Ladies and gentlemen, good day, and welcome to Q2 FY24 Earnings Conference Call of Alembic Pharmaceuticals Limited. We have with us today Mr. Pranav Amin; Managing Director, Mr. Shaunak Amin; Managing Director, Mr. R. K. Baheti; Director of Finance and CFO, Mr. Mitanshu Shah; Head Finance, and Mr. Ajay Kumar Desai; Senior VP Finance. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. R. K. Baheti. Thank you, and over to you, Mr. R. K. Baheti.
Thanks. Good evening, everyone. Thank you all for joining the second quarter results conference call. I'm sure you have got the results by now. Let me, however, briefly take you through the numbers for the quarter ended 30th of September, 2023. During the quarter, our revenue grew by 8% to INR 1,595 crore, EBITDA is INR 218 crore, which is 14% of sales, and net profit is INR 137 crore. During H1, the revenue grew by 13% to INR 3,081 crore. EBITDA is INR 428 crore, which is 14% of sales again and grew by 27%. Net profit is INR 257 crore, grew by 37%, before considering non-recurring items of corresponding period.
EBITDA and net profit are not exactly comparable with the previous year corresponding period, as INR 61 crore and INR 116 crore for Q1 and H1, respectively, of cash expenses and INR 23 crore of depreciation has been expensed out in Q2 and H1 ,respectively for the new manufacturing units, which were earlier being capitalized in previous corresponding period. So the current year profits, both at EBITDA level and at net profit level, are after charging off all the expenses of facilities F2, F3, and F4. EPS for the quarter before non-recurring items is 6.95 per share versus 6.709 for the previous year, and for H1, it is 13.08 per share versus 8.93 in the previous year.
Our gross borrowing is at the consolidated level, is at INR 784 crore, 784 crore versus INR 693 crore on September 20, 2022. The company has INR 141 crore as cash in hand versus INR 65 crore on September 20, 2022. Net debt equity stands at 0.14, almost same as compared to the previous year. Our new development, for us in this quarter has been a solar plant installation. I'm happy to share with you that our 12-megawatt solar plant has been commissioned with effect from October 4, 2023 and is operational at rated capacity. The effect of capitalization and energy savings will be reflected in Q3 onwards. The project has a healthy ROI of 18%-20% with payback of less than five years at the current electricity rate in the state.
I would like -- I will now request Shaunak to take you through the India business. Shaunak?
Yeah. Thank you, Mr. Baheti. India business, we clocked in INR 577 crore, which is a growth of 8% in Q2 versus a industry growth of 7% as per IMS, partly due to extended summer and a muted demand in antibiotic and respiratory markets. Despite this slow growth, the specialty therapies in oncology, antidiabetic, ophthalmology saw impressive growth, which were 9% as per IMS. In the antibiotic and respiratory segments, which were heavily de-grew for the quarter, we did have, excuse me, a relatively better performance in terms of growth numbers, which is there in the investor presentation. We had significant new launches in the last 12 months, and they continue to do well, and we have some strong new launches in the India business lined up in H2 across our key product segments.
The animal healthcare business, which is a significant part of our portfolio, grew at 32% for the quarter. A highlight of this is we added manpower with a new division in livestock, with a 350-person headcount. Along with this getting normalized, we expected, we expect growth to accelerate in the coming quarters and years. I will now, we will now move on to the international business.
Thank you. The U.S. business grew 6% year-on-year basis and 14% sequentially. As we mentioned, we are focused on launching new products in this year and improving efficiencies and execution in the midterm. Importantly, the ex-U.S. formulation business, which grew at 17% as well as the API business, which grew by 10%, have been doing very well the last couple of years. We are confident of good performance in both these verticals in the current year. The R&D expense was INR 121 crore for the quarter, which is 8% of sales. We have been working at optimizing our R&D costs, and improvements are on track. We filed 2 ANDAs during the quarter, and cumulative ANDA filings at 252. We received 6 approvals in the quarter, and cumulatively have 190 ANDA approvals, including 25 tentative approvals.
We launched three products in the U.S. during the quarter and plan to launch over 10 products during the second half of this year. All our plants are in compliance and EIRs are in place. The U.S. generics was at INR 444 crore for the quarter. The ex-U.S. generics grew 17% to INR 252 crore for the quarter, whereas the API business grew by 10% to INR 322 crore for the quarter. Now, I would like to open the floor for question and answers, please.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Rashmi Sancheti from Dolat Capital. Please go ahead.
Yeah, thanks for the opportunity. First question is on other expenses.
Rashmi Sancheti, may we request you to use your handset, please?
Yeah, just a moment.
Thank you.
Am I audible now?
Yes, ma'am. Please go ahead.
Yeah. So, first question is on other expenses. You know, we have seen a sharp increase, quarter-on-quarter. Is it this is because of, expensing of the new facilities? And should we see this as a new base, or it has got anything, one-off included in it?
So-
Excluding R&D, I'm talking about.
Yeah. So you are right. Actually, it's not quarter-on-quarter, because quarter one also, we had the charge of the expenses to P&L. This is more to do with the comparison with the previous year's quarter, where these expenses were not charged. As I said, INR 61 crore of expenses come into this part of the column as other expenses and, of course, salaries and all that. As well as the comparison between quarter-on-quarter is concerned, I think Q3 always... Sorry, Q2 of the financial year is always a high spend quarter for the domestic business. So that way it's not comparable. But you are right, I mean, you have to account for all of the expenses.
Sir, this will be the new base. Now we should take it for the subsequent quarters?
Again, with the little decline in sales growth expenses in so Q3 the same, but Q4 normally— Yeah, so if you see the new facilities, yeah, this is a new base.
Yeah.
Because you have about INR 60-70 crores of cost in the new facilities, so this would be the new base.
60 crore-INR 70 crore every quarter related to the new facility, right?
Additional that we're having. Yeah, absolutely.
Okay. And sir, you know, what we see that, you know, in your U.S. business has improved quarter-on-quarter. Then we are also seeing that the non-U.S. business is also better. In terms of India business, your acute therapies showed a lower growth, but your specialty and other therapies are doing well. And despite all this, you know, we are also seeing quarter-on-quarter dip in your gross margins. So, any specific reason for it? Also, if you can call out related to the input cost, that is the cost for raw material, whether it is softening for you or stabilized.
So actually, saying there is no decline in gross margin. Gross margin has been consistent. It's slightly better than the previous year. And on a sequential basis for the current year, very small minor changes, mainly because of product mix; otherwise, gross margin is consistent.
It is only related to the product mix when we see quarter-on-quarter, right?
Yeah.
Okay, any ballpark guidance you would like to give on the gross margin as well as on the EBITDA margin front?
So we don't give guidance, but I think we explained in the past that GT would be about 70%.
Sorry, I didn't get it. 70%, you're talking about the gross margin?
Yeah.
Okay. Thanks, so-
Couple of points, yeah.
Yeah, and nothing on the EBITDA margin guidance?
No, I mean, I think we are not giving guidance, but current numbers, we'll be happy to continue the current numbers for the time being.
Got it, sir. And sir, last on the U.S .business, you know, if you can throw some light whether quarter-on-quarter growth is mainly because of new launches, or you have seen some improvement in the base business, any stabilization in the price erosion, if you can talk more on that part.
So, yeah, it's a good question. I think the U.S. business, we had a couple of launches from these facilities that came up. As you know, Alembic we typically take some time to get market share, so it's there. So some of it is new launches. There is a little erosion in the market, it depends molecule to molecule. Some people are a little more aggressive. So as well as and when we see people coming to the market, there may be some, but by and large, it's a little lesser. As you know, the volumes and the demand for us is still quite strong. I think we're still getting a lot of volume. It's just not at the prices that we like, but the volume is still quite strong in some of the older products as well.
Okay. So we are we will be able to maintain this kind of run rate in the subsequent quarters also?
I think yeah, let's wait and see how it goes. Unless there's significant erosion, if there's a new entrant and they really drop pricing even further, we lose out. So yeah, as, as of now, status quo.
Okay, sir. So that's it from my side, and thank you very much, and happy Diwali to you all.
Thank you. Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask a question. Our next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. My question is on the U.S. business. So Pranav, you mentioned new launches have definitely helped the quarter. But can you specify how has been pick up on the injectable launches side? Like, how many launches done, and what are your observation on market pickup for those products so far? And the kind of erosion in injectable, is it very different from what we see in the oral products?
So, it's still early days for us. You know, to be honest, from F3, which is general injectables, we've just launched one product, two, two, actually, one ophthalmic and one injectable. So it's early days for us. On the onco side, we've launched a couple of products and the pickup has been pretty good. So we're pretty happy with it, in both on the injectables as well as OSD side. It's been pretty good, but I think for me to give a better answer, I would still require a couple of quarters, because these are just very few products. You know, I don't want to have an opinion just based on a few products. But so far, it's pretty good on the, the pickup that we're seeing and the demand.
The level of price erosion, maybe it's early days, but, is it better than what we generally see in the oral launches?
Yeah. Again, it's a small subset of products. On injectables, we only got a couple of products, three, four products in the market. So it's still early to say, but on the particular products that we have, yes, the erosion is not there or not as much as that we're seeing.
Okay. And, very broadly say, like, two to three years from now, how would you see your U.S. portfolio, say, between oral and non-oral products? Because I guess you are focusing more on a bit of differentiated launches, to offset price erosion, et cetera.
I think, what will happen is, yeah, OSD part of it will always be there. So from being 100% OSD, if you see how we've moved as a company, we've got a bunch of ophthalmics now. We've got a bunch of derm, 20-odd derm products, about 15-odd ophthalmic products. We've got two inhalation products. And now we have the injectables also coming through. So the OSD bit will gradually start coming down.
Okay. And on the derm portfolio, have you seen any improvement on pricing, or is it still very challenging?
It's the derm has been a good business for us in the first half of the year, predominantly due to some shortages in the market. So that business has been quite profitable for us for the first half of the year.
But, the pricing challenges continue there, right? So one, it may have benefited from some demand, et cetera.
I think, yeah, we've seen some shortages in the market which have benefited us for a couple of products.
Okay, and my last question is on India bit. So second quarter, obviously, muted, seasonal impact, et cetera. But, in coming quarters, how do you see growth picking up and what key drivers?
Yeah. So, I think on the India business, I think what gives us confidence of moving forward, and, you know, if you have been copy of the investor presentation, I've put in a slide specifically for the slowdown. And if you see, versus the slowdown, we've relatively performed better. So our net debt growth, I think, is +4%, +3.5%, +4% versus market. That also plus on the back of a very high base last year, post-COVID for Azithromycin and a lot of liquid preparations. Going forward, I think we're extremely confident. You know, we expect the market to stabilize coming into Q3, Q4, and I think we expect growth to return to a strong double-digit growth. That said, if market throws no surprises in the future, I think we should be at rather a very comfortable level.
If I look at it from a growth profile, from a portfolio point of view, I think once the acute piece comes back on track, I think across the board, I think we will see at least a high single digit to a double-digit growth in across all product therapeutic segments.
Okay. So it depends on your broader market trends, but you are comfortable with high single digits to double digits, given that there are no
Yeah.
Yeah.
Yeah. I mean, the acute... Yeah, as you're aware, I think the acute, both oral and antibiotic, solid and liquid, plus the respiratory cough and cold, were all at negative growth, negative 5%, negative 7% for the quarter. So I think, yeah, it's very challenging to grow on that, but it's going forward, like I said, it is and we don't see any base effects coming in. Going forward, I think we're quite comfortable to make that kind of deliver those kind of numbers consistently.
Okay. Thank you. That's helpful.
Thank you. A reminder to all participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. Our next question is from the line of Chirag Dagli from DSP Asset Managers. Please go ahead.
Yes, sir, thank you for the opportunity. So, you have about 129 products in the U.S. In how many of these do you think do you have market share, which is, you know, lower than where you ideally want it to be? And how soon can we expect that market share scale up?
So, it's not as simple as branded market, right? And the reason what we do is, to pick market share, really, you have to go and drop prices, and we maybe won't be comfortable with dropping prices in most of these products. So I think the market share that we have is we take an opportunity where there's a shortage, we like to pick up market share because we can get it at a better price. So pretty happy with where we are. I think on the newer products, as I mentioned, and not just now, I've always mentioned, that we take a little time ramping up because we wait for good opportunities to get it.
So in the last, the launches that we would have done in the last couple of quarters, two, three quarters, yes, I think there may be some potential in some of these products to increase the market share. Otherwise, yes, we're pretty happy with where we are. We do have a very good, track record with suppliers, so we actively get, solicited a lot by the buyers to participate in some bids. But we only do so if the, the price is interesting. But on the volume side, we're pretty confident. So if we want to get more market share, we can. It's just we have to be happy with the price that we want to get it at.
Understood. So, is it fair to say that so you've launched over the last six months, maybe 10 odd products? Is it safe to say between 12 and 15 products is where your market share is still ramping up, which is probably suboptimal than where we-
Yeah, and especially with the new facilities, it definitely takes some time to ramp up, and we want to be more confident of supplies, you know, because we don't want to get into a situation where we take on orders and we can't supply and have shortages and penalties. So we normally do that gradually as we get more confident.
Understood. And, sir, generally, when you look at the, this entire portfolio of 129 products, you know, how have you seen, I know price erosion is a difficult number, but in how many products would you have seen, probably seen price increases and price declines, you know, which are, single digit kind of erosion there?
It's very tough to answer, you know, Chirag, because it really depends product to product. If someone comes in aggressively on a product, then, yeah, you'll see double digit, double digit price erosion. At certain times, we give up the business, certain times we match up. So it's very tough to give overview answer. There's still erosion in the market. But as you've seen, it's kind of bottoming out. But, yeah, some people are still a little lower.
Understood. And, sir, how many pending ANDAs do we have at the moment?
62. About 62. 62 pending, and this year we'll file about 15, over 15 products. So I think our filing rate also with the reduced R&D spend from 2025 that we were doing, it'll come down to about 15 or so.
Understood. Sir, can you give some color around the quality of this pending ANDAs, you know, in terms of injectables, oncology, derma, orals, just some color, qualitative color?
I think our aim is to get a little more complex filings. This might take some time. As you know, we've got a little delay, but in the future, we should see more complex filings on the injectable side.
My question was on the ones that you've already filed, the 62, and probably the 15 that you will file in 2024, just some color around.
Yes. Because out of the 62, we have some which are already OSD, some which are derm, some which are ophthalmic, and the balance are injectables. Injectable filings are about 15 odd products or so.
Of the 62, 12, 15 are injectables?
Roughly something like that, yeah.
Okay. And, derms, how many, sir?
Derm? I think, must be another five to 10.
Understood. Understood. Okay, sir. And sir, just a last question, if I can. You know, when do you really think, the U.S. business will see a material change, in the numbers? We are still in this, you know, $50 million-60 million quarterly kind of run rate. But if you have to, you know, kind of think about this business longer term, when do you think this business really inflects, you know, from a absolute dollar million standpoint?
There's a lot of variables in this. Ideally, this should grow. I think as we get more products, I think, let's wait a couple of quarters to see how we do and how we do with the launches on the new products, and then I think it'll be... We get an idea. I think you'll see gradually ramping up as we get more products in which are launched in the market.
Understood. Okay, sir. Thank you so much.
Thank you. Ladies and gentlemen, that is the last question of our question and answer session. As there are no further questions, I would now like to hand the conference over to Mr. R.K. Baheti for closing comments.
Thanks. So thank you once again to all participants. And, if anybody has any follow-up questions, they can be in touch with Manju or Ajay. I wish you all a very happy Diwali and a cheerful festive season. All the best. Thank you.