Ladies and gentlemen, good day, and welcome to the Cipla Limited Q4 FY23 Earnings Conference Call. We've been joined by Mr. Umang Vohra, MD and Global CEO, Cipla Limited; Mr. Ashish Adukia, Global CFO, Cipla Limited; Mr. Naveen Bansal, Head, Investor Relations, Cipla Limited; Mr. Ajinkya Pandharkar, Investor Relations team, Cipla Limited. 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, please signal an operator by pressing star zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ajinkya Pandharkar from Cipla Limited. Thank you, and over to you, sir.
Thank you, Dovin. Good evening, and a very warm welcome to Cipla Q4 FY23 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 estimate about our future events. These estimates reflect the management 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 confirmation, future events, or otherwise. I would like to request Umang to take over.
Thank you, Ajinkya. Good evening to all of you. Appreciate your joining us today for our fourth quarter earnings call for financial year 23. I hope you have received the investor presentation that we've posted on our website. I'm pleased to share that we continue to make significant progress across our strategic priorities. In fiscal year 2023, we recorded the highest ever revenue in EBITDA, including several major milestones in our One India and U.S. businesses, pivoting our business on an accelerated growth and a strong margin trajectory. We also continue to invest capital across multiple growth initiatives, including investments in the complex pipeline, in new science, into our big brands, and expanding our consumer portfolio amongst others. I would like to cover some key themes that have played out in our financial performance for the last year.
One of the key themes is delivering market-leading growth in our focus markets of India, South Africa, U.S., and some of the large emerging markets. Our India Branded Prescription business delivered sustained momentum across all our therapies, achieving 13% excluding COVID year-on-year growth, while the IPM growth was 8% as per IQVIA MAT March 2023. Importantly, our overall share of chronic therapies expanded year-on-year by 300 basis points to 59% of the total portfolio, and 80 basis points increase in the market share for the chronic therapies from 7.5% to 8.3%. We do not expect the NLEM pricing impact to influence our growth significantly, as it will be balanced via allowed price increases and continued volume growth. This business has consistently posted market-leading growth for two consecutive years as per IQVIA.
In South Africa, Cipla grew at a three-year CAGR of 8.9%, faster than the market, which is growing at 4.4%. Our focus continues on driving market-leading growth and increasing our share in the market of South Africa. I will cover the U.S. market subsequently. Within India, the other focus area for us has been growing our big brands across all our businesses. In India Branded Generic, we now have 21 brands featuring in the top 300 brands and which are over INR 100 crores of sales as per MAT March 2023. In our Trade Generics business, we have 8 brands that are above INR 50 crores of sale and are much larger in volume terms, catering to the length and breadth of the country.
Cipla Health has successfully transitioned and consumerized some of the existing brands into mega brands with sales over INR 100 crores. This has been achieved through leveraging brand strength to its maximum, deepening market penetration, significantly higher consumer-oriented packaging and positioning. Our India consumer franchise is already tracking at INR 1,000 crore plus on an annual basis. We expect the EBITDA margin to move closer to mid-teens in FY 2024 and grow sustainably from there on. I'd now like to talk a little bit about our US market. One of our core themes has been to broaden our pipeline in this market. We are pleased to share that our U.S. business has crossed $200 million for the first time in this quarter. The full year for this business stood at $733 million, growing over 23% from last year.
This has been achieved through our pipeline and execution. We had announced a peptide pipeline earlier in FY 2023, and this has added a new muscle of institutional capability and portfolio, which we aim to further enhance. Our lead asset of Lanreotide now has 17% share in this market. While launches are a focus area for all markets, noteworthy are the 50-plus launches in India, Trade Generics market, and the 32 brands launched across multiple therapies in South Africa. This new leg of revenue in South Africa is likely to offset the reduction in the tender business and the margin pressures we have seen recently. We continue to invest in growth franchises.
In line with our strategy to continue our focus on expanding our One India franchise towards a higher share of chronic therapies, we recently signed a perpetual license agreement with Novartis for Galvus and its combination brands, which as per MAT March 2023 IQVIA, had reported sales of nearly INR 270 crores. This will be a strong strategic fit to strengthen our IBTs portfolio. We also entered into a strategic partnership to market and distribute Skyjo, a human IgG1 kappa monoclonal antibody used for the treatment of psoriasis. In Cipla Health, we acquired Endura Mass, a renowned nutritional supplement, which has a niche positioning in this market. While we continue to invest in brands, we also focused investments in enhancing people capabilities in the field force. In over the last two years, our field force in India has grown by over 800 people.
Our R&D investment it continues to increase. In terms of pipeline, we've made significant progress on initiation of trials across some of our complex products. On the pipeline front, we have three differentiated products undergoing clinical trials with filings targeted in FY 2024. Our last but most critical theme has been to de-risk our U.S. portfolio. Our U.S. supply continues to be well diversified from across all our sites and partner sites in and partner sites from our partners. On our compliance front, at Fall River, Massachusetts, we recently completed the cGMP audit, which resulted in zero 483 observations. We have approval to produce our respiratory assets in this facility. Respiratory assets are being de-risked to this in-house facility. For Indore, we expect classification by mid-May. However, we do not see any risk to commercialized product portfolio.
Generic Advair is already being de-risked to another in-house facility. Remediation efforts are ongoing for our Goa facility, and then we expect a CAPA completion by end of Q1. Reinspection is required for plant clearance, which is being targeted for Q3. Our generic Advair file is now solely dependent on the facility approval, having cleared all other questions from the agency. We have already commenced the de-risking process for this product, as I had mentioned earlier, to our other in-house facility. The value stays intact as no new generic is expected before we launch. Nanoparticle paclitaxel is being de-risked, as I mentioned earlier, to a partner CMO site, and exhibit batches are being taken. We expect to be able to supply from two sites by fiscal year 2025.
We don't see any change to the value of this product as well, as there are clearly no generic launches to date. With this, I would now like to invite Ashish to present the financial and operational performance. Thank you, Amit. This quarter, we witnessed strong performance across all our core businesses with overall expansion and profitability. The quarter reflects our consistent performance in One India with better than market growth and a performance in our differentiated product launches in U.S., which was done earlier this year. Coming to the key financial highlights for the quarter. Overall, we are pleased to report a quarterly revenue of INR 5,739 crore, with full year revenue closing at INR 22,753 crore.
The overall revenue growth for the quarter was at 9% YOY on reported basis, on ex-COVID basis, a strong 14% growth. For the full year, the same number on a YOY growth stands at 5% on reported and 11% on ex-COVID basis. Our One India franchise further expanded its market share in a traditionally weak seasonal quarter by growing a healthy 16% on an ex-COVID basis on back of extended countrywide flu season. The North America business reported our highest ever revenue, driven by traction in the differentiated portfolio, with revenue of $733 million, growing at 23% YOY. Our free cash flow generation and operating efficiency continue to drive our healthy net cash position.
Our reported ROIC for the trailing 12 months stood at about 24%, which is over our long-term range of 17%-20% that we've talked about earlier. In line with our expectation, EBITDA margin stood at 20%+ for the quarter on a reported basis, whereas we ended full year at robust 22%. This EBITDA margin is not including other income. Our EBITDA margin for the year subsumes the impact of lower than anticipated SAGA performance, a high inflationary market, and a higher RD spend, and certain COVID provisioning. Adjusted for COVID, the margin for the full year stood at 23%.
Higher R&D investments driven by ongoing clinical trials on differentiated assets as well as other developmental effort, including contribution to Biosimilar JV, was higher in the quarter by 15% versus last year and is part of our profitability model. Our reported gross margin after materials costs stood at 64% for the quarter, which is 480 basis points above last year's figures, driven by contribution from new launches and overall mix change. As you may recall, last year we had one-time COVID charge of inventory provision in quarter four, which had impacted the reported gross margins. Total expenses for the quarter, including employee costs and other expenses, which stood at INR 4,565 crore, up by 3.7% on a sequential basis.
The other expenses, which includes R&D, regulatory, quality, manufacturing, and sales promotions, are at INR 1,537 crore, increased by 6.1% sequentially, driven by judicious promotional and growth link investment. Total R&D investment for the quarter are at INR 371 crore, about 6.5% of revenue, and were 15% higher, like I said, on a year-over-year basis. R&D expense for the full year stood at INR 1,344 crore, which includes material cost, depreciation, et cetera, et cetera. Profit after tax for the quarter is at INR 526 crore or 9.2% of sales. Adjusting for one-time impairment charge on account of divestment of certain non-core assets in Africa and Middle East, adjusted PAT stood at INR 708 crore, which is 12.3% of sales.
The adjusted growth rate over last year is 436 basis points, adjusted ETR, effective tax rate, is at 24%. Full year PAT is at INR 2,802 crore, while adjusted PAT is INR 2,984 crore to 13.1% sales. As of March 2023, our debt primarily constitutes ZAR 720 million in South Africa. We have repaid our working capital loans of about $50 million in the U.S., given the interest cost environment. Turning now to our outlook. We have established strong threshold for revenue growth and operating profitability with core margins trending in the 22% range. To close, we saw robust momentum across portfolio and geographies for FY 2023.
The growth levers in the subsequent quarters will include continued market-beating growth across One India, you know, prescription, Trade Generics, and consumer health. Full year operating profit in line with our guidance of about 22%, which includes continued investment in R&D programs. Robust traction in our North America franchise across complex portfolio and continued contribution from respiratory and peptide products. Creating a more resilient business through de-risked portfolio and supply. Lastly, incubate and drive growth in stable geographies and international market. I would now like to thank you for your attention and will request moderator to open the 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 their touch-tone 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 Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. First on Adelaide, while this is de-risked to another in-house site, will that require re-inspection?
Which asset, Tushar?
Adelaide, Centric Adelaide.
Yes, it will probably require an inspection at that site since this will be API product from that site.
Understood. Secondly, while this might take some time, even nanoparticle paclitaxel getting pushed to FY 25, and at least, as per the presentation, we have seen maybe just two-three final approvals in FY 2023. How should one think about FY 2024 growth prospects for North America business?
I think we are signaling a fairly significant growth even this year as compared to the rest of the reporting universe.
That is on the back of Q4 sales run rate primarily?
I'm talking about all of last year, and I think that is on the back of, you know, continued traction in Lanreotide, continued traction in some of our existing product families, and where the market itself may be expanding, as well as the... I think those two factors should result in continued progress in the U.S., in the U.S. portfolio.
Sure, sir. Just on this depreciation quarter-over-quarter from INR 270 crores to INR 346 crores. If you could clarify this.
172.
Yeah. No, I think the depreciation figure that you're talking about, some increase that you're seeing out there is on account of some of the impairment in the intangible assets that we've taken.
All right. Oh, sorry, go ahead.
Every year end and then...
Sure, sir. Thanks. That helps.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Okay. Hi. Thanks for taking my question. First one on the domestic consumer health business. It seems like nine months under it was around INR 975 crore plus and in a full year we have done around INR 1,022. There is, I think significant QOQ deceleration because H1 was INR 675. From INR 300 crore a quarter, we have gone down to INR 47 crore. Is it seasonal or there is more to it?
It is seasonal. We have a portfolio which is fairly large for the summer months in terms of, you know, things like ORS. I think that's the reason why you see a fair amount of sale in quarter one and quarter two.
Sure. It's expected to recover, right?
Yes. Yes. Yes.
Okay. As far as, you know, Advair is concerned, I was under impression that it requires a specific production line, right? Now we are transferring it to another site. Would it mean that we would be putting another line for it or how does it work?
Yes. There will be another line that will be put up. A different line that will be put up in the new facility.
Would you be sharing what would be the expense related to that, CapEx?
Not much. Not significant in the scheme of things for the product or for our overall franchise of BPI, because now our strategy is to try and file every product that we are doing on the respiratory side from two sides and not one.
Okay. Last one from my side. U.S., we have reported $200 million+. Do we believe that this is expected to be sustainable in the coming quarters or there'll be some variation, here and there?
I think we had guided last time that in the range of $190-$195. That's a good trajectory for the base business.
Sure. Perfect. Thank you. I'll join back. Thank you.
Thank you. We have the next question from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah. Hi, good evening. Just trying to understand this better. We mentioned about nano facility special in 25. At where is there a timeline guidance that we are giving or we're just saying that, okay, we are de-risking and we have another facility and probably in next 12 months we'll see something or, just in terms of some timeline would be useful?
I think from now, Prakash, a timeline of about 12 months or so for most products is something which is probably a good average to take.
Okay. Got it.
If we are faster than this, it'll be, you know, it will be that. If the facilities get cleared, where they are filed from right now, then the launches are imminent. If the facilities do not get cleared for whatever reason, then this de-risking operation will result in a product in the next 12 months.
Specifically at where? unlikely to be within 12 months.
At where would be, slightly longer than the 12 months, but nano facility has a good chance within this. You know, there's a third product also that is being de-risked.
Yeah. That was my second question. In terms of, you know, in the last couple of quarterly calls, you had shared presentation which had, you know, some color on the pipe on Respi and, you know, peptide products. How are we on the remaining products?
No, I think for every product that we are gonna be filing for which the trials may have started or what, we will be filing from two sites now. I think that is a decision we have taken. Which of the big products will all be filed and will have de-risking within the filing. The three products that we had guided to earlier, there's a large share of our product pipeline that comes from outside, including, which includes most peptides in our pipeline. In these two specific things, rather than keep waiting for the outcome of the inspection, et cetera, we are now moving to a strategy of de-risking them at the fastest pace that we can.
That would be what's up $2 billion-$3 billion kind of additional cost or it's a higher cost to return?
There's no clinical trial on this, on any of these products that we think is required.
Okay. To tie that up, R&D, the new or the increased efforts, which is a year-over-year, you know, increase, et cetera. While Respi and peptide pipeline you showcased, what is the new or the existing areas we are investing in for the next three-year growth
No, no. I think it is largely respiratory. Respiratory, peptides, I think between these there's a fair number of assets that we have. Yeah. Just to further clarify, see, one is what stages these assets are in. Some of these assets are in clinical stages, so that's why the expenses are higher. There is biosimilar As well, the development cost that is included in that. Biosimilar is beyond these, respiratory and peptide.
Okay. Okay, perfect. If I, if you allow, I'll ask one more question. Q3 around December November, December, we had this DPCO impact on few of the products, inhalation products also. Price had come down. How has been the, you know, the response in the January to March quarter for those kind of products? Have you seen material change? Obviously, in April you would have taken price hike. You mentioned that you don't expect the volume to come down. If you could just give more color on these two aspects would be great.
Yeah, I don't think we're seeing any significant change in the market because of either the impact on pricing either way. Let me put it that way. I think the volume growth continues to be strong, irrespective of the action, and the price decreases are already in the numbers.
Already in the numbers, price hike will take time to, or it would start coming in from the current quarter itself?
That's right. The price hike impact will start coming in from quarter one. Or, you know, it will start coming, but it builds up depending on when the price hikes were taking for the product in the previous year. The real impact of price hikes will start showing up in quarter two and quarter three.
Finally, any read on the volume decline seen in April month? I mean, while respiratory anti-infective did fairly well, but from the market level, volume was surprisingly low.
Actually, our categories on volume, they were, they seemed okay. You know, even beyond respiratory and anti-infective. We haven't seen much of a concern.
Thank you.
Actually, our volumes are higher than the market based on what we know.
Yeah. Okay. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Yeah, hi. Thank you for the opportunity. Coming back to Advair, Umang, can you clarify, like I missed your initial comment. You mentioned Indore, FDA status will be known in mid-May, and this plant will be likely audited in third quarter. Did you mention that?
No, no. What I mentioned was that is right now. There are three things I said on Advair. I'll just recap them for again. First is that the file has cleared the entire, you know, everything else from the FDA other than PAI, right? There are no other pending questions from the FDA on the file from what we have received so far. The second thing is, if Indore clears, there is an imminent launch for Advair. Having said that, we are also de-risking the asset because it's always good to have two sites of manufacturing for an asset of the type of Advair or Nanopaclitaxel. Therefore this asset is being transferred to another in-house site, which will take perhaps another 12 odd months.
That's what we're doing. The asset will get transferred, then there'll be new batches, and then we will file. The timeline for Advair shifts by a year, if the Indore outcome is unfavorable.
Okay. When is Indore plant audit due? Like, you have any date?
No, no. The Indore plant audit has happened. I think we will hear the final, you know, the FDA classification of it hopefully sometime in May.
Okay. Okay. Got it. Like you have de-risked it to another plant, there also you need fresh FDA audit?
Probably.
-plant is clear, it's not required or it's required?
No, probably. Probably there will be an audit needed at the new site as well, because this will be the first PPI from that new site. Yes.
Okay. Is it from InvaGen unit? Like where you have transferred?
We're not actually giving that level of detail. Yes, it's, it will be a site not in India.
Okay. Okay. Thanks for clarification. My second question is what is the rationale for Galvus deal? Because we understood, like, there are multiple competitors. Although brand is big, but nonetheless, it's a very competitive space. What is the rationale for going into this perpetual deal?
See, these chronic therapy brands never die. They keep increasing in scale and size. So that's number one. Number two, this is a relatively large brand in the diabetes segment, Cipla historically always been a big respiratory player but not that big in the diabetes area. That's two. Three, the market actually for Galvus was formed almost two years back or three years back. We are not buying at a time when the market is just about to generalize, right. It's a relatively stable market. Four, we believe that with our reach and our penetration, we will be able to impact and increase the sales of Galvus year on year.
Okay. My last question is, you mentioned you have added 800 MRs in last two years. Your presentation mentioned that you'll be adding another 1,000 plus people between 2023 and 2024. Is that correct? What kind of, I'll say cost build-up we should expect for these kind of sales force expansion?
Damayanti, just a quick clarification. What Umang mentioned of 800 plus, so that is basically FY 2022 and 2023. The number that you see on the presentation is 1,000, which is FY 2023 and 2024. There's obviously an overlapping year between the two statements of FY 2023. It's only the incremental which will be added in FY 2024. In terms of the focus area, as we've mentioned, the idea here is not to add, you know, field force across the board. We are basically investing behind therapies and largely chronic, as Umang mentioned, which includes respi, diabetes, et cetera.
Okay. Between 2022 and 2024, what is the total increase in headcount, if you can, specify that?
Damayanti, maybe, we can come back.
Okay.
on that. We're over 1,000. Over 1,000, yes.
Okay. Thank you. Thank you. All the best.
Thank you. The next question comes from the line of Rohan Vora from Purnartha Investment Advisors Private Limited. Please go ahead.
Hi. Rohan here. Just one question. I just wanted to understand how you look at, you know, you know, transferring the asset to some other site versus, you know. You said that you are transferring it to an in-house site. Do you consider options of, you know, an other CMO probably and getting it manufactured from there? Have you considered it for your existing products? Thank you.
Yes, we have considered this and, Yeah, I mean, nanoparticle paclitaxel is going to a partner site. It's not going to our own site. Yes, we do consider options of others as well.
Okay, okay. Adukia is going to your own site?
Yes.
Okay, okay. Thank you.
Thank you. The next question is from the line of Surya Narayan Patra from PhillipCapital (India) Private Limited. Please go ahead.
Yeah, thanks for this opportunity. Just the first question is on the U.S. business as well as the India business. Based on the prescription trend, what we have witnessed for, let's say, Revlimid in the U.S. and as for the AIS data here in India. The growth number for both U.S. as well as India looks relatively low. How should we read this? because, let's say, for Revlimid, if I talk then for a specific set of prescription count, some of your competitor would have reported a much higher number, and we have booked relatively much less.
Whether there is a timing gap in terms of the booking and prescription trend for U.S. and in India, whether the numbers which we have reported, the single digit growth in the domestic market, it is compared to the prescription trend, what it is revealing, not matching.
I'm not sure what your sources for prescription trend is. But our numbers seem to suggest on India that both the prescription trends as well as the IQVIA whatever numbers that we are getting, both are actually, you know, moving in the same direction. I'm not sure. You can send us the details, and we'll take a look at it and try and come back to you with a more informed answer.
Sure, sir. About Revlimid.
Yes. On Revlimid, see, it is all dependent on, you know, on the arrangement the companies have with the branded player. Some others may have arrangements which allows them, you know, more volume than potentially what allows us. That's the reason you will see higher sales and contribution for some others versus us.
Okay. The volume number, just a clarification here, sir. The volume number and the prescription count, both are significantly different to really consider or they should, they should move parallelly.
This is for which market? The U.S.?
Oh, U.S., U.S.
The volume number, there can be a lead lag here. I think the reason is that the volume number may lag the prescription number because of the fact that these are through specialty pharmacies as well.
Oh, yeah. Yes. Sure, sir. My second question is on the profitability of the consumer health, you know, division. Obviously, we are seeing a kind of a consistent progress, and it's a full year presentation and discussion. If you can give some sense, what is the kind of a profitable progress of that and, how is that you are seeing going ahead, let's say, next one or two year contributing to your overall margins?
Our objective is for this business to get into the higher range of the mid-teen to double-digit profit growth, double-digit EBITDA level in this year. You know, we are hoping that that's where the profitability ends up for the consumer franchise. Once that level is hit, then I think, it will slowly over a period of the next two, three years graduate towards the company average.
Just last question, sir, on the U.S. business again. How big are the concerns for your growth in the U.S. in FY 2024 due to Albuterol, means whether Albuterol is a concern for you, the kind of competition what we are witnessing, and how big are opportunity that you are factoring the Revlimid for your FY 2024 growth?
I think Revlimid is in the numbers. You know, it's all as per the agreements that people have signed, as I said earlier.
Okay.
It's already in our numbers. I think on the other question that you raised on, Albuterol, the market is constantly growing. There is one category which is constantly growing in the U.S., and we hope to participate in the growth there.
Sure, sir. Thank you. See you all the best.
Thank you.
Thank you. We have the next question from the line of Neha Manpuria from Bank of America. Please go ahead.
Thank you for taking my question. Umang, on Lanreotide, if I were to look at the latest data, you know, we're close to about 18% market share. You know, I know we've guided to about 15% exits. We're doing much better than that now. How should we look at market sort of the volume share that we can get in this product, given there's not too much there's no competition at the moment, Is incremental market share for this limited by capacity?
Neha, not completely by capacity, but it will be limited by how the market accepts the product.
Mm-hmm.
I think it will be a gradual, you know, gradual rise, which is what we had guided even earlier.
Yeah.
It's not going to be. Because it's a B2B product. I think it will be a gradual rise. I think we're slightly better than what we had thought we'd do, and our objective is to keep it. I don't think it will be, you know, we're not suddenly going to increase share in this category, but the share increase will be there gradually over the next couple of quarters.
Understood. you know, if the product continues to be accepted by the market.
Accepted by the market.
Okay, we'll be able to grow the share further.
Yes, yes.
Okay, understood. And second, on the India market, as I look at FY 2024, and given the competitive intensity in the market, appears adding field force, et cetera, what's your view on how much Cipla can grow, keeping in mind the industry growth and the NLEM and the NLEM changes. There's also talk about change regulating the multiple brands in the same molecule, et cetera.
I think the India market, there we see the growth. I think there is more competition, there's no doubt about it. What we are also seeing, we are seeing two aspects, Neha. The first is we are seeing a pretty strong, tier 2 to 6 growth. And that is feeding some of our, products that are in the areas of respiratory and anti-infectives, because those are the type of products that will deepen in India. We're also seeing a very strong, growth on our generics business, in this side of the market.
I think on the tier one markets, we are seeing a trend where therapies are getting upscaled, which means that, you know, somebody is taking, for example, a diabetes drug, which was an oral, they're now migrating to perhaps take obesity drugs and better diabetes drugs that could be injected.
Mm-hmm.
Right? Which are slightly more costlier. We are seeing this migration constantly in tier one towns, where people are moving up the therapy ladder. In tier two to six towns, we are seeing a deepening of healthcare. A lot of our expansion is in tier two to six, and in the areas of respiratory and anti-infectives.
this should allow us to continue the market-beating growth that we've seen in the last two years?
Yes. We are hoping for that. Yes.
Okay. Okay. Last, if I may, Ashish, what would be the R&D guidance for FY 24?
Yeah. It will continue to be in the same range of about 6.5%, you know, because, you know, for the reasons that we've talked about, the de-risking strategy, et cetera.
In which case, you know, given that we'll see growth in India, you know, U.S., you know, given, you know, Umang's commentary, U.S. growing, any reason for keeping the margin guidance at the 22%?
There are other investments as well. you know, so your R&D is there, and we're investing in people cost as well, which goes into the P&L and not necessarily as an investment. Given all those things, and plus, if you look at the material cost because of the inflation that we've seen in the last year, we have of course taken a lot of steps to control that cost increase. But that also seems to be more at a stable rate rather than reducing. Given all those things, I think we continue to maintain about 22% range.
Understood. Thank you so much for taking my questions.
Thank you. The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi. Good afternoon, all. Umang, this, Nanopaclitaxel has a patent which, expires in October 2024. Do you think that is a relevant data point from the perspective of competitive intensity in the market?
You know, I'm not sure that that's the, that's what's holding the market formation at this stage.
Understood. Is there any update on the generic filing for Dulera from your side?
Bino, we're not gonna...
Dulera.
Be specific. We're not gonna comment on that. I think as and when we have more clarity, we will certainly come and give you more clarity on that. We're not commenting on it. you know, I'm not sure that at this stage. I do know, I can tell you that Dulera is there for the US, but not for Europe, but not. I don't wanna comment on the U.S. specifically.
Understood. Great. Thank you. I'll join back. Thank you.
Thank you. The next question is from the line of Nithya from Bernstein. Please go ahead.
Thank you. Umang, can you give us an update on the partnered respiratory asset? I think a couple of quarters ago you had mentioned that it's now in the nine-month review cycle.
Yeah, Nithya, that's the third asset we spoke about in the de-risking and that asset, the, you know, I think that asset is currently batches are being taken for it in our facility in the U.S.
That was from Indore, and therefore you're now adding another facility.
That was from Goa , actually, not Indore.
Okay. Got it. Umang, can you also talk about the two other respiratory assets, QVAR, which we know there is a litigation out there, so we know you have filed it. Symbicort, where you have registered a clinical trial. If you can talk to us about what is the current status of these two assets.
Nithya, I'm not sure we can give too much detail on QVAR considering the proceedings in the, you know, in the IP court. It's very much part of the pipeline and there is progress on the product, but it's currently in sub judice, so we can't comment on it.
Symbicort, what is your anticipated timeline on the filing?
Symbicort, I believe we should file by quarter four of this year.
Understood. Thank you so much.
Thank you. The next question is from the line of Punit from Helios Capital. Please go ahead.
Yeah. Hi, am I audible?
Yes, you are audible, sir.
Thanks for taking my question. So, sir, we had earlier indicated that for generic Aggrenox, we have localized the supply chain. Now that the product is being, you know, transferred to a facility that is located outside of India, how the cost structure and the unit economics change for Aggrenox, assuming that the product is launched from outside India facility? That's my first question.
I think what we have localized is the components that go into Aggrenox. We have not localized... and the production of Aggrenox at that point in time was in Indore. The localized aspect of whatever goes into Aggrenox stays in India. That doesn't have an issue. The issue is the final site. If Indore does not, you know, if Indore meets an adverse outcome, then that particular manufacturing will happen elsewhere. If Indore has an outcome which is fine, then we are ready to commercialize completely from India.
Certainly. My follow-up question to that is if the components are sourced domestically and assuming the product is manufactured outside India facility, then slight cost, will be incurring a higher cost, right?
You could say production cost may be slightly higher in the U.S. Is that where, is that your question?
If we source the components locally, then there will be some cost of transferring these components to the, say, outside of India facility. That was my question.
I, yeah. I think the only thing I would say is that in any case, if we had made this product in Indore, we would have had to ship it to the U.S. too, right?
Sure. My second question is does the localized supply chain include also the HFA propellants? Because if that is the case, I mean, does it include HFA propellant? That should be my second question.
The propellant actually as an industry is pretty global. It's a commodity across, so it will also be you know, it's the same price available pretty much in the U.S. as it is in India. I don't think there's any change there.
Sure. That's it from my side. I'll join back with you. Thank you.
Thank you. We have the next question from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.
Hi. Good evening. Couple of questions from my side. One, how much is respiratory revenue for the US for FY 2023? Hello?
Just give us a moment, please.
Yeah. The respiratory portion we'll just come back to you on that, yeah.
It's likely to be in the $150 million-$200 million range, yeah.
Okay. The second question is, in terms of the segment reporting, what all does new ventures capture in the segment reporting?
It's basically your new, like we have CDHL, right? Our digital health. These are our new initiatives that is captured out there, some of the investments that we've done in the new ideas.
Okay. The consumer health business doesn't get captured there, right?
No, no.
It is. It is. Sorry, Tarang, just a quick clarification in our segmental reporting. Yes, our CHL business does get captured and also the U.S. specialty business, although it does not add significantly to the top line, but the cost structure of that business also is captured under that segmental reporting.
Okay. The third, again, bookkeeping, saw quite a significant rise in the other income line item for FY 2023 versus 2022. If you could comment.
Tarang, is your question related to other income or other operating income? If you can clarify that.
Other income.
See, I can give you a directional answer out here. It could be interest income that is coming on account of your larger treasury that we have. We don't consider that as part of our EBITDA calculation in any case.
Sure. The respiratory figure for FY 2023?
$160 million.
Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Yeah, thank you for the opportunity again. The first on the CAPA planning, is there any remediation cost which is being built into our numbers in this quarter because other expenses ex R&D are up about INR 70 crores?
Yeah. Remediation costs are part of our numbers. They are being spent and, our quarter four numbers and our quarter three numbers had them.
Okay. Do you expect
No, we don't expect a spike from these. Yeah. This includes both your, you know. There may be some CapEx, there may be some OpEx, also consultant costs, et cetera. These would be the broad categories. That's all been included in Q3, Q4.
Okay. That should, if the re-inspection happens in quarter 3 FY 2024, it should go down from there.
Yes, that is right. That is correct. We don't see a spike in the remediation costs from what is already in the numbers.
Sure. What was stopping us from, let's say, de-risking these key products earlier? You know, was it cost? How does U.S. FDA view it? Because from U.S. FDA's perspective, it's an incremental administrative burden to visit two sites for the same product from same company, right? How likely are they to re-inspect our new facility from wherever we are de-risking?
No, I think if it's a first generic or a, or a limited generic, we, you know, there is a chance that the FDA will visit, especially if that allows the market to form for a generic product. That's one. I think to your other question, yes, it could very well have been something that, you know, we could have thought of earlier. Generally what happens is when your file is under active review and scientific, based questions are not closed, that is not the time that you introduce a new facility, because it creates more complications and delays your file review process.
In our case, frankly, if, you know, if we are, have the ability to launch, from Indore and Goa and if the site's clear, then we will launch from these sites while we continue the de-risking in any case.
Sure. Lastly on, I think you alluded earlier in terms of production costs could increase a little bit if we produce it from outside India site. Will there be, you know, material change to our cost competitiveness on that product? Because at one point, we were quite confident that we would be the cost leader in generic Advair. Does that change if we produce it from outside India site?
I'm not sure because I think a large chunk of the production cost is also the localized localization of component in India. I think we will still be very competitive.
Perfect. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, thanks. Just two quick follow-ups. One is on the MRs. What is the number for fiscal 2023?
The number of MRs? You're referring to number of MRs?
That's correct.
Total seats is around 10,000. It's about 10,000, yeah. The rest is well managed.
This includes the supervisors and everything, or this is just the field force?
Yeah, that. Maybe you can take Prakash for. I understand your question. Maybe you can split that between 7,000 and 3,000 roughly, it in terms of MR and the others.
Okay, perfect. Second clarification, on the U.S. you mentioned that despite, you know, these two assets delaying, you would still expect a growth given, you know, the peptide products are still ramping up. Is that correct understanding?
Yes. That is versus last year. This year let's say we've done $733 million as the full year revenues for U.S. We expect growth over that.
Okay. Was there commentary on SAGA markets also?
Sorry.
SAGA. South Africa.
Yes, South Africa we will see growth this year. Yes. A lot of focus will be on the margins in the South Africa market.
Yeah. Last commentary was that, you know, the private market is still doing okay and the tender market with the volatility and the idea is to increase the private and reduce the tender market. That attempt to improve margins and improve the mix is there.
Yeah. That's gonna be the focus, and I think the focus will be on new launches in the private market to compensate for the reducing tender market.
Okay. Overall basis, growth on that base as well as improvement in margins.
Yeah, absolutely.
Just, some participant asked on the margin outlook. SAGA had a drag down maybe this year, 2023 last year. In U.S., fairly okay. India, I think ex-COVID growth. I mean, the profitability could have been better because your cost initiatives are also there for the, you know, next two, three years you have called out. What are you buffering in here? Lack of large launches or how should we think about it?
No, I think, the way to look at it is, we will want to also invest in new areas and new opportunities to grow. You know, while we expand people in India, the lead lag impact is almost six, nine months. We put people from the time they start becoming productive, it's a six, nine-month story. Right? That's one area of investment. The second investment will be happening in our consumer brands business. Right? That also takes from the time you invest to the time you begin to see higher growth. It is, you know, there is a lead lag effect. Also R&D is constantly investing. We've got three clinical trials going on. We've got two respiratory products.
That is fairly significant as a clinical outlay, you know, for the products to get to market. That's number three. Number four are some of the initiatives on our biosimilars, et cetera. I think, you know, all across, we are not wanting the business to get impacted by the lack of investment. The other thing, like we mentioned on an earlier call, we would much rather invest for a higher top line growth if we are at the 22%, 23% margin level as against push margin to 24% and compromise top line growth.
Okay, fair enough. No, that makes sense. R&D, you're assuming 7% or 7%-8%?
About 6.5% is somewhere that kind of range. It'll continue to be there. I think R&D expense has to be also looked at from U.S. revenue point of view rather than from overall revenue point of view because a substantial part of it goes to U.S.
Perfect. Makes sense. Thank you so much. All the best.
Thank you. Ladies and gentlemen, we will take the last two questions, the first from the line of Kunal Randeria from Nuvama. Please go ahead.
Hi. Good evening, everyone. Umang, a few years back, there were some attempts to expand the U.S. business through some specialty acquisitions like IV Tramadol and Pulmazole. It doesn't seem to have worked out as you would have liked. Just wondering what your thought process is now considering that you have a much more sizable balance, cash balance?
Kunal, you're right. I think we had a strategy to expand this on the basis of an in-licensed asset, which unfortunately did not meet a clinical outcome. I think we went back at that point in time and we reconfigured our strategy to say that, you know, even if we acquire an asset which is in late clinics, we must have our own pipeline to add to it. The time distance between, I mean, the time difference between when our pipeline comes to market and when we add a in-licensed asset should not be more than two years because otherwise it's very difficult to make the business productive. What we've been doing over the last two years, ever since we've had that negative news on IV Tramadol, is actually been investing in creating our own internal pipeline.
These are not products that are gonna be INR 100 million or INR 200 million in sale, but we may have two, three products that could well be INR 20 million-INR 50 million in sale. Let's say we invest in this for another year, if we have a sizable pipeline of two, three products with the revenue profile of INR 30 million-INR 40 million, that's the time that this business can then begin to build out for the future. It's still about a year away from that vantage point, but we've gone back, retooled strategy and are investing in developing our own internal pipeline.
Sure. Sure. Sure, I understand that. You know, now with almost $700 million in the bank, I mean, that gives you a bit more freedom to go the inorganic way. Or are you know, saving money for some one big acquisition? I just want to understand what you're going to do with the cash now going forward.
Sure. I think, if you look at our overall capital allocation, priority, I think India continues to be our priority. The whole idea, the disproportionate part of capital, we would look to invest in India for the growth that is available out here. If you look at the overall share that we have, there's still scope to increase the therapies and geographically as well. From use of cash point of view, that would be the topmost priority for us. There are more bolt-on acquisitions that we may look at in other geographies. Could be Africa, could be U.S., could be Europe as well, for specialty asset or any other products.
Got it. Got it. Just one more from my side on the India piece. I think you have only INR 580 crores of revenue from in-licensed specialty products. I would assume the margins here would be maybe lower than your normal India, you know, margins. You know, what would be the sweet spot where you would say, "No, enough of in-licensing," and you would rather build brands organically now?
I think if the brands are relatively smaller, then it doesn't make sense to pay a lower margin on it. You really want big brand franchises that you can create, which is when we, you know, when we turn our thinking into trying to improve the margins by doing the brands ourselves. It's a mix of both. If you're getting a brand that is relatively smaller, then the interest to create, you know, because then the interest to take the low margin doesn't make sense. If you have a relatively higher sized brand which you can, you know, which eventually you can grow much faster, that's the time when your costs get amortized a lot better.
Got it. Just one more if I can squeeze in. Of the 43 pending ANDAs under Cipla Limited, how many would be from Indore and Goa?
We can provide that data, but if your question is whether both Indore and Goa have huge sensitivity to the launch calendar of the U.S. in the next two to three years, the answer to that is no.
Yeah. Got it. Okay. Thank you, all the best.
Thank you. We will take the last question from the line of Ankush Mahajan from Axis Securities. Please go ahead.
Thank you, sir, to provide me the opportunity. Sir, any outlook on the consolidated EBITDA margins for the FY 2024? Any guidance, sir?
Yeah. For FY 2024, like I said, I think, on this, you know, 22% or thereabout is what we are targeting for next year.
Okay. Sir, I missed the initial remarks, sir. What kind of number of molecules that we are launching in the next year, 2024, in the U.S. market?
Like Umang talked about, we are looking at three filings in the coming year, mainly in the respiratory side. There could be some in the peptide, which is more third party. Partner products, rather.
Fine. Thank you, sir. Thanks very much.
Thank you. I would now like to hand the conference over to Mr. Ajinkya Pandharkar for closing comments. Over to you, sir.
Thank you for joining us, everyone. In case you have any further questions, please feel free to reach out to us at investor.relations@cipla.com. Wishing everyone a good evening ahead. Thank you.
Thank you. On behalf of Cipla Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.