Ladies and gentlemen, good day and welcome to the Alembic Pharmaceuticals Limited discussion on company's Q2 H1 FY 2023 financial results. 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, Finance, Mr. Jesal Shah, Head-Strategy, 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 your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. R. K. Baheti, Director Finance and CFO. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and thank you for joining the Alembic Pharmaceuticals' second quarter results conference call. I know it has been a hectic day for you. A couple of pharma companies announced their results today. I will be short today. Let me briefly take you through the numbers for what we made in the half year ended thirtieth of September, where most of you might have received it by now. During the quarter, our total revenue was up by 14% to INR 1,475 crores. EBITDA was INR 231 crores. Net profit was sixty-three crores. EBITDA margin for the quarter was 16%. For H1 FY 2023, the numbers are EBITDA INR 240 crores, net profit INR 67 crores.
You are aware that in Q1 we wrote off significant amount of amortized R&D expense of Aleor, the company which has been now merged with Alembic Pharmaceuticals. We continue to do that and in Q1 that is Q2, we have expensed out INR 16 crore out of previously amortized R&D costs. That makes it INR 131 crore of charge off for the half year. If we would not have done that, our profit before tax would have been higher by INR 131 crore and profit after tax would have been higher by INR 180 crore. That is for the half year. The remaining intangible assets in books pertaining to Aleor operations are still INR 24 crore. We hope in next couple of quarters we will clean it up. Our consolidated profit before tax.
Yeah, I said that. EBITDA on like-for-like basis would have been INR 338 crore on without charging of these one-time expense and would have been 12% of sales. This is for H1. EPS for the quarter before non-recurring item is at 7.09 per share versus 8.34 of previous year. For H1, it is 8.93 versus 16.39 of previous year. Turning to borrowings, gross borrowings are INR 693 crore up from INR 630 crore March 2022, and we have INR 65 crore of cash in hand. March 2022 was almost a similar amount of INR 61 crore. So net debt to equity stands still very comfortable level 0.13. I will request Shaunak to take you through India business, India branded business.
Shaunak, over to you.
Yeah. Good evening, everybody. This quarter for the India business 8%, which reflects us to be in line with industry. As per last year, we did have a large build-up and with COVID-related fungal infections as a factor. We did not have to take that out. Our growth jumps to 11%. Within this growth, both specialty as well as acute gained a good double-digit growth with 10% in specialty, largely driven by gynecology, anti-diabetic and ophthalmology as outperforming specialty areas. The balance of the growth is driven by the acute, which is growing at 11%. Along with that, our animal healthcare business continues to show a strong run of performance. It's 13% growth for this quarter.
The growth for this quarter as an organization, I believe, was in line with the industry and the IMS numbers. If I were to take up January numbers versus IMS numbers, we do continue our degree of outperformance, though the degree is a lot smaller. That being said, I think going forward, we continue to maintain extreme confidence of outperforming the market growth numbers on a consistent basis, over time, we wish to reach significant outperformance versus market for some on a moving trend so that we maintain this and grow Pranav Amin product on the international side.
Thanks, Shaunak Amin. It was an interesting quarter for the international business, especially the ex-U.S. and API business both had a decent quarter, especially considering that they're coming off the high base of last year. The U.S. business continues to remain challenging and a lot of oversupply in the market and a lot of price erosion due to that. In spite of that, we managed to grow the business by 20% in the quarter. This was due to some one-time opportunities that we had in the market. The sales for the current quarter in the U.S. Was $52 million. We continue to remain focused on the long term of the U.S. business. We do have, as you must have read, announced in the market, we got first of our two injectable sites approved.
We got three approvals from the sites. The site approval is pending, but product approvals have started flowing in, so that is promising. Our R&D expense is INR 168 crores. If you see ex of the one-time Aleor product R&D charge, it is INR 151 crores, which is 10% of sales in the quarter. We've been guiding for low R&D in the future, and this is a trend that we will see moving forward as well. We filed five ANDAs during the quarter and cumulative ANDA filings are 242. We also received three approvals during the quarter. We launched five products in the U.S. during the quarter, and hopefully we'll launch another 10 at least in the rest of the year. The USFDA, as I mentioned, has conducted inspection at our injectable facility, F3.
F3, where we had two observations, and at F2, our oncology facility, which had four observations. As I said earlier, we've started receiving product approvals from these facilities. That is promising. The U.S. Generics grew by 20%. The ex-US Generics grew by 9%, whereas the API business had a very good performance and grew at 23%. I'll open the floor for questions. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Participants who wish to ask a question may kindly press star one on your touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Kindly press star one to ask your question. The first question is from the line of Prakash Agarwal from Axis Capital. Kindly proceed.
Yeah, hi. Thanks for the opportunity. Good evening to all. First question is on the expenses side, so for the sake of possibility here, wanted to understand what is the capitalized cost ceiling for all the facilities put together and, given that you have received the approval and shall be launching soon, if not already, and how would the cost start to go up from here?
The capitalized cost is INR 1,100 crores for all these three plants, F2, F3 and F4. The yearly spend is around INR 200-odd crores, the revenue expenditure. Once we capitalize that for planned full use, for F2 and F3, this cost will be in vicinity of INR 300 crore rupees, including depreciation.
Yearly you said INR 200 crores. I add that against the F2.
Yeah, with depreciation, INR 300 crores.
Put together?
Yes.
Yearly INR 200 crores for all the four facilities.
That's true.
Okay. No, I was asking, going forward, what is the kind of, expenses we should start pinning in between the approval and launches will start from the injectable plants?
Prakash, this is exactly what I said. Keep aside F4. Let's take F2 and F3. The running cost is around INR 160-170 crores, which is like a cash burnout. Okay? That's the overhead. You have to add another INR 100 crores on as depreciation.
Understood. Of the INR 200, INR 160 is cost of launch. Understood. Okay, fair enough. Yeah, congrats on the approvals which have started. Just trying to understand from the opportunities, those which are in U.S. on these products and when you plan to launch it?
We will probably launch in Q4 of this year. In terms of Etoposide, yes, I think it, while there are players in the market, but it continues to remain in shortage on and off, so there would be an opportunity to get some share. Paclitaxel is also large volume, so that is also an interesting product on the oncology side. Right now we're seeing some shortages in few SKUs of Paclitaxel as well. The third is Glipizide. That also is a smaller product, which should be interesting.
We should start seeing more, I mean, kind of filings you've done, would range. I mean, in the past you mentioned that you started a bit smaller and basic products, but you have complexity going ahead. When should we start seeing the complex product approvals? Or they are still in the filing stage?
Just right now, just the basket. We are pleased at least to approve the standard, Prakash. I think a few things, yes, we do have some interesting products. Hopefully in another six months or 12 months, we should see some interesting ones. A lot of other filings are also going on. A lot of our filings got delayed this last 12 months due to the FDA remediation. Hopefully that pace will also pick up some.
Okay. Great. Thank you and all the best.
Thank you. Participants, if you wish to ask a question, please press star one. The next question is from the line of Siddhartha Khemka from Motilal Oswal. Kindly proceed.
Hi. Thank you for the opportunity. I would like to know the outlook on the U.S. generics, like what's the price erosion that you are witnessing?
The U.S. business is the most competitive I've seen it, at least in the last 10 years or so. There's a lot of oversupply in the market. I don't know what the blended price erosion would be for the portfolio. I'm assuming it will be high teens. Product wise, if you see, I'm seeing erosion of upwards of 50%, product wise in specific products.
Okay, sir. Thank you.
Thank you. Participants, you may kindly press star one to ask a question. The next question is from the line of Bharat Shah from ASK Group. Kindly proceed.
Yeah. Hi. Thanks for the opportunity and good evening everyone. I just wanted to understand, since we have already approval for building facility, I just wanted to know how many ANDAs are pending approval from F2 and F3 injectable facilities.
You've got like, you know, 34 filings actually between these two facilities. You've got another 70-odd filings from the CMO, which eventually will bring it to these facilities. 50-odd at this point in time.
This could include onco oral as well or it will be centric?
Yes, it does.
Sorry, I didn't get you.
Yes, it does. It does cover onco.
If I just talk about the injectables, not oral solids, how many products that would be?
We have around 7-8 filings for OSD oncology.
Large part is injectable in that case.
Yes.
Is it correct?
Yes.
Okay. Second, on the overall U.S. pricing, so how are you seeing that the overall pricing pressures have started cooling off from a quarterly perspective, quarter-over-quarter perspective? I believe year-over-year it may look still high, but on quarter-over-quarter basis, are you seeing some cool down?
You know, I mean, not really, to be honest. As I mentioned, we're even on a quarter-on-quarter basis seeing price erosion compared to last year. It's just there's too much supply in the market. Even quarter-on-quarter we are seeing price erosion.
Right. Last one from my end. We have even started Revlimid. What are the timelines for us to launch? If you could give some color whether it is launch or whether 25, if you can give some
You know, we are not in the first or second wave for Revlimid, so we are way behind. I think Revlimid is for us. We were late to the game.
Okay. Thank you and best of luck.
Okay.
Thank you. Participants, if you wish to ask a question, kindly press star one. The next question is from the line of Siddhartha Khemka from Motilal Oswal. Kindly proceed.
Thanks again. I would like to know about the Brovana, which was commercialized. Like, what is the traction that you're seeing?
Yeah. This is a product we commercialized through CMO. We've gradually been picking up share. It's a good market still. We've got a good share. I think we must have about 10% or so market share right now.
Okay. Can you guide like what kind of market share is there or what the market size?
I don't have that figure with me on hand. I'll have to just double-check and get back to you.
Okay, sir. Thank you.
Thank you. The next question is from the line of Jainil Shah from JM Financial. Kindly proceed.
Good evening. Thank you for the opportunity. I just want to ask on the API front, you know, we've grown really well. What is driving this growth and how should we look at it going forward?
Yeah. The API business, it's been a good business for us. I think we focused on quality and timelines kind of thing. As the world is looking at more better suppliers with the compliance facilities. We've been able to do that with our service levels. I mentioned in the year as well. We expect the API business to grow about 10% during the year. This was an exceptionally high quarter where we had about 23% growth. Yeah, I think 10% is a fair enough growth that is expected in the API business.
On the U.S. front, you did mention there were certain one-time opportunities. Except that, what would be our sustainable, you know, U.S.-based business run rate?
You know, as I said in the calls earlier, about $45 million-$50 million, anywhere between that is a sustainable U.S. run-rate base. You know, it really depends if we lose out an award, what we get, how the pricing behaves. $45 million-$50 million is what I'm seeing currently.
When, you know, in your view it could change and we could move to a higher base of 55-60?
Yeah, it's a good question. I hope we can go soon, but I think it's gonna take some time. I think only way it'll happen is as we get more products in the market and slowly get market-based opportunities once some of the injectables come in. That's the second thing. Thirdly, if there's disruptions in the market, right? As I've been saying, there's a lot of supply in the market currently, where we may see some disruptions going forward. Once that happens, there will be opportunity for some price. You can get some little better prices and some market share as well. It's a couple of quarters at least we can be stable.
Thank you so much.
Yeah.
Thank you. The next question is from the line of Nikhil Mathew from HDFC Mutual Fund. Kindly proceed.
Good evening. Sorry, I joined late, so I'm not sure if this question has been asked. Now we are seeing some products getting approved from the oncology injectable facility. Does that mean that some part of CAPEX's depreciation will capitalize, start hitting the P&L from Q2 onwards?
Once we start commercially starting any form of commercial batch, that would be the new date. From then, you know, we won't capitalize it, and it will be part of expenses. You can expect that to happen by Q4.
By Q4. Okay. In the last call, the numbers mentioned as against the P&L, around INR 160-200 crores on the CAPEX side, and I think 160 odd crores on the depreciation side or 180 odd crores on the depreciation side. Are these numbers right? I know it was mentioned, though I think the build-up will be a bit more steady than coming or everything coming in one go.
Yeah. Nikhil, that one was for only three plants. That's through F3 and F4 actually. Somebody had just asked. Prakash asked this question. That was the first question. You know, I for the sake of repetition, I'll still do it. It was for these two plants. You know, the expenditure is around INR 160-170 crores, which is a cash burn, and then INR 100 crores of depreciation for these two plants.
Understand. Also, do you mind commenting on, I know you might have shared it, but if you can reiterate it, what is the R&D outlook, what we spend on a constant basis that we are looking at from here on?
The R&D outlook, this quarter, the total R&D was INR 168 crores, which includes the Aleor term. As I mentioned in the start of the year, we will get through an R&D about INR 650-odd crores this year, including the Aleor R&D. And then it'll be flat or we'll try reducing it little bit going forward as well.
Okay. Got it. One final question. India has done very well recently on a pretty strong harvest phase. I mean, 13% growth was there last year, same quarter this quarter is 10% growth. Are they the usual products that have been the push or something, some new products are picking up and that is contributing to the growth that has been recorded?
It's a combination of both. On the acute side, we have had somewhat obviously the traditional brands have done well despite the market being quite flat, based on all the brand building efforts we put in the last one year. On the specialty side, yes, the traditional portfolio also has done well, but there have been some very good launches in the gynecology space for us, along with couple of good launches in the anti-diabetic space. It's a combination of both that's driving it.
Okay. Generally the usual seasonality sets in after wherein Q2 and Q4 would be weaker than Q3. I mean, there's an enormous seasonality that happens in your portfolio, right?
Yeah. Historically, yes. Traditionally Q2 is the highest in terms of phasing. I think more and more with the weather patterns and the climate changing and also with delayed monsoons, I think these trends are changing where Q2 and Q3 seem to be almost blending into each other per se. Yeah, there is a higher seasonality than what has been observed previously.
Okay. Understood. Thank you.
Shaunak, as our revenue percentage from specialty segments are going up, the impact on Alembic Pharma, the seasonal impact is now gradually would go down.
Yeah.
Sure. Understood. Thank you so much, Shaunak Amin.
Thank you. The next question is from the line of Cyndrella Carvalho from JM Financial. Kindly proceed.
If we look at the other expenses for this quarter, is there any kind of one-off or is there any kind of additional spend which has come home in this quarter? Do we see the opportunity to have some rationalization in this number going ahead?
Except the 16 crores which I said we charged in this quarter, which was out of previously amortized R&D expense. You're seeing nothing one-off. This quarter, our numbers are okay. I mean, I don't think there'll be any exceptional debits or high numbers.
Any scope to improve it, sir?
I cannot say that. I mean, that effort to contain expenses continues. The particular area of focus at this moment is of course R&D. It takes time because when you evaluate projects, you decide what to continue, what to drop. Even when you decide to downsize, it takes time. It's a process which doesn't happen overnight, but we are constantly at it.
Any quantum that we would like to specify over a year, any certain amount that we would expect due to these activities?
On an annual basis, I think we plan to save about INR 100 crore this year versus what we spent last year.
Okay. Sir, if we look at the domestic business, you did mention that the seasonality will be not the factor going ahead. How chronic segment doing? How to-
Shaunak Amin would respond. I didn't say that there is no impact. I said that impact now is getting diluted because our-
Exactly.
Specialty business is showing more number as a percentage of business. Of course, we still have about 34% of the business from acute. There will be some impact. Shaunak Amin, would you like to talk about the specialty business growth?
Yeah. I think for this quarter, I think I mentioned that before. I think the specialty overall, we were probably looking at 11% growth. Going forward, I expect this to significantly ramp up, especially in the CVD space. We've had quite a few new launches, and some of these new launches are diverting us from our traditional guides. Little bit of that has happened in the process. Like I said, I wouldn't say, I think our specialty business could be clocking in very strong double-digit growth, more or less assuming the market doesn't turn into a very low growth kind of situation.
Any new products after what we've discussed?
Yeah. I think we've had couple of launches in the gynecology space, and we've had couple of launches in the dermatology space. I think these are both launching this quarter. These are both, mostly we kind of launched over the last, six months.
Gotcha, sir. If we can get some more detail on the API segment, which products are these which are doing well?
It's hard to give a difference by each product. There's no particular product per se, but the entire basket. Because we sell the basket across territories and no particular territory also. We've seen very good growth across all the territories all over the world that we sell in.
Any particular therapy that you can highlight or not?
API, we don't go by therapy-wise. We just go by what makes commercial sense and what our capabilities are.
Okay. Any benefit of raw material easing or logistics cost easing that we see coming in the coming quarters?
No, no, not at all. Actually, the logistics costs have been pretty high, and we're not seeing any easing of that as yet.
Even on the raw material side, it's a similar scenario?
Yeah, yeah. There's no easing on either any of the costs.
Okay. Okay, thank you so much. All the best.
Thank you.
The next question is from the line of Bhagwan Chowdhary from Sunidhi Securities. Can you proceed?
Yeah, thanks for the opportunity. How many filings you have done from the F4, and when do we expect this facility to get the approval from USFDA?
F4 is another oral solid OSD facility.
Mm-hmm.
We have done 2 site transfers and 1 filing from F4. We'll wait until FDA comes aboard, and then we'll add more products over there.
Sir, in terms of F2 and F3, do we have the filings in E.U. and other countries than the U.S.?
No, not as yet. Our goal is to do some filings with these two, but priority was first to take on the U.S., which we've done, and now we'll extend it to other territories as well.
When we got the approval with Mesalamine franchise, can you say what is the market opportunity and size for this product? Or have we launched it?
No, we haven't launched it as yet. Volume-wise, it's not a very large product. There's I think about five, six, seven people already in the market. It's an interesting opportunity, and we will launch it in due course.
Lastly, have we filed or have we get any approval on the dermatology and ophthalmology? If we get, by what time we can expect?
For derma, we've already got a good 15 odd products which have got approved from the derma facility and which are already commercialized, which are already selling in the market. Even ophthalmic, we've got about 10- 15 ophthalmic products which have booked. These, of course, the first phase of ophthalmic were all filed from a CMO, not from our own facility. Even from our own facility, we have some filings which hopefully in the next two quarters we will see some approvals coming from there as well.
This derma is from the H1?
No. Derma is a separate. Because derma was a separate company earlier, Aleor, which we amalgamated, so it's from that facility. We don't call it F one- three. We just call Aleor.
For ophthalmology, this is from which facility?
I said a CMO.
Our own line is F3.
Thank you.
Thank you. The next question is from the line of Kunal Pujara from IIFL Securities. You can proceed.
Hi. Thanks for taking my question. I have a couple of questions on pre-operative expenses. How much of this INR 1,100 crore would pertain to F2 and F3, which will charge the P&L once the facilities are commercialized?
Almost INR 350 crores pertain to F2 and F3.
Thanks. That's helpful. Now we saw some good growth in our anti-diabetic franchise in India. Finally, we have launched Sitagliptin after the patent expiry. How has been the traction so far, and can you speak a bit about market formation?
Sitagliptin is too early. It's just been launched, I think. It's hard to give you an indication at this point in time. I think we've just launched it and we're getting some traction. I would honestly like to comment on market formation, you know, hopefully after some time because literally in, like, one or two months, it's very hard to kind of gauge what will. Because most of the Sitagliptin combos were launched in the last quarter only. In the last quarter, current quarter.
Sure. Gynecology therapy has also done well. Do we have any launch in our Gastro products?
Yes. We already have a brand in the market. We were as the second part of the second phase that launched earlier. Of the current launches of that second phase launches, we were probably reaching the fourth line. We're getting tremendous traction on it. Because the context of building it because of our leadership position in diabetology therapy area, we're getting extremely strong traction. We continue to keep building the product in this product side.
Sure. Given that Vildagliptin and Sitagliptin, both the products were launched three months longer than after the patent expiry, so do we intend to launch subsequent trial version after the patent expiry coming over the next few months?
Sorry, could you repeat the question?
Given that we have launched Vildagliptin and Sitagliptin after the patent expiry, I understand that we are targeting valuable window of patent. Do we intend to launch attribute trial version, which is actually on the therapy.
We are planning to launch, and we are quite gung-ho on it. The challenges we found actually were only that there are multiple SKUs in this product. It's not a single product launch, but we are clearing up the data. I think we'll be ready to launch in a dedicated manner. I think, immediately on, you know, on expiry, we're ready to launch all the SKUs.
Do we intend to expand capacity to support these launches?
Yeah. I think at this point in time, you know, with this division we have limited space now remaining with the amount of the launches we've done. At this point in time, that's why I'm saying because we are looking at a specialized task force just to launch this product, looking at the unique specialty nature of it, as well as the bias as well as the opportunity going forward. Yes, we will be launching a fourth division to be like a task force to launch while serving some internal and more so to address the whole market in the market.
Would you like to clarify the number?
I'll let you know next time when we first launch.
Sure. You know that the peers are commenting that freight costs have been moderating. Our comments are also that this is not the case. Is it because of the mix of freight and fees or is something else going on?
I think it's more international.
Right. Right.
Yeah. Like, I mean, you know, all of our shipments are sea shipments. You know, we have seen a major cost escalation on the sea shipments for the last five quarters now. That's not taken a rest. You know, it continues to be at a very, very high level.
From the current quarter, the container cost should moderate, right? I mean, some of the peers are indicating that.
Minor, mild, you know, reduction. You know, if you see what was there seven quarters back and today, I mean, you know, there is no comparison. It's still very, very high.
Sure. That's helpful. The last question is on the U.S. pipeline, given that we got approval for the Mesalamine, which is a Mesalamine product. Are we in the process of developing both filings, Asacol HD or Lialda? Both are very limited competition product.
Asacol HD, yeah.
Lialda.
We don't really disclose any of our filing grid, what we are or we aren't filing. I mean, if you get approved then you know we have it.
Without speaking any name, do you intend to file any other Mesalamine products like say the Lialda or?
product. If it's an interesting opportunity, we'll file. By then if it's still an interesting opportunity, we'll file. If there's no competition, we may not.
Mm-hmm. Sure. That's helpful. Thank you.
I mean, I think there are no new questions. There are some follow-up questions which I think, Nitin, you can take up with them separately. There are no new questions from on the board. We can conclude the call.
All right. There are no new questions in the queue right now. I would now like to hand the conference over to Mr. R.K. Baheti, Director of Finance and CFO, for closing comments.
Yeah. Guys, I can understand that there's lesser number of questions this time because it's a Friday evening and guys who have attended almost multiple calls. Thank you at the same time, I mean, for all of you who have joined and interesting session and I think look forward to seeing interacting with all of you next quarter. Thank you.
Thank you.
This is Alembic Pharmaceuticals Limited. This concludes this conference. Thank you for joining us. You may now disconnect your lines.