Ladies and gentlemen, good day and welcome to the Cipla Limited Q2 FY twenty-five 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 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 Ms. Diksha Maheshwari from the Lead Investor Relations team. Thank you, and over to you, ma'am.
Thank you, Ray. Good afternoon, and a very warm welcome to Cipla's Q2 FY25 earnings call. I'm Diksha Maheshwari 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 expectations 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 information, 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, Diksha. Good afternoon to all of you. We appreciate you joining us today for our second quarter earnings call. This quarter, we yet again delivered a strong profitability. The reported EBITDA margin stood at 26.7% for the quarter, which is the highest ever quarterly EBITDA margin that's reported by Cipla. Growth in EBITDA outpaced top-line growth of 9% year-on-year, which was primarily impacted due to a changed seasonal pattern. I would now like to start with the updates on our key markets. Our One India business witnessed a slow seasonal growth, especially in the acute category. In anti-infectives, one of our largest therapies, the market growth came at 4.9% as against the last year growth of over 12% as per IQVIA, March-September 2024. This impacted both our branded prescription as well as the trade generics business.
On an overall basis, One India growth stood at 5% year-on-year. Our endeavor is to outpace the market growth on a full year basis. With the revival in the season and the respiratory uptick starting in quarter three of this year, we should revert back to our growth trajectory. While we are showing slower growth, we have continued to invest both in field force and investments in the field. Our number of people on the field has now reached 8,700 people. During the quarter, our branded prescription business continued to outpace market growth in chronic therapies. Respiratory grew by 9%, cardiac grew by 11%, and urology by 15%. Our share of chronic also improved to 61.5%, as per IQVIA, March-September 2024. Performance of our big brands was one of the key highlights for this quarter.
In our branded prescription business, we've added three new brands in the category of revenue of over 100 crores. We now have a total of 25 brands in this category, along with 21 brands in top 300, as per IQVIA, March-September 2024. Cipla continues to be the largest pharma company in terms of volume, and the only player with two billion unit sales in IPM as per the March-September 2024. In our trade generics business, the business is impacted by the season. However, we expect it to revert to the usual growth trajectory in the coming quarters. Our consumer health business witnessed strong traction with anchor and transition brands continuing to grow bigger. The business posted a robust growth of 20% plus. Anchor brands of Nicotex, Omnigel, and Cipladine maintain their leadership position in their segments.
The business is focused on driving a very healthy secondary growth and tries to look for opportunities to invest in products and channels, which strengthen the distribution network. The operating profitability of our business is consistent at 15%. In North America, we delivered a quarterly revenue of $237 million. Barring a temporary supply issue in lanreotide, the sustenance in revenue has been supported by continued positive traction in our differentiated portfolio. Ibudilast further enhanced its market share to 19% in this quarter. The lanreotide franchise, consisting of 505(b)(2) and ANDA assets, reached a market share of 35% during the quarter as per IQVIA, March 2024. Currently, we are facing some supply challenges in lanreotide, and hence we expect the quarter three lanreotide franchise sales to be lower than quarter two .
However, these issues are anticipated to be resolved by the end of quarter three , and starting quarter four , 2025, we should be able to recover sharply in the lanreotide franchise. We're also working to increase the overall capacity of lanreotide through CapEx investments made by our partner. During this quarter, we also received four new generic drug approvals, including one peptide in the U.S. market. Progressing on our journey of strengthening the Africa story, we now have merged the North Africa business, which was part of EM EU, with the SAGA region and renamed it as One Africa. Our overall One Africa business recorded a vigorous growth of 22%, with South Africa also delivering a similar growth in local currency terms. In the private market, our secondary growth was at a healthy 8.6% versus the market growth of 0.5%.
Our South Africa private market now ranks number two in the market, with the prescription business maintaining its number one position. North Africa also demonstrated a strong growth during this quarter. In EMEU, our deep market strategy has started paying off, with the business delivering a solid growth of 18% in U.S. dollar terms, with a pickup in both our DPM and B2B categories. I will now cover some of the issues regarding the regulatory inspections. Resolution of our regulatory issues remains our top priority. Our Goa facility recently underwent re-inspection by the U.S. FDA. The facility was issued Form 483 observations. We are still waiting for the classification of the inspection. At Indore, our focus remains on remediation and implementation of the CAPA. The risking of generic Advair, our major inhalation asset, has been progressing as per expectations.
We expect to launch this asset in H1 of FY 2026. For generic Abraxane, while we are more likely to launch it from our Goa facility, this may require approval for the facility, impacting the timeline of the launch. We have continued with our efforts to de-risk the product through the CMO site. On the sustainability front, we have had some good progress. During the quarter, Cipla achieved a ranking with the S&P Dow Jones Sustainability Index, and the score has improved to 79 from 70 that was there in the previous year. To summarize the overall company outlook, we are on track to achieve our margin guidance for the year. That is between 24.5% to 25.5%. Last 12 months have been audit-heavy, with our facilities of InvaGen, Kurkumbh, Patalganga, China, and Goa audited.
All these facilities have cleared with either a VAI or NAI, except for Goa, where the classification is still awaited. In lanreotide, we are in the process of resolving our supply issues. Our trade generics business, the model change has been successfully implemented, and we now have a better control on the channel. With this, I would like now to turn the call over to Ashish for the financial and the operating performance.
Thank you, Umang. Just coming to the key highlights of the quarter, and please note that the growth percentages that I'm going to talk about are all adjusted for QCIL, this divestment that we did last year in quarter three . We reported a quarterly revenue of INR 7,051 crore, with a growth of 9%, driven by our core businesses of India, North America, South Africa, as well as EMEU. The EBITDA margin, excluding other incomes, stood at impressive 26.7% for the quarter, up by about 70 basis points YOY and 111 basis points QOQ basis. The reported gross margin after material costs stood at 67.6% for the quarter, which is 159 basis points above last year's figures, mainly driven by overall better mix.
Total expenses for the quarter include employee expense as well as other expenses that stood at INR 2,882 crore. The employee expenses includes our strategic investments, which Umang also mentioned in the India branded prescription business via field force , especially on the chronic therapies. Between FY 2023 and H1 FY 2025, we've added almost 1,500 plus feet-on-ground. As highlighted earlier, we have also introduced retail task force in India trade generic business, a team of almost 500 plus feet-on-ground for better visibility and control over business, leading to improved customer relationship. These investments will help us meeting our long-term organizational growth goals. Increase in other expenses is on account of new launches in India branded prescription business. So it's an investment towards that.
It also includes commencement of our plant operations in China, which is expected to start supplies in this financial year itself, and investment in our MDI facility in Fall River for filing new products and de-risking some of our existing pipeline. R&D investments for the quarter are at INR 385 crore, or 5.5% of the revenue, driven by product filing costs and developmental efforts, higher in the quarter by 2% versus last year. Our profit after tax for the quarter is at INR 1,303 crore, or about 18.5% of sales, with effective tax rate at 27%. Our free cash generation and operating efficiency continues to drive healthy net cash position.
As at September 2024, our debt on our balance sheet, including the lease liabilities, stood at INR 461 crore, with net cash equivalent balance of INR 7,950 crore. This quarter, we had paid out dividend of thousand plus crore. Now I'll conclude with key focus areas and growth levers in the subsequent quarters. The priority for One India would be to continue to grow ahead of the market in branded prescription and accelerating the growth trajectory in trade generics, while further working on solidification of the growth lever for wellness portfolio, including wrapping up in new launches. In North America, our focus would be on commercial execution, expediting the launches from our US facilities, and resolving the supply issues that we talked about.
De-risking key launches for FY twenty-five remains one of our key priorities. In South Africa, our continued focus stays at margin expansion, and in EMEU, our top priority is to maximize top line with focus on deepening our penetration in identified core markets, while sustaining the strong margin trajectory. Our ROIC for the quarter on an annualized basis was 30% plus, and like Umang said, our EBITDA guidance remains unchanged at 24.5-25.5. I'd like to thank you for your attention and would like to hand over now to the moderator for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions 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 handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from Damayanti Kerai, from HSBC. Please go ahead.
Hi, good afternoon, and thank you for the opportunity. My first question is on Abraxane opportunity. Obviously, I think, we are waiting for Goa clearance for this particular product, but can you comment in case we don't hear back favorably from the U.S. FDA regarding classification, et cetera, how far this product can be pushed in terms of launch in the market? If I remember correctly, earlier you said this launch could possibly come in second half of FY 2025. What is recent thought on this product?
Yeah, I think it depends on the clearance of Goa, right? And I think, from the time of the clearance, the clock starts pretty much for this product. So it's, from a timeline perspective, this is the fastest, possible way.
Okay. In case Goa takes slightly longer, then you proceed with the CMO route, then how long, I guess, we have to wait?
Yeah. So the CMO route is gonna take much longer. That, you know, it will have to be filed as a supplement, so that will... That is definitely, definitely over a year.
Okay. Okay, my second question is on the supply issues which you mentioned on lanreotide. Is it purely the capacity constraint, or there are some other issues? And, are you remain confident about resolving this in a quarter, and then, supplies going back to the normal level? And then, a quick question on the four approvals which you got during the quarter. So I believe one is the peptide product, calcitonin. So, do you have a manufacturing capability for that particular product, or it will be again done through CMO?
The most Calcitonin salmon is likely from a CMO, because the source of the API itself is different. So yes, I mean, that we are not doing it, it's being done through a partner. So that's on calcitonin.
Okay. And on anreotide issue,
So lanreotide is... I think there are two things that are happening. One is, as we are expanding capacity- ... we've got to reconfigure, the partner has to reconfigure the line. I think some part of it is that. Some part of it is also that, you know, that there was, there is more demand than we anticipated. So I think it's a mixture of both. So it's capacity creation, plus also maybe maintenance at the site, because of which this quarter is down. I think we are confident that, quarter four onwards, we are good with this.
Sure. You mentioned you are investing in the partner site for capacity expansion. Or how is the arrangement there?
No, our partner is investing. Our partner is investing. It is their site.
Okay, my last question is on India business. So, again, I guess, we expect to see better seasonality in 3Q. So are you seeing, like, initial sign of better pickup in the respiratory for third quarter , and that's why you believe you could still outpace market growth in the full year basis? Because 3Q, after 3Q, I believe, fourth quarter is generally a lean quarter, right?
That is correct. That is correct, and I think we are likely... So the seasonal triggers for respiratory, the pollen alerts, the pollution environment, typically starts, you know, after Diwali. So we are beginning to see some of that, you know, rising, but, hope, hoping that, you know, I don't know how we will see the season, but we are hopeful that it, this particular time of the year will mimic, the other. Unlike the acute season, this is not solely a seasonal trigger. It is also the impact of pollution in the air. It is also an impact of allergens and pollen.
Okay. Okay. Thank you, Umang. I'll get back in the queue.
Thank you. The next question is from Anubhav Agarwal from UBS. Please go ahead.
Yeah, thank you. Good evening. Just continuing on the question, lanreotide, I'm just trying to reconfirm that at your partner, there is no external constraint because of which the supply has been impacted. Because for European partner, supply was impacted in the June quarter. Now, you faced constraint in September, and you're guiding for the December quarter also being impacted. So first, sounds strange that partner is expanding, that's why nine months of total capacity being out and severe shortage in Europe, and you are also facing shortage. So confirming that there is no external dependency for the partner, it is just because they were expanding, that's why they are facing so much shortage.
I think what we can confirm to you, Anubhav, is that the issue is not a supply chain-related issue in terms of material or anything. The issue is linked completely to the partner's production.
Umang, how do you get confidence that this will come back to full normal level in-?
Because we visited. Because our teams have visited, they've made an assessment, and we are on regular calls with the partner, so we have our confidence in that.
And what would be the impact for you? As for example, $237 million dollar revenues, this would it go down, let's say, about 2 below 225 the next quarter, just as the sensitivity? What kind of impact would it be for Cipla and 3Q for this?
Yeah, I mean, we are gonna see a fairly reduced number on lanreotide for quarter three . And I think, you know, yeah, it could be lower than the 220 mark. Depending on how quickly we get supply back, we could be looking at something lower than 220.
And just one more clarity. In this quarter was the generic Revlimid, was this quarter- on- quarter higher in September versus June quarter?
I'll ask Ashish. Ashish, do you want to comment on this one?
Yeah. We don't give guidance on lenalidomide sales because of the contract that we have with them. On the previous question, just wanna clarify that quarter one , quarter two has not been impacted in Lanreotide. While we may have talked about some anticipated supply issue in our calls, but the numbers we re-achieved 35% share in Lanreotide franchise of both assets. And that's what we should revert back to after we have the supply issues sorted out in quarter four .
Thank you, team. That's helpful. Just one more last clarity on this. So once capacity is expanded, are we talking about, let's say, just a ballpark understanding, can our market share go up by 20%, 10%? Some ballpark understanding in next one, two years for this product?
Yeah, market share could be higher.
It's definitely aimed at- [crosstalk]
That is for sure.
... in this case.
No, that's obvious, right? Because-
Yeah, and just one- Anubhav, just one thing. I think one of the reasons we've attributed is to capacity increase. Not all the reasons on production not being there is solely linked to capacity. Just to be very clear. There are no reasons on supply chain that constrain the product. The reasons that are constraining the product is production at a partner site. One of the reasons the production is there due to increase of, increased plan for capacity, but there are other reasons as well, which may have perhaps, you know, which may be the same that you may have picked up on, from, you know, from the European partner for this, for our manufacturing part.
Sure. Thank you. Thank you, Ma. Thank you, Ashish.
Thank you. The next question is from Ameya, from JM Financial. Please go ahead.
Yeah, thank you for taking my question. First question I have on the Africa region. So this quarter, we have seen a good amount of uptake in the Africa segment. So you expect the sales to normalize in the coming quarter? Because there has been some 10 million jump in the tender sales, as well as there is a 17-18% growth in the private revenue, while the secondary growth has been in single digits. So if you can clarify.
Sure. See, I, a couple of things I would like to highlight. One is, like you rightly said, there's been a significant increase in the tender business, okay? And this is more optimistic, where we make good margin is where we participate. And we did some vaccine tenders as well, which has helped us to grow that. Our tender business will always depend on tenders coming in, as well as the margin that we are making. So, you know, it will sustain, but, it can also certain quarters may be different. The other reason for the performance is also now we're a fully integrated Actor, which was not there in the previous quarter. So that has also added to OTC as well as RX. And this is gonna be sustained.
This is, this will sustain because the Actor is now part of our portfolio. So, we'll add to growth through Actor. And the third thing I would like to highlight is that we have been constantly focusing on new launches in South Africa, which has also helped us to grow faster than the market. So yes, it is, it's a big difference, but these are some of the levers which has helped us and will continue to help us to grow faster than the market.
So is it fair to say that INR 800 crore, the quarterly run rate is largely a new base, or we will see some movement in the tender cycle?
No, we can assume this to be the base. There will be no degrowth, I would say. But anyways, like we always have said, the focus on Africa will always be margin for us, because it is margin dilutive on an overall basis, so it's lower than 25% at the company level. So the whole idea is just to focus on margin, to get it back to track. So if that means that we have to give up some revenue, we may give up, but we don't anticipate degrowth in our Africa.
Sure. Thank you so much. The second question I have is, if you can provide the updates on, some of the filings, like, respiratory filings, like Dul era, QVAR and Symbicort?
Yeah. So there, the timeline has not changed for us. So the guidance that we had given earlier, you know, that of FY 2027, that continues to be there for Symbicort and QVAR and one more inhaled partner inhaled asset that we've talked about.
Sure. Thank you so much. I will join.
Thank you. The next question is from Surya Narayan Patra, from PhillipCapital. Please go ahead.
Yeah, thanks for the opportunity, sir. First question about the sequential decline in the U.S. sales for the quarter, what we have seen. Could you clarify what would have impacted? Because sequentially, we have seen improvement on Albuterol. We have seen sequential improvement in Lanreotide. And obviously, the Revlimid would be sequentially remaining flat or slightly improved. So what would have impacted the Q2 performance in the U.S., whether it is any pricing concern?
One is Lanreotide.
Yeah.
Okay.
One is definitely Lanreotide, right? Because, so one is Lanreotide.
The price release indicates, sir, our Lanreotide market share has improved quarter- on- quarter.
That is as of August.
Yeah, yeah. It's as of August then. That's right, Umang.
That is as of August. So I think the issue here is largely on account of a reduction in Lanreotide, and potentially one other product which we may have. And also, please keep in mind-
Mm.
though we did the 250 number in quarter two.
Mm.
We were very clear that that was not the trend line for the U.S. business, and the real trend line for the U.S. business was between 230 and 240.
Yeah, sure. Okay, sir. That is, that was my first. Second question was about the removal of the patent clause for this, Advair as well as Albuterol by GSK and Teva, on the request of U.S. FDA. So because of that, have you seen any kind of enhanced competition or any pricing implication, or do you even expect any kind, or if not seen so far, going ahead, do you see enhanced competition, price war, or what impact that you do see because of those developments?
Difficult to quantify at this stage, but right, as of now, we don't see really a big impact of this.
Sure, sir.
Because, you know, even if the patent is off, for anybody to develop the product, it's still gonna take three years or four years. So I don't think that will impact this.
Okay, then just last one point I wanted to clarify a bit about this Africa integration, the One Africa thing. See, what is the kind of a synergy that we can have, having seen the success here in One India? While it sounds similarly for Africa, One Africa, but, what synergetic benefit that, that can flow out of these initiatives, may not be on the revenue side, on the profitability side, and your strategic initiatives for that. Because, new product launches, in licensing, for Africa market, those have been the kind of strategies that you have been anyway following for those markets. So now with this One Africa, what one should really think and, what changes that one can see?
See, I think, I can probably, and Umang, you can add, so one is a little bit more focused approach to Africa, because in EMEU it's like eighty-five countries sitting out there. Okay, so when you just bring it along with Africa, you get a better leadership focus to actually grow that region, and we see some potential out there. So that's one. Second is, some supply chain benefits you will get, especially products going from India to Africa. So there can be some benefits out there. Yeah, apart from that, you know, our One Africa strategy broadly is top cities rather than top countries within Africa. So rather than going deep in each country, you go deep in top twenty cities.
This actually helps us to achieve that focus on top 20 cities as well in Africa.
Sure. Yeah. Yeah, thank you, sir. Thank you. Wish you all the best.
Thank you. The next question is from Ankush Mahajan, from Axis Securities. Please go ahead.
Thanks for the opportunity, sir. So my question is related to we have government sales and then I try to understand that what about the base business, how it performed in the last quarter?
See, we've covered that question I think, on Lanreotide, like, we've already covered. So, yeah, I think is there anything specific that you would like?
I'm talking also base business.
Yeah, so base business has overall done well. In some parts, we've seen some erosion, especially in the business of where we have the government supplies. There we've seen more in the oral solids, we've seen some erosion. Yeah, otherwise, Albuterol was one of our key assets. We've grown in our market share. Butorphanol continues to be a strong franchise for us, where we can supply, you know, as much as we can. And overall erosion has been roughly in the low double digit, maybe 10%, somewhere around that number.
Thank you, sir. Thank you.
Thank you. Next question is from Neha Manpuria from Bank of America. Please go ahead.
Yeah, thanks for taking my question. Umang, on generic Advair, the filing timeline from the US facility was towards the end of, you know, this calendar year. Is that still on? I mean, are we on track to file Advair? And that would then trigger an inspection for that facility, right? So despite of that, we expect that we'll get approval, you know, we'll be able to launch the product in first half fiscal twenty-six. Is that correct?
Yes. The facility inspection will have to be triggered. You're right about that. I think our filing, batches are currently underway.
Okay, got it. Got it. And my second question, Ashish, on the gross margin, you know, the quarter- on- quarter improvement, you know, I know it's sort of flat to slightly better. Despite US being lower, you know, even though acute wasn't as strong, there is some acute impact in this quarter. Tender business is higher. So what exactly happened? Is there anything else? Have we seen a better API pricing environment? You know, what's helping the gross margin trend?
... The mix benefits that we've got, and like I said, in you know, tender now, you know, in South Africa there's been tender, but there are other tender businesses elsewhere which may have come down. But overall, it's the mix that has benefited us for the margin, or the gross margin.
Okay. So that's the only driver, that there's nothing else in terms of the API cost, et cetera, that we're seeing increase?
API cost has moderated overall, okay, but there are other costs too in propellant that has gone up. Freight that gets captured too in this thing has gone up because of the Red Sea issue. So it's been a mixed bag out there.
Understood. You know, from a gross margin, from an EBITDA margin guidance perspective, given that we are a little over, shade over 26% for first half, I know second half, you know, or the fourth quarter tends to be, you know, seasonally slow for you. But then are we, other than the one-off impact that we talked about in, you know, in U.S. because of Lanreotide, given that India will be significantly stronger, any reason to still keep the guidance at, you know, 24.5%-25.5%? Is there any other cost that we're anticipating which would keep margins lower in the second half?
No, we are expecting a normalized quarter three and quarter four . I think quarter four is usually sometimes up 20%, kind of a margin. So on an overall basis, we are, you know, still staying with the guidance that we have given. Yeah, so.
Understood. Okay. Thank you so much.
Thank you. Next question is from Bino, from Elara Capital. Please go ahead.
Hi, good afternoon. Couple of questions from the U.S.,
Bino, I'm sorry, but your line is not very clear. If you're in a hands-free, we request you to use the handset.
Yeah. Is it better now? Hello? Hello.
Still the same.
Hello.
Uh-
Sorry.
We may ask you to repeat the question in case we don't understand.
Hello. Is it better now?
No.
Okay.
But go ahead and ask the question if we-
Bino, please go ahead. Bino, please go ahead. We'll try and understand the question.
Okay. First question, have you seen any pricing impact in Albuterol after the recent competition entry?
No, so Albuterol-
Not really, Bino, I think- [crosstalk]
Sorry, go ahead. Go ahead.
Go ahead, Ashish. Go ahead. Please, complete.
No, no, Albuterol, see, already there is multiple players out there and we see some. Because there is competition, we see some erosion in Albuterol. Got that, yeah.
Okay. So I assume nothing major after the latest competition entry?
Yeah. It's more- [crosstalk]
Got it. And second, for your Lanreotide 505(b)(2) and generic products, is there a pricing difference or is it more or less the same?
Bino, there will be a difference, but we are not going to comment on that. I think they're determined by market factors. It's not so much that what we control. I think it's a function of the market and, you know, I don't think that's something that we necessarily control.
Okay, and last question, I believe a second wave of entrants will come in generic Victosa towards liraglutide, that is, towards the end of this year. Would we be one of them?
No, we are not- [crosstalk]
Bino, can't comment.
Yeah.
Yeah.
Okay. Thank you. I'll join back the queue.
Thank you. The next question is from Vishal Manchanda from Systematix. Please go ahead.
Good evening, and thanks for the opportunity. A question on the U.S., basically to understand the concentration risk, can you share what your top three country-- top three products would contribute to the U.S. sales?
No, see, again, I think it's a differentiated portfolio approach that we have. So, we have, you know, large products in our portfolio. But we don't give indication of what concentration level is, again, because of the reasons that we've mentioned earlier.
Some broad numbers, like 40% plus or less than 40%, something?
So, see, I think our old vintage portfolio of oral solids that was there earlier, which, you know, where there's enough competition, we've mentioned that that is subject to erosion and that is about 30% of our portfolio.
... Okay. Okay.
70% would be more differentiated assets for us.
Okay. And second, on your plant in China, would you have filed for approval for the China markets, for the rescues, like the Pulmicort rescues?
No, for the, we have, we've got the U.S. FDA approval for facility as well as for the product. And yes, of course, you know, we look to get China approval as well in the future.
But do you have filed, or you are yet to file for the current thing?
For China approval?
Yes, Pulmicort Res pules .
Yeah, we're not giving that level of detail. I'm sorry, but you can expect us to be a player in that market because of the facility in China.
Okay, okay, and just one final one on India. Any thoughts on how do you kind of intend to play in the GLP-1 space? Any in-licensing opportunity that you will be seeking or maybe participating in the semaglutide generic opportunity?
Yes, Semaglutide generic, we will be participating, and I think hopefully we will be amongst the first wave of people to enter in India. In-licensing is always an option for us in our, you know, deepening our partnership with large multinational corporations that sell categories of GLP-1 drugs, so I think that is where we are right now from a GLP-1 perspective.
Are opportunities available for out-licensing? So are innovators open to out-licensing in India? So since I understand Eli Lilly, which normally out-licenses their products to India, hasn't done so far.
Yeah, I think part of... You're right. Part of it could be a recalibration of whether they'd like to launch by themselves or, you know, or have another partner. But it's also linked to how they view global capacity, because the initial period, you know, partners were not able to supply product to market for their existing demand. So now that we believe that is resolved, I think maybe some of the discussions could commence again, with the partner, with the rest of the people in India who could potentially be partners for their drugs.
Got it, sir. Thank you. Thank you. That's all from me, sir.
Thank you. Next question is from Shyam Srinivasan, from Goldman Sachs. Please go ahead.
Good evening, and thank you for taking my question. Just one back on Lanreotide. So the August market share is what you've disclosed. So where did, say, September market share for Lanreotide 505(b)(2) plus generic end up at?
It will be far lower.
Yeah. But we've not received the data as well, or like, yeah.
Should we think of it like at Q1 levels, 20%, or even lower than that?
No, I think we, so just, Shyam, the full playthrough of what that share would be in September may not come out.
Mm-hmm.
Because there is still stock that, you know, we had a little bit of stock with us. But you will start seeing that perhaps in October, quite significantly.
Understood. And Umang, your comments that there'll likely be a Q4 bounce back. And are we again talking about similar market shares, like 35, or you think we can go higher post the expansion?
I think we can go higher, but it will take some time to ramp up to that, so I think on quarter, because we are expecting a period of a month or two months where there would have been no production at all.
Mm.
So, you know, which we now have crossed because of September and October. So building that stock back into trade and channel, I think it will take a little bit of time. So quarter four , the bounce back will not be higher than where Q2 was, if that's your question.
Understood. Yeah. So maybe we are gunning for 35% share back in Q4. That's what you're saying?
We want to gun for that-
Okay.
but it completely depends on how quickly the partner acts.
My bad. Thirty-five was just one month, so maybe for the average for the quarter is lower. So, okay, I get it. Sorry, my bad.
Yeah.
Yeah, and the second question is just on cash. We have now $1 billion of cash on the balance sheet. So I just want to understand how are we thinking about capital allocation, you know, either dividends or buybacks or even M&A. If you could outline some of the key priorities for us, please.
Sure. So no, I can go first on this one. I think it's again what we've mentioned earlier, key market for us is India, where we would like to grow. So we would look to make acquisitions in India in the domestic pharma space mainly, followed by U.S. We keep looking at differentiated portfolio which comes with some, you know, stickiness in the revenue and not facing enough, you know, erosion where there is some entry barriers. So I think we look at those kind of portfolios in the U.S., and as we speak, we're looking at some. And then, of course, on the return of capital to the shareholders, we've talked about 30% dividend payout.
We are already close to that, and with the improvement in profits, that should continue to go up. Buyback is a matter of discussion at our board, so, you know, that's an active discussion we always keep having, when we look at our use of cash.
Ashish, last follow-up. So valuation for assets, is it something that you're seeing as frothy, or is it comfortable, or are you seeing a lot of assets that are available?
No. So, you know, just because we have cash, I don't think we will pay more than we think the value of the asset is. And the value of the asset depends on what it can do at a base level and what synergies that are available with our business. So in India, certainly there will be synergies, so there can be some value that we can attribute to that. In the US, you know, we're looking at assets that are in the institution side, so more injectables, kind of assets where we have built an infrastructure of institutional business through Lanreotide now. The idea would be to also feed that with products so that you can actually realize some economies of scale out there.
So yeah, these are the strategies that we focus on to make sure that we achieve our internal hurdle rate.
All right. Thank you, and all the best.
Thank you.
Thank you. Next question is from Saion Mukherjee from Nomura. Please go ahead.
Hi, good evening. My first question was, in regarding the India business, if you can, you know, give some color, particularly on trade generics and consumer. So do you think trade generics has recorded growth this quarter compared to last year, given the restructuring we have done? And also on consumer, I remember last year was muted. We had seen, like, 21% growth this quarter. Why are we seeing sort of that volatility, and what's more of sustainable growth here?
Sure. So trade generic, you know, I think a couple of things. One is seasonally, while the distribution model issue that we talked about in the quarter, one which had impacted the financials, is complete, and there is no reason. That's not the reason for growth not to be normal. I think the season, like we talked about in anti-infectives, has been weak, and it's primarily an acute portfolio, so that's been an issue. And also, it's you know, certain regulatory changes in certain FDC products, et cetera, has also impacted part of the sales. So overall, trade generic is more or less a very small increase over on YOY basis. On CHL, I think we've seen a very smart rebound.
I think last year, like you said, was muted, so now this is more normalized growth that we're seeing. It's also the growth has been supported by the Astaberry acquisition that we made. It's not very large, but yes, we've seen some growth coming from there as well, out of the 21% growth that we saw on overall CHL. And this growth should sustain because there are strong brands, and we are working on growing them further.
Thanks, Ashish. And, my second question was on the tender business. So in South Africa, the vaccine tender, so has that scaled up the kind of numbers we are seeing this quarter, or there's scope for it to sort of go up further? And also, if you can, you know, share, like, what percentage of your other business, like outside of South Africa, international business, ex-US, what is the quantity or what is the percentage of tender sales there, approximately?
Yeah. So, no, no, so see, we got the benefit of certain tenders in this quarter. So tenders may, you know, remain flat or may come down as well. Overall, like I said, we will still continue to grow between 5% to 10% in Africa. And EM-EU is a very large market. It's a mix of DPM, B2B, primarily. Not a lot of tender out there. And that has grown overall as a market that has grown for us at about 18% in. So, and then, but more normalized growth out there would be, you know, because the dollar market, you should expect about 8, you know, again, about under 10%, I would say.
So this is the overall growth in the EMEU you're referring to, Ashish?
Yeah, overall EMU market. We don't, you know, divide the breakup because it's a large number of categories, like I said, out there, DPM, B2B. In different geographies, we have different approaches.
Right. But the overall on a consolidated basis, you're saying the contribution from tender is not very significant?
It's not very significant, yeah.
Okay. And if I can just ask one more question. You know, this is on R&D. So how are we thinking? What are the new areas you're planning to invest? And, you know, over the next two quarters and also going forward in fiscal twenty-six, what's the trajectory on R&D spend that you're expecting?
So I think the comparison on R&D. Yeah, Ashish, let me take this. I think, Saion, the comparison on R&D is also linked to a large-scale trial that was happening in the previous year. So from an already elevated base of R&D numbers, we are showing that muted growth which you're referring to. That's one. Second, I think the top line has expanded quite significantly, which is why you're seeing the percentage coming down a bit. But overall, I think in terms of new areas, oligonucleotide, we're looking at that. Peptide, we've almost completed our full portfolio. We're looking at, you know, respiratory assets. Next gen, that's coming up. Our bio assets, that we are developing, that has moved into. Will be moving to phase one. So I think a lot of those, diversifications are happening.
Do you expect any step up here or because of these things, or it will take time before, you know, the trials start on a larger scale?
I think the big contributor we are seeing, Saion, is basically when you have to do large-scale clinical trials, that gets added to the base of R&D. So as your products, as your project, you know, as your products reach to get to that phase three or the the PD studies, that's when we realize that, this gets added.
Right. So that's a few years out, right, Aman? Or do you think you know something-
Yes. Yes and no.
Mm.
Because the Respi assets may also start in about a year or so, right? Depending on the patent outflow. Those would start, I think, the phase three on the bio asset could be in the 2027 time frame. So I think some of these will start coming up, depending. Some will come in 2026, some in 2027. I think 2025, we should have another clinical trial.
Okay. Thank you very much.
Thank you. We'll be able to take the last two questions. We take the next question from Tushar Manudhane, from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. So just on Goa, the observations. So where are we in terms of, so let's say, sort of resolving this or sharing the data with U.S. FDA?
No, I think from a Goa perspective, we believe that we have responded to the FDA, and the FDA has to make its determination.
So subsequently, has there been any communications from U.S. FDA in terms of the response, appropriateness or anything of that sort?
Yes, the FDA does send us follow-up questions, which we have also replied to. So now the... You know, but the FDA has to make its own determination, which, you know, the process is ongoing.
Sorry to drive on this, but just that, so we will like basically the course of actions the company is going to take as far as resolving the issues on Goa side. But what could be the timeline to implement those measures and get the issues resolved?
So the timelines we have committed to the FDA with over the next six months to a year perspective. From aspects you know that we have determined or informed, but those are, I think, the classification of the inspection by the FDA, that data is awaited from the FDA. So we will always have regular corrective and preventive actions for that.
Got it. Got it. And lastly, so a lot of questions being asked already on Lanreotide, but just maybe one from my side in terms of the partners' facility. Is that a dedicated facility for Lanreotide, or is it a multi-product facility?
No, the facility is multi-product. I think the production equipment is dedicated to us or to the category of product, let me put it that way.
Got you. Got you. So, so as in, the expansion of the facility is not just because of the demand, which maybe like Cipla's product is seen for, the partner is looking for the demands of the other products as well. Is that the way to understand?
... Well, on the line specifically, it is to this product, right? But on the overall capacity that the partner may be planning, it may be linked to other products.
Understood. Got it. Thank you.
Thank you. Next question is from Alok Dalal from Jefferies. Please go ahead.
Yes. Hi, good evening. Umang, just to confirm, did you mention about 10% price erosion for the quarter on a portfolio-wide basis?
So it's YOY-
I'm not sure I said it.
No, so I can clarify that. So YOY, about 10% on a blended basis overall. Okay, so, that's on an average basis. QOQ is low single digits, so about 3%-5% roughly.
Okay, fine. So not much change with respect to price erosion in the U.S.?
Yeah. This is including your Exelon portfolio, everything, the government tender, everything put together is 10% YOY.
Understood. Okay. Okay, thank you very much.
Thank you very much. We'll take that as the last question. I would now like to hand the conference to Ms. Diksha Maheshwari for closing comments.
Thank you, everyone, for joining in. If you have any further questions, please write it to investor.relations@cipla.com, and wishing you all a very happy Diwali.
Thank you very much. On behalf of Cipla Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.