Good afternoon, good day, and welcome to the Alkem Laboratories Ltd Q4 FY25 earnings conference call, hosted by Motilal Oswal Financial Services. As a reminder, all participants' 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 touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prashab Manudhani from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Thanks, Manav. Good evening and warm welcome for the fourth quarter FY25 earnings call of Alkem Laboratories. From the management side, we have Dr. Vikas Gupta, CEO, Mr. Nitin Agarwal, CFO, and Ms. Purvi Shah, Head of Investor Relations. Over to you, Purvi.
Thank you, Prashab. Good evening, everyone. We appreciate you joining us for our quarter four and full year 2025 results call. Earlier today, we have released our financial results, press release, and investor presentations, all of which are available on our website and the stock exchanges. We hope you have had the chance to review them. Before we continue, we want to remind everyone that this call is being recorded, and the transcripts will be made available on our website afterwards. Additionally, please be aware that today's discussion may include certain forward-looking statements, which should be considered in light of the risk our business faces. Now, I hand over the call to our CEO, Dr. Vikas Gupta, for his remarks. Over to you, sir.
Thank you. Thank you, Purvi. Good evening, everyone, and thank you for joining us today for the Q4 and FY2025 earnings call. We ended the year on a good note with healthy growth in our India business during Q4 and improved profitability and margins for the full year. Our domestic business continues to gain momentum, reinforcing our confidence in its long-term growth trajectory. This performance is driven by strong execution and targeted initiatives across our domestic operations. In the international business, excluding the Americas, we are seeing good traction, with several key markets making significant contributions to our growth. As we move forward, we remain focused on strategic growth opportunities and operational excellence to drive sustainable returns. I will now present the key highlights for Q4 and FY2025 financial performance. For Q4 and FY2025, the total revenue from operations was INR 31,438 million, with a YOY growth of 7.1%.
India sales were INR 21,355 million, with a YOY growth of 8.1%. International business sales were INR 9,747 million, with a YOY growth of 7.2%. Net profit was INR 3,059 million, with a growth of 4.2%. R&D expenses for Q4 were INR 1,585 million, close to 5% of our total revenue, compared to INR 1,757 million at 6% of our total revenue from operations. For FY25, on an annual basis, the total revenue from operations was INR 129,645 million, with a YOY growth of 2.3%. However, EBITDA increased by 11.9% YOY to INR 25,122 million, resulting in an EBITDA margin expansion from 17.7% in FY24 to 19.4%. Net profit was INR 21,655 million, with a YOY growth of 20.6%. R&D expenses for FY25 were INR 5,620 million, which is 4.3% of our total revenue from operations. The cash imbalance at the end of 31st March 2025 is INR 46.2 billion.
According to IQVIA SSA data, for FY25, the company registered a volume growth of 2.1% versus IPM's volume growth of 1.2%, outperforming the volume growth of IPM by 90 basis points. Expense segment growth has outperformed IPM in FY25 by 30 basis points at 6.9%. In anti-infective therapies, our oral solids and liquids portfolio has outperformed the market, growing almost 1.7 times the IPM. However, we saw certain challenges on the injectable anti-infective portfolio. Alkem has outperformed the market in 6 out of 11 IPM's top-focused therapies over the past year. In the IPM's top five therapy segments, Alkem achieved one-rank improvement each in anti-diabetic as well as the respiratory therapies. As per the recent prescription data, Alkem is the third-largest company in the prescription share and ranked number one in ortho and amongst top three in gynecology, pediatrics, surgery, dentistry, as well as GP specialties.
I want to extend my sincere thanks to our team for their dedication and commitment to excellence in this performance. With our strong foundation, we are well-positioned to capitalize on the opportunities that lie ahead, and I'm confident about a bright future. As we look ahead, our focus remains on positioning the company for sustained growth and creating long-term value for our shareholders. With that, let's open the floor for questions. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles.
I would like to remind all the participants, if you wish to ask any questions, you may press star and one. We have our next first question from the line of Damyanti Kerai from HSBC. Please go ahead.
Hi, good afternoon, and thank you for the opportunity. My question is to Dr. Vikas. In India, in some of the bigger segments, anti-infective, cardiac, anti-diabetic, etc., in the fourth quarter number, according to your presentation, Alkem's growth was lower than IPM growth. If you can explain or elaborate what has happened or which segments within these big therapies are seeing some weakness, etc., that will be helpful. With that context, how should we look at India business growth for next year?
Okay, thank you, Damyanti. Actually, if you see our annual performance, as I mentioned, all these therapies we have outperformed. Some of the top therapies, if you see GI, GI has been our pretty big therapy. We have outperformed the market. If you see anti-diabetic also, I would say on an annualized basis, we have outperformed the market. If you see neuro, CNS, multivitamins, Gynac, all these therapies, we have really outperformed the market. On the anti-infective side, like I mentioned, if you deep dive into the data, oral solids and oral liquids, anti-infective has three components: solids, liquids, and injectables. So oral solids and oral liquids, we have outperformed the market. Injectable business, sometimes we see certain challenges in the overall data that comes in because this is a mix of B2B as well as retail business.
I think what is more relevant and the bigger component is of the oral solids and liquids business. Their trajectories are going pretty strong. I would say overall, if you see our India business performance for Q4, it has been very strong. We have registered good growth overall in the India business, and that is expected to continue now. Though initial one or two quarters, we had certain challenges, but I think overall our domestics, we have reported 8.1% growth as far as Q4 is concerned. We are pretty bullish on that, and we are actually, that's one of our core businesses, so we are very aggressive as far as that business is concerned. I do not see any reason of concern over there. Cardiac, so to say, has never been a big therapy for us, so that is a very small business for us.
Anti-diabetes, respiratory, neuro, derma, these are the bigger businesses for us as far as chronic is concerned, which is where our growth trajectory is going strong.
Okay. Again, coming back to anti-infective, we are already towards the end of May. How is anti-infective seasonal demand looking up? I think we are already into rains, etc. Compared to the last two years, it was slightly different.
I'm sure that it has rains. I guess it'll be too early for you guys to really look into it, but I think let this quarter get over. As I said, our focus is more on the basics. We saw a strong Q4, and we expect similar growth trajectories to continue even in the coming quarters. That's how I'll put it because we are in the middle of the quarter. It will not be wise or fair on my part to make any prediction for the quarter that comes.
Okay, sure. How should we look at—my second question is, how should we look at EBITDA margins for FY26?
Like we've given the guidance earlier as well, I think now we are chasing growth. EBITDA margins, when we had started last year, our initial estimate was that we will be somewhere close to 18.5%. We were able to get it to even better at 19.5%. We expect the EBITDA margins to remain similar as far as this financial year is concerned, though we will get operating leverage on a basis, the growth that we will have recorded in the coming financial year. We are making certain investments in R&D for certain markets where we want to expand. That is the reason overall our EBITDA guidance in terms of percentage would be stable at 19.5% for this financial year. That is what we are looking at.
That's it. My last question, if you can update us on the biosimilar seed plants in terms of investment and how we are looking at completing the project and supplying us.
The project is running on track. We expect the project to get completed latest by Q2, to become operational by Q2. I think the required CapEx that we had planned for the year last year, we have done almost INR 500 crore, close to that. I think the project is on track, so we should be able to start seeing some revenue within this year.
Okay. INR 500 crore cumulative will be how much? This is, I think, last year's number, right? How much is spent?
Cumulative in total, it will be around INR 550 crore. Out of that, INR 450 crore was spent last year on CapEx.
Okay. That's helpful. Thank you. I'll get back in touch with you.
Sure. Thanks.
Thank you. We have our next question from the line of Neha Manpuriya from Bank of America. Please go ahead.
Yeah. Thanks for taking my question. My first question is on gross margins. It seems after a very long time, we have seen gross margins sort of come off meaningfully. I understand part of this could be mix, but is there any other one-off that is sitting, or this is purely driven because of the pickup in the acute business that we have seen?
So Neha, you are asking for Q4 or for the year?
Yes, for the Q4.
Q4, our margin, gross margin was a bit lower as compared to the corresponding quarter of last year. There were two, three reasons. One was our production was lower because we were suffering on inventory till last year. In the first nine months of the current year, we have built good quantity of inventory for our international business. We slowed down our production in quarter four, and that impacted the gross margin because by counting centers, few of your overhead gets loaded over to inventory. If your production is lower, your inventory change amount reduces, which impacts your gross margin. Second reason was in last year, in the same quarter, we had some settlement fees, which we have received for a product called Nimodipine. Third is we saw some higher expiry in few of our markets, which also impacted our gross margin.
How should I think about gross margins for the full year going forward? Should it be on a full-year basis? Should it be similar to what we have done in fiscal 2025, which is about the 63%, or should we see moderation because acute growth, which is weak, normalizes?
It will be on the similar lines. It will be around 63 or a bit, maybe 25 basis points better than what we have.
Okay. Got it. My second question is on the acute business. I think in the opening remarks, you mentioned that we have taken certain targeted interventions in India. Could you give us some color on what these interventions are and how they've helped improve our growth? As we think about the growth for next year, will we be able to now maintain this market-level growth and just a breakup between trade generics and branded generics for fiscal 2025?
I think the interventions were largely tactical and strategic both. We have focused on the right specialties, right indications, right geographies. Those are the most specifics that we have taken as far as driving the overall growth for this segment is concerned. When you ask me whether this growth is sustainable or not, I see no reason for this growth to slow down, I mean, I see it getting even better in times to come. Like I said, this is our core business. We're pretty bullish about it. We were always confident that this is one business where growths are going to be there. I guess that is what we have seen, and it should continue even in times to come.
As compared to the overall growth, I would say domestic, we will be, say, in line with the market growth or 100 basis points surpassing the market growth. Actually, that is what we are looking at. I think we are very close to that in this financial year going forward. We see our growth estimates to be at least 100 basis points higher than how the market grows. That is what Neha—if there is anything else.
Sir, how should I think about the market growth? When you say market growth, is it like 6-7%, 8-9%? What, according to you, is the right assessment for market growth?
I think my sense is with a better seasonality that we are expecting in the coming year, we should be within the range of 7-8% at least. That has been the trend that the market has seen. That is the minimum that we expect at least the market to be. Let's see how the year progresses. If everything goes well, it could be even slightly more than that.
Got it. On trade generic, how was the growth for trade generic for the full year this time around?
Trade generic business, overall, if you see—you're asking for next year or for the year that has gone?
For FY2025, what was the growth? Obviously, how do we think about it? I think there seems to be some moderation even in the trade generic growth that peers like yourself and your peers are talking about. I just wanted to get a sense on how we did in 2025 and how should we think about that trade generic growth going forward?
Trade generic saw mid-single-digit kind of growth within the range of around 6-7%. That is how it was. The market has become quite competitive. We saw a lot of newer entrants also getting into the market. As it happens, because trade generic also, a large part of business is acute. When the acute market sort of slows down, even on the trade generic side, we see a similar trend. Going forward, I think it should be in line with how the IPM would grow. Even on the trade generic side, we are expecting similar kinds of growths that we are likely to register. The only thing is we are working on improving margins over there.
If you see the last two years, we have had, on a two-year basis, an improvement in our overall margins as far as the trade generic business is concerned. They are not very far off now from our overall corporate EBITDA margins. Our intent would be to get as close to our corporate EBITDA margins with the trade generic business. That will be a mix of both top-line growth as well as margin improvement as far as the trade business is concerned.
Got it. Thank you so much, sir.
Thank you. We have our next question from the line of Abdul Puranwala from ICICI Securities. Please go ahead.
Hi. Thanks for the opportunity. My first question is with your business. In the past, you've talked about a couple of product launches, namely on Syntrastor. I mean, any timeline on when that would happen in fiscal 2026?
This matter is under—there is a litigation going on between MSN and the innovator, right? We are just keeping an eye on how the market opens up. The earliest estimate could be somewhere in July, but it will all depend on how the case takes shape. If the market opens up like a few others, we will also be ready for the launch. Let's see how it plays out in the market.
Okay. The second question is with regards to the supply situation. I think in the past, we have talked about some improvement. Yet in this quarter, we have seen some quarter of a decline. For FY2026, how should we look at your US business in terms of growth?
You're saying the overall business in the US?
Yes, sir.
Yeah. So see, if you see the trend as far as U.S. business is concerned, initial quarters, we had seen heavy degrowth. If you see, the business is getting more stable now, our sense is with our now supply and inventory levels being good in the U.S. and as the year progresses, my guidance has always been a mid-single-digit kind of growth from U.S. business. We expect that to happen in this financial year. Of course, there may be first one or two quarters where we may just do some catch-up as compared to the previous year. Overall, on an annualized basis, our expectation is it could be around a mid-single-digit kind of growth business for us. The price erosion over there continues to happen. The nature of the market is such.
I think with our supply situation getting better, with certain opportunities also coming our way, we are hopeful of a mid-single-digit kind of growth this year from US.
That's awesome. Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. Anyone who wishes to ask a question, you may press star and one now. We have our next question from the line of Rashmi Shetty from Dollar Capital. Please go ahead.
Yeah. Thanks for the opportunity. Just again on the US business, when you said that we'll be able to clock at least mid-single-digit growth, how many launches are you planning for FY26? Earlier, you indicated that you will be doing around one or two high-value launches this year.
Yeah. Like I mentioned, Syntrastor, I answered already on the previous question. That is one we are hopeful. We look forward to launching at least five to six new products this year. Of course, not a very major big launch that we have, but we are hopeful that put together, these launches would help in getting us to the growth number that we have talked about.
Okay. When we see your working capital days, it has increased in FY2025 versus FY2024. Will it remain at the same level, or is it likely to increase as your US supplies and everything will start more?
There is a small increase in working capital number of days. I think we are at optimum level now, and we do not see any major increase in working capital from here onwards.
So it will be more or less stable at these levels?
Yes, you can say.
Okay. What is the guidance for the R&D for full year? I mean, we have done around 4.3% for FY25, but you earlier commented that investments for R&D is likely to go up. What is the guidance that you give?
Rashmi, we expect it to be within the range of 5%. That is what we are expecting because there are some filings that we will be doing in certain markets, certain non-US markets as well. For US also, we plan to file eight to nine products. I think we should be around 5%.
Around 5%. The investments in R&D will go up. It will also increase your SG&A expenses along with that when you're saying that the investments will be there in FY26? Or it will be more or less similar to in FY25?
SG&A?
Yeah.
I think it will be pretty much in terms of %, it will be within the range of what % we have had in this year. No major shifts in terms of %. I think largely the % increase would be on the R&D side.
Okay. On the CapEx part, how much have you spent in FY25, the total CapEx, and how much are you expecting for FY26?
We have spent around INR 700 crore in FY25. It will be in the same range for next year also because there is some amount of CapEx which we still need to do to complete our engine project in the U.S.
Out of the INR 700 crore which you spent in FY25, I think INR 400-450 crore was allocated to engine plants, right? That much work you have spent this year, or you have actually spent lower?
Yeah, INR 400 crores is what we have spent in Engine in the current year in FY 2025. The total amount of CapEx is INR 788 crores for FY 2025. Next year's estimate is to be around INR 700-750 crores for CapEx.
700-750. And out of that, engine would be how much?
Around INR 200 crore will be in total.
200 crore. So the rest would be spent on which plants?
Some will be routine CapEx. Say INR 150 crore will be routine, then there will be some amount on R&D. Plus, we are also looking to build a new plant for our domestic business. We will start that activity also very soon. That will also require some amount of CapEx.
Understood.
There is a medtech investment. As we have shared last year, we are buying a technology and brand and licensing from Exactech for our hip and knee replacement business in the medtech segment. That outgo will also happen. We have paid less than half of the amount last year, and the balance of around INR 70 crore will be paid in the current year.
Okay. My last question is on tax rate. If you can give tax rate guidance for FY 2026 and 2027.
FY26, 2027, you're talking about FY26?
Yeah.
FY26 will be in the range of 13-15%.
13%-15%. Okay. Thank you, sir. That's it from my side.
Thank you. A reminder to all participants, you may press star and one to ask a question. We have our next question from the line of Rahul Jeewani from IIFL Securities. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. Hope I am audible.
Yes, yes. How are you? Please go ahead.
Yeah. Yes, sir. So sir, on the domestic business, the 8% growth which we saw during the quarter was also partly aided by the fact that we had a low base last year when last year domestic business had actually declined 2%. Let's say, while I understand that the business is slightly seasonal in nature, what confidence do you have going into FY26 in terms of outperforming the market growth by 100 basis points?
I think I've already answered that question. We are pretty confident. If you see, if you deep dive further on our domestic business from where the growth has come, of course, growth is always compared to the last year base. There are certain quarters where you get good growth. There are certain quarters, especially in the businesses that have seasonality, where you will see the struggle. I do not see any reason why there should be any reason for a slowdown going forward unless, like I said, if market sees certain kind of upswings, then we will not be immune to the market trends. We are seeing the market trends also to be more stable now. We expect this growth to be delivered. Unless you have certain trend that you have in mind which you want to clarify, feel free to ask.
No, sir. So what I was largely asking from the point of view that if you look at FY2025, we actually underperformed market growth by 100 basis points. Now going forward, we are talking about an outperformance versus market. Does that assumption is premised on a pickup happening in the acute business this year?
That is one. If you see even the market outperformance, what happens is if you see the volume growth, volume growth, even this year we have outperformed the market. The problem has been on a large part of our portfolio, like I mentioned, is under NLEM. When that portfolio did not get any price growth and the volume growth was also sluggish in that market, that is where I think we faced the headwinds. Now with market getting more normalized and our contribution of that portfolio with every passing year coming slightly lesser, I do not see any reason why our growth should not be in line or, see, if you compare even last year, the difference was 6.9% to 6.5%. I am talking about the SSA data of the IQVIA, which is a marginal difference in the overall, I would say, market growth.
I think internally, we have clocked higher than that even last year. Internally, Q4 has been even stronger. I am looking at both the data, and that is why I am saying the structural changes that we made during the year are resulting in good growth across the company as far as domestic business is concerned.
Sure, sir. Sir, on the margins, the guidance of flat margins for FY2026, what kind of an operating loss have we factored in from the newer initiatives like the CDMO business and the medtech business?
Margins, it's a function of certain operating losses and certain gain that we may also see on the API prices that are getting softened. That is why our guidance on the overall margins are you think about the overall corporate margins, right?
Yes, sir. About the company level EBITDA.
About the company level EBITDA. I think, okay, Nitin, you would, yeah. I agree that there will be some amount of operating losses because CDMO business will be starting in quarter two of the current year. It will take some time to completely utilize the capacity of the US facility which we are building for CDMO in Engine. Also, medtech business, we have started. We have just completed the acquisition of Bombay Ortho. There will be some time it will take to start building that business. Also, the Exactech Bombay Ortho business will start from January 2026. Altogether, we see there will be a lot of both the business together, there will be around INR 100-125 crore of operating losses which we will incur for these two business combined.
Both medtech and the CDMO business combined INR 125 crore EBITDA loss?
Yes.
Sure. I answered. Sorry.
Engine US only. Engine Indo operations is profitable.
Sure. I answered last question from my end before I joined the queue. You talked about tax rate for FY2026. Can you also comment on the tax rate for 2027, given that the second plant of ours would come out of tax exemptions?
Yeah, I think that we have clarified on the earlier calls as well. The sunset clause is till FY 2026. Once that goes off, then our tax rate comes back to the normal tax rate. Since we have mapped already, we will be in the highest tax bracket of around 35% or slightly more, depending on how we take that view. That is how it will be post FY 2027. There is no change in that.
FY27, what kind of a tax rate should we model in? Should that be the corporate tax rate number of 25%?
No, no, no. Because we have already mapped in the credit, it will have to be higher than that. See, gradually we will move to a lower tax rate of 25%. But since we have a mapped credit of INR 1,450 crore, we cannot now move to the lower tax regime. We will have to be in the 35% tax bracket. Plus, there may be some amount of disallowance under tax which happens to all the company. The tax rate will be in the range of 35%-37.8%.
It would gradually start coming down?
Once we utilize the mapped credit more nicely, then we will move to a lower tax regime of 25%.
Okay, sir. Thank you. That's it from my side.
Thank you. We have our next question from the line of Neha Manpuriya from Bank of America. Please go ahead.
Yeah, my question has been answered. Thank you so much.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have our next question from the line of Alok Dalal from Jefferies India. Please go ahead.
Yes. Good evening, everyone. Dr. Vikas, when you mention about accelerating growth, can one look at high single-digit growth in FY 2026 and then the company moving towards double-digit growth rate for FY 2027?
You think on the overall level?
Yes, yes. Overall level.
Yeah. Yes. Because like I said, domestic being our core business, we are looking at outperforming the market. From US, we are looking at mid-single-digit kind of growth. And rest of the world, they are looking at mid-teens. You can put together, should be close to what you think.
Okay. When you mentioned about higher investments required for R&D projects, what kind of projects are these which will entail higher spends for FY26?
Our focus on ROW markets is increasing, and that is what I have mentioned on the previous calls as well. That would require, so far, we have not done those kind of filings in some of these markets. There will be products which we will be developing for the rest of the world markets as well. We will be doing a lot of filings for these markets. That is one. I think it is a mix of, and then even on the US portfolio side, we are relooking at our portfolios and doing more, I would say, products which will get us better returns, a better NPV in the times to come, which might require a higher spend. It is going to be a mix of some of these initiatives.
These would be largely complex.
Even for the domestic market, we are running certain clinical trials which we have not done in this financial year. Even from there, from India market perspective as well, we are running certain clinical trials to get the products to the market. I think it's a sum total of all which will result into this kind of R&D.
Wonderful. So focus is more on complex oral solids or injectables, those kinds of product ranges going forward?
Yes. Yeah. We've just started working on that as well.
Awesome. Okay, sir. Thank you for taking my question.
Thank you.
Thank you. We have our next question from the line of Abhijan Shivasa from Marcelus Investment Managers. Please go ahead.
Hi, sir. Thank you for taking my questions. Am I audible?
Yeah. Hi, Abhijan. You're audible. Please go ahead.
Okay. Sir, for the engine business, could you please tell me what the current year revenue and margins are?
Yes. In FY2025, we closed at around INR 290 crore of revenue. This is including sales from Alchem. A few of the products engine manufactures for Alchem, and then the Alchem team finally sells those products. Including that and the third-party sale which engine do to other pharma companies, the total sales was around INR 290 crore.
Got it. Do we know the margins yet?
Margins we have not shared segment-wise ever, so we'll be able to.
Okay. Okay. Got it. My next question is, we had done two investments in the last quarter, Adroit Biomed and Bombay Ortho. Could you please tell us what the scale-up plan would be here and the revenues that would be associated with these two investments going forward?
See, Bombay Ortho will gradually build up because this is a manufacturing facility which we have acquired, and they have capabilities to build, manufacture hip and knee replacements. This year, we are targeting around INR 20-25 crore of revenue because we have just taken over that business, and we have to build it from scratch in terms of sales. Over the next five years, we see this business of hip and knee, including the Exactech business, to cross around INR 200 crore.
Could you also mention what the plan is for Adroit Biomed?
Okay. So Adroit is, like I mentioned, is a derma-focused company. And so they have a turnover of close to INR 50 crore. And now we intend to scale up those brands. It has some good brands where we saw a lot of potential. That is why derma and chronic overall is a key focus area for us. That is why we went ahead and made investment in that company. We are pretty bullish about the growth potential of that. Plus, there are geographical advantages.
Correct.
That's a company which has a strong presence in South and West, whereas our geographical presence is North and East, where we think we can cross-leverage, we can really grow the business in those markets. It has growth potential.
Got it. And sir, lastly, could you tell us what the MR count and YPM would be for the acute and chronic segments of our domestic business?
I think on an analyzed basis, I mentioned around it's now not very different from what it is. Overall, we have around close to 13,000 reps. We have productivity at around INR 540,000, close to INR 500,000, I would say. And our chronic is now close to INR 400,000. This is how our overall productivity matrix is.
Got it. Thank you, sir.
Yeah.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have our next question from the line of Bansi Desai from JP Morgan. Please go ahead.
Yeah. Hi. Thanks for the opportunity. My question is on engine US business of ours. If you can just qualitatively tell us how the discussions are progressing with clients, what is the interest level in general, especially in the existing backdrop of reshoring, manufacturing in the US. Secondly, you mentioned that it will take some time for you to completely utilize this capacity. If you could give us some indication of what that could be. I mean, is it two, three years, or could it be more than that?
Yeah, gradually. See, this year, our projection is to run around INR 100 crore from CDMO business. As we said, we will be starting sales from quarter two. The ratio between, say, CapEx and revenue for these kinds of businesses is generally 1:1. Over the next three years, we plan to be around INR 450-500 crore of sales from CDMO business at full capacity utilization. We have order booked. We can't disclose the numbers or the client's name. We started building our, say, business development team and also building the orders from last one year. We have a decent amount of orders already.
In your assessment, would you believe you would need to further enhance your CapEx based on the visibility that you have?
Not for the current capacity, yes. If we utilize our capacity fully, then maybe after two years or three years. That will all depend upon how the business shapes up in the next two to three years.
All right. Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have our next question from the line of Dayan Mukherjee from Nomura Securities. Please go ahead.
Yeah. Thank you. You mentioned about the order book at Engine. I mean, can you disclose how many customers you're dealing with? Is this order book very concentrated with few customers, or it's kind of spread out across multiple customers?
Sir, we have not disclosed because these are very confidential information. We have signed agreements on confidentiality. It is difficult to share with you about our customer database. I mean, what I can share with you is that it is not fully concentrated. It is more than, say, three to four customers with whom we are working.
Okay. Just one clarification on your comment on R&D expenditure. When you mentioned complex oral solid and injectable, is this with respect to the U.S. markets?
Yes. Sir, I meant about US markets. We're just starting working on that portfolio as well, which will need higher R&D spend as well. That is not the only thing. In addition to that, I did mention about certain other markets and India markets where we are running certain clinical trials as well. Put together, it's going to amount to a higher R&D spend.
Dr. Vikas, one thought is that in the US market, the uncertainty level at this point is very high. There is talk of tariffs, local manufacturing. At this point of high uncertainty, why are we taking this decision of going into injectable and oral solids as a new area at this point in time?
We'll be cautious, and it is all subject to the way the market shapes up. We will have to start and continue working on certain opportunities. See, if you see the uncertainty, I mean, that way, a large part of the world has certain geopolitical scenarios across the globe has been such that those uncertainties will prevail for some more time. Whatever may be the case, I think the US will still need a generic portfolio. We have seen the tariff situation has been more even on the innovator portfolio side, right? I think that will decide on the pricing strategy as to exactly how we would have to price the product. If we are working on these products now, some of these products would see the light of the day three to four years from now after we have really worked.
We will have a more clearer picture at that time. We do not want to put any project on hold for the simple reason. I mean, even more important that if US business we have to grow, we need to have a differentiated portfolio. I think portfolio becomes even more important in this uncertain scenario because the degree of certainty would be higher for these products rather than when we have generic products. That is our view.
For injectable, you would basically be using CMO to manufacture or flat to?
Yes. At this stage, our plan is using CMO.
Okay. Finally, on the domestic growth rate, you mentioned about market probably growing at 7-8%. It seems that there has a decisive slowdown in the broader market. What is, in your assessment, driving this slowdown which has been going on for quite some time now?
I think it's about a large part of the portfolio is NLEM portfolio, even on the market side. Around 20% plus portfolio is under price control. And the inflation scenario is such that India, that the price growth allowed on that portfolio is actually nothing. So even last year, we saw so that takes off. If 20% of the portfolio doesn't see 10% price increase, 0.4-0.5% of the price lever of growth gets away straight away. It's a function of that. From the volume growth side, we saw 1% kind of volume growth in the last year, which we expect should be around 1.5-2% at least in this financial year. As long as that is there, I think the industry growth on a higher base, with an increasing base, should be around 8%.
If we see more inflation going forward, then the growth might even go up. If the inflation scenario remains similar, then I think the industry might even stabilize at 7-8% kind of growth.
One and a half %.
These are just individual viewpoints. Please don't hold me to this as a decision.
No, that's okay. I can see 1.5% volume growth that you mentioned. Kronik would be growing much faster, right? Basically, does it mean that there is actually no volume growth in acute?
No, it's not that. If you break down that portfolio segment-wise, I think most of the segments have seen certain growth. See, acute, as I said on the previous calls as well, I guess for the last two, three years, we were coming off on a huge COVID base that we had seen two to three years ago. Whenever you see that kind of spike in one particular year over a period of time, it takes a while for it to stabilize. We saw trends in Q4 of the pre-COVID growth sort of coming back. We expect that to continue because even if you see previous year's data, then acute would have grown lesser as compared to chronic in terms of the volume growth. I think that was a pre-COVID trend which will continue even in times to come.
Kronik, we see a higher volume growth as well because certain large markets and important markets, we saw drugs going off patent. When the drugs go off patent, there is a huge price crash, and the unit growth is massive. I think that is also contributing to some extent on the volume growth of the Kronik side. I think those are certain deeper analysis when you do of these markets. I think those are certain observations that we have had. Overall, I think this looks pretty stable now.
Okay. Thanks. I just have one question, if I can ask. Can I go ahead with one more question?
Sure. Please.
Yeah. Just one question for Nitin. Nitin, your guidance for tax rate for FY 2027, which is like 35%-37%, if you can just explain that a little bit more. Also, I wanted to check the cash tax, right? It is currently probably at around 20-odd %. Will that remain the same even until 2027 if you can just talk about the cash tax as well?
Sir, so see, since we have a MAT credit of around INR 1,450 crore on our balance sheet, so we will not be able to move to a lower tax saving. But once we completely use the MAT credit, we will move to a lower tax saving of 25%, including surcharge. But for next few years, starting from FY 2027, we will be in the highest bracket of 35% tax rate. But as soon as we utilize the entire MAT credit, we will opt to go to the lower tax rate.
The cash tax, I mean, the cash outflow on tax, how much will that be?
Cash outflow will be lower because we will be using the max credit. Definitely, we can't go below 18%. We will have to keep paying 18%. Out of 35%-37%, which I said, the cash outflow will be only 17%-18%.
Understood. Thank you.
Thank you. We have our next question from the line of Akash Zubada from Investec Capital Sources. Please go ahead.
Yeah. Thank you for the opportunity. Just one question. On semaglutide front, what is the clinical trial status in India? Do we expect to be in first wave of launch in India and other markets? Also, are we going to outsource API or manufacture in-house?
Too many questions, right, at one go. Let me address it one by one, Akash. We will be among the first wave of launch as far as SMI is concerned. Our clinical trial is going on. The details would be there on the CTRI website. It is there in public domain. You can look at that. What was the other part of your question? Are we manufacturing API ourselves? Is that the question?
Yes, yes.
API, we are sourcing from outside. I think we expect the market to open up early FY 2027, which is when we will be there in the market.
Okay. Thank you.
Thanks.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have our next question from the line of Bharav from Antique Stock Broking. Please go ahead.
Yes. Thank you. Good evening, sir. Sir, on the U.S., I believe we have approval for Mirabegron. Any indication on when we can see a launch from our?
I think I had addressed it on the earlier calls as well. We are in settlement with the innovator. Unless all the litigations anywhere across the world get over, we will not be able to launch the product because we have already settled it with the innovator, and we are bound by that agreement.
Okay, sir. Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. As there are no further questions, I'll now hand the conference over to the management for closing comments.
Thank you so much, everyone, for joining. We really look forward to this future interaction.
Yeah. Thank you all for participating in today's call and contributing to this meaningful discussion. If there are any questions that still remain unanswered, please feel free to reach out to us. Thank you and have a nice evening.
Thank you. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your line.