Ladies and gentlemen, welcome to the Quarter three FY 2022 earnings conference call of Aurobindo Pharma Limited. 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. In order to ask a question, please signal by using a Raise Hand option on the bottom of your screen. I now hand the conference over to Mr. Arvind Bothra. Thank you, and over to you, sir.
Thank you, Aditya. Good morning, and a warm welcome to our third quarter FY 2022 earnings call. I am Arvind Bothra from the investor relations team. We hope you have received the Q3 FY 2022 financials and the press release that we sent out yesterday. These are also available on our website. I would like to introduce my senior management team today on the call with us, represented by Mr. P.V. Ramprasad Reddy, Chairman, Aurobindo Pharma USA. Mr. K. Nithyananda Reddy, Vice Chairman and Managing Director of Aurobindo Pharma Limited. Mr. Santhanam Subramanian, CFO. Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialities Limited, the entity housing Aurobindo's sterile and generic injectable products, oncology, and hormonal oral business. We also have on the line today Dr. Satakarni Makkapati, CEO of Aurobindo's biosimilars, vaccines, and peptides businesses.
We will begin the call with summary highlights from the management, followed by an interactive Q&A session. Please note that some of the matters we will discuss today are forward-looking, including and without limitation, statements relating to the implementation of strategic actions and other affirmation on our future business development, and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties, and other important factors may cause actual developments and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. With that, I will hand over the call to Mr. Santhanam Subramanian for the highlights. Over to you, Subbu.
Thank you, Arvind. Good morning, everyone. Hope all of you and your families are safe. Q3 FY 2022 witnessed a spike in overall cases with surge in Omicron variant globally. The quarter performance reflected.
Can you increase voice, Subbu?
The quarter performance reflected some of the impact on our business performance in select businesses. We will now discuss the results for the third quarter of fiscal year FY 2022 declared by the company. We'll be discussing ex-Natrol numbers throughout the course. For Q3, the company registered a revenue of INR 6,002 crore, an increase of 1% quarter-on-quarter. The EBITDA before Forex and other income declined by 20.6% year-on-year to INR 1,016 crore. EBITDA margin for the quarter was at 16.9%. Net profit decreased by 22% year-on-year to INR 604 crore. In terms of the business breakdown, formulation business in Q3 witnessed a decline of 3.3% quarter-on-quarter to INR 4,992 crore, and contributed around 83% of the total revenue.
API business contributed around 17%, clocked a revenue of INR 1,010 crore for the quarter, registering a strong growth of 48% on a year-on-year basis, led by improved demand for some of the key products. For the quarter, the revenue from U.S. formulations decreased by 4.4% year-on-year to INR 2,745 crore. On a constant currency basis, U.S. revenue decreased by 5.9% year-on-year basis to $367 million. We have received final approval of 4 ANDAs and launched 7 products in the quarter under review. We have filed 10 ANDAs, including 3 injectables, during the quarter. In addition, we filed one 505(b)(2) NDA with the U.S. FDA. The total number of filings end of December is 719.
Revenue of Aurobindo Pharma USA, the company marketing oral products in U.S., decreased by 5% year-on-year for the quarter. Revenue of Auromedics' injectable business decreased by 7% year-on-year to $63.2 million for the quarter. We have total 165 injectable ANDA filings as on December 31, 2021, out of which 108 have received final approval and the balance 57 are under review or have tentative approval. The company as on December 31, 2021 has filed 719 ANDAs, filed with U.S. FDA on a cumulative basis, out of which 494 have final approval and 30 having tentative approval, including 8 ANDAs which are tentatively approved under Para IV and the balance 195 ANDAs are under review.
For the quarter, Europe formulation revenue clocked at INR 1,694 crores, an increase of 1.4% year-on-year growth. For the quarter, growth market witnessed a growth of 2.8% quarter-on-quarter to INR 397 crores. For the quarter, ARV formulation registered a modest 1.4% growth quarter-on-quarter at INR 155.7 crores, a degrowth of 64.9% year-on-year on a high base of last year. R&D expenditure is at INR 393 crores during the quarter, which is 6.6% of the revenue. The average raw material cost increased by about 4% during the quarter, and the freight cost more than 20% quarter-on-quarter. Net organic CapEx for the quarter is around $52 million. The average Forex rate was 74.82 in Q3 FY 2021, rupee 73.94 in September 2021, and 73.68 in June 2021.
The average finance cost is at 0.7%, mainly due to availing multiple currency loan. The business generated a free cash flow of $201 million during this quarter, which is highest. Net working capital for the quarter has been reduced by $137 million, mainly due to the reduction in the inventory, and we continue to make further progress on this front. Inventory alone, we have reduced by $100 million and $175 million for the quarter and year respectively. As a result of the strong cash flow generated during the quarter, the net cash position, including the investments at the end of December 2021, improved to $211 million.
The gross debt is $499 million, and we have been reducing the gross debt quarter-on-quarter, and we will continue to do so. This is all from our end, and we are happy to take your questions now.
Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question may raise the hand from the bottom of your screen. Once your name has been announced, you will be unmuted and you can ask the questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Once your name has been announced, please introduce your firm and your name and then ask a question. First question is from Mr. Tarang Agrawal.
Hello, sir. Good morning, good evening. This is Tarang from Old Bridge Capital. Sir, two questions. Firstly, on, you know, the U.S. business. If I look at the operating profitability hit versus the corresponding period last year, it's almost entirely on account of gross margins coming off a sharp decline. Can you give us a more granular sense as to what all drove this? Was it what kind of price increase in key raw materials, the kind of price erosion that you might have perhaps witnessed at the marketplace? And, you know, were there any failure to supply penalties, any provisions that are reflecting in the raw material cost? And how should we see this going forward from here on?
You know this, Subbu, you are telling?
Yeah, you carry on, sir, please.
Now, the U.S., we are sure that this quarter there is a reduction. Cost of goods also are increased because we have seen our manufacturing costs are increased because of input material and services cost and everything. The sale also has come down some extent as we hope it is a one-off thing. Naturally, the margins because of the quarter-on-quarter, the price falls and in the last three, four quarters are fallen. We have seen it very much less in this quarter. But in the previous quarters, there is no penalty we paid. Penalty, we paid hardly $1 million out of $250 million sale or something like. Penalty is not much, very minimal. We have enough stocks of 2.75 months, including the pipeline.
That, this time, because of input material always our transfer from India cost is high. That is the reason the profitabilities are come down. We are hoping we have touched the bottom. Things will improve from now onward.
Got it. Basically what I understand is it's a function of both erosion at the marketplace and input costs as far as.
Yeah. Transfer itself from India went into higher price, so naturally there is this problem.
Got it. Sir, you know, you've purchased about $34 million of ANDAs this quarter. If you could give us some insight in terms of the significance of these purchases. If I see the first nine months, it's almost at about $150 million now. Do we anticipate more purchases, in which direction therapeutically, so to speak?
No. We are not going to purchase anything because we got where we don't have the ANDAs, which is not under development or under approved list. Whatever we don't have, we bought the company. Even you develop those products, that will cost more than that. This is only the either CBE-30 or the change of API, PAS, that we are working very aggressively. It is a total 40 products. Out of that, 31 is the orals and oral injectables are 3, or dermatology. Like that, whatever we don't have only we got it because it came in a reasonable price because we bought it for the strengthening of our portfolio. Other than that, there is no reason. Previous also we have done like that.
Wherever we have or we don't have in portfolio, we feel that is required by the sales team, we will definitely make it. We'll buy. I don't think in next one or two years. We are almost majority of the generic formulation we are there. Oral side.
Got it. I have a couple of more questions. I'll join back the queue. Thank you.
Thank you. Next question is from Neha Manpuria.
Yeah. Thank you so much. This is Neha Manpuria from Bank of America. Subbu, just to, you know, clarify on the gross margin. I understand the SKU, because of the API growth would have also impacted margins. Could just give a break up in terms of the impact on margin because of, U.S. price erosion, versus raw material costs versus the, higher sales of API.
Yes, there is a change in the product mix during that part. Because of the mix, the impact on the gross margin is at about 1.25%. Out of the total 3% or not, 1.25% comes up. The balance is contributed both by raw material cost and the price erosion. Price erosion for the quarter is not very big. It's decent, but overall, if you really see the year as a whole, there is a significant price erosion. That is the thing. Out of the 3% gap which you have been talking, 3%-3.5% gap which you're talking, around 1.25% comes out of the products.
Understood. You know, I didn't really understand your comment that price erosion quarter was not significant. If I were to look at the oral solid business quarter-on-quarter, it seems to come down about, you know, $34 million-$35 million.
No, definitely the price erosion are happened. In the last three quarters, all quarters together itself, including shelf stock adjustment of around INR 10-11 million because of price erosion. Almost INR 45 million or something happened in this one. It means approximately 9% off in this 9 months. We are pretty sure we are seeing in the last one month or something, there is not much pricing reduction request or not.
It's a cumulative impact which the Chairman is saying.
Cumulative impact.
The cumulative impact is roughly about 9% in the nine months you're saying?
Yes. Absolutely.
Okay. Sir, you mentioned that in the last one month, you've not seen any more request for you know, price revision. Is it fair to assume-
One, we have not got any request to reduce the price. For the ROFR it will be called, you know?
Yes.
Right of first refusal. We have not received anything.
Okay. Is it fair to assume, sir, that we've hit the bottom in terms of the?
Yes.
sharp price increase we had seen because of inventory stocking?
In the normal products other than the niche products.
Yes.
It's fair to expect this is the bottom.
Understood. Sir, therefore, going forward, how should we look at the growth for the oral solid business?
No-
Sorry, sir. Go ahead.
Continue, ma'am. That is the only question?
Yes, sir.
Now the future is very clear. The going down is very fast. Nobody can stop it. Going up is a very, very slow process. It will take three years' time or something, improve the existing products' prices. Adding the additional orders of the existing products, adding our so-called 200-225 products of the new products, this is the area we will slowly both sides we want to improve a little bit. That is our goal in the oral side. I am talking oral side. In the injectable side, in one or two, Yugandhar can tell, except in one or two antibiotic injectable. So there is no much reduction in this nine months.
Understood. Sir, my last question on, you know, there's an announcement about, you know, Aurobindo exploring foreign to domestic market. You know, can you give some color on the thought process on that, and what would be the strategy here? Would we look at-
Yeah.
You know, organic, inorganic opportunities?
Yeah. Now, this is the time we feel we have the cash flow, and we may get another 200-300 million we will get extra additional cash flow in the next 4-5 quarters. This is the time we want to go to the either branded or OTC and all three together, you know, the complete. Because things are changing in the branded formulation. People are not going multiple thousands of reps. That jamana is slowly going. This is the time we want to go organic and inorganic within one year. From the day we start the first inorganic, then we want to reach in three years around 1,000 product sale is our goal, either organic or inorganic.
Understood. Thank you so much, sir.
Thank you. We request participants to limit your questions to two at a time. Thank you. Next question is from Mr. Deepak Gupta.
Hi. Good morning, sir. Thank you for taking my question. I'm Deepak from Nippon Life Insurance. Sir, first question is if you could give us some update on U.S. FDA inspection status for all your key plants.
Now we, as on today, have three audits. Unit one, which is already, in general, you can tell. Unit 1 is already warning letter one. Again, they came, they given the repeat observation warning letter that we already are in discussion with the FDA, and we have good advisors, and we will try to resolve in next one year. The major issue has come in the U.S. plant. The U.S. plant, which is a very small scale. It is a $2.5 million. Already loss-making. We ourselves are thinking to stop that plant. That we had the warning letter. That again audit has come there also because it is a 68-year-old building. Some leakages.
We may expect some warning letter there also. Anyhow, we are not interested to. That plant we are moving to the new. There only we bought the new model, brand-new model. We are shifting that from there. That we are already doing that process. Unfortunately, they came in the meantime, the price. So these two. The third one, which we have Nithyananda Reddy, unit five. Now the audit is going on in unit five API. Sterile API is going on.
Sir, can you give us an update on unit four and Eugia? Any inspection due over there?
I think it is. So, it is all the injectable plants, obviously, like as you know, we have the last two years FDA has not done any audits. So all of the units are obviously due for inspection. We are all the time ready to get inspected, but all the plants are due for inspection. I think across the world, across all companies, that's the same status, so it is no different for Aurobindo.
That's a good answer. You need not ask me about Aurobindo. You ask everybody the audit is due.
Sure, I understand, sir. Sir, the last question is, I missed the opening remarks, you may have addressed it, but there have been obviously a lot of media articles talking about the fact that you're looking for investors in your injectable business. If you could give us some perspective, whether what exactly the thought process of the injectable business. Thank you.
Yeah.
See, the Board has constituted the Committee of Independent Directors on November eighth for comprehensive evaluation of various options and alternatives, including demerger for restructuring Eugia and related arrangement. The evaluation by the Board is ongoing, with inputs also being taken from certain advisors. We will inform the stock exchange once an option has been finalized and approved by the board of directors and as is required by the applicable law and regulations. Right. The company is fully cognizant of the need to create shareholders' value, and, the Board is also aware of this.
Thank you. Next question is from Mr. Nitin Agarwal. Please unmute yourself, Nitin.
Hi. Thanks for taking my question. My question is on Eugia. If you can tell us what is the global sales of injectable business crossing?
Yugandhar.
Yeah, I'll just let me just tell you, like, this Eugia is all about not only injectable. It is complete specialty business. It is general injectable, oncology injectable, oncology oral solids, and hormonals. We are, like, clocking at a range of around $100 million-$110 million every quarter. That's the last 3-4 quarters' performance. We expect that it would go up to double-digit growth next year. Nitin, any other question on that?
Nitin Agarwal.
Hello.
Yeah.
It is-
Yes, Nitin Agarwal.
Hello. Yeah. Secondly, you know, sir, we are at about a $400 million thereabout run rate for this year. You've talked about in the past a $650-$700 million run rate for the injectable business in 2024. I mean, sir, how do you see this gap or this difference between them? It's a pretty large growth we're talking about in the next two years. How do we see this getting bridged? Any specific geographies, any specific launches? Any thoughts on, you know, where we can get to in a couple of years along this target?
Yeah, I think, see, starting this year, like, we are expecting significant launches happening from the April of FY 2023. I expect, like, starting from April, like, we have scheduled launches of around 10-15 products in FY 2023. That will drive the growth for FY 2023. For FY 2024 also we have significant assets and settlements for launches. We are pretty confident of $650 million-$700 million in FY 2024.
Thank you. Best of luck.
Thank you. Next question is from Mr. Anubhav Agarwal.
Yeah. Yeah, hi, guys. First question is on the input cost inflation. If we hear the comment from most of the companies, they've been guiding that the quarter four impact will be more than the quarter three. Is that true for Aurobindo as well? Because from the commentary, it seems like you guys trying to say that most of the impact was there in this quarter, next quarter it will be okay.
That's it. Excuse me, can I answer the question?
Okay.
Yeah. You see, quarter two itself there is a fall because of one or two one-time sales there in U.S. It looks better. It's not exactly reflected at the time in quarter two. This started quarter one onwards. Quarter one, two, three, it is started because the pricings, as I told you from the beginning, we have three types of pricing reductions. One is the oral pricing reduction, another is the oral price reduction and the all input material, every input material, either chemicals, intermediates or the products. It has come down. The ARV business now only slowly improving this quarter. What was the running quarter?
Definitely it was better than last quarter. We have visibility in next six to seven months. May not be at the same level of last year. That is ARV, loss of ARV business is the one area. Third area and most important area is input material cost increase and services cost increase. Services means, like, coal become double, and the freight alone, we will send 370 containers in a month. For a quarter, our freight is increased around INR 8.5 million in last two, three quarters. Net. With all these things, we are very hopeful, either freight or the coal has already come down, but that will be used that after one or two months.
Because now we are using double the cost coals and because our coal usage is monthly 2.5 million. All these things we are hoping that the costs will come down after Winter Olympics, and ARV is little improved. That is the reason we are telling in the beginning, things, this may be the bottom. In one or two quarters, we will reach to the improvement stage.
Sir, I am with you. My question was very simple that, did quarter three reflected the bottom or quarter four will be even worse and therefore quarter four, March quarter will reflect the bottom?
I don't think so. We feel quarter three is the. That's what we feel. That, let us see, but the way, January month is a little better. It's quarter three is the bottom most level. After that things should have either stable or improved.
That's helpful, sir. Second is on the domestic market, when you talked about reaching about INR 1,000 crore sales, what kind of capital you're trying to commit here? Even when you're going organic, inorganic. This 1,000 crore target is what? Maybe I missed out. Maybe three years you mentioned? Or what time indeed?
Yes, three years. From the date of the first launch.
What kind of capital you're committing to reach the INR 1,000 crore number?
Oh, I think we cannot tell that whether we will buy the companies, brands. That's difficult, but whatever the capital we are prepared for.
Typically, you know, the norm in the market it's about acquisitions typically happen at about three to four times sales. Are we talking, when we talking about INR 1,000 crore numbers?
Yeah.
We're talking about.
Maybe.
Okay. Thank you, sir.
Thank you. Next question is from Mr. Tushar Manudhane. Yes, Tushar, go ahead.
Just on U.S. generics pace, while the price erosion would have got subsided, but the pace of launches has also considerably reduced compared to the annual run rates in the previous years. How do we see the launch pace improving if it is hinged on U.S. FDA inspections?
Yeah. The ones that we feel that even U.S. FDA inspections are now. Things are improving now and inspections are coming, and approvals also will drastically increase.
Okay. Even the injectable for which we are targeting 650, 700, I'm sure, I mean, at least for the near term, launches would be subject to the inspection and then subsequent approvals, or the product, it's more to do with the product review without inspections?
Even that is.
Yeah. It is the product review without inspection, and most of the filings and approvals are dependent on just NDA review. Nothing to do with the inspection due, because we have not filed any product in the new lines where inspection is necessary. From that perspective, FY 2023 and FY 2024, I don't see anything which is hinged on inspection per se.
Just broadly, while you know, maybe not sharing the name of the products, typically, you know, what kind of the product size you are targeting? Approximate range, if you could highlight.
No, it is in the range of, I think like it's an open news. There are a lot of products which are actually going off patent starting from May. You do your research, and we are present in most of those off-patent molecules. There's no significant launch on approval molecule. It's mostly off patent, and that's in the range of $100 million-$1 billion.
Understood. Okay. Any update on the implementation of the PLI scheme?
Yeah. We have started the work. We already spent INR 400 crores-INR 500 crores. We are very much, we are really excited. This is going to be the good project. That's what, because of the selectively, we are investing in the API, where we are strengthening the other areas. Nithyananda Reddy, can you explain?
This PLI scheme that we are going ahead with the project for 15,000 tons of Penicillin G at Kakinada. We have a good thing is we have extended one more year for the manufacturing facility instead of 2023. We got extension up to 2024 because of the COVID issues we raised to government. That is happening. The already land acquisition is over. That work is going on. CTE and environmental clearance has come. CTE, CF, all this come. Now the construction has started and is going on full swing.
Good. While you highlighted, for one, on the API side, there's been improved demand for certain products, but is that, like, for this particular quarter or you see this to be sustainable number to go by?
Generally now the last quarter also little bit improvement is there. The same thing will continue. Because at last three, four quarters it is very low. The consumptions are, like, antibiotics and other things on COVID restrictions. There are not much sales is not happening. Now the sales are improving. We have a perfect base is there that we can grow further in the further growth.
Just lastly, how this uptick quarter-on-quarter, how much would have been due to the raw material cost pressure and maybe how much was more of a volume gain?
Raw material side we almost 10%, say 8%-10% as our input raw material cost has gone up. Solvents and other things are already, Ramprasad Reddy explained for the logistics and all the input logistics also gone up. That will slowly. We hope that another one or two quarters it will stabilize.
All right, sir. Thank you. Thank you for this.
Thank you. Next question is from Shyam Srinivasan.
Yeah, hi. Good morning and thank you for taking my question. Just first is on the biosimilars and the vaccines business. If you can give us an update on some of the key molecules that are there. Also on vaccines, what's happening to our COVID candidate?
This is Satakarni Makkapati. In terms of the biosimilars, as you know, our second oncology biosimilar has been filed with the European Medicines Agency in January 2022. This is according to the plan. We are having three more biosimilars at different stages in phase III licensure clinical trials. Out of which an oncology biosimilar monoclonal antibody that is currently being evaluated in a large phase III efficacy and safety trial will potentially be filed in the next financial year. We are looking at Q3, Q4. We have the last bits of recruitment to happen. That's progressing well despite the COVID headwinds.
Q4 of this financial year, Satakarni ?
Of the next financial year, starting April 2023. Our development efforts with our second wave of biosimilars are entering into an important stage, I would say, with one product which already advanced in this month as we talk into phase I trials in Australia, and another product advancing into early clinical trial probably in Q1 of the next fiscal. We remain otherwise on track with development of our other biosimilars, both in oncology and immunology segments. We are reasonably convinced about the progress that we are making with our biosimilars portfolio in both oncology and immunology segments. To address your second question, Shyam.
Dr. Satakarni, let me just interrupt because just can I quickly follow up on this, right? We should assume a 9-month window for both these BP 13 and BP 14, right? Would that be a starting point? In terms of market formation or when there is market formation already in terms of your launch strategy also.
Essentially what we are looking at is, with the regulatory timeframes during the COVID times, we assume about 267-270 days, which is roughly nine months. The market formation depends on the national phases that you are entering. Anywhere between 2-5 months roughly is the time that takes to enter markets, because you have to enter national phases after getting the approval from the centralized procedure. I hope that answers your question.
Yes. Thank you.
With respect to your second question, regarding the vaccines business, as you told, we have given an update in November that the Vaxxinity project did not move forward because Vaxxinity failed to get an approval, emergency approval from the Taiwan FDA. But our bacterial vaccine is currently in phase I clinical trial, and we will be able to make more commentary on this subject once we initiate the review of the pivotal data coming out of the trial somewhere in Q3, Q4 of the next fiscal and once we initiate the regulatory process in India. Our other vaccine programs are at different stages of development. So we are invested in vaccines now.
The realization from the COVID scenario is that we have a backbone of capabilities, in terms of our GMP know-how, in terms of our presence and marketing outreach, that we wanted to stay invested in other vaccines. That's building up really well, and we hope in next two to three years' time, we will have some advances made in key vaccine segments.
Very helpful. My last question is on the Auromedics injectable number, I think $63 million, so 6%-7% decline. What is still driving this? Is it still demand or is there a price erosion angle even in the injectable side?
I think it is both. I think we are a veraging around $65 million per quarter for the last three quarters, and we expect that it will be in the same similar range, $65 million-$70 million. Going forward, I expect that the significant launches coming in in FY 2023, like, the run rate will significantly improve. It is both, like, we have a slight price decreases here and there, and there is also volume increase in some products, so they get offset with each other for the quarter. It is. It's a running quarter, like, I'm just saying because there can be 2, 3 million gap here and there, but it is in general, it's a stable, pretty good state of business. Starting quarter one of next year, we see significant growth possibilities.
Got it, sir. Thank you, and all the best.
Thank you. Next question is from Surajit Pal.
Hi. Thanks for taking my questions. Just one question is that, you know, Mr. Rao, last time told us that, you know, antibiotic sales in U.S. could be the precursor of, you know, better cycle for, hospital business. Could you throw some light on update on, you know, how that antibiotic sales overall in U.S. is ramping up?
Who told that? Who is that told from our side? Antibiotic sale? Even the-
See, overall antibiotic sales.
Continue.
Yeah. The antibiotic sales in U.S. is a precursor of, you know, overall, sector-wise, hospital sales to go up.
Yeah. I remember. No, no. There is not much now, things are stabilized. There is no antibiotic. It was normalized. Now things are slowly improving. The new patients in U.S. also is drastically coming down, except deaths. So from next one or two quarters, things will improve. The antibiotic sale already increased, and other sales also will improve because of this. Because last two quarters, the hospitals also are very busy. We are hoping in next 15, 20 days, things will be perfectly all right and things will improve. That's what we feel in U.S. in next two months.
Okay. Thanks. In domestic market, can you throw some light on which are the segments you could be targeting initially? Or, is it possible that you might be encashing your R&D project which you are launching in U.S.?
No, we can tell in next quarter, not in this quarter. We have this idea. We have a lot of plans we are designing, and we will come back to you in coming quarter. In coming one or two quarters, we will have a lot of clarity.
Okay. Thank you, and all the best.
Thank you, sir.
Thank you. Next question is from Prakash Agarwal.
Yeah. Hi, this is Prakash. Good morning. Am I audible?
Good morning, Prakash . Yeah. Perfect.
Yeah, yeah. Sir, question is on U.S. FDA. You mentioned that, you know, it's an ongoing process, which we understand. Tell me something with the you know, they started quite a bit of inspection in October, November, and suddenly in December, January, I think it has again slowed down. What is the current conversation with the FDA for the, you know, for this year's inspection, which are planned already? I mean, are they coming on board or still desktop inspection is happening? Or what is the conversation that is happening?
No, no. We feel in next two, three months it will become normal.
They would start visiting again?
The physical inspections will happen.
Yeah.
Okay. Do you expect to start in the next couple of months?
In two, three months, at least, you know, in both sides, India as well as America, things are very drastically improving in COVID side, and we hope in two, three months it will be normal way of life.
Okay. Sir, understood. Correct my understanding, sir, I mean, we've been hearing that, you know, lot of complex product approvals require, you know, pre-inspection, et cetera. There was a participant also saying that, you know, the run rate of approvals have come down, especially the complex one. Is it related to that or you think that is not required, inspections are not required for complex products if the plant is approved?
It's not like that. You know, the previous products, latest we filed, 180 or 190. We have taken care. Previous products all are at least 60, 70 products are tentatively approved on patent issues and all these things. We are getting, it got stuck either in raw material because of unit level or unit one or something. Now the new approvals all are coming. We hope it will come from next month onwards is very fast. There is a less relation with the plant inspections. Just because of this type of API issues, we are changing the APIs. Those, it got stuck because now it has to approve last one year. This is because of the two years back filings.
Okay.
That is all stuck in the APIs one. New one, it is a less problem in that area. We already changed the outside API.
Okay. Very helpful. Second question is just clarity. I mean, there are various participants who have asked. So are you saying that both from Q3 and Q4 US pricing pressure decline that we have seen as well as input cost, there is one more quarter of pain and then we start growing? Or you are saying pain is behind us and we will stabilize from Q4 onwards.
I strongly believe pain is behind us. It doesn't mean that it will overnight come down. In the next one or two quarters it will start going down. I am not expecting any big price increase, either input material or services or in the price point. That's what we expect.
Q4 is stabilized or it is still?
Yes.
under pressure?
May not, definitely. That's what I feel.
May not decline further.
No.
Okay. Got it. Sir, last one, if I may. We have a long list of complex products across, you know, different segments, complex segments. In the past we have said 2023 is the year where, you know, we will start monetizing the complex injectable peptide, venoms, etc., in a big way. Is it more on the second half side or it is moving to fiscal 2024 given the delays that you talked about across the industry?
Yugandhar.
Sir, I think y ou're talking about injectables?
Yeah, complex injectables.
Yeah.
Not the plain vanilla small one. Bigger ones like, you know, 10, 20.
Clinicals are going on some various.
Some of these things obviously, whatever we said it is FY 2023. I think we are still confident that we will get some of the complex injectables in FY 2023. Let's see how it goes. Due to COVID, there are some development delays because some of the injectables are getting developed in U.S., then we have to take batches in India because of the travel restrictions and all, some of the validation batches and all, there is a quarter or two delays. We expect that we will start doing the filings in FY 2023 and expect some approvals to come from FY 2024 onwards. It will be a continuous journey with a quarter or two delay.
Okay, perfect. Great. Thank you and all the best, sir. Thank you.
Thank you. Next question is from Mr. Venkat. Requesting you to please introduce your firm name before asking the question. Yes, Mr. Venkat, go ahead. You can unmute yourself. Yeah. Please ask the question. Okay, we'll go to the next one. Next question is from Mr. Anubhav Agarwal.
Yes. First question is on the PLI. Just wanted to confirm, so when do we start this PLI production? Earlier timeline was April 2023. Will it be April 2024 now?
Nithyananda.
Yes, Anubhav. That is, as said, up to 2024 end we are going to start the productions.
You're talking FY 2024 end, is it?
Yes.
Okay. Which is April 24th. Yeah. Understood.
No. 24 March.
1/4/2024 is the cut-off date we need to start onward.
Understood. The CapEx is still at INR 2,200 crore or is this change in CapEx?
Yeah.
CapEx is INR 1,850 crore. One of the two projects we dropped, 7-ACA and 6-APA. We restricted to only for Penicillin G, we are going ahead with that project.
Penicillin G alone has INR 200-300 crore CapEx increased because of the heavy steel prices where they underestimated the equipment. Otherwise, the land we bought for the future requirements, 400 acres, we are using for penicillin only 120-130 acres. Like that, there is here and there some INR 200-300 crore increased CapEx.
Sorry, what?
Only for NG.
What is the number you mentioned? INR 1,850 crore, is it?
Around that. Nithyananda Reddy?
Yeah, around that.
Around that.
Out of this, how much is let's say on which incentives are applicable from the regulator, right? One is I remember you guys were going for higher capacity.
40 into 5.5. It is around 1,400.
11,400 incentive are applicable. Any particular reason we dropped the other product?
No, we have some, we asked the ministry some 7-ACA and D 7-ACA whether, I mean, because that is half and half the demand. The government, because they have to go back to the prime minister level or something there, or whatever it may be. They felt why can't we do it. They rebid it last week.
Okay.
The scheme is only for 7-ACA. The domestic requirement is 50% 7-ACA and 50% almost 55% D-7-ACA. Without D-7-ACA, only 7-ACA is not feasible. We thought that, then we dropped the project.
Yeah.
Understood. Sir, just you talked about it, but just asking again. I'm not still clear. The sharp decline that we've seen in the U.S. from quarter two to quarter three when price erosion was not much. What explains this $402 going down to $366 in one quarter?
What? Subbu?
I'm on mute. Sorry, Anubhav. It's a combination of that because one is the overall reduction is not only attributable to the ARVs, it is a combination of everything. Plus also there is a significant drop in the direct dispatches from India. Where the third-party label guys used to pick it up from India, which they have not picked up. That is one thing. Within the distribution within U.S. also, there is a drop. It's not a very drop in one segment. It is small drops and about $10 million drop in overalls like that. Everywhere it is scattered.
It is only INR 30 million, sometimes here and there.
Yeah.
It will happen in this difficult times.
At a business level, we are also looking. Overall, we have been trying to date. I mean, we know there is going to be a drop in U.S. because of various reasons, and we are focused more on the API, so that we are ensuring that we are meeting the top line, whatever we are aspiring, we have been trying to meet it like that.
Sure. What about the inventory levels for us in the U.S. for our products? Like for example-
Anubhav, it is good now, and we are working for another INR 100 million reduction overall in our working capital to increase the cash balance. Already my people done a wonderful job. We have still room for reduction in, especially in Europe and some areas. INR 150 million, we have the room for reduction and increase the cash.
No, actually, my question was a little different, sir. My question was that, let's say the problem that you guys mentioned earlier, the industry is facing that a lot of inventory was accumulated because of erratic supply last year due to COVID, and those products are nearing expiry.
I think now that the accumulation, either they must have destructed or they must have sold. I think it must have already come because already 1.5 years is over. There is no use of any stock.
How about that stock for? I mean, are you having stock which is near expiry now? Or is that?
Whatever is there, some products like azithromycin, some products we already put provisions. Whatever is there, we sold it. Some products we requested the distributors even six months also recently. Some products, they already bought it. Some products we already put. Swami is not there, my colleague. He knows better. Some we already put provision, whatever was, whatever is. Now it is running almost into one more quarter. There may be this issue. Afterwards, there won't be excess stock.
Okay. Thank you.
Thank you. Next question.
Thanks, Anubhav.
Thank you. Next question is from Cyndrella Carvalho.
Thanks for the opportunity. I just wanted to understand our strategy on European market. For quite some time, the market has been subdued for us. Plus on the injectable side also, we had plans on our plant for European and ROW market. What is the status on that? And when do we see this growth? Is it because of lower approvals or what is the cause on the European side? Can you please help us understand?
I'll take the injectable side first. I think after that, Ramprasad Reddy can give the overall view. In terms of the injectables, as you rightly said, we have decided to construct one plant in Vizag, and it's almost complete, and we'll be starting filings from middle of FY 2023. We expect to start commercializing in FY 2024. I expect it will be a steady and muted growth in Europe for FY 2023. From FY 2024 onwards, it should pick up.
Overall market?
P.V. Ramprasad Reddy like-
The overall market, you know, is nowadays injectables, they are going to oral divisions are going to have a distribute for this year, that is the one area. Overall, honestly, we are also really struggling, we already filed around 70 products, new products. New products means what we developed and another 180 in the development at various stage. Definitely, we are also very deeply studying with the outside consultants also on how to, how to break to the next level. To go from INR 900 thousand million to INR 1,300 thousand per annum. We are also on that job last two quarters, madam.
Okay. On the U.S. side, we said that there was almost $10 million shelf stock adjustment. Was that taken in this quarter or it is for the nine-month number? Can I know that?
The nine months number, madam.
Okay. Thank you so much.
Thanks.
All the best.
Thank you. Next question is from Praveen Kumar. Mr. Praveen, please unmute yourself.
Okay.
Hello, sir. Can you hear, sir?
Yes, yes. Go ahead.
Yes, sir. Ex-MD had talked about that buyback of shares. The board will review about the buyback of shares. Whether we can expect in the upcoming quarter, sir?
Can you please repeat?
Yeah, the ex-MD has said that the Board will review about the buyback of shares in the upcoming quarters. Whether it will be in the building. The proposal is still building.
Who brought it? Can you please tell?
Yeah. There is no proposal before the Board, Mr. Praveen.
Okay, sir.
As and when any, Decision taken, it will be communicated to the stock exchanges, but we don't see it now.
Okay, sir. Thank you, sir.
Thank you. As there are no further questions, I would like to hand the conference over to Mr. Arvind Bothra for the closing comments.
Possibly we have another 3-4 minutes. We can take one or two more questions. Let the questions be asked.
Okay.
Okay.
Okay, we have a question. Next question is from Mr. Surya Patra.
Yeah, thank you for taking my question. Just on the injectable business front. When we have given an almost kind of doubling growth guidance for let's say over next two-year period, what share of that would be coming from the U.S., sir? Currently, what is our mix in terms of U.S. and other major market, if you can throw some light on that?
A significant portion is going to be U.S. Even today, it is 75/25, and I expect in next two years as well, it will continue to be 75/25, 75 being U.S.
Okay. Second question is on the European business, sir. In fact, it was always considered that Europe, the profitable progress in Europe should practically support the overall profitability for Aurobindo. On the revenue itself, we are stagnating since some time, quarterly run rate wise. You have just now guided that 2024 would be the key growth trend that, you know, that would be witnessing. In terms of the profitable growth trend, when do you think that the margin profile for the European business will improve and that will start contributing towards the overall improvement of the margin of Aurobindo as a whole?
As Ramprasad Reddy said, like in the previous question, I think we are still doing how or what exactly are the growth drivers, both for top line as well as bottom line, and we are yet to come out with clear answers for the Europe business. I think, yeah, as you rightly said, we have come to a stage where we feel like we need to think differently to drive this business, and that work is in progress, and we will let you know in next two quarters.
Sure, sir. Just last question, if I can. On the foray into the domestic business, what has been mentioned. Here the thought process would be to replicate all the portfolio that we have created so far for the global market, that would be implemented here as well? How quickly that India foray can happen, sir? Although you are in discussion mode, but whether this is like a current financial year, any timeline on that front, if you can.
Subbu, have you followed? I lost control, Samir. I'm very sorry, sir.
Mm.
Surya, this is regarding the domestic formulation. That's what we are saying.
Exactly.
Pardon?
Yes, sir. Please continue.
We have clearly given our, what is our thought process and, where we are. It is an evaluation. The process, the new business strategy is under evolution. Probably we will be able to come out very clearly in the next quarter. In the meantime, what we have said, the aspiration for us is in the third year, we should be achieving a turnover of INR 1,000 crore and whether it can be organic or inorganic. We also have surplus capacity, et cetera. We will be able to come out with a very clear strategy. In having said that, we will not wait for the strategy work to complete so that we will start the work after that. We will do the things parallelly in such a manner we will be able to meet our aspirational goals.
Okay. Just one clarification, sir. Sir, in the last call you had mentioned about Revlimid, that you have already settled that and you are also likely to be launching the product before or in the first wave itself. Could you throw some light there, sir?
I'm not sure, like, whether we said it is first wave. We do have a settlement, and we are expected to launch the product in FY 2024. Beyond that, because it is confidential settlement matters, we cannot say more than that. Yes, we will be launching in FY 2024.
Sure. Okay. Thank you, sir. Thank you for taking my question.
Thank you. The last question is from Naga Sridhar.
Yeah. Good morning, one and all. I'm Naga Sridhar from Hindu Business Line, Hyderabad. Am I audible?
Oh, thank you. Yeah, perfect.
Yeah. Yes, sir. I just would like to know the raw material import scenario from China, sir, in terms of cost-wise and quantity-wise.
Yeah. Nithyananda Reddy also will tell. I also will just change this because we were intelligent in recent past.
Yes, sir.
Nithyananda Reddy, can you tell?
I was just asking about the raw material import issue from China, sir.
There is not much issue in the raw material import.
Mm-hmm.
the only thing is
Yeah.
that because of the telling the input price increase, just like that, they are increasing the prices. We and also there is internal some issues are there because of the Winter Olympics controls on the manufacturing. Because of that also, shortages are there. Let us see. Let this Olympics are over, then we'll see what happens.
Okay, sir. Thank you very much.
Thank you.
Thank you. I would now like to hand the conference over to Mr. Arvind Bothra for the closing comments.
Thank you all for joining us on the call today. If you have any of your questions unanswered, please feel free to keep in touch with the investor relations team. The transcript of this call will be uploaded on our website, www.aurobindo.com in due course. Thank you and have a great day.
Thank you. Thank you.
Thank you. On behalf of Aurobindo Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.