Ladies and gentlemen, good day and welcome to Q2 FY25 earnings conference call of Alembic Pharmaceuticals Limited. We have with us today Mr. Pranav Amin, Managing Director, Mr. R. K. Baheti, Director, Finance and CFO, Mr. Nilesh Wadhwa, Head, International Business and Strategy, Mr. Ajay Kumar Desai, Senior VP, Finance. As a reminder, this conference call is only for analysts and institutional investors. 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 any assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference call is being recorded. I now hand the conference over to Mr. Pranav Amin. Thank you, and over to you, sir.
Thank you. Good evening, everyone. Mr. Baheti here with me, who's got a little sore throat, so I'll just read out his part. Thank you all for joining the second quarter results conference call. I'm sure you'll have received the results by now. However, let me briefly take you through some of the numbers for the quarter-ended September 2024. During the quarter, total revenue grew 3% to INR 1,648 crores. EBITDA is at INR 257 crores, which is 15.6% of sales, and it's grown by 18%. Net profit grew by 12% to 153 crores. EPS for the quarter is 7.79 per share versus INR 6.95 for the previous corresponding quarter. The gross borrowings are INR 995 crores compared to INR 784 crores on September 2023. The company has INR 122 crores of cash on hand versus INR 141 crores of cash on September 20, 2023.
I'll just give a brief overview of the India business on behalf of Shaunak. The India branded business grew 6% to INR 609 crores for the quarter. It had good growth in specialty therapies such as gynecology 8%, cardiology 11%, anti-diabetic 18%, and 13% in ophthalmology. Animal health business, again, continues its robust growth, and it grew 20% for the quarter, with a basket of strong brands driving the outperformance. We had three launches in India during the quarter, and the new launches continue to do well, along with a lot of promising future ones across key segments. Coming to the international operations, we had a surprise inspection from the U.S. FDA at the oncology facility, which passed without any Form 483. The U.S. business continues to see price erosion, but we partially offset that with an increase in volumes and launches.
We had about a 25% growth in the U.S. volumes in spite of this. We continue to build momentum with new launches and should hopefully see better growth in H2, with a lot of our launches coming up and being a little more back-ended. We should launch about 10 products in H2 as well. Our R&D expense was 8% of sales at INR 133 crores for the quarter. We filed one ANDA. We also received nine approvals and launched eight products in the U.S. during the quarter, and as I mentioned, we will launch about 10 products in H2 as well. In terms of financials, the U.S. generics grew 5% to INR 467 crores for the quarter. The ex-U.S. generics was back on growth at 18%.
We did have some supply-related issues the first quarter and part of second quarter, so I expect this part of the business to continue growing like this in H2 as well. The API business de-grew by 15%. This is a trend that we've seen the last couple of quarters. We've seen some price erosion in the API business and have lost some key accounts. However, the long-term outlook on the API business still looks good, and it's a high-margin business for us. With that, I would like to open the floor for Q&A. Thank you.
Thank you very much, sir. We'll now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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'll wait for a moment while the question queue assembles. Our first question is from the line of Rashmi S. from Dolat Capital. Please go ahead.
Yeah. Thanks for the opportunity. One question on the domestic business. You know, we are seeing a very strong growth in your animal healthcare business, but we are seeing a very, I mean, we are seeing a growth slowdown in the specialty segment also. Like, you know, earlier we anticipated that, you know, we will be growing this into the double digits, so you know, when can we expect this growth to come back, and what is leading to this slow growth in the specialty segment? And in acute segment, you know, we have seen a decline, and I understand that we have a high base of Azithral, but you know, if you can give more clarity on this part of the business also, ex-Azithral, how are we doing?
For the full year, you know, what should we expect in terms of the overall domestic business?
So, a couple of parts are in your questions. I'm going to try to answer one by one. H2, I mean H2, which we continue to expect to grow better than the market on overall routine, particularly the specialty segments. Yes, antibiotics, acute have de-grown, but not de-grown. I mean, they've grown, or has been flat, but we are still better than the market in our even our RPMs. So that's the situation in the market. But our efforts continue. Our activities continue at clinic, and we hope that we should post a better performance in Q2 H2.
Just to add, on the specialty side of the business, basically, for quarter two, market growth was also in single digit, and we performed in line with the market.
Okay. And what about your ex-Azithral? How much growth we have done in acute part of the business?
So basically, on cough and cold side, there is a growth of in single digit, but on anti-infective side, and, you know, majorly it is driven by Azithral, the impact is getting flipped. Yeah.
Okay. But for the overall FY25, the growth should be, like, you know, in high single digits sort of for this year?
For us to do a high single digit growth for H1.
Domestic business.
No, for the whole year, I have to do 15% growth on H2, which may not be possible, but,
Okay.
We should do a high single digit growth at least in H2.
Got it. And then going ahead in FY 26 and 27, how should we look at it? How, what are the initiatives?
We have not been giving guidances.
No, I'm just asking that, you know, what are the initiatives that you are taking to, you know, to drive domestic growth, like, in terms of adding marketing field force or, you know, new product launches? What are you focusing on more, volume growth, price hike?
Driven by growth in number of field force, but more driven by better productivity out of our existing team.
Yeah, but anything, like, you know, any focus on volume growth or price hikes or any?
I would not like to get into details at this moment.
Okay. And second question is on the U.S. business. You know, we have done very good, number of launches, and, you know, what is the expectation in the second half? The current run rate definitely would pick up in the second half. So any guidance on the U.S. part of the business for the full year?
Yeah. So I don't have a guidance for you, but H2 will be much stronger for us, compared to H1. A couple of reasons for that. I think a lot of our launches are back-ended, and they will start picking up, we will start picking up share only in this quarter onwards. So I think H2 will definitely be much stronger for us in the U.S. market, as it will be for the ROW market as well.
Okay. And my last question is on gross margin. You know, gross margin, despite, I mean, India business has not done well, we were able to maintain it at 74%, which is much better than last year. So is it that, you know, it's majorly driven by the U.S. segment and your non-U.S. segment? And, you know, in case if India business comes back, you know, at least in line with the IPM in second half of the year?
Responding that to that question multiple times in the past that we are happy with anything which is 70% plus. And up 1% or 1.5% margin here and there doesn't make big difference. It would depend on the product mix of that quarter. It can depend on new launches which we do. It can also depend on ratio of oral solids and non-oral solids in the U.S. So I think 72%-74% is a good range to be in.
Okay. Thank you so much, sir. That's it from my side.
Thank you. Our next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Thank you for the opportunity. Pranav, my first question is on the U.S. price erosion. So you mentioned, you continue to see this. Can you comment, like, has there been any change compared to, say, last few quarters in terms of intensity of price erosion?
I think it's the same. To be honest, it's just product-specific if something happens. But it's the same routine price erosion that we continue seeing. It could be anywhere between high single digits to low double digits. That's what we're seeing in terms of the market.
And what are your expectations on pricing part? Will similar level continue, or we can see some meaningful changes in coming quarters?
I think fundamentals haven't changed, so you will see continued pricing pressures. As I mentioned, the high margin from which we were selling some products has come down, so the impact will get a little lesser. I expect H2 to be much better for us because we have a bunch of new launches that will start picking up steam in this quarter and the next quarter as well.
So you mentioned around 10 new launches in second half, right? Or that's just the-
10 new launches in second half, and also, but the first, the launches, eight launches that we've done in this quarter, it will gradually, we, as you've seen historically, Alembic, we always gradually ramp up our market share. I think the same thing will happen. Hence, you will see the eight launches that we've launched this quarter plus the 10 in H2 as well. Both these put together.
Okay. That's clear. And one question on R&D. So earlier you indicated INR 550 crore of R&D for this cycle. Do you maintain it, or do you, there is any change in your expectation in terms of spend?
Yeah. So I think it'll be a little bit on the lower side, I'd say between INR 500-INR 550, and I think we will be closer to the INR 500, INR 520 kind of levels.
Like your lower side. Okay. And again, if you can remind, where this majority of R&D is going right now in terms of formulations or,
So it's yeah. So I'd say about 70% of it is formulations, and about 30% of it would be on the API side.
Okay. And my last question is on your API. You mentioned you lost some accounts. So those are permanent losses, or what, what has led to?
Yeah. So it's, it's a fundamental business shift, and I think what has happened is some, there's, we've seen some pricing erosion in the API business. As you know, our API business over the last 15, 20 quarters has been growing very significantly, and it's a very high-margin business for us. So we lost some business. I think some partners have put in an alternate source, so we are still a part of it. We may recover it. Let's see what, how aggressively we do it. But I expect that part of H2 will also be at these levels of the API business, and hopefully next, towards the end of the year or next year, we will start getting back to growth in API.
So, API should be recovering from next semester most likely?
Yes, I believe so.
Okay. Thank you. Thank you for your time.
Thanks.
Thank you. Before we take our next question, we would like to remind participants that you may press star and one to ask a question. Our next question is from the line of Abdul kader Puranwala from ICICI Securities. Please go ahead.
Yeah, sir. Thank you for the opportunity. So just a couple of questions. Starting with your U.S. business, so among the eight products that you have launched in this particular quarter, any flavor you would like to, you know, add on how the launches have been? Is it in line with your expectation when we talk about a very strong second half of September 25?
Yeah. So, as I expected, you know, I expect H2 to be much stronger for us. While on the H1, Q1, and Q2, we did launch some products. And I'll give an overview of the international generics, what happened in H1. I think we had some supply constraints in H1, which caused, which we were very aggressive with picking up share in the market. We had the ROW business also, which didn't grow as much in the first quarter. It's back to about 18% growth in the second quarter. This has a strong order book, and I expect that the H2 will remain at these similar like 15%-20% growth, at least for the ROW business. The U.S. generics also, we've ramped up. We generally, as I told Damayanti earlier, that we generally slowly ramp up our market share.
So you'll see the benefit of that coming in the H2 and a couple of new launches as well. So that should help the U.S. business ramp up as well.
Understood. And the second is on your filing. So if I look at the H1 numbers, you filed for four products for the first half. Again, you know, what do you aim to file in the second half? And, you know, just if I compare with your R&D, so your R&D, you know, it's still kind of flattish if I compare with the H1 FY24, but the filing count has not been that significant. So, you know, some.
So yeah. So it's a good question, I think. So what happened is a couple of years back when we started tapering off R&D spend, a lot of the projects were already in the pipeline, correct? So you will see a lag in R&D filings. I think this year we will see a lag in R&D filings because some R&D filings, number one, are getting pushed back a little complex. And number two, we had a slight lag when we started reducing the cost. So we had let go of some projects. So there will be a lag, and I think from next year onwards, we will get back to the higher 15-odd ANDAs that we've been filing.
Understood, sir. And, sir, final question on, the other expenses. So, so just to, you know, understand, is this, the run rate what we can peg, you know, for, for the quarters ahead, or, does this include certain one-offs or any, you know, any color to that?
No, there are no one-offs, except that some expenses, particularly in the India business, typically Q2, Q3 have a higher expense in promo and marketing than Q1 and Q4. So apart from the cyclical these things, there are no one-offs.
Got it, sir. There isn't some question.
But if you compare Q2 versus Q2 of previous year, I think it will be similar numbers.
Understood. Thank you.
Thank you. Our next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah. Thanks for the opportunity, sir. Sir, with respect to this API business, we've lost some accounts. So if you could just maybe sort of elaborate the reasons for this?
Yeah. So I think it's just a matter of price erosion and competitors offering lower prices. And we moved some, I think. There are a few key accounts that we lost, which built up a chunk of it, but we're seeing price erosion. You know, unfortunately, the data export data from India is very opaque, and, you know, people have taken advantage of that. So that is what has caused part of this. But we're working on it to get some of the business back that we can. As you know, we do supply. We'd like to keep higher margins. We do like to stress a lot more on the quality and timely deliveries, and we're supplying higher prices. We're also seeing China get a little more aggressive on the API side as well.
So is this to do with the inventory in the system for the API portfolio that we have, or despite normalized inventory, we are seeing further price erosion?
No, inventories, Tushar has been built largely ahead of these planned launches. So these are planned.
No, not at the company level, sir. I'm referring to the inventory of those products at the industry level.
Oh, no. I'm talking of industry inventory for the international business, largely has been built, for planned launches.
No, no, sir. I meant to ask that the lost business, particularly for the API side. So, like, maybe the other guys are able to are willing to supply at lower prices. So just trying to further, you know, understand that, that is it the inventory at the industry level itself is still so high that, you know, the other peers are, you know, coming and willing to sell at a lower price, which we are not, you know, we don't want to do. Is that the case?
No, no, no. It's not. It's, I think, just purely related to pricing. I think these products are used by others as well. Some of them worried about the inventory per se. That's not a concern. It's just that they've moved. We are still part of their active filing, right, because that DMF is part of their active ANDA or the dossier that we have. It's just that they've moved to a second vendor. Sometimes buyers do it to try getting a better price when they keep switching between two vendors as well.
Lastly, this is to do with supply to U.S. market or ex-U.S. market for API business?
So API is a global market, so it pretty much goes all over the world. So it's even stevens. I think it's U.S. as well as Canada, Europe, Brazil, everywhere. We're seeing a couple of products. There were one or two customers, which were selling in the U.S., but they had an FDA issue, so that had slightly lower offtake for us. The rest is just pricing pressure, and then some customers have moved to another buyer. And the third issue is our buyers themselves have lost market share in some products.
Understood. That's helpful. Thank you.
Thank you. Our next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi. Good evening. It's just two products in the U.S. market. Wanted to know if it is something we can expect in the next 12-24 months. One is bosutinib, and the other is olaparib.
I don't have it in there.
Sorry?
You can say. Go ahead.
So yeah, I think these launches are expected, of course, they will go as per the settlement.
Yeah. I mean, could you give any color in terms of can we expect in the next 12-18 months or, or is it beyond that?
These are potential, so we can't share the exact date.
Sorry to interrupt, sir. If you can come a bit closer to the mic.
So these will go as per the settlement we have. So, dates cannot be disclosed right now.
Understood. And, on olaparib, is there a settlement already, or is it still under litigation?
Olaparib. Olaparib. What is under settlement?
Yeah. Olaparib is under partnership.
Yeah. Wondering if you have settled it already, or is it still under litigation?
Still under settlement.
Okay. Got it. Thank you.
Thank you. Our next question is from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.
Good evening, sir. I hope I'm audible.
Yeah.
Yeah. So the first one is on your operating cash flow, which I think is negative year to date for this year. There's a rise in working capital. There's also an increase in debt sequentially as well. So can you elaborate on this?
So yeah, I'll just start on the business side, and then I'll let Mr. Baheti talk about it. So business side, a few things happened. As I mentioned, Q1, Q2, we had a lot of supply constraints in the market. These supply constraints caused us to build up more inventory. So this, as I said, that H2 will be more robust for both U.S. as well as Europe. So I think we should see a little more normalized. Number two, we have a lot of launches coming up, and we've been planning for that. So those launches is something that we built up inventory. So those are two of the reasons why we had a little higher inventories, which has led to a little higher debt.
Yeah, and I think, in September quarter, debt spikes a bit because of the dividend outflow, and it will then, you know, settle down over the year just a bit.
Very good. Can we expect to maintain working capital days and cash conversion cycle for FY25 at same levels as FY24 in terms of the year?
Probably that would be a close call, but I think, going forward, if we talk of FY26, I think we should be back to normal working capital cycle.
All right. I think on the domestic business, is it possible to, you know, to understand, you know, I mean, it generally seems that across the board, acute-heavy portfolio companies are struggling for growth, while, you know, it's understandable that your growth is in line with, you know, the covered market. Is it possible to further drill down and understand why the covered market in acute segments seems to have grown so weakly, across the board for Indian companies? I mean, as a customer, I don't see any reduction in incidence of infectious diseases. Personally speaking, my experience has not been any different this year, if anything worse than last year.
Actually, it is because this time monsoon was a little late. So even the month of, I mean, the monsoon's really revived. June was bad. So the offtake from the stockist was low. July onwards, it picked up. But again, the, yeah, the disease portfolio has changed. The footfall, the footfall with the doctors for acute has gone down. If you look at the market share, look, we have not lost the market share. We continue to perform better than the market. We continue to improve, maybe a small percentage, a small percentage basis point, but we continue to improve on our key products' market share. So that way, we are really not worried, but yes, market has been slightly slow.
Okay. Would it have something to do with trade generics also? I mean, do you believe that overall branded generics in acute segment would have additionally lost share to trade generics?
Possible. I mean, well, I would not say it's still significant, but in pockets, some regional players can play disruptor. Trade generics can. But I think, I mean, overall, all India basis, not much difference.
Okay, sir. Thank you. Thanks for taking my questions.
Thank you. A reminder to the participants, that you may press star and one to ask a question. Our next question is from the line of Harith Ahamed from Avendus Spark. Please go ahead.
Hi, thanks for the opportunity. I see a tangible CWIP of almost INR 650 crores on the balance sheet. Can you share which facilities this is related to, and if we are capitalizing any costs currently, like we used to do in the past?
So we have three major projects, as of now in hand. One is that a new formulation facility for domestic market, which is coming up Indore . That should be completed by the end of this financial year. The second is.
API, GLP-1.
Huh?
API.
The peptide block, which we are building at our existing API facility. And the third is these couple of line extensions which we are doing at F3. Two more lines we are adding, like I shared this previously also. Currently, we have three operating lines. We are adding two more lines to; one will be operational, I think, by end of this year and next probably the last one the next early next year.
Okay. Thanks for that. In your annual report, you talked about two filings in the peptide space. So, can you comment whether these are in the, these are for GLP-1 products?
So, the GLP-1s, as you know, is an interesting area, and it's a good future that we're seeing. And we're entering some of these both from formulation and API perspective. So hence, we had to build this capability for in-house APIs. We've got an army that's developed it, and we're going to some of the products we're going to tackle at day one as well.
The two filings that we have already done, these for GLP-1 products?
So, sorry. I didn't get the GLP, how many filings we've done?
In your annual report, you mentioned a couple of filings, two NDAs filed, for peptides.
I was wondering if these are GLP.
No, the ones that we filed are not GLP-1. They are the peptides.
Okay. And when I look at your number of MRs and calculate the PCPM, we've been around that 4 lakh PCPM for some time. So you know, any any divisions that are underperforming where we can expect improvement or or any other measures that we have undertaken, which can drive an improvement in our PCPM and and our domestic markets?
So we don't look at underperformance or overperformance by that average of four lakh or three and a half lakh. We look at the performance from the budgets which we have given to them. So like any new division or any new product which we introduce would have a lower PCPM to start with, and that is not something which is on the wrong side of the marketing table. So there are multiple factors which we evaluate when we evaluate performance of people. But having said that, I agree that there is scope for improvement in our MR productivity, and that's what we are working on. I think in response to one of my earlier questions, I said that the next level of growth will come from productivity improvement and not increasing the number of people.
Okay. Thank you for taking my question.
Thanks.
Thank you. Next is a follow-up question from the line of Rashmi S. from Dolat Capital. Please go ahead.
Yeah. Thanks for the follow-up. One bookkeeping question on other income, that seems to be pretty high during the quarter. So, does it include any forex gain or any one-off?
Yeah, so there were some forex gain this quarter.
If you can quantify that?
It would be about INR 10-INR 12 crores out of the.
INR 10-INR 12 crores. Okay, and you know, when I see the balance sheet, the short-term borrowings have jumped up from INR 450 crores to around INR 995 crores. You know, this would remain at the same level till the end of the year or any repayment is planned?
I responded to this in previous session saying that Q2 typically would have higher borrowing because of dividend. I mean, a chunk of dividend outflow in one tranche. I think the borrowing level will get reduced over a period of year. Also, as Pranav said, we have built some working capital which would also get consumed before the end of the financial year. Hopefully, the borrowing level will be much lower by the end of the year.
Okay. Got it, sir. Thank you so much.
Thank you. Our next question is from the line of Amlan Das from Nomura. Please go ahead.
Yeah, sir, so probably I missed in the opening remarks. What was your R&D spend for the quarter?
Which R&D?
INR 130 crores.
You are asking for R&D, no?
Yeah. R&D spent for the quarter?
At INR 130 crores, it was about 8% of sales.
Okay, sir. Thank you.
Thank you. Our next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Hello.
Am I audible?
Yeah.
Hello?
Yeah.
Yes, sir, I can hear you audibly. Please go ahead. Sure. Sure.
Sir, my question was on the GLP-1, you know. We are seeing that we have a couple of products where we'll be, like, planning to launch on the first date. So I just wanted to understand, are they some of the large products like Sema or, you know, the, or relatively, you know, lower revenue products?
So we don't really give detail of what we launched, but one thing I can say the H2 is going to be a much better, much better performance for us for the U.S. as well as ROW business. As I mentioned, the ROW will be better because Q1 we had some supply constraints. So we expect this kind of growth to continue for the H2 as well. And the U.S., as I mentioned, we launched eight products in Q2, and we gradually start picking up, ramping up market share in these. We had some supply constraints. We also have about 10 launches in H2 as well. So with all this put together, H2 will be a much stronger business for U.S. and ROW generics.
Sure. So, my question was particularly on the GLP-1 given, you know, the kind of growth the innovators are seeing in this segment. So, like the, as you said, we are also, you know, planning to launch, these products. So how is the competitive intensity there? And are we also planning to launch or have we filed for some of the large products like Sema?
Yeah, so we will launch. We will target semaglutide and tirzepatide both. There's still time for tirzepatide and the launches are still some time off Sema. We will not be in the first wave. We will be a little later. But I think these are both interesting products, so we will. They're both in aggregate.
Mr., how do you see the competitive intensity there? You know, these are very big blockbuster products.
It's a big product, right? It's a big product, and the indications are increasing day by day. So we expect volumes also to continue growing. There's a lot of people working on this as well. So it will be competitive for sure, but I think it's a good opportunity, and you need to be present at this opportunity.
This, like, are we also planning to launch Liraglutide? Like.
No. Liraglutide, we're a little late, so we haven't filed that.
Sure, sure. And this will be manufactured, by us or will be outsourcing to some of the RCs?
So, Mr. Baheti, you mentioned earlier that we've set up API, sorry, a peptides facility. We already have the R&D. We're setting up a facility to do peptides as well as the GLP-1 peptides. So we will manufacture in-house.
Okay, okay. Just wanted to get your sense, you know, given this is a relatively new area for us and, you know, these are peptide products which are different and difficult to manufacture. So, you know, do you think we have developed enough capabilities to manufacture them in-house?
Yeah. That's why we did the CapEx. I think we started the R&D way before this, the peptide R&D. We've been doing it for a couple four, five years now, over five years now. So we do have confidence in that. And I think it's a good segment, as I mentioned. It's not just, not just lira, Sema, and tirzepatide. We'll see more GLP-1s coming because we're seeing indications in the market improve. So we want to be present in this segment.
Sure, and I'm just following a question on this. You know, Sema is like are we planning to launch Sema in Canada also? I think that patent is getting expired in January 26th, so will we be launching there as well?
I think, as I mentioned, Sema we're a little late. We haven't disclosed market-wise what our strategy is, but we'll be a little late. These following ones will be in time for all the markets.
Okay, okay, okay. Thank you for sharing all this. Thank you.
Thank you. As I know for the questions, I would now like to hand the conference over to Mr. Pranav Amin for closing comments.
Yeah. Thank you, everyone. As I mentioned, it was a mixed bag. API was a little bit slower for us this quarter, but the other businesses are looking good. H2 should be a much stronger, stronger finish for us, especially on the back of the ROW and the U.S. business. I look forward to talking to you next quarter. If there's any further questions, you can please reach out to us. Thank you, and wish you all the best.
Thank you. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.