to kind of appreciate that. This is a tough business actually. Understood. Understood. And in your opening remarks Sandeep, you mentioned licensing, you know, certain licensing deals worth INR 100 crores with the global pharma. If you could get some color on that, I didn't really catch the context of that, Steve? I'll tell you that, yes. So Enzena Biotech subsidiary has out licensed this. One of them is a MAV, it's with a European company and that in out licensing value is $10,000,000 based on milestone and up to launch. And they have also out licensed 1 recombinant peptide to a company in South Korea. That's around worth $2,500,000 So therefore, both of them put together, I said that it's close to INR 100 crores. And that's the biggest on milestones. But I think, yes, bigger out licensing and I foresee you see a bright future for biosimilars as we go forward. Understood. Got it. Thank you so much. Thank you. Thank you. The next question is from the line of Harid Ahmed from Spark Capital Advisors. Please go ahead. Hi. Thanks for the opportunity. On biosimilars, will you be able to share what percentage of our R and D spends today is for biosimilars? And on the licensing of the Mab product that you have done to a European partner? What stage of development is that product? And could you give some time lines around development and launch for this product? Sorry. So I got your first question. My second question, maybe I'll ask you to repeat, but I'll quickly answer you. So we spent close to 12% to 14% of R and D on biotech historically. What is your second question, sir? So this product that you've licensed to Theramex, what stage of development is that product? Is it in clinical trials already or is it still Yes. In India, we have got approval. So in India, it's going to be launched, but yes, this is for Europe and some other countries. So that we are going to enter clinical stage very soon for Europe. Phase I will initiate in a couple of months. So early stages. And the market formation or the big expiries, etcetera, would be Yes. I mean, if you launch the timeline? Yes, that's still like 4 years away, 4 to 5 years away. Okay. Yes, yes. Okay. And my second question is on the PCPM for domestic business. How much lower is the PCPM for the chronic segment in our domestic business? And do we expect this to catch up with the achieved segment PCPM for us? Yes. Yogesh, you can that. Yes. So we have some of the evolved business and then the evolving business. So for the evolved business, we have a productivity range of around 8 to 10 lakhs. And from the evolving business, our productivity ranges around 3.5 to 4. And the new businesses, our productivity ranges between 1.5 to 2.5. Have I answered you? Okay. Yes. Yes, yes. Got it. And then the EVOLVE business, can you talk about you're probably referring to our neuropsychiatry segment and No, anti infective segment. Yes, anti infective. Okay. Okay. And then within chronic segment, the chronic therapies, would the PCTL be significantly lower versus the company level PCTL? Yes. Since we are almost 80%, 85% antibiotics and the impact of the CPM is in the range of around 8 to 10 and chronic is evolving where we are in a range of around 3.5 to 4 lakhs. Okay. Understood. Thank you. That's all I have. It. Thank you. The next question is from the line of Kunal Rundaria from EDELWEISS. Please go ahead. Good evening and thanks for taking my questions. So my first question is on the vitamins portfolio. So this business is growing at a very fast clip. Now it's actually growing double almost 2x the market. Now they're number 2 in India. I'm just wondering what's the sustainability of this business from year on? So see, COVID certainly has an extraordinary surge on such multivitamins and particularly those which are zinc based regressions. So this 3 month traction, certainly you can't see in a regular time, but they are our core product. They are our focused products. So they will sustain they will outbeat the industry growth, that is for sure, but certainly not the COVID side. So these are our core focus products and we should outperform the market growth. Right. I mean, so would it be fair to assume that maybe quarter or 2 down the line there could be some pressure on this portfolio as we call for high base? Yes. Yes, you can expect. In the Q1 next year, you can expect some pressure on these portfolios. Sure. And the second question is on Apriso that you launched in this quarter. So would it be fair to assume that you're working on other missile mine products also? And are there any sort of launch timeline that you would like to share with us? Yes. So honestly, we don't like to talk about our pipeline. So any assumptions, I think, would not be correct. And also would like to add that these misalignment formulations, we all know are pretty tough. So even if we are working on it, I don't think so. We'll be in any position to tell you when or where that if at all it happens. So nothing right there we want to comment. Sure, sure. And just one more question, if I can. Can you share how the API prices are behaving now, whether it's going up or stabilized now and how is it impacting your gross margins? Mr. Dube, please. Yes. API prices, it has started going up from March end. And in mid of May, actually, we witnessed major sporting selected API branches. But after that, it started softening, and it has not come back to normalcy. But I think majorly, it has come within range. And slowly, we expect it is going to be normalized. So now trend is not upward, either it is softening or stable kind of. So is it yet to impact numbers? Or has it already impacted in this quarter? In this quarter, some little bit impact it has come. But since as I said, sizes started showing upward trend from April in May. So we procure material, then formulation has happened. And now once sale is going to happen, then it will hit to our financials. So June sale, to certain extent, and very normal or very minimal kind of impact it has not. But in quarter 2, we'll be having rest of the impact of India, price increase. But I think, yes, it has impacted, but it is manageable. And we are comfortable on gross margin what guidelines we have provided. Okay, got it. Thank you. Thank you. The next question is from the line of Shiram Rathi from ICICI Securities. Please go ahead. Yes. Thanks for the opportunity. Asu, just one question from my side. I mean, the staff cost looks very high this quarter. So I mean, were there any one offs in this quarter? And are there any specific increases that happened? Start cost, this is Vivek, please. Yes. So start cost, we have a few one offs in this quarter. One is, in fact, it's on account of the gratuity and new and cashment liability provisioning. And this has happened because we revised basic of our employees. Traditionally, it was 37% of BLCTC, but we will deal is expected. So we decided to true up to certain extent. So from 37%, we increased to 42%. So that one off which has come in this quarter, and that is not going to remain going forward. 2nd, staff cost, it looks on our side because we had a very good quarter on our revenue. So we paid the incentive. If you are comparing with last year's quarter was definitely incentive percentage wise and achievement wise also it was very much compromised this quarter since we had surplus. So incentive percentage, it has increased as well as quantum also it has increased. So putting these 2 together, it gives an answer, a bigger answer to your question of increased employee cost. Okay. So going forward, how should we look at this figure? Like earlier, we were around INR 400 crores kind of figure. So will it be like INR 450 crores or INR 500? Generally, what should we bring? Definitely, it will be optimized by, say, another INR INR 45 crores, what we have now. So if I take out, suppose INR 50 crores out of this, then it will be somewhere in the range of INR 480, INR 75. Okay. Got it. And other expenses would be normal right now, this quarter also, like this is a normal run rate. Other expenses, it looks normal. But let me just tell you, still our marketing expenses, it is normalized to the tune of 80%, 85% only. So we should expect 10% to 15% in our marketing expense, I mean, to say. I mean, it includes everything. So out of that marketing expense, as far as still 85% normalization has happened. We can expect another 5% to 10% going forward. Okay. Sure. Got it. Thank you, sir. Thank you so much. Thank you. The next question is from the line of Srian Mukherjee from Nomura Capital. Please go ahead. Srian Mukherjee from Nomura Capital, your line is un muted. Please go ahead. Yes, sorry. Can you hear me? Yes, we can. Yes, yes. Just this you mentioned about employee cost. There is some adjustment on inventory. Is it possible to quantify how much are these 2 elements in this quarter? Yes, yes. Employee cost, Sahil, I'm sure you must have I was able to explain why it has we are having onetime cost of that. We increased basic from 37% to 42%, resulting into increase in the HD liability and even cash rent liability. So it is not cash payout, it is provision. And if I put both these together, around INR 28 crores, INR 29 crores additional provision we had to pay. Okay. And on the inventory provision that you took this quarter, sir, on Inventory provision and additional NRV provision because NRV, it goes along with your sales. So if I put both these together around INR 35 crores to INR 40 crores, in fact INR 38 crores, it was additional, which we can term as one off kind. Okay. Okay. Thanks. And Sandeep, on the biosimilars front, there seems to be some progress made. So what is the kind of investments we have made so far? You mentioned almost 12% to 15% of R and D goes in there. So what kind of annual expenses we incur? And I mean, if you can talk about the capabilities that you put in place, the people that you have got, the team that you put in place And just to give us a sense like what makes you feel good about the business in terms of being able to execute your strategy here? Sure. No, no. Thank you, sir. So totally, we have invested INR 650 crores in biotech. This includes R and D and CapEx and total expenditure so far. Roughly, we spent close to INR 100 crores on biotech, including now manufacturing and everything, that's a full expenditure on biotech. Your question on what is the capability to kind of for the front end. So mainly biotech for, let's say, some indications of Onco and some of them also in Bone Health and Osteo segment. So I think on the Onco segment, yes, we have some role to I mean, some catch up to do there. But on the Bone Health side, I think we are very strong. We have good connect with Orthopaedics, and so we'll do well there. But keep in mind that this is a business which is meant to be not just for Alchems. So we have out license some drugs to Lupin. We have out licensed to Sidus. And even globally, we are licensing. So we should not rely only on our strength to do justice with biotech. So just keep that in mind, Simon. We will tie up with the best irrespective of whether it's Alkim or not. We'll get the best partners and we will be executing this. In India, Alkim is a strong partner, so Alkim is the right choice. But globally, we'll go with people who can do justice with it. Actually, Suneet, I was also looking at the product development capabilities R and D, if you can give some color on that. So honestly, Suneet, I don't know how much color I can give on that because honestly only with time it will tell how good or bad it is. But what I can tell you why I'm I think I'm confident about it is people have done extensive due diligence. Only after that, you can out license things. So we have gone through those rounds. I hear good things about them from our partners, and they are putting the money where their mouth is. So we have our licensing deal already in a very early stage of a company. Second thing, the employees who work on this in this business in ZYN Biotech, a lot of the senior management has come from U. S. They have worked in companies like Amgen and BMS and all. So I think I've got I mean, we've got great people there. But yes, but few things, many time will tell, Sahin. I can as Andrew could, I'm always positive, but that's my job. But I think you all be cautious and just watch us. That will answer us honestly. Okay. And do you plan to kind of list this separately or do some funding here? Yes. I think we are discussing San, that's an interesting very interesting topic idea. We do mull over it, but we also kind of are in a situation where we think if we kind of raise or lift so early, we might lose a lot on valuation because we are at very early stage. But I do think that biosimilar or biotech is a huge opportunity. It might need a lot of capital as we get ambitious in the next few years. So those options are strictly on the table, Ryan, I must say that. Okay. Okay. And just one clarification, Sandeep. This INR 100 crores you said, over what period you have invested in that? Yes. So this is based on milestones and some of it would be on like back ended. What I mean is on completion of Phase 1, Phase 3 and our launch. So some of them are back a large part of it is back ended, but they would be I think would so it's up to launch science. So you could assume in the next 4 years. Okay. No, from the last year, I was mentioning about you mentioned INR 650 crores of CapEx and then you mentioned something about INR 100 crores additional. We make both kinds INR 650 crores. That's the total investments we have made there, yes. Not just it. Okay. Okay. Okay. Okay. Thank you. Thanks. Thank you, sir. Thank you. The next question is from the line of Damayanti Karai from HSBC Securities and Capital Markets Limited. Please go ahead. Hi. Thank you for the opportunity. So my question is coming back to operating costs, a few clarifications. So on the API prices increase, you said after May, it's now cooling down and you haven't seen anything implemented in recent months, right? Can you clarify like any observation on the API price in recent weeks? Yes, Damanvi, you're right. I think same thing, APA prices mainly in the month of the month. So it's up to mid of May. And then we'll come back to the normal phase to an extent closer to earlier one. So we will be right now. Okay. And then coming to marketing costs in India, you said we are now at 80%, 85% and then edge business picks up, we will see further change there, that's your marketing cost, right? So actually, in fact, I just wanted to indicate our marketing activities, it has not come to normalcy when I see cost of my marketing cost. So we strongly believe still cost on cost front. We can have additional cost to the tune of 5% to 7% or 10% going forward once it becomes normal. And I think Mr. Yogesh Kosher is also here, and he will be in better position to give exact feel on marketing activity, How much it got normally? I go by what our CFO said. Initial Q1 because of May lockdown, there were certain restrictions on marketing. But in the second and third quarter, we see the marketing cost opening up. So we should come back to our usual marketing investment in the Q2 onwards. Okay. So that's helpful. And just a final comment on your observation on recent cost on the fleet and logistic side because some of your competitors have mentioned certain increase in there. So what are your observation on this fleet and logistic part? Yes. Actually, we witnessed higher selling and distribution cost, which is mainly logistic cost. And if I have to bifurcate between domestic and international domestic, obviously, it has to be on higher side because of our enhancing. So that is justified. Even for our international logistics, actually, rates, it has increased. So that also resulted in higher selling and distribution cost in this quarter. And thus increase in rate is significantly higher. So it was a substantial amount which has gone in our P and L of this quarter. Okay. So that was for 1Q. What are recent observations? Like what are update on this logistic card? Has it cooled down a bit? Or it's at similar level compared to last? But not substantial. Still, normalization has to happen. If I'm not, what is the logistic cost? For domestic, I think it will go in proportion to your revenue. So when I see on absolute amount term, it indicates higher debit it has won. But it's in ratio of our revenue. So domestic, I don't think any abnormality it has happened. But for international rate, it has gone up. It has come down a little bit but not very significant. So still, we are waiting for normalization. That's helpful. And so my final question is on your general observation on the pricing erosion environment in the U. S. So can you please comment on that? Mr. Gare, please. The pricing deflation has increased and it has been strong in the past 15 months since the beginning of COVID. Obviously, the products which are launched, the newer products undergo a higher deflation. I think overall on our portfolio basis, our deflation was still in single digits, but on higher side, higher single digit numbers. Okay. So we are still in single digit. And are we seeing any, I'll say, intensifying pressure in last few months or it's broadly in that single digit range for us? Well, let me just say that the pressure has been there since the last 6 months and not that it wasn't there before, but that increase that I talked about from the 3%, 4% levels to 8%, 9% level has been there for last 12 months. So it hasn't increased, but unfortunately, it hasn't decreased as well. Okay, sir. Thank you for your answers. That's helpful. Thank you. The next question is from the line of Yashdi from Italk BMS. Please go ahead. Hi, Achin. Congratulations on a good set of numbers. Am I audible? Yes, very well. Yes. So I have two questions. The first one is, so on a medium term basis, let's say, like 5 or 6 years down the line, can we double down on our current revenues like which is around INR 8,800 crores right now. So can we go around INR 17,500 crores to INR 18,000 crores organically? So I don't want any very specific numbers, but as a long term shareholder, if you could just give some broad guidance if that growth is achievable? And if yes, like what would be the drivers for this growth? Yes. If you're talking about doubling in 6 years, I think my math is not very good, but that's maybe 12% to 13%. So if that's the case, we would we normally don't like to give forward numbers. That's like some broad guidance. I mean and what would be the drivers for that, if you could just Yes, the drivers for this I mean those, Alkim, would be obviously domestic business, which is a large part of the business. Chronic business, please don't forget, we have hardly scratched the surface. U. S. Business, we are still in not very large. We are still in all molecules, oral solids. There we could can come into really complex generics and biosimilars for 5 years down the line. So that would help. I mean, 6 years doubling is not massive. So that's okay. Sure, sir. And my second question is, so what is the durable competitive edge that which has led to consistent market share growth for Alkheim across all therapies over share growth for Alkheim across all therapies over years? And are we taking any new initiatives now to maintain or enhance this competitive edge that we have over the years? That's a comprehensive question. I think our competitive edge is luck. Manav, I'm just joking, sorry. We've got huge brands. We are a very entrepreneurial company where everyone is a quick decision maker. We have a culture, I think culture differentiates you. So that's the very kind of answer I'd like to give. But the management is very focused. The promoters like to this. We are passionate entrepreneurs. We've got good set of people. I think that's why I said it's a matter of luck. We've got great people. And we don't hesitate to invest. There was a time, if you remember, I looked at margins were close to 14% in the IPO. That's because we were investing. So we take a long term call on business and we invest and we wait and we do all the right things. Sure. Thank you. Thank you. The next question is from the line of Bhaskar Bukher Rediwala from RTR Investments. Please go ahead. Thanks for taking my questions. Couple of questions. 1 on the margin profile from a medium term perspective. Now as you can see that your Cronix portfolio is shaping up quite well. So would structurally your margins range, which has been, let's say, between 21% to 24% over the 3 year period likely to inch up because of the sales? Yes, I think it will inch up, but don't ask me how much, but it will certainly inch up for sure. Any very broad directional guidance would you like to give without giving very specific guidance? Directional guidance, we're always given for 200 basis points every year, we'll try to inch up only. We maintain that transfer. Okay, okay. And will your gross margin in the chronic portfolio be higher than your acute portfolio? Yes. Yes, for sure. Okay, okay. Yes. So that's the question from my side. That's all. Thank you. The next question is from the line of Prakash Aggarwal from Axis Capital. Please go ahead. Yes. Thanks for the opportunity again. Just on the MR, so in the last 2, 3 years, we had an addition of about 2,000 people. And so what is the current MR run rate and what is the current MR productivity and tying up with the margins? So if you are largely done with MR additions with 10%, 12% growth, is there a possibility of like what the earlier participant also asked 50 to 100 basis points? So that is a culmination of that? Yes. That's also one of the culminating factors for sure because the addition of MRs have more or less been done. But I think on specific numbers, Yigal, you could answer them with your details. As a group, we should be around 10,000 plus, around 11,000 people, 11,000 MRs. And yes, we other than the respiratory division which we have launched, we are almost done with our addition of MRs. But nevertheless, we as our MD also said, Sandeep, that we are not close to any future opportunities. So as of now, we are not on a close run, we are not seeing any expansion, but we are open to opportunities. Okay. And MR productivity, where we are in the Come again, sorry, I didn't get you. What is our run rate on MR productivity? Yes, I told you just some time back that our evolved business, we are in a range of around 8 to 10 lacs. In the Evolvings, we are somewhere between 3.5 to 4. And just a few couple of years long business, we are in a range of 1.5 to 2 lacs. So ballpark will be around 5.5. Around 5 to 5.5 overall as organization. Perfect. And secondly, on use of cash, like now from an upcoming quarter and seeing in the last few quarters also, there is a very strong free cash flow division that is happening. And I think in the last call, there was a mention that we are evaluating M and A after a long time we said that. So are we looking at aggressively anything on the table? And what is the current thought on this? Look, Prakash, so I think yes, I think activation of cash will happen, and that's a good thing. I don't recollect whether we said we are open to M and A acquisitions unless I have unleashing, I'm not sure. But So but I don't think so. So I think as we go forward, Prakash, I understand that cash aspiration will happen in the next few years. I think once we cross, let's say, some numbers and it becomes a problem, we could discuss that time. But so we are not changing anything right now, Prakash, in terms of our dividend policies or anything like that, Prakash. Okay. So you're saying you're not too keen on M and A. Is that what you Yes. We're not too keen on M and A, Prakash. Okay. So natural and organic build out is what you prefer, Vasil? Yes. Yes. Okay. Great. And lastly, on tax rate. So we have seen 1 domestic company raising tax rate guidance. How do we feel like given our plans which were are still in Sikkim and all these so how long we have these tax breaks and how long we could be under 14%, 15% kind of tax breaks? See, Prakash, for this year, our guidelines is 13% to 15% of tax rate. I think that is going to remain. For next year, definitely, it is going to add up by another 100 basis points. So next year, you can take 14% to 16% kind of. And if I understand your question correctly, you asked me how long we are going to have SKIM benefit. So as you know, SKIM benefit ends in 20 6, 20 7. So So 26, 27. 27. But as in your mind, we have a facility in FEZ also. So that also is having tax advantage. And they were back credit also. Yes. Used back credit. Yes. So this FCZ is even though for 5 years, it is 100%, but next 10 years, 50% advantage is there also. But yes, as managing director is saying, we have used my credit. Even though our tax rate, it is going above my credit, but our cash flow on account of taxation, it is it will be under control. But yes, definitely, debit will start coming to P and L. Cash outflow, it will not be there, up beyond 21%. You want anything specific? No, no. This is very elaborate. Thank you so much. Thank you. The next question is from the line of Nitin Agarwal from Dhan Capital. Please go ahead. Thanks for taking the question. Sir, on the other expenses, this has been obviously one very volatile and unpredictable element for the last 4 or 5 quarters. I mean, in the past, it's been in early 20s, mid-20s as a percentage of sales for us. I think in the conversation that you've had over the quarter, what I understand this right, we've been suggesting that there is not much structural change that has happened in this cost item. So is it fair to expect that at some point in time, we start going back to early 20s percentage of sales for the other expenses? Or there are some changes which have happened in the overall business, which sort of make us will be optimizing significantly on that? There are so many factors if you are referring other expenses. Other expenses is a combination of so many expenditure. It's marketing expense, it's manufacturing expense and corporate overhead and whatever is not covered under employee cost and CODS, mainly it is coming under other expenses. So it is very difficult to give exact prediction, but generally, our other expense is in the range of 20% 18% to 20%. But definitely, operating leverage is one important component in that. So as just now we discussed, for example, employee related cost, when their productivity improves, definitely our revenue is going to go up whereas cost is not going to go up that in that proportion. So that advantage is there. Same thing applies in other expenses also if I have to take our manufacturing cost into consideration. Marketing also similar thing applies. But I think our other expenses broadly, it is in the range of 18% to 20% when it gets normalized. Okay, sir. Thank you. In the quarters, we have some seasonality. So if you check across the quarters, there would be this variation of 80% versus 22% because there is seasonality part also in our portfolio. Right. Got it. Thanks. Thank you. The next question is from the line of Nitya Balasubramaniam from Bernstein. Please go ahead. Hi. Just one question on your chronic therapy strategy. So what we do, if you look at commentary across companies is everybody wants to grow on chronic therapy and the market leaders in chronic therapy obviously would want to keep the market share and keep the leadership. So as a company which is now building presence, how is your strategy differentiated? Is it in terms of prescribers or geography focus or portfolio focus? What is it that Alcan brings to the people in such a highly competitive and highly concentrated market? In a generic branded business, very difficult to say that you can build a differentiation. But yes, our focus is very clear. We are known for building large brands. So this is this legacy we carry, and that's how we are looking at our chronic portfolio also. We are looking at brand size of INR 100, INR 200 crores price in the coming time. And we have already chosen some of the key therapies like cardiology and diabetology, which constitute around 52% of chronic. So where there will be industry heavy and we'll look at building productivity and future expansions also. At the same time, we are reasonably good at CNS, so we will continue to consolidate. And some of the business like urology and all, we will have a reasonable expectation, not very high. This is how we are working on our various portfolios and various therapies. In terms of customer use, this is where we will be working little negatively because we have a we don't have such a large prescriber base. So our endeavor would be to see that we expand our prescriber base across the base. You've got a steady progress in the right and I'll take your questions because of your leadership in anti infective categories. Will it be easier for you to bring the therapy down to the primary care level and leverage your leadership rather than trying to establish yourself for discussion? It will always remain. You have to make a choice between 2, whether you want to go through a primary physician or you want to go through a specialist. I think we have chosen to go through a specialist route, and we will continue to sustain that. Yes. It's a tougher journey, but a more sustainable one, one, 2, I'd say. Got it. Thank you so much. Thank you. As there are no further questions in queue, I now hand the conference over to the management for their closing comments. Thank you, everyone, for attending this call. If any of your queries have remained unanswered, please feel free to get in touch with me. Thank you. Thank you. Ladies and gentlemen, on behalf of Motilal Oswell Financial Services Limited, that concludes this conference call for today. Thank you for