Ladies and gentlemen, good day and welcome to the Q1 FY23 earnings conference call of Cipla Limited. We have with us today Mr. Umang Vohra, Global Managing Director and CEO. Mr. Dinesh Jain, Global CFO. Mr. Naveen Bansal, CFO, International Market and Investor Relations. 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. Naveen Bansal from Cipla Limited. Thank you, and over to you, sir.
Thank you, Rituja. Good evening, and a very warm welcome to Cipla's quarter one FY23 earnings call. I'm Naveen 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, including the impact of COVID-19, that could cause our 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 confirmation, future events or otherwise. With that, I would like to request Umang to take over, please.
Thank you, Naveen. Good evening to all of you. I hope that all of you and your families are safe and well. We appreciate you joining us today for our first quarter earnings call for financial year 2023. I hope you have received the investor presentation that we have posted on our website. We will shortly release our integrated annual report for the financial year 2022. This is our fifth integrated annual report and reflects our relentless focus on improving transparency, governance, and setting best-in-class disclosure practices. I'm pleased to share our quarter one FY 2023 performance, which demonstrates strong commercial execution and continued investments in portfolio, sustainability, and growth-linked initiatives. Coming to the key highlights for the quarter. As anticipated, the incidence of severe COVID infections came down significantly and seemed more manageable with routine medication during quarter one FY 2023.
Consequently, the contribution from COVID products has normalized. Despite the normalization, we have been able to drive strong core revenue growth through focused execution, operational efficiencies, and maintaining high serviceability across our markets. The overall revenue for the quarter was INR 5,375 crores, which was 2% lower than last year's reported base. Last year's reported base included a strong contribution from COVID products. Excluding the COVID portfolio from last year, the core revenue growth was a healthy 6% for the quarter. Our reported operating profitability for the quarter came in at 21.3%, which is tracking in line with the full year 21%-22% range we guided to earlier.
For the quarter, our One-India business across the prescription, trade generics, and consumer health businesses recorded a robust 9% year-on-year growth, adjusted for the normalization in COVID portfolio over last year's base. The core growth momentum on last year's high base reflects the strong equity of our flagship brands across key chronic therapies, as well as in clinic excellence and our digital engagement. Big brands in our trade generic business maintained a healthy scale, and our digital engagement across the channel partners continues to witness seamless traction. Our global consumer franchise continues to witness strong traction across brands in India and South Africa. The contribution of our global consumer franchise now stands at 9% of overall Cipla revenue for the quarter. With a vision to boost our wellness portfolio and diversifying to the nutrition category, we acquired Endura Mass in July of this year.
Including this acquisition, our domestic consumer business under Cipla Health is well-poised to achieve an annualized INR 600 crore franchise, led by category expansion with new extensions coupled with sustainable growth in the operating profitability. Similarly, brands with consumer potential sitting in our prescription and trade generics stable in India and the OTC franchise in South Africa continue to deliver robust performance. Our U.S. business continues to grow sustainably over the last year base with a steady momentum in overall portfolio and includes contributions from our respiratory and peptide products. In line with the operating environment, we experienced modest price erosion on the overall portfolio, which is reflected in our run rates. We believe this impact will be offset by our upcoming new launches scheduled for the later part of the year.
The uncertainties and challenges related to geopolitical conflicts and associated supply chain challenges continued through quarter one of this year, keeping procurement and freight costs at very elevated levels. We have mitigated these incremental costs and the Forex downside to a certain extent via the price hikes reflecting the strength and nature of our brands and business. Our API numbers for the quarter reflects normalization and scale. Last year, we spoke of a profit share on the commercial supply of an API to a partner, a good share of which was recognized in the previous year's quarter. This is also reflected in the operating profitability for the quarter at the company level, which I will come to in a bit. Our reported gross margins after material costs stood at 62.3% for the quarter, which is broadly in line with last year's figures.
The gross margins for the quarter have baked in higher procurement, freight, and Forex to the extent of 170 basis points, which was offset by calibrated price hikes as well as the benefit of decline in the low-margin COVID portfolio. Total expenses, which included employee costs and other expenses, stood at INR 2,207 crores, declining by 6.6% on a sequential basis. Employee costs for the quarter stood at INR 956 crores and increased by 7% versus the last year's quarter, mainly driven by increments. The other expenses, which include R&D, regulatory, quality, manufacturing, and sales promotion, are at INR 1,252 crores, declining 15% sequentially, driven by lower R&D spend, judicious promotional and growth investments. Total R&D is at INR 274 crores or 5.1% of revenues.
The absolute trajectory remains on track with assets progressing in clinical trials and other portfolio development and efforts ongoing. Reported EBITDA for the quarter was at INR 1,143 crore or 21.3% of sales. On adjusting the normalization in the COVID portfolio and the API profit share from last year's base, our core operating profitability for the quarter grew by 12%. As alluded earlier, the reported 21.3% EBITDA margin has absorbed a 170 basis point impact of elevated cost base as well as our Forex changes to deliver higher margins than last year. The 21.3% tracks closely with our guidance of the 21%-22% range for the full year 2023. Tax charge for the quarter stood at INR 268 crore, and the effective tax rate was 27.5%.
Profit after tax was INR 686 crores at 12%. As of thirtieth June, our long-term debt stands at ZAR 720 million in South Africa and $7 million in Uganda. We also have working capital loans of $49 million, EUR 3 million, GBP 3 million, and others, which act as natural hedges to our revenues. We are driven by the relentless focus on generating cash, and on continuing to focus the discipline on, rigorous discipline on cost. We continue to be appropriately hedged for three global currencies as per our policies. Coming to detailed updates for the quarter by market. Our India core portfolio, excluding the COVID products as we mentioned, grew by 9% over the previous year.
The branded prescription business demonstrated a 9% growth, and we continue to maintain healthy ranks and market share in key therapies. The consumer health business, as we mentioned earlier, is now EBITDA positive, and we wish to grow this sustainably in the coming quarters. There's been very strong, sharp consumer insights and strong on-ground execution in this business. Over the last two years, we benefited from our strategic partnership with GoApptiv for digital solutions in channel. With our incremental investment, we hope to further widen our patient reach via end-to-end brand marketing and channel engagement for the tier 2 to 6 cities. I'm also pleased to announce our investment in Achira Labs, which is engaged in development and commercialization of point-of-care medical test kits in India.
This partnership will propel Cipla's entry into the POC diagnostics and AMR space through the design, development, and manufacturing of microfluidic-based technologies, which increases patient access to innovative, affordable, and quality diagnostic solutions. Coming to U.S. generics and lung leadership. U.S. core formulation sales for the quarter were $155 million and registered a growth of 10% on a year-on-year basis. We continue to manage healthy market share in our respiratory products despite price erosion. I alluded to earlier that our DT and respiratory franchise continues to perform well and grew by 22% over last year, and we have now reached a top three rank in terms of market share in the generic respiratory space. From a launch perspective, we are geared up for some of the upcoming complex launches and closely working with the U.S. FDA on approval timelines.
On the pipeline front, clinical trials and respiratory assets and filings on the complex generics portfolio, including our peptide injectables, are on track. There is a slide in the investor deck that will give you more details on the progress of the key assets across the respiratory complex generics and peptide injectables. During the quarter, we had a routine pre-approval inspection at Indore for an ANDA file from the site. We received two minor observations, and we have responded to the U.S. FDA. For our Goa plant, we continue to work with the U.S. FDA on inspection timelines. Coming to our SAGA business, which includes South Africa, Sub-Saharan, and CGA. The overall SAGA region declined by 10% on a year-on-year basis in U.S. dollar terms.
The South Africa private business experienced muted primary sales growth in Q1 FY23, which is expected to recover in the coming quarter. In secondary terms, strong demand continues with our South Africa private market outperforming the industry. We continue to maintain a third position with a market share of 7.4% and grew by 10.6% versus 7% of the overall market as per IQVIA and MAT May 2022. In markets outside South Africa, the CGA business maintained its scale, while the Sub-Saharan business growth was driven by traction and order flow across the region terms. Our international markets business grew by 18% year-on-year in dollar terms across emerging markets in Europe. The growth numbers include the benefit of last year's low base, where we experienced timing deferrals pertaining to inventory.
In-country currency allocation for our Middle Eastern suppliers. We continue to closely monitor the volatile operating environment for currency and demand headwinds and explore options to mitigate risks and protect our margins. Our DTM franchises continue to deliver strong double-digit growth, which helped offset the emerging market Forex volatility and muted B2B demand that we have seen. To summarize, we are witnessing strong growth in our One-India business despite the normalization in the COVID portfolio. We see strong and steady momentum in our U.S. portfolio and upcoming launches are on track. Our international markets business continues to grow despite ongoing geopolitical volatility. Our reported EBITDA margin of 21.3% with the elevated cost base baked in tracks closely with our guidance of 21%-22% range for the full year.
On adjusting for the normalization in the COVID portfolio and API profit share in last year's base, our core operating profitability for the quarter grew by 12%. Turning now to the outlook, we do want to accelerate our growth in the One-India engine with a sharp focus on building big prescription brands across chronic therapies, driving accessibility to trade generic brands for unmet ailments, and sustained expansion in our portfolio and wellness categories in our consumer wellness franchise. We want to sustainably scale up our U.S. formulation business, driven by the high serviceability of our current product portfolio, and closely launching and monitoring upcoming high-value launches in the second half of the year. Continue our execution on branded and generic portfolio brand building and portfolio interventions in our emerging markets and South Africa business.
Very strong cost focus, calibrated pricing actions and other interventions to navigate the inflationary headwinds that we are seeing on procurement and freight. Focus on regulatory compliance across our manufacturing facilities, and implementing globally benchmarked DSC practices. With this, I would like to thank you for your attention, and will request the moderator to open the session for Q&A.
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 the 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, hi. Thanks. Umang , just if you can give some color on the peptide asset that you've launched in the U.S. in terms of pricing, market share, and how you are seeing that ramping up. Secondly, you know, presentation suggests you made around 5 filings on peptides. If you can throw some light on the opportunity and are these near-term opportunities something around the timeline, and the size of these opportunities?
Sorry, in just a minute. I have just a cross connection. I'm just trying to see if I can go to a place which is a little bit more in terms of signal. Let me start, and if you can't hear me, just let me know.
Yes.
I'll come to the peptide portfolio later. But the current peptide product in the market is scaling up as per our plan. We had guided that we would be in the teens market share by the end of the year, and we are well on track with that. I don't want to comment too much on pricing at this stage, but on market share we are ramping up fairly with our overall commitment that we have made for the product.
On the rest of the portfolio, I can give you a sense that we have launched that we have five peptide products and I think hopefully one is probably the end of the year launch this year or early next year. Then the other two are two after that are probably launches in late next year.
Do you think this would be meaningful in terms of, opportunity?
I would think so. I would think that they would be fairly meaningful launches to our trajectory.
Okay. My second question would be on generic Revlimid. You are scheduled for launch in September in the second wave. Where do you stand on the approval?
We will expect approval, hopefully, when the market forms.
Okay. Can you confirm a September launch?
Well, I can't give you an exact date because this is a settlement agreement. As we mentioned earlier, when the market forms, we are expected to launch as well.
Okay. All right. Thank you.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity, sir. Considering this quarter, EBITDA margin 21.3, and even adjusting for the 170 basis points impact, it's quite healthy at 23%. Kind of a base quarter for FY23. However, the EBITDA margin guidance still remains kind of conservative at 21%-22%, wherein we have good niche launches lined up in second half. Any particular reason you're, like, kind of conservative on this guidance?
Naveen and Dinesh, can you take that, please?
Just to answer there, see the reason for that is the freight cost and the other procurement cost related increase. We expect it to continue for some period of time. Therefore, we want to and maybe we are expecting that launches will compensate for that increase and therefore we want to give guidance in this range only.
Okay. These Revlimid and Advair launch are kind of factored into this margin guidance. Is that safe to assume?
Yeah.
Okay, thanks. That helps.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, hi. Just continuing with the previous participant's question. The procurement and freight cost, which we already seen in this quarter, right? I mean, incrementally, what I see from data is that QOQ it is actually kind of dipping, coming down a bit. What is holding us with clear guidance of meaningful products in second half. If you could just give us more color, that would be helpful. I mean, trade and procurement is what I understand is actually coming a little bit off versus quarter-on-quarter. Please correct me if I'm wrong.
Yeah. We're seeing that coming off. At the same time, we are seeing our R&D costs likely to increase in the quarters ahead. There will be a balance on account of that. You know, because we have given a guidance doesn't mean that we will hold to making sure that we are within this range. It will be what the business mix allows us to do.
Right. R&D, what guidance, sir, we have given?
R&D, we have said that we will likely be about closer to 5.5%-6% for the full year.
Okay, perfect. My second question is, actually on the India business. I understand ex-COVID, we have 6% growth. Two parts here. One is it pure COVID products or is it direct, indirect related products as well? If we exclude that, would the growth have been higher? Secondly, if you could split it, you know, and call out that, you know, the volume led, price led and the outlook for the same, given that, you know, there has been a volume dip in the past, but, any outlook on the volume improvement that one can see? Price is clearly known that everybody has taken price hikes.
Yeah.
The two parts there.
Yeah.
Yeah.
Just yeah. A couple of points to your question. I think on India, we are seeing. These India numbers are only excluding from last year the COVID number, sales of COVID products, which means Remdesivir, you know, Molnupiravir, the antibody cocktail, those are not part of the numbers comparison. The rest of the products that went up with COVID, those are very much part of our base. Right? It's only the COVID portfolio which is knocked off, not, you know, and normalized. We see roughly a 50-50% breakup between volume and price, in terms of growth.
Yeah. Outlook, sir?
Outlook, as I mentioned, we will continue to grow higher than industry. You know, depending on where the industry goes, I think our growth will be higher than that. We still think that core base business should continue to grow in India, which is if you take out the impact of COVID, etc., to the tune of about, you know, 10% in the full year.
You or the market?
For the market.
Okay. Great. Thank you and all the best.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.
Hi. Thank you for taking my question. First one on Advair. We had the inspection, but any update on the filing, any queries that are pending or we have responded?
Yes, we have responded to queries on Advair. As being part of it, I think the inspection was also related to the Advair program.
Okay. There are no currently any pending queries related to it?
Yeah. Not that we are aware of.
Okay. Have you seen any, you know, pricing aggression in that, you know, market, very recently?
Well, let me answer by saying we believe that the last entrant has also gained some share. We haven't seen any significant price aggression.
Sure. Second question on Lenalidomide. Is there any supply constraint that we are facing in that corner?
No. We do not have any supply constraint right now.
Okay. For our targeted market share also we don't see any issues?
No. No.
Okay. Thank you.
Thank you. The next question is from the line of Vinod from Nuvama. Please go ahead.
Hi, this is Vinod. Hi, Umang Vohra. Just a follow-up on Revlimid. You know, most or at least some of your competitors who are planning September launch have got indicative approvals in place. Whereas it's missing in your case. Is there anything to read into it or is it technical?
No, it's just that we don't comment on exact dates for the market, if it is a settled product.
Copy. Understood. For Advair and Abraxane, do you still hold to a second half FY23 launch guidance?
Advair, we are hoping it's the earlier part of half two. Abraxane will be the later half of half two.
Okay, got it. Just one last on Lenalidomide. You know, what are you seeing in terms of patient gathering in the market? Are you mostly getting only new treatment initiations or are you seeing some conversion from existing users to your product?
It, you know, it's difficult to plot that for us because, you know, beyond the sale to the channel partners, we don't have exact visibility of whether this is going to only the new patients or old patients or a combination. We would think based on whatever we've learned, that it would be for both categories of patients.
Okay, good. Thank you very much.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Yeah. Hi. Thank you so much and a very good evening. Overall it's a very pleasant surprise to see the pipeline slide and even more pleasantly surprised to see 5 peptide products already filed. So good job done there. Just a couple of questions on this. For the first 2 or 3 launches that you talked about, can you help us with the addressable market, A? And B, are these patent protected or are you limited by your own approval to enter the market? And C, related, I mean, do you see a generic competition there or you think you'll be the first entrant in these first 3 products?
Sameer, for a few of those products we know we are not first. The addressable market is fairly sizable for two or three players to exist together. We think there could be two or three players in each of these markets. I don't think we are first in any of them, frankly. I think that's what I would say at this point in time. I think the market is fairly large. I mean, for any peptide, for the ones that are there, I think, you know, would not be uncommon to see a product in the INR 35-50 million range if executed well. I think on the exact question of... Sorry, what was your third question, Sameer? It's escaped my mind.
I was on a flow trying to answer it, and then I just lost track of it. You asked me about the addressable market. You asked me about the competitive nature, whether we'd be first. What was the third one you asked?
Are these patent protected today or?
Yes. Sorry. Yes.
Okay.
Yeah. I think one of them is, I know for sure, has lost its patent. The other two have some patents which probably, from what we understand, will have either gone off and a few of the remaining will go off in the next year.
Okay. Excellent. Thank you. Very helpful. Also for your partnered inhalation asset, I think it's, the slide says that it was filed in 2017. You know, why is it taking so much time?
There were queries that the agency had, Sameer, on it. They were not completely satisfied from what we've heard from the partner, and for which the partner had to do additional work and has filed and resubmitted that.
Okay. It still remains a relevant opportunity or has it shrunk over time?
I think the market stays relevant even now. There is no generic entry on that particular product.
Okay, great. One final is any update on Abraxane? I think you are also expecting FDA inspection for that product.
Yes. I think we are hoping that, you know, that there would be an inspection soon. Because in terms of, you know, when we make a list of what we need to do, I think we've addressed significantly most of the items on the product, but the inspection is critical for it to come in, for it to be launched.
Okay. Okay, great. Thank you so much. That's all from my side.
Thanks, Sameer.
Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead.
Yeah. Thank you for the opportunity. I've got a couple on India and one quick one on the U.S. In India, Umang, several of your peers have announced that they're actually adding people on the ground. Any plans to do so, for Cipla? The second question on India is, we are now seeing a lot of these diabetes brands lose exclusivity. Cipla actually licensed a bunch of branded DPP-4 and SGLT-2 in the recent past. Now that there is competition from these generic brands, how do you see Cipla being positioned to grow in diabetes and cardio?
I think on diabetes, Nithya, let me take that one first. I think it's pretty clear. We've actually not. Sitagliptin has recently gone patent. We don't have a Sitagliptin. You know, we were never selling Sitagliptin. We didn't have it licensed from any innovator, so for us it's an opportunity. At the same time, having said that, several players launched on. Actually more than several players launched on day one. We continue to stay extremely excited about the potential for diabetes because also our relative size is significantly lesser. I think on the others, we are taking calibrated calls.
In some cases, we are going ahead with the partnership, with the ability to stay in the market even after the patent expires, with potentially our own product in, with the same brand name, et cetera. Or, we are finally having conversations with the innovators to stay relevant in the categories. I think on both options are open. On the Indian field force, yes, we are expanding, but our expansion news are not big news in terms of numbers. What we try and do is look at pockets and we don't have a one, we've sanctioned X number of expansion per year. We actually are beginning to look at more Indian pockets because I think the expansion thesis for some territories plays out very well.
For example, as healthcare deepens in tier 2-6, we think there's a lot of expansion potential in, let's say, in certain markets in UP, in certain markets in Tamil Nadu, as against in all, and, you know, an overall team to expand field force in a particular division across the country. We're taking those views, and I think we also have a, you know, I think last year also we had expanded a set of people, and this year also we will expand, but it won't be out of one big announcement in how many we would expand for the full year.
Got it. Umang, one quick follow-up on your diabetes response. I think my question really was, you had licensed Linagliptin and Empagliflozin. Do you now see lesser potential for these products now that there are competing products in the same class that are generic? My second question on the U.S. was, on the pipeline slide, you have a complex inhalation asset right up top, which is approved. I'm assuming this is not Albuterol or any of the other assets you have in the market. If it's approved, can you talk to us about what product this is?
Sure. I think, Naveen, you can provide clarity on what that asset is, specifically, but let me just take the diabetes one. Nithya, on that one, we're very clear. I think if we feel that the potential for a particular category class is diminished, then we would have the conversation with the branded company to either return the asset or continue to sell it with modification and, you know, et cetera, in terms. That's where we are having those discussions. The overall objective should be that we stay relevant and competitive in the diabetes category. Naveen, you want to clarify on the asset?
Yeah. We'll come back on this. We're just double checking this. We'll come back.
Okay. Thank you, and all the best.
Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.
Yeah, good evening, and thanks for giving me the opportunity. The first question is on domestic branded generic business. Last couple of years have definitely seen, you know, quite strong growth, but now we are seeing a few more players have entered. Just would like your thoughts on how you see this market evolving in the next, you know, couple of years and where does Cipla stand now that you've built a critical scale here?
I think we are very bullish about this market, especially as healthcare deepens in India. I think the other players who've entered are also, we know that they are also doing well based on competitive intelligence that we've gathered. We continue to grow significantly higher than market in the trade generic category, and I think it's probably because of our legacy of the business that we have here. It's very strong growth that we forecast for the trade generic segment. We believe that deepening of healthcare will aid in that.
I mean, should we sort of assume that this will grow faster than the branded business?
Well, it historically has. Historically, it has grown either at the same level as the branded business or marginally higher. I think that trend should probably continue.
Right. My second question is competition in Advair. I believe Lupin file has been delayed to 2024 now. Any other players, are you aware of that could maybe come sometime next year after you?
Don't have color on that. Not that we are aware of right now based on what we've reviewed, but we don't have full color on that.
Sure. Thanks a lot. Have a good day.
Thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi. Thanks for taking my question. On the, you talked about the complex launches in the second half of the year. I mean, can you just put a number to the number of potential launches you're looking at? We've talked about three of them. Are there more than three or the three that we talked about at various times in the conversation?
I think we put out a detail on which are the significant ones expected. I think that's the reason that those three have come out. You know, there may be one or more launch, but they will not be meaningful in terms of trajectory elevation.
Likewise, if we can sort of put it a little forward, do you have similar launches of similar sort of size even in 2024?
I think some of the peptides that we have mentioned will come in that range. Yeah, and there are a few others also, depending on timing, there will also be a full year effect.
Okay. Secondly, on the biosimilars bit, is there any sort of update on your thoughts on how you're looking about this opportunity now?
Biosimilars we've actually progressed, one asset is moving forward, and between Kemwell and us, and I think we're very happy about the progress of that asset. You know, it's a long-term out. It's not a launch in the next; it's a launch only after the next 5 years, 5-6 years. We've got the asset early. We believe it's a good respiratory biosimilar to be after. We are also developing products for the India biosimilar franchise. I think those are the two categories that work is on. A second product for the regulated markets will be shortlisted very soon.
Thank you. Best luck.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one. The next question is from the line of Krishnendu Saha from Quantum Asset Management. Please go ahead.
Yeah, hi. Thanks for the great question. Just, with the good launches coming up in second half, just wanted your thoughts, the U.S. profitability, how's that compared to last year? Is it improving significantly? Is it way above the? Is it gonna be above the average of the company? Just first question, if you could throw some light on that, please.
Naveen and Dinesh, would you like to take that?
Yeah. It is in line with the company average.
It is in line. In H2, its launches do come through, so they will be better than the company.
Compared to last year, it is in line. I think when the launches happen, then it'll become in line with the company.
I see. Okay, it will come in line. The partner products. When you talk about partner products, what kind of economics do we look at it? We invest and they build for us or we partner. How does it work for us? Could you throw some economics around that, please? Just on one thing on the financials, the other income has increased drastically this quarter. I just forget the numbers, the INR 106 crores or. Could you fill me up on that, please? Thank you. These are two questions.
Hello. I can take the lead, and then Dinesh can comment on the other income. We don't divulge the economics for the product. I think it's a fairly healthy share of the product economics. The product is made at Cipla. The healthy economics are fairly healthy from our perspective. You know, it's in line with what the industry averages for these type of products are.
Thank you.
Maybe Dinesh, do you want to comment on?
So-
Yeah, go ahead. Sorry. Please ask your question.
Sorry. Just means whatever we will partner, it'll be manufactured from our facilities, be it Goa, be it Indore, be it anywhere. That. Is that one manufacturing thought?
No, it is manufactured at our facility.
On. Okay.
The product is manufactured already at our facility. Yes. Dinesh, do you want to comment on the other question?
No, the profitability or deal economics, I think it is better than a normal purely in-license product. At least since it is already manufactured at our facility and we are partnering in the development process also, the deal economics will be much better. We can't divulge the actual numbers. It will vary with the product.
Yes, I got that, Mr. Dinesh. I'm talking about the other income, which seems to be a little bit higher than the quarter-on-quarter numbers. I'm just relating to that chart, if I'm right.
I think it may be more accruals specific. Dinesh, the delta is on account of what specific? How much is the? You're comparing this with quarter four or quarter?
I think I'm comparing it quarter four. Nothing, this is not anything big, but it just caught my eye.
It is mainly on account of the exchange loss during the last quarter four because of the depreciation in the Sri Lankan currency. We had an exchange loss. So this time it was higher compared to what we gained on our USD. In the current quarter, we have an exchange gain, which is a positive number, and also the finance income is slightly higher than the quarter four.
Fine. Fair. Thank you. Thanks for your time then. Thanks.
That's it.
Thank you. The next question is from the line of Sayantan Maji from Credit Suisse. Please go ahead.
Thank you for the opportunity. My first question is on Albuterol. In this quarter, Q1 FY23, have you seen incremental price erosion due to the entry of a new player versus FY22 or the ramp-up of a new player?
Yeah, actually, for Albuterol, every quarter we see a little bit. We've seen it in quarter four, we saw it in quarter three as well. I think there is incremental price pressure every quarter, actually. It's not deep discounted erosion, if that's what your question is.
My question was mostly around in Q1 FY23 versus Q4 FY22. Has the erosion been higher compared to what you would usually see quarter-over-quarter, or has it been at a similar trend?
I'm not sure. Well, yes, there is erosion. There is erosion, but I haven't been able to look at the numbers to see whether it is higher or lower or as a trend. Every quarter we see some erosion. A little bit always happens.
Okay, cool. Second question is on R&D. This quarter was a bit lower than our full-year guidance. When do we see it increasing? Does it increase uniformly with the next few quarters, or will it be more back-ended?
Yeah. I think as our clinical trial begins to enroll more and more patients, I think you will begin to see this peaking out in Q2, Q3, Q4.
Okay, cool. That's all from my end. Thank you.
Thank you.
Thank you. Before we take the next question, a reminder to the participants, anyone who wishes to ask a question may press star one. The next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.
Hi, good evening. Just a further to one of the earlier participant's questions on the semantics of partnered products. Basically what I wanted to understand is how is it really flowing through the P&L and the R&D? For instance, if it's a partnered product and if development costs are being shared, then clearly a portion of it will be reflective in R&D when the product is being developed. As the product gets an approval and the commercialization takes place, in case the product is being manufactured by the partner, do we buy the product and then sell it so we have a revenue and a cost line item, or we directly sell it and there's a you know percentage of profit coming in which will directly flow to EBITDA against our R&D investments?
Which specific product are you asking about? Because then I can give you an answer for that.
Yeah. For instance, the peptides portfolio. I believe on the peptide portfolio, the manufacturing is happening with a partner, with obviously,
Yes.
How would it? I mean
Yeah. We would buy it. The cost of it would come into our gross margin, and the sales would be captured in our sales.
Against whatever we would have invested in terms of our R&D in the earlier period, right?
R&D was anyway is charged off.
Correct.
A lot of the R&D is charged off. Whatever milestones we may have paid the partner, that is anyway getting amortized over the usual life of the asset.
Okay. Our arrangement with the partner is on a fixed price procurement or does that vary as the marketplace behaves?
Well, it is a, it's a mix of both. It's a price that is set and then on top of that there is a sharing that happens.
Okay. Thank you.
Thank you. Participants who wishes to ask a question may press star and one. Anyone who wishes to ask a question may press star and one now. As there are no further questions, I would now like to hand the conference over to Mr. Naveen Bansal for closing comments.
Thank you, Rituja. Thank you so much everyone for joining us on the Q1 FY23 earnings call today. In case you have any follow-on questions, please feel free to reach out to the investor relations team here at Cipla. Very good evening to all of you. Thank you so much for joining.
Thank you. On behalf of Cipla Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.