Ladies and gentlemen, good day, and welcome to Cipla Limited Q3 FY 2024 earnings conference call. 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. Ajinkya Pandharkar, Head Investor Relations from Cipla Limited. Thank you, and over to you, sir.
Thank you, Yusuf. Good evening, and a very warm welcome to Cipla's Q3 FY24 earnings call. I'm Ajinkya Pandharkar from the Investor Relations team at Cipla. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, projections, or other estimates about future events. These estimates reflect management's current expectation of the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new confirmations, future events, or otherwise. I hope you have received the investor presentation that we have posted on our website. I would like to request Umang to take over.
Thank you, Ajinkya, and good evening to all of you. I thank you for joining us today for earnings call for quarter three fiscal 2024. Let me address the issue of the results released at the outset. On Saturday, it came to our attention that there was a potential leak of parts of our standalone results on social media. We took prompt action to inform the stock exchange and took a decision to advance our results in order to avoid investors trading on the basis of unapproved results. We are investigating the matter, and we would like to highlight that the leak was not attributable to internal employees or systems of Cipla. Coming to the results of this quarter, we continued our growth trajectory across the flagship businesses of India, North America, and Africa, and improved our operating margin.
So, this was our seasonal strong performance for all markets. I would like to cover themes which played out into our financial performance for this quarter. These themes include a continuing market-leading growth in our core markets, focus on growing our large brands, investing in our future pipeline organically and inorganically, and regulatory resolution at our systems. In line with our theme on delivering growth across key markets, our India business posted a healthy growth of 12%, backed by traction across branded prescription, trade generics, and our consumer health business. In our branded prescriptions business, we grew ahead of the market, with our chronic portfolio outpacing the market, with a growth of 13% against the IPM growth of 11% as per IQVIA March-December 2023. Respiratory, cardiac, and urology were key drivers of the growth for the quarter.
Share of chronic therapies and portfolio has improved by 115 basis points year-on-year to 60.3%. Our trade generics business further consolidated its leadership position in the market by posting consistent year-on-year growth. This performance was supported by execution of our order book, traction in new introductions, and deepening distribution network and technology to improve reach. Business will further execute these work streams to expand their offerings and reach. Consumer health franchise posted year-on-year growth, supported by traction in leading brands and stronger reported brand equity, albeit in a slower market. The operating profitability continues to be sustainable. In North America, we reported an all-time high quarterly revenue of $230 million, which represents an 18% growth over last year. This was the 15th consecutive quarter of year-on-year growth for the business.
Positive volume traction due to seasonality in our products and demand in base business, which is usual for this quarter every year, propelled this consistent growth. In Lanreotide, we now have a 20% market share. In SAGA, we completed our sale of QCIL during the quarter. Excluding QCIL, SAGA recorded 35% year-on-year growth in USD terms, backed by growth in South Africa as well as Cipla Global Access. In our South Africa prescription business, our growth in secondary market was at a healthy 7% versus the market growth of 2% as per IQVIA, March-November 2023. We are inching closer to the market leader. Our tender and OTC businesses also witnessed positive traction during this period. In Cipla Global Access, our tender business for rest of Africa posted a year-on-year growth supported by execution of the order book.
Our next theme is growing our big brands bigger. Big brands continue to be at the forefront of our India story. In branded prescription, we have 20 brands with revenues over INR 100 crore as per IQVIA at December 2023. Foracort, our leading inhaler brand, is now the biggest brand in IPM as per IQVIA Q3 FY 2024, gaining three ranks year-on-year to reach the top spot. Cipla now has the highest number of brands in the IPM, top 10, top 15, and the top 100 as per December 2023 IQVIA report. Our trade generics business now has eight brands over INR 50 crore, whereas Cipla Health derives its growth from five anchor brands, which are well over INR 100 crore in trailing twelve months. In South Africa, big brands have been the key reason for growth in our OTC business.
Ciplactin, Coryx and Broncol are now tracking in the range of ZAR 100 million in the trailing twelve months. Acquisition of Actor Pharma has recently received the approval of the Competition Commission, and integration is expected to be completed in quarter four of FY 2024. Actor's portfolio includes products with great potential of becoming the next set of big brands. Investment. The third theme is the investment in the pipeline, in the future pipeline, and this remains one of our key themes. R&D investment is focused on funding developmental efforts and filing new products. In this quarter, we were successful in filing two products to complement our respiratory portfolio in the U.S. We have completed filing of generic Symbicort and one other generic inhalation asset, for which we should provide details in our next call.
In line with our strategy of lung leadership, we have continuously focused on investing in the pipeline over the years, with number of assets in high single digits. Some of these assets are already signed. On our peptide portfolio, we are ready with one peptide asset and waiting for its approval to launch, while there are four launches planned in FY 2025. We are also working on several other peptide 505(b)(2) opportunities and complex products, which are currently under development and will be key to the future portfolio. Our focus continues on regulatory efforts in Goa and Indore. Earlier in this quarter, we have updated you of the warning letter we had received for the Indore facility, which was audited in February 2023. We have duly responded to queries from US FDA and are now focusing on remediation. In Goa, at Goa, we have submitted all the pending recognitions.
De-risking our top launches remains our top priority. De-risking of Advair has been progressing as per expectation. We expect to file this asset in mid-FY 2025. For generic Abraxane, we are more likely to launch this fastest from the Goa facility. Given the complexity of the product, third-party transfer has been time-consuming and will take longer compared to a launch from our Goa facility. I would now like to invite Mr. Ashish Adukia, our CFO, to present.
Thank you, Mr. Umang Vohra. This quarter, we progressed further with exceptional performance across core businesses with expansion and profitability. Coming to the key financial highlights for the quarter, the numbers are adjusted for QCIL disinvestment, which was completed in this quarter. We are pleased to report a quarterly revenue of INR 6,544 crore, with a healthy growth of 14%, driven by flagship businesses of India, North America, and South Africa. EBITDA margins stood at impressive 26.3% for the quarter. As per practice, this EBITDA margin does not include other income. Expansion and operating profitability is largely due to favorable mix, calibrated price action across branded and generic portfolio, and impact of easing cost inflation.
Gross margin after material costs stood at 66.3% for the quarter, which is 90 basis points above last year's figures, driven by overall mix change again, contribution from new launches, as well as lower procurement cost of, of, key, key APIs. The total expenses for the quarter include employee costs and other expenses, which stood at INR 2,621 crore, which was flat on sequential basis. R&D investments for the quarter are at INR 400 crore, which is 6.1% of the revenue, driven by product filings, development efforts, and is higher by 10%, on quarter, YOY basis. Extraordinary expenses mainly includes impairment of an intangible asset and winding down provision of Pulmazole, which was one of our products that we were developing with Pulmatrix, Inc. for the U.S., market.
While we've impaired the entire asset, we may look at continuing to develop and launch this asset in India and other markets. Profit after tax for the quarter is at INR 1,049 crore or 16% of sales, and the ETR is constant at 27.5%. Free cash generation, and operating efficiencies drives a healthy cash, net cash position. We've repaid all long-term loans, including the term debt that we had in South Africa, of ZAR 720 million. With this, as of 31 December 2023, the gross debt on the balance sheet is...
... or only about INR 449 crore, which constitutes lease liabilities and working capital facilities. Cash equivalent balance as on the date stands at INR 7,591 crore. The key focus areas and growth levers in the subsequent quarters will include priority for One India would be to grow in RX, led by chronic portfolio, sustaining leadership in GX, while working on further strengthening growth levers for wellness portfolio. In North America, focus would be on commercial execution of existing portfolio and resolution of US FDA observations. Product launches through de-risking strategy and as well as inorganic partnerships and acquisitions, will remain one of our key, key priorities for the US market. Build on performance on, in South Africa, aided by growth in private and select tender business with greater emphasis on margin expansion.
In emerging markets and Europe, top priority is to improve top line, while margins are maintained at sustainable level. As for the yearly trend, quarter four will have an impact of weaker seasonality in India and North America. EBITDA margin for the full year is trending at a higher end of what we had guided earlier, which was a range of 23%-24%. The ROIC continues to be very healthy at about 29% for the trailing twelve months. I would like to thank you for your attention and request the moderator to now take the questions.
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 handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. So just clarity on Abraxane, if you could just highlight, any particular reason for, delay, rechanging the plan as far as filing from the alternate site is concerned. And secondly, if it is so, then, it would be again, subject to the re-inspection of Goa facility. So accordingly, is there any change in timeline as far as the approval is concerned for Abraxane?
Yeah, I think, Tushar, that is what you're saying is correct. I think the fastest route that we are guiding is, the fastest route is an approval from Goa. Because, you know, because of the fact that we might have to do clinical studies if we transfer the product to another site, et cetera, the process of getting a reapproval is significant. Having said that, our activities are ongoing for the transfer.
But now then the re-inspection of Goa and then subsequently the approval. So likewise, any change in the timeline for approvals for Abraxane, sir?
No, I think the timeline, see, if Goa... Our thinking is that Goa should be due any time for inspection from starting with quarter one of the year, because it was inspected in August of 2022. So on a two year clock, sorry, it should be ready for re-inspection starting from quarter one of fiscal year of the next fiscal. So therefore, actually, that is if we, if that inspection clears, then actually Nanopaclitaxel will be ahead of market, ahead of our estimate, if that inspection clears. However, if there is no inspection or that inspection does not clear, then Nanopaclitaxel will be further delayed because there will be additional requirements of regulatory to do the trials on that product, et cetera.
All right. The market price for this, the product, which is expected to be launched in which quarter? The potential launch?
Yes, yes.
Limited competition approach.
Are you talking about the peptide asset, Tushar?
Yes, sir. Yes, sir.
Yes, yes. That asset should hopefully launch, I think in the quarter one. Will definitely be a launch, we think, in the quarter one of fiscal year 25.
Next year is 2025.
Yeah, quarter one of next year, which means basically the next quarter.
Yeah.
Just if you could share the market size for the product and if there are any existing number of players for the product in the market?
Well, as of now, Tushar, we feel we are the first, we will be the first, generic, if we are given approval for it. The market size is fairly significant.
At least $100+ or $1 million?
Tushar, I cannot guide to that. Not because I don't want to, but because it's, you know, there'll be different market dynamics that will play out there.
Thanks. Thank you a lot, sir.
Thank you.
Thank you. Next question is from the line of Amey Chalke from JM Financial. Please proceed.
... Hello. Thank you for taking my question. My first question on Lanreotide, there is an orphan drug exclusivity expiry somewhere in September 2024. So what is our strategy there? Are we going to launch generic as well instead of, promoting 505(b)(2), or, we will wait for, other generic players to enter this plan?
Yeah, actually, yeah. I'm not so sure that the orphan drug... I mean, I think the orphan drug expiry is with reference to certain indication. I think, so, I'm not sure that that holds up the generic for other indications that are already gen- that are, for the patents have already expired.
Okay, so you mean to say that the product which we have launched, it doesn't have any binding on the orphan drug exclusivity, if any other generic wants to launch that?
No, I cannot comment on that, because the... Right now, what is allowed for launch, it, the product that we are selling is allowed for one set of indications.
Okay.
It is not allowed for all indications. And I think when you say orphan drug exclusivity, you mean to say that other indications may also be allowed for the same product as and when they expire. And, I don't think we have to introduce a new product for that. I'm not sure about that.
Sure. So you mean to say the filing of 505(b)(2) can be converted to generic products without launching the product?
No, no, no. The 505(b)(2) and generic products are two different products. We have currently selling a 505(b)(2) product. Because the orphan drug exclusivity protects a certain indication, whether you are a 505(b)(2) product or an NDA product, you cannot sell... Your product cannot be used in that indication. So when the orphan drug exclusivity expires for that indication, we believe at that point in time, the product could be used to sell in that indication.
Sure. Thank you so much. There is a second question also related to Symbicort. How easy or difficult it is to get an approval for Symbicort easily or Advair, if you can, give some color on the page?
Well, they're similar. The clinical trial requirements and the clinical trials that have been done for both products are very similar. I'm saying the size, the sizes of the product populate. So we have done it once, before with Advair, where, of course, the issue more is facility. We believe that the file has cleared all the other, you know, all the other reviews, but for facilities. So I think we are fairly confident.
Okay.
But it will take the time that the FDA needs to review.
Sure. Thank you. Thank you for taking my question.
Thank you. Next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets India Private Limited. Please go ahead.
Hi. Tsixank you for the opportunity. Umang, can you clarify your comment on the Advair opportunity? So you're saying, you're looking to file it by mid of FY 2025 from alternate site, and also want to understand, the way for approval, if you transfer it to a CMO site, you might require to do some clinical trials, et cetera. For Advair, is there any such requirement, for additional studies if you transfer to a different site?
No, we don't. No, we don't think so. I don't think any additional studies are required for Advair, and your what you picked up on the timing is correct. Correct.
Okay, and, say, like, you file within the stipulated timeline, mid-2025, and then, it will again go through the entire review cycle by the FDA or, how should we think about the-
Unlikely that this will go through a review cycle. I think we will be submitting data from the new site versus data from the old site. And then the FDA should take its six-nine month period to review it. Our sense is it could be closer to the six-month period.
So, very broadly, we can assume if everything goes well, we don't run into any other queries by the FDA, this approval could come by end of next fiscal, right? Towards the end of next fiscal.
Towards the end of next fiscal is correct, yes.
Okay. My second question is on Lanreotide 505(b)(2). So you are at, now at 20% market share, I guess, which is very similar to what we saw at the end of second quarter. So do we see further headroom for growing market share? And what kind of visibility you have to improve on from this level?
Yes. We guided earlier that the market share will be going up incrementally, and we will not see big, you know, takes of market share every quarter. So marginal increases from this are still on the cards for Lanreotide 505(b)(2).
Okay. My last question is on Leuprolide. So last quarter, you said you have resolved some supply bottleneck, et cetera, but we are yet to see any pickup in the market share. So, how are things moving there for that particular product?
I think we are seeing higher off takes on Leuprolide, and hopefully, in the next, you know, in this quarter or the next quarter, we will begin to scale up. But with this quarter, we have seen higher uptake compared to the last quarter.
Okay. So all supply issues were resolved, and market share and prescription trend, et cetera, should pick up from here, here on? Yeah.
Yes.
Okay. Thank you. Thank you for your answers. I'll get back into queue.
Thank you. Next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my question, Umang. Umang, on the Indore warning letter, you know, it, you know, the FDA has brought out the Advair customer complaints, you know, the recurring complaints, and the fact that we didn't recall it despite the recall in March, which was I know you've mentioned it was unrelated. Do you think there's a risk to the Albuterol market share that we have now because of the warning letter? Is that something that we should be concerned about? And, you know, have you addressed the... Or, do you think the FDA expects you to recall Abraxane, given the way they've mentioned it in the warning letter?
Okay. So, Neha, just the warning letter in Indore cited Albuterol.
Yeah, sorry, Albuterol. My bad. Apologies.
Yeah. Yeah. So on Albuterol, Neha, I think, we have submitted revised data to the FDA, and of course, the FDA has to make its determination post our response of the warning letter. And, you know, the company submitted, even during the earlier recall, an analysis of the recall specifically and of the factors that impact the product. At this point, you know, we can safely say that all parts of the product are safe and efficacious, and that we believe that there is a natural phenomena of these products. At times, you know, they get clogged like the product information leaflet says so for any inhaler, right? So, you know, we are waiting for the FDA to review the application in total.
The company believes that, you know, we do not have an issue with the product.
Understood. And, you know, post the recall of Albuterol in, you know, March, we did see market share obviously go down as expected. That seemed to have improved. Do we think we can go back to the market share that Cipla had in the product, you know, before the recall issue, or is there any constraint to that?
No, I don't think. I think there was a period where there was one customer that may have.
Mm.
- you know, de-risked their supply.
Mm.
But at this point in time, we have actually recovered a little bit of share between the last-
Yes
... quarter and this quarter, so we think it's stabilized. And, yes, I think my guidance to the team is clearly to try and see how to improve this share. But, you know, we are in no hurry to do so.
Got it. My second question is on the US base, you know, the current $225-$220. You know, I know there was some benefit from seasonality this quarter. If I were to look at, you know, next year, given the peptide launches that we have, we'll have probably five peptide launches next year based on your guidance and probably a couple of more launches, bread and butter launches. Do you think that helps us push the US sales above the billion-dollar mark in the next few quarters? Is that a fair assumption, or do you think it'll be a little longer than that?
Well, I think, Neha, difficult question to answer. More probably appropriate to answer this at the end of this quarter when we give our guidance. We'll have a good idea of where we think the U.S. market can be for us. We will see some attrition on a few products, as is typical of the U.S.
Mm-hmm.
I think we will form a view on this, possibly closer to when we come back in the next analyst call.
Got it. Thank you so much.
Thank you. Next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yeah. Hello. Yeah, thanks for this opportunity. So my first question is on, let's say, on Advair. So, given the recent sharp price cut, list price cut by the innovator, so, whether this is a kind of risk to the kind of a potential opportunity, what we have been targeting in case of Advair?
Surya, I think, you know, the issue with the generic market, Surya, is that the innovators price cut, you know, matters, but in the end, it is the net price that a customer is buying at.
Yes.
and so rebating on this product, at least the way we've understood it, is significant already, and discount in the marketplace is also significant. So our estimate of where, you know, the Advair price is somewhere right now at around the $30 per inhaler mark,
This is-
- as a net price.
This is the net price, sir?
Yeah. So I think it offers some opportunity for us as well, depending on the share we get.
... Okay. In fact, my understanding was that, in the current financial year, or current calendar year, even the net prices have seen a kind of, some meaningful impact. So that's why my question is what-
Yeah, yeah. That's why I'm saying it's roughly around the $30, depending on the mix of the customer.
Okay.
I mean, if you've seen if there is something that is more recent that you have seen, then I may not be fully aware of it.
Yeah. Okay. Secondly, sir, in fact, the Symbicort filing that you have done, well, which site that you are linking this drug to? Is it-
I think it's a two-site, I think it's a two-site filing.
Okay.
We have also done it from, we are also going to... Oh, sorry, let me correct myself.
Yeah.
It is a single-site filing as of now, and the second site transfer has also happened, and it will be added to the file once we receive the queries.
Okay. Okay. And, just last one, one-
By the time we are approved, so just to clarify, you know, assuming that this will take two years plus to approval.
Mm-hmm.
By the time we are approved, we will have two sites in the file.
Okay. Okay. Just last bit on the domestic formulation business, see, we have seen very strong growth during last two-year period, during the COVID time, in terms of volume. This year, while the industry is facing volume challenge because of the respiratory mainly, we have still maintained a kind of positive growth in terms of volumes. So going ahead, what is the kind of momentum that we should see for our overall domestic business? Is it possible to sustain double-digit growth, let's say, if we exclude the fourth quarter, which is generally the soft quarter?
I'll request Mr. Ashish Adukia to answer this, please.
Oh, sure. I think, you know, in your Indian market is very attractive, so if you take a little bit of a longer-term view, okay, then you will get the price, price as well as volume growth, in the market, right? And we are also going and expanding into tier two to tier six to realize that potential of, volume growth. Coming to a more near-term, next year horizon, we'll have to see because we'll have to see where WPI lines up, and assuming that's flat. So on the portfolio that constitutes a WPI portion, we may not be able to take the increase in price, but we, we will, try to push volume out there. And for the balance portfolio, we'll take a combination of, volume and price.
So we are still, will target higher than the market growth, next year for ourselves.
Sure. Yeah. Okay, sir. Thank you. Thanks a lot.
Thank you. Next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good evening. Even just a clarification on Symbicort. Did you say that it is, as of now, filed from Indore?
Bino, yes. The asset originally is an Indore facility, and it will be... We have already taken batches at our site in the US, and that will be added.
Understood.
As and when required, we will alter the strategy for the product.
Understood. Thank you.
Either it will be a two-site filed product, or it will be a single site, depending on which one we keep and which one we discard.
Got it. Second, an accounting question. I can see that your total depreciation and amortization expense has come down for the quarter, as well as for the nine months, year-over-year. What is leading to this decline?
I'll request Mr. Ashish Adukia to answer that.
Yeah. Thank you. Thank you, Mr. Phil. We had some impairment last year, Bino, which has led to the higher depreciation that you see in the previous year. But, but generally, it is, it's a flat to declining trend of depreciation.
Okay, so that impairment is gone. On this year's base, then, as we do more CapEx, we should see this moving up as we go along, right?
Absolutely. Our CapEx typically, you know, is in the range of INR 1,000-INR 1,500 crore kind of a range is what we should, we should estimate.
Understood. And finally-
As well as the maintenance.
Got it. Thank you. And finally, I can... From your notes, I can see there is some INR 18 crore odd loss from sale of an asset, which you have recorded. Which line item does that fall into?
Yeah, so that's the sale of QCIL that we completed. You know, we sold that entity to a partner, and that sale has been booked. Loss of that is sitting in other income.
Sorry, other income?
Yeah, that's right. That loss is sitting in other income. We don't-
Okay. Got it. Thank you very much.
Thank you. Next question is from the line of Kunal Dhamesha from Macquarie. Please proceed.
... Thank you for the opportunity. The first one on the other expenses excluding R&D, if I look at the first nine-month runway, we are almost, close to, you know, 50 basis point savings, in terms of other expenses as percentage of revenue. So is this more driven by, some of the, external moving parts, like logistics, power, fuel costs, or would you say, a lot of this is coming from synergies or from India business? How should we look at the sustainability of this number? I think more specifically, we'll have to just unpack the numbers to give you more specific answers where it has, come down. Overall, there has been cost control. You know, R&D probably, you know, few quarters we had the clinical studies cost, which has, come down.
When you compare it to the percentage of revenue growth, there's some operating leverage benefit also that you're seeing out there, because the revenue has grown significantly and cost has not as much, which you'll see in some of the other line items as well. So it, you know, that line item that you're referring to, other expenses, has many items sitting out there. So without being specific, I'm just giving you a general trend.
It seems that we have lost the line for Mr. Dhamesha. Next question is from the line of S. Mukherjee from Nomura. Please proceed.
Yeah. Hi, thanks for taking my question. Among the peptide assets that you talked about, are they 505(b)(2) or substitutable generics?
They're a mix, time.
Okay. The opportunity that we are expecting in Q1 FY25, will that be a 505(b)(2)?
No, that is an add-on.
Okay. My second question is on the R&D expense at INR 400 crore a quarter. How should we think about from a next two, three-year perspective? You know, are you thinking about any major investments, new areas? If you can guide on R&D expense in absolute terms, how should we think about it?
I'll request Mr. Ashish Adukia, please, to answer the question.
Sure, sure. See, we try to stay in the zip code of, you know, 6% of our revenue, and more importantly, try to also see how US revenue is doing when we look at the R&D, because R&D is primarily allocated to our US revenue. So we stay around 6% range, and then, of course, we have some flexibility. If we're getting a good growth, we can actually toggle it up, because it's actually an investment into future. So that's how we look at it. But you should maintain 6% because US market has been growing as fast or faster than the company, so likewise, the R&D would also follow.
Yeah, but Ashish, you know, R&D spend, I would assume, you know, would depend on your ex-US, you know, aspirations, which are the products you are trying to build and, you know, you have to invest for it from a longer term perspective, because U.S. revenues can go up and down depending on whether you get an approval or you get market share, et cetera. But R&D spend has to be sort of, you know, decided, right? So this, you know, as a percentage of sales, is not very clear to me.
So, see, that flexibility is with us, but at the same time, see, what our R&D is mainly focused on fewer products, but with higher potential, right? And of course, we keep a watchful eye on launches that you're having so that there is no erosion or re-reduction in the revenue that you have of the U.S. So you have to balance both R&D costs that you're incurring, and as well as maintaining the U.S. revenue, overall and maintaining a growth rate out there. I think for next couple of years, at least, we see this trend continuing.
Okay. And my final question would be on the cash balance. So what are, what are your thoughts around that? You know, how are you going to use this or pay out dividends, if you can give some color?
See, I think, we still do kind of, you know, by end of the year, we'll take a call on, board will take a call on distribution of, of cash. However, you know, our growth aspirations in India, some of the inorganic launches that we talked about in US, you know, some of the markets in international as well, where we may look at opportunities, plus CapEx, et cetera, we'll factor all that in, when we are taking a call on distribution.
Okay. Okay, thank you.
... Thank you. Thank you. Next question is from the line of Aejas Lakhani from Unifi Capital. Please go ahead.
Yeah, thanks. Umang, I just want to get a sense of the US and the pricing professionals in the US, and if you could double-click into a little more about how the regulator is thinking there, how are the buyer group, groups thinking? Is the pressure easing or is it, you know, the same like you suggested last quarter?
Well, there's not too much difference quarter-on-quarter. All I can say is that in the U.S., we typically see in quarter one of every year, which is when the new budgets come out, for, you know, for every buying group, that there is always more number of price challenges compared to the rest of the year. But as of now, we have not seen anything untoward.
Got it. And the environment, is it even little... Has it changed a little for the last, say, two, three years, or is it the same that you feel?
No, I think it's a little. So it's like this, it's a little calmer, but I don't think that this will between zero. You know, we always see this in this, the price compression in the range of 0-10 every year. Years of extreme bad pricing environments, which means, you know, where we see more compression is 8-10. Years which are normal compression are about four-six. So that's how I would put it.
We are today in the four-six band?
That is correct. We are today in the four-six band, and, you know, this is a commodity cycle. It starts shifting quickly to the, over a period of time, to the six-eight band, and then the 8-10 band.
Got it. If I were just to ask you to hazard a guess of how this band may play out, you know, given the data around end of filings and how the competitive intensity is as you see it today, do you think it can continue to be in the four-six range, or can it inch up towards six to,
No. No. It'll never be—It'll never constantly be in the four-six range. That I'm clear about. I think the general trend is that every three or four years there's a full upcycle or a downcycle. I think we're almost in year, I would say year one plus or year two of this downcycle, and my guess is within a year, things will be very different.
Got it. That's very helpful. Thanks so much. All the best.
Thank you.
Thank you. Next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Thanks for taking my question. You know, when we look through the nine months of the year, you know, we've had two very exceptional quarters from a profitability perspective. I mean, overall, when you look back at the start of the year versus the way the year has panned out, I mean, in your assessment, what has really gone much better than what you really expected at the start of the year?
I think actually, from a, you know, like, to be honest, from a budget perspective, we are largely on track with our budget. I don't think we're where our assumptions are marginally different. I think our assumptions, where they are different, I'll tell you, they are around, let's say, the launch of Advair. That's an assumption that is different because of issues for us. And that frankly got compensated with potentially, you know, some launches that we were able to launch through our partners in the U.S. and possibly a better pricing environment. I think what's also better for us is the volume, is our India growth. Specifically, you know, it's much better, and India is a huge business for us.
Every 1% over delivery creates a fair amount of depth on top line as well as on the bottom.
If I would just probably push that point, Umang, you know, we've seen a reasonable expansion in our gross margins over the last couple of quarters. Is there anything which is not sustainable you want to call out, you know, in terms of the gross margin, especially for this quarter? 66% almost, we are almost, it's amongst the highest we've done in a while.
Yeah. No, I think it's a combination of pricing. So a growth that you see out there is driven a lot by pricing, which flows through to your gross margin, and there is better mix of the business. In both quarter two and quarter three, we got a better mix of chronic, so that has also helped us. And of course, we talked about reversing seasonality in quarter four. So these are the things that have helped us, and it's likely to sustain the gross margin levels that we talked about. That's the whole idea. We are pushing for sustenance or even better gross margin.
Actually, the way the business mix is, in your assessment evolving as you go forward, do you see opportunities for meaningful expansion of gross margins on an annualized basis, from where we are in FY 2024?
No, you'll not see meaningful expansion of gross margin. Like I said, right, Next year, we'll not have pricing advantage as we did, as we got, from through WPI this year. So it will be more hopefully, work volume-driven growth, apart from some pricing advantage.
Thank you. So let me ask you, Umang, on the US, you know, there is a fair bit of peptide launches you've talked about, you know, over the next few quarters. You know, so as a salience in the business, along with respiratory, then, I mean, how large does peptide start to become as big a component of respiratory for us, when we go forward from here on?
You know, let me, well, no, I think respiratory will still be much larger for us as a category, because we've got other flow-on assets that are follow-through assets that are also coming in respiratory, which are fairly significant. So, peptide will be a meaningful category for us, but the largest category will always be respiratory.
In margin point.
So too, margin-wise.
Yeah.
So too, margin-wise, because we own a large portion of the chain in the respiratory side. We own some part of the chain on the peptide side.
Thank you, and best of luck.
Thank you.
Thank you. Thank you. Next question is from the line of Nithya from Bernstein. Please go ahead.
Thank you, and congratulations on a strong print this quarter. On U.S. specialty, Umang, I think we saw that Tramadol didn't work out, and more recently, Pulmazole also, you've backtracked in terms of what you're thinking about it for the U.S. So broadly stepping back, how are you thinking about U.S. specialties? Is it still part of your long-term growth strategy? What has changed, if anything?
I think what's changed, Garrett. Sorry, what's changed, Nithya? My apologies. Garrett is our team member in specialty. But what's changed, Nithya, is really the ability to actually get to get our own assets into the market. And actually, we've got three now. None of them are going to be... Our strategy was to pick winners and bigger value assets. I don't, I don't think that's played out for us. Maybe our understanding of this therapy is not, of therapies is not strong enough to do diligence on these assets.
So I think it's better that, you know, that we focus our attention on generating these assets from within and be content with the fact that no one asset will be higher than INR 50 million or so, and try to build a portfolio. And when we have critical size, then pick up something that we feel more comfortable about. If we had to pick up an asset today in spec, it would have to be an asset that is already approved. I don't think we want to take any more approval risk, for any of the assets we decide to pick up. And, and to go up the value chain, we are anyways focusing on complex 505(b)(2)s, which gives us that advantage of, market share and cycle.
See, this, this new, strategy of growing it, or developing it in-house, obviously has a much longer gestation cycle. Do you believe then that you have enough pegs for growth, before that strategy starts to kick in for you?
For the rest of the business, Nitya, yes, because look, 2026, 2027, 2028, you'll see the other range of inhalers coming. Before that, hopefully, you know, Symbicort around that time. So then you have the... You know, so you have those assets. And I think we have the other peptide portfolio, so I think around the 2027, 2028 period, yeah, I, I would-- I'd like to think that if we can get one or two assets in the market, it will be a validation of what we can create in this space. That may be a good time to perhaps go and acquire some in-market assets at that point in time. Right now, I'm, I'm not clear if we're fully understanding this market the way it should be understood.
So, you know, we're shy of investing anything more, which has a development risk attached to it.
Got it. Umang, I know you've been asked this before, and I'm going to ask it again. Are the promoters still looking to sell their stake in Cipla? And should we be reading anything more into Samina stepping down as from her executive vice chair role?
No, I don't think so. I think Samina's decision. So firstly, there's no sale. There is no, as of this moment, there is no sale, and there hasn't been any discussion or any information or any dialogue over the last at least two to three months that we are aware of. Samina's decision, Samina is still continuing as a non-executive director. I think she switched roles from being an executive to a non-executive. And that is driven, you know, that is driven more with the overall promoter family plan to create an institution for Cipla that survives various promoter transitions. And as much as they are planning for it, I have to also plan for the management continuity of this company, through, so that the company stays professional and has an ever-growing and ever, everlasting phenomena to it.
Got it. Thank you so much, and all the best.
Thank you.
Thank you. Ladies and gentlemen, we will take last two questions for the day. The next question is from the line of Kunal Dhamesha from Macquarie. Please proceed.
Thank you. Thank you for the opportunity again. So just continuing on my last question about the other expenses, I know we had expected that the other expenses might move up in the second half of the year 2024, at least in quarter three, we have not seen other expenses excluding R&D. Right, so is it more, we can say, this quarter phenomena, or are we continuing to run cost efficiency programs, which is now starting to kick in?
Mr. Ashish Adukia will address your question.
No, we can see, like I said, this is a sustainable number, okay? And more specifically, we can unpack the numbers and discuss.
Sure.
Sorry, just one minute. I think his question is, you have reached a sustainable level of expenditure on other expenses. So is there a need for you to relook at these expenses from a perspective of creating some productivity? That's the question I think he's raising. Which, frankly, is, I mean, yeah, I mean, we should.
Correct.
Yeah. Yeah, no. No, sure. I think there is an opportunity for us out there, and as we get into the next year's numbers, we'll be able to give you a better idea.
Sure. Thank you. And one more on the peptide assets that are being, you know, launched, that are being planned for launch next year. This year, we are just waiting for approval, but for those other four assets, which are the pending steps for us to commercialize those assets? Is it just the approval? Is it IP-related issues? How should we think about it?
So I think most of the IP-related issues for the assets that we have selected will resolve in the 2024-2025 time frame. There are some where there are no IP issues. Those are clearly linked to approval.
Would you quantify between the four, how many are just approval related?
It. We are not giving that quantification, but obviously the asset that we are hoping to launch recently is completely linked to approval, not to IP. The other assets that will rise, there are two assets that probably are not linked to IP anymore because we believe the patents would expire for those, and the assets after that are clearly linked to IP.
Sure. And just the last-
I'm sorry, but it's close to 50/50.
Okay. Sure. Sure. And, just the last one on the cash, we have, I think the other participant also asked, in terms of what would you decide. But let's say in terms of inorganic, if you have to think, would it be more bolt-on acquisition, which we have done in the past, or, you know, now the thinking has changed, specifically on some of the branded markets that we can deploy more capital there? What's the, you know, current thinking?
Well, see, I think our discipline towards approaching some of these opportunities will not change just because we have excess cash. It's not that we will compromise on our IRRs. We follow the same approach, and it will be bolt-on in some of the markets where our capital allocation is limited. But some, some, some, be you like in, in, in India, there we are quite confident of the growth that it offers, and therefore, we can go aggressive in India in terms of the size. But of course, the value creation, et cetera, is an important element when we are looking at any acquisition opportunity.
Yeah, one more. Like, CHL is again, you know, we see that Cipla Health, that is, we see that as a growth opportunity, continuously looking at brands out there to acquire, as we speak. Again, more bolt-on and addition of brands, not very large platform out there, but that's one area that we, where we see a good potential.
Sure. Since we just touched upon Cipla Health, I think last year, quarter four for Cipla Health was quite weak, right? Would you say that trends are better this time around, versus last year, quarter four?
So, this is in a growth trajectory. In fact, this year we saw a bit of a slow start of the year because of the overall beverages market was slower, and we had some inventory rebalancing also that took place because of the transfer that happened from generic business to Cipla Health. But after that has gone back to its path of growth with their top products that is all above INR 100 crore.
My sense is completely different on this. Probably, I'll, you know, touch base on the numbers once again, but my view is the first quarter was exceptionally strong in terms of growth, and then quarter two, quarter three has seen, you know, more moderate growth for the CHL business for India, not just, you know, including South Africa, just the consumer business in India.
Oh, okay. You're talking about country as a whole. Okay. No, that's fair enough. I think, that, that number-
Just the consumer business in India. I'm talking of CHL in India.
Yeah, the CHL in India, I think quarter one.
Yeah.
Yeah, yeah. Yeah. Maybe we can take this offline.
We can give you a set of our numbers, Kunal, offline. I think our CHL business only services India, by and large. There's no other market.
Sure. Sure, sure. But yeah, I'll, I'll probably touch base with you again.
Sure, Kunal. We thank you.
Thank you.
Thank you.
Ladies and gentlemen, we'll take a last question from the line of Smith from RDA. Please go ahead.
Thank you for the opportunity. My question is on U.S. generics. How was the pricing environment in Q3 for inhalation products?
I think it's more or less... Well, when you say pricing environment, it's going through its regular price compression. No, nothing accelerated or accentuated at this stage.
Okay. Thank you. Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Ajinkya Pandharkar for closing comments.
Thanks, everyone, for joining. If you have any further queries, you may reach out to investor relations@cipla.com. Have a great evening, and a happy day for everyone.
Thank you, Mr. Ajinkya.
Thank you. On behalf of Cipla Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.