Ladies and gentlemen, good day, and welcome to Cipla Limited Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ajinkya Pandharkar, Head Investor Relations from Cipla Limited. Thank you, and over to you, Mr. Ajinkya.
Thank you, Ziko. Good evening, and a very warm welcome to Cipla's Q2 FY 2024 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 discussions will include certain forward-looking statements, which are predictions, projections, or other estimates about future events. These estimates reflects management current expectation about 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 hope you have received the investor presentation that we have posted on our website. I would like to request Umang to take over, please.
Thank you, Ajinkya. Good evening to all of you. I thank you for joining us today for our second quarter earnings call for the year. In quarter two of FY 2024, we have continued the trend of strong performance, and we have recorded our highest ever quarterly revenue at INR 6,678 crores, with a year-on-year growth of 15% and a EBITDA margin of 26%. This was made possible through double-digit growth across our core markets of India, North America, and South Africa. In our One India franchise, I'm pleased to share that the franchise has yet again posted a healthy year-on-year growth of 10%, despite a weaker anti-infective sales and a slower consumer growth for our CHL business.
This growth was largely supported by continuing faster than market growth in branded prescription, where we grew at 11% against the IPM growth of 10%, as per IQVIA MAT. The share of chronic therapies in our portfolio has improved by 140 basis points year-on-year to 60%. Trade Generics consolidated its leadership position in the market. Despite the season, which continued to be muted, GX posted a strong year-on-year growth, supported by performance across realization, volume, and a lower cost of goods. Our generics business has embarked on a journey of constant evolution through new product introductions, leveraging partnerships with our associate company, GoApptiv, and deepening our distribution network. Our priority has been to grow our big brands across all the branded prescription and the OTC businesses.
In India, branded prescriptions, we have 22 brands with revenues over INR 100 crore as per IQVIA MAT, September 2023. Our leading inhaler brand, Foracort, is one of the fastest growing amongst the top 10 IPM brands. Trade Generics now has seven brands over INR 50 crore in the trailing 12 months. Cipla Health derives its growth from five brands, which are flagship and well above INR 100 crore in the trailing 12 months. In North America in this quarter, we progressed further on strengthening the core by delivering a quarterly revenue of $229 million, which represents a 28% growth over last year. Our key asset of lanreotide has improved its market share to 20% as per IQVIA, August 2023. Whereas generic Revlimid performed in line with quarter one.
We continue to execute multiple work streams in albuterol, where market share has improved by 90 basis points to 12.9% compared to quarter one of FY 2024. In our South Africa and Global Access business, we continue to outperform the market at a significant pace. We registered a solid 12% year-on-year expansion in top line, led by South Africa private market, where the secondary market grew at 10% versus the market growth of 4%. Private market growth was achieved through an uptick in focused therapies in our prescription business, new launches, as well as solid performance in the OTC portfolio. Our aim is to reach the top position in the prescription business. In our South Africa OTC business, brands of Broncol and Coryx continue to gain market share. Broncol has now captured close to 50% market share as per IQVIA MAT, August 2023.
One of our most important focus areas in the past has been efficient capital allocation. Most recently, we announced the acquisition of Actor Pharma in South Africa. The market there is poised for growth in the OTC side, and Actor has strong OTC brands which complement the existing offerings and have potential to grow bigger, leveraging Cipla's existing marketing network. We also divested our stake from Cipla QCIL in Uganda and Saba Investment Limited for our business in Yemen. While it has helped us in de-risking our asset base, we will continue to service these markets via our B2B model. R&D investment has also been consistently increasing. In terms of pipeline for North America, we have made significant progress on clinical trials across some of our complex pipeline. We have three complex products undergoing clinical trials, with filings targeted in FY 2024 and 2025.
Generic Symbicort being one of them, where we have successfully completed our clinical studies. Filing for this asset is planned for quarter three of this year. In addition, we are likely to file another generic inhalation asset shortly, where hopefully we can aim to be among the top filers. On our peptide portfolio, we plan to launch one product in quarter four of FY 2024, while there are three to four product launches planned in FY 2025. De-risking of generic Advair, a partnered inhalation asset, and generic Abraxane has been progressing as per our expectations. On the compliance front, at Long Island, New York, all our units at InvaGen have recently completed their cGMP audits. While the Unit III inspection resulted into classification as VAI, the Unit II inspection has no observations by the U.S. FDA.
We received an OAI in our Indore facility, which was audited in February 2023. We have already initiated corrective measures for observations as per Form 483 from the U.S. FDA and have made satisfactory progress as on date. At Goa, the CAPA implementation and remediation exercise has completed. We will soon be submitting requisite data to enable the re-inspection. I would now like to invite Ashish to present the financial and operational performance.
Thank you, Hemant, and good afternoon to all. Continuing with the strong quarter one performance, we progressed further with exceptional performance across core businesses with expansion and profitability. Coming to the key numbers, for the quarter, we are pleased to report a quarterly revenue of INR 6,678 crore, highest ever in Cipla history. The overall revenue growth for the quarter was at 15% YOY. Our ex-QCIL sales stands at INR 6,490 crore, with YOY growth of 14%, and EBITDA at INR 1,690 crore or 26% of sales. EBITDA margins stood at record 26% for the quarter on a reported basis. As always, mentioned by me, this EBITDA margin does not include other income.
Calibrated price actions in core portfolio across branded and generic markets, combined with easing input cost, continued freight decline and favorable Forex, have contributed to improved operating profitability. One India franchise further expanded its market share by growing at a healthy 10%, an exceptional performance in an acute heavy quarter, which was difficult for the industry due to inconsistent seasonality. This growth was supported by a mix shifting to chronic portfolio, gross margin improvement and new launches. North America yet again reported the highest ever revenue, driven by traction in the differentiated portfolio, with revenue of $229 million, growing at 28% YOY. South Africa grew by 9% YOY in local currency, powered by a solid performance in private market and OTC.
Private market growth was supported by a strong secondary channel performance in oncology, CNS, and CVS, as well as the hospital segments. OTC continued to focus on big brands as well as new launches. Our free cash flow generation and operating efficiency has helped us to drive healthy net, net, cash position. R&D investments for the quarter are at INR 379 crore, or about 5.7% of revenue, driven by ongoing clinical trials on differentiated assets as well as other developmental efforts, higher in the quarter by 13% versus last year. Depreciation, impairment and amortization expense includes a partial impairment of a non-operational domestic manufacturing unit, and it also includes an acquisition co-cost, impairment of an acquisition cost of an intangible, in the form of a product in the U.S.. Both these totals up to impairment of about INR 53 crore.
The reported gross margin after materials cost stood at 65.4% for the quarter, which is 240 basis points above last year's figures, driven by overall mix change, contribution from new launches, as well as lower procurement costs on key APIs. Total expenses for the quarter include employee costs and other expenses, which stood at INR 2,631 crore, up by 1% on a sequential basis. Profit after tax for the quarter is at INR 1,131 crore, or at about 17% of sales. ETR is constant sequentially at 27.5%. As of 30th September 2023, debt primarily constitutes ZAR 720 million in South Africa, with cash equivalent balance of about INR 6,811 crore overall, post payment of dividend in this quarter.
Key focus areas and growth levers in the subsequent quarters will include the focus area for One India would be to recoup the growth in the wellness portfolio, while maintaining the market-leading growth in RX and GX. In North America, our focus will be to grow the core revenue, resolve the U.S. FDA observations, maximize the partner launches, and also de-risk assets in order to accelerate new launches. We will continue to de-risk our key launches for FY 2025. Sustaining performance of quarter two for South Africa, with focus on private markets and select tender business with focus on margin expansion. While margins in EMU have been very strong, the focus of H2 would be to drive growth in top line there.
Our EBITDA for the year is trending in the range of, so we are increasing our guidance on EBITDA from 23%, what we had given earlier, to 23%-24%, with bias towards the higher end. Our ROIC continues to be strong and in this quarter, you know, on an LTM basis, comes up to about 27%. I'd like to thank you for your attention, and will request the moderator to pick up the questions now.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Saion Mukherjee from Nomura Securities. Please go ahead.
Yeah, thanks for taking my question. Just my question on India, you know, you mentioned 10% growth in India. Now, if I were to exclude the acquisition that you did, it looks like the growth is around 7%. And you mentioned trade generics growing in double digits. Does it mean that the overall prescription and the consumer business is trending around 5%-6%? And if that's the case, you know, you know, what's the reason for the slowdown, and, you know, how do you see this moving forward in the second half?
So actually, Saion, the internal growth estimates for the branded prescription and the generic business are well over 11%. If you take out the acquisition, which is what you're doing, I think you have to take out from last year, we had a certain tender position in one of the products we had won, and that's basically replaced by the acquisition we've made. So core business growth, both on the RX and GX side, is close to and over 11%. So those businesses are growing stronger and much higher than market. I think on the consumer franchise, we've seen, you know, a fairly significant slowdown, more because of the weather pattern.
You know, we sell a lot of the ORS product, and I think we've not seen that level of, you know, sales of that product because of the weather pattern in quarter two. And this result is fairly consistent with the, with the category of beverage, and with some of the other consumer products we've seen in this quarter. Having said that, I think, this quarter we are looking at it, at it bouncing back quite significantly. So no, I, I think the issue is the, the branded growth and the generic growth is very strong, in, in the previous quarter. It's the consumer growth which had a little bit of an issue.
Okay, great. The other question I had on, you know, expenses on, and on the margins. So your other expenses is quite flattish quarter-on-quarter, despite, you know, a seasonally sort of heavy quarter in terms of revenues and also R&D costs moving higher. So is there anything there, and how should we, you know, read this going, you know, forward?
So, you know, I think combination of two things. One is, you must have noticed the improvement in your gross margin, which is flowing through your to your EBITDA, and that's primarily because of the mix change that has happened in the favor of chronic in India as well as in North America, some of our high-margin products we've been able to do better. So it's combination of these three things that has... These two things that led to improvement in gross margin. And there is some bit of operating leverage that exists, due to which the increase in sales, your other expenses have got absorbed.
If you're comparing to just previous quarter, the previous quarter had some recall costs sitting out there, of albuterol that we had talked about, which of course is not sitting in this quarter. That has also led to improvement if you're looking at from quarter-to-quarter basis. Overall, Saion, I think if you were to take the employee benefit expenses and the other expenses and total it between last year and this year, you're seeing about 11%-11.5% increase. So I think from our, from our business perspective, I think that's roughly the range that we will see year-on-year, for businesses, for the expenditure to expand.
Understood. Yeah. Thanks. Thanks a lot. I'll join that.
Thank you. Our next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Yes, thanks for the opportunity. So just with respect to the product which you have highlighted, to be launched in FY 2024, the peptide product, if you could share some market size or competitive scenario for that product.
I'm sorry, we can't give that detail due to the competitive nature of the product. So-
So the market size, is it, at least?
Well, you know, the market size of that product could be, you know, anywhere upwards from $300 million-$400 million. I would say the available market size for us pre our entry and pre-generic pricing could be somewhere in the $300 million-$400 million.
This is after some players already-
I'm sorry?
There in the market. This is after some player already there in the market, generic player already there in the market.
Yeah, the market is little complicated. So, you know, I think there is... Yeah, so there might be, there might be a player, but, the market is fairly complicated.
With respect to one comment of generic filing, which applies, expected to do shortly. Will that be subject to litigation, or would it be more like a Para IV filing?
Yes, you could, you could expect that, yes, it would, it would be a para four filing.
Okay. And lastly, considering $230 million U.S. sales, any ballpark range you would like to give in terms of the annualized generic for the U.S. generics?
I think we are guiding to 220-225 as a sustainable range, at least for the next quarter, going forward. We don't know what will happen in quarter four, because quarter three typically also has a little bit of buying on account of the holiday season.
And then post that, you'll have this peptide launch, so effectively then, these generics should ideally be much better, right?
Well, yes, depending on how, you know, how the peptide will scale and whether it will... You know, it depends on when it launches within that quarter. If it launches right at the end, then the impact will be muted. If it launches right at the beginning, then obviously, you know, there will be a full quarter impact.
All good, sir. Thanks. Thanks a lot.
Thank you.
Thank you. Our next question is from the line of Aman Vij from Astute Investment Management. Please go ahead.
Good evening, sir. My first question is on our diabetes portfolio. So if you can talk about how are we placed to take the advantage of the upcoming GLP-1 opportunity. Will we be participating in both the oral and injectable form? If you can talk about the same.
Yes, I think the objective is that. I think the one, the first one that's probably going off patent is like, in India, is likely to be semaglutide. Liraglutide anyway is only available as a, you know, as an injectable. You have semaglutide and then you have dulaglutide. I think we will do sema. We definitely have plans for the oral version of the product. And if required, and based on our current understanding, if the market is there for an injectable, we will hopefully also try and introduce a product there.
Sure, sir. On this part only, so oral, do we plan to file the FTF on that side? And also, do you think this market itself for us can become a, like a $100 million market plus over the next five years for us as a company?
Well, I think my answer was more for India. We can't give you a view of the U.S. I think semaglutide is a very exciting product, no doubt. And, you know, depending on the number of players who come into the market, if there are multiple players on day one, then obviously the market size will reduce significantly.
Of course. Okay. Sorry, just the clarification part on this, before I move to the second question. So you are only focusing on the India market, not, U.S. and the other markets for this opportunity?
No, I think we will focus on all markets, but our strategy is, maybe a little different for each market. But in the U.S., depending on how many people are first to file, it will decide, you know, what the competitive nature of the product will be.
Okay. But we will be also participating in U.S., first to file market also, right?
Yes.
Sure, sir. My second question is on the, our one of the biosimilar product in osteoporosis. If you can talk about, I think, U.S. opportunity is coming up. So, if you can talk about what is our market share in India of this product, and, are we looking at the U.S. filing of that product as well?
Which is the product you're talking about?
Teriparatide, sir.
No, I think what the product we sell in India for teriparatide is, you know, is not that large, so I don't think we will provide too much commentary. In fact, I don't think it's a very large product for us in any case.
... And U.S. pipeline, you know, we are not providing too much color on the U.S. pipeline right now. I think as the launches of the peptides happen, we'll be able to give you some color of that.
Sure, sir. That is it from my side. Thank you.
Thank you.
Thank you. Our next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Yeah, thank you for the opportunity and, congratulations on the good set of numbers. First one on the gross margin improvement. So we have cited that there was a favorable product mix, et cetera. But would you say that, you know, improving U.S. generics environment was one of the key drivers in this quarter in our sequential gross margin improvement?
No. So it does contribute to the improvement, but it's a mixed bag in U.S. On certain cases in U.S., we've got volume improvement. Like in case of a lprazolam, we've gone from 12% to about 12.9% share. On Lanreotide, there has been increase in volume, and then there is price improvement in certain other products. So it's a combination of volume and price. Overall, the gross margin improvement is on account of a price, like I said, in India as well as in select products. Mix has also played role where the volume increases happen more in the high margin products.
Okay. We have mentioned that we are getting good traction with respect to several contracts in U.S. and business development and everything is... So, is that on account of lot of shortages that you are seeing, or there is kind of pre-buying that is more driving that? What would be your assessment? So would it continue, let's say, beyond quarter three, in your sense, or the activity is going to probably, you know, be muted little bit in quarter four?
No, I think the shortage situation, until there are new capacities that come up, will probably continue. And I think there's a list that the FDA puts out quite routinely about shortages in the U.S. At least for those product families, we are not seeing price erosion. But I think. And that's why there's a balance, because there's a fair number of products that are on the shortage list for various reasons, that there is an equal counterbalance to, you know, lesser price erosion. So yes, I think from a U.S. portfolio also, there has been, you know, some amount of margin expansion. The other thing is, I think, if you broadly look at our India business, as the ratio of chronic in our overall mix begins to increase, margins will go up in the business.
Because if you look at high chronic, you know, businesses in India, they operate at much higher margins than high acute businesses. So as your chronic mix, you know, the last two to three quarters, we've seen a chronic mix improving because our teams are focusing in building those therapies. I think the natural impact of this is also on some amount of margin expansion.
Sure. The second question on the generic Symbicort filing. So as a, you know, risk management, would we be filing it from multiple facilities?
Yes, the idea is to file it from multiple facilities.
Multiple facilities would be internal or.
Both would be internal. Both would be.
Both would be. Okay. Okay, and just a clarification. So we said that there were INR 43 crore impairment, and then there was some INR 10 crore other charge. Can you please, you know, throw some light? What was that? I just missed it.
Yeah, sure. So, one is one of our domestic units where we've taken impairment, which is non-operational unit, so it was not operating since some time. So we've taken an impairment. That's a major part of the impairment. And the other one, we constantly keep testing for impairment of intangibles. So one of the products in the U.S., which we had acquired, there, we had one of the products where we have impaired, you know, the intangible that was created when we acquired that product from the partner.
Sure. Thank you. I have more question. I'll join back with you.
Yeah.
Thank you. Our next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Good afternoon, and thanks for the opportunity. My first question is on your Advair and Abraxane, which you mentioned are progressing as per your expectation. So if there are no incremental query, hurdle, et cetera, is it safe to assume that these opportunities will likely come in first half of next fiscal?
Depends on the review cycle at the FDA. I think we would have finished our hope, you know, the transfer process. After that, we file with the agency. Depends on the agency's view with respect to shortage in the market, with respect to competition and, you know, and the data that they see. So I... You know, it's difficult to predict, but we are hoping that, you know, this comes as soon as it can.
Okay. But, from your perspective, you are broadly done with the transfer process or a lot needs to be covered?
They are ongoing still. They're still on.
... Still online. Okay. And my second question is: in the U.S. business, obviously, you are seeing good pickup or good contribution from differentiated products. So can you just broadly indicate of the total U.S. sales, how much contribution are currently coming from the differentiated products, and how does the U.S. portfolio look in terms of profitability compared to the corporate templates?
So I think about over 70%-75% of our pipeline in the U.S. today is differentiated. So that's, you know, so that's, so that's a significant portion. So we've reduced the number of filings and gone on the side of differentiating our portfolio significantly.
In terms of current profitability of the U.S. portfolio?
So I do not go-
EBITDA for different, overall U.S., if you see, right, it is above the company average, EBITDA margin today.
Above the corporate average. Okay. Okay. And my second question is on India business. So obviously, I guess you maintain outperformance against the broader market despite slowdown in volume. But if we see similar muted volume situation to persist in the market, how do you see your growth look for India getting impacted in near to medium term? Or you remain comfortable that because of increasing chronic, you will always be growing better than the market.
So I think, in the therapies where we are strong, pediatric, respiratory, you know, urology, anti-infective and cardiac, we will expect to grow significantly higher than market. I think if we are able to do that, then it's easier to show the overall growth for India. You know, volume this year is also the impact of the base of the previous year.
Mm-hmm.
I think if as that begins to even out, we will probably see an expansion in volume. So we are gliding to, our multi-year assumptions of where India will grow are somewhere around the 12-ish% range. On a long-term, five-year basis, we think a 12% CAGR for India is not uncommon. And actually, our numbers are quite close, whether the volume is low or the price is moderated. Right? So if you really look at it, you know, our YTD growth will be somewhere, at least in the branded prescription business, also around the 12% range. And this is happening despite volume growth being lower. There might be a year where volume growth is higher, but price growth may be lower. So overall, the 12% number will probably hold, as a CAGR over the next couple of years.
Okay. So you remain comfortable with this 12% growth. Okay. My last question, if I can, can you comment on the U.S. pricing environment? You said you saw mixed performance across products, et cetera. But across the market, should we assume prices are more or less stable compared to what we saw in recent quarter, or there has been any changes?
You know, I think pricing in the U.S., always there is some change quarter-on-quarter. It... You know, so there will always be some depression, but I don't think we are seeing accelerated compression in pricing in the U.S. I would say more or less, the trend is the same.
Okay. Thank you, Umang. Thank you.
Thank you. Our next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my question. Umang, in the last call, if I remember correctly, you know, we talked about U.S. base of about $200-$215. And now, you know, I think you mentioned about, you know, $220-$225, given the, you know, momentum that you're seeing in some of your complex products. But other than that, has anything fundamentally, you know, changed quarter-over-quarter in the U.S., or this is just improvement that you're seeing in the base portfolio that is, you know, driving this, you know, higher U.S. guidance?
Yeah, I think, Neha, it's basically increased, slight increase in our albuterol shares, slight increase in the share of a few other product families.
Mm-hmm.
Also the share increase in Lanreotide.
Okay.
Uh-
Is there scope to improve that further? So just trying to understand if there's upside to this 22-25 number that we are mentioning.
Yes. So I think on Lanreotide, you know, specifically, we are looking at, you know, I mean, incremental gains that we've seen historically, to play out. You know, it's never going to be a, you know, huge delta that comes in-
Mm-hmm.
but it's something that creeps up over a period of time. And on albuterol, it's the same, right? We used to be high, then we came back down.
Yes.
Now we're beginning to go back up again a little bit. So it'll be just that. It'll be that, and then, you know, quarter-on-quarter, buying patterns, there's always a little bit of a... You know, at an INR 200 million base, there could be INR 3 million-INR 4 million here or there-
Mm-hmm.
Between quarters. So realistically, from the previous quarter to this year, not so much of a delta, even though it was $2.15-$2.30, I think. You know, some of these share increases, some of that 3 million-4 million buying pattern shifts, I think you'll roughly get there.
Okay. So it's not as if we've seen a material improvement in the pricing environment or a big upside from these shortage products that's driven this?
No, not really.
Okay.
In fact, you know, there's also a fair amount of demand for a set of products which, I don't think the industry can supply, such as budesonide, et cetera.
Mm-hmm. Mm-hmm, mm.
Where frankly, you know, whatever you can produce can be sold.
... Understood. And I think on the, you know, margin guidance, you know, again, we have raised the guidance. But if I still look at the first half and underage, we have, you know, close to probably 25 versus the, you know, guidance that we have given. Based on your commentary, you know, everything that you've mentioned on terms of gross margins, the, you know, India momentum, U.S. momentum, you know, are we expecting spend to go up? Is that the reason we're being conservative on the margin guidance, particularly given what we've seen in the first half? Or is there some other dynamic that I'm missing out?
Well, I think, Neha, maybe I can add and then Ashish can comment. I think the... We are not. I'm not sure we will see expenditure going up.
Mm-hmm.
Because expenditure between last year and this year is up 11.5%-12%.
Yes.
I think we may see some seasonal. We do a, you know, a bureau campaign in this quarter, which will probably result in a little bit of delta, but that's not significant to the overall margin hypothesis or the expense hypothesis. I think what happens is it's, you know, in India, we... You know, first of all, the margin we've probably seen in the last quarter is the highest we've ever seen in our company.
Mm.
I think a large portion of it is due to mix. It's not so much, you know, anything that we've... In the mix and possibly some abatement in the cost of procurement. Other than that, I don't think that there's enough. I think in this quarter, I would not be surprised in the future quarters if our margin is not at the same level that it was in the quarter that's gone by, because the mix may change of the way our business runs. Yeah, I think it's possible-
Sorry, Umang, to your point, because the mix in India, given a focus on chronic and, you know, the higher investment, you know, 75% of the pipeline being complex, the peptide launch coming up. So it's, it's not as if the gross margin comes off from here, and if your costs are the same, you know, leaving aside in the quarter-on-quarter volatility, shouldn't this quarter's margin be sustainable?
Well, not really, because I think what we've been saying is that the margin, the sustainable margins, the way we see it in this quarter, is in the range of 24%-25%. You know, whereas, because if you look at the type of mix we've seen, this quarter is very different. Hardly any anti-infective, and we know that there is some amount of anti-infective that comes in the winter months.
Understood.
So we see a delta there. And so I... You know, so that's where we think our margin will be. And quarter four is always, Neha, very, very, you know, it's a reverse seasonality quarter for us.
Yeah. Yeah, yeah.
So that's, you know, and some part of the margin will compress in that quarter as well.
Understood. Sorry, Ashish, sorry to cut you. You were mentioning something.
No, I think Umang has covered it. I think if you look at the second half, it's a combination of quarter three, which we believe will hopefully continue to be strong as it has been. But quarter four is something that we are mindful of, and combination of the two will probably get us to about 24% overall for the year.
Understood. All right. Thank you so much.
Thank you. Our next question is from the line of Surya Patra from Philip Capital. Please go ahead.
Yeah, thank you for the opportunity, sir, and wish you wins and congratulations for the great set of numbers. Just about U.S. business, my first question is that, whether is it fair to believe that, kind of event that you would have seen in the albuterol, possibly that is been covered by new launches, like, Revlimid and all. Is that the understanding, right? Because, in terms of the prescription, there is a more than 20% kind of, decline in albuterol that we are witnessing.
So sorry, your question is that the, the market share loss in albuterol, has it been made up by... So there are other products which has made up for that, loss. Like we talked about Lanreotide, which has increased in volume.
Mm.
There are other, you know, the Exelan business as well, which has done very well in the first two quarters.
Okay.
Which has helped us to get there.
Okay. Okay, sure. And sir, since we have now crossed that 12-month period for Revlimid at launch, or after Revlimid launch, we have crossed that 12-month period. So generally, there is a kind of a term that in the 12-month period, the volume limit means what are the volume that one need to achieve, that will be based on the 12-month period achievement. So from that angle, is it possible to have a sense that, okay, what is the kind of volume that you would be tracking there in U.S., so far as Revlimid is concerned?
For the balance of the year, H2.
Mm.
We'll more or less, like, Umang talked about quarter two over quarter one, is, you know, not a material sense, a significant increase. That trend will continue for the balance year.
Okay. So second question is about the South African market. So, in fact, in the opening remarks, sir, you mentioned, you are currently second in the private market, and which is been consistently delivering double-digit growth... And, you are targeting to achieve the number one position there. So, so, so could you tell, if that is achieved, then what would be the kind of a scenario in terms of the revenue mix, the South Africa business would be having for us?
I have to see, I think if you look at the growth in U.S. and in India, okay?
Mm.
That's been fairly strong, right? And U.S. is about 25%, roughly. I'm just talking about 25% of revenue. India is about 40%-45% of the revenue. So they form a significant portion, and they're growing at double-digit, right? So South Africa, even at 10%, they will still be at par or, you know, in terms of growth with them. So therefore, the share of South Africa will remain same, even if they become number one for us. And I think the constant focus in South Africa is also margin for us, and we want them to get to company close to company average margin. Therefore, the growth out there will always be calibrated to make sure that the margin is not compromised.
That's why you've seen over last many years, the shift that has happened from tender business to private market, and now looking at OTC as another lever of profitable growth out there. And Actor Pharma that we have acquired, which comes with a portfolio, there is a huge synergy that sits out there to actually leverage our distribution network to push those products in. The success that we've seen in Coryx and Broncol is likely to get replicated in Actor Pharma. OTC is another leg of growth, like I said, for South Africa, which will help us with both growth as well as margin.
Okay. Sir, is it possible to say that what could be the gap in terms of size, scale between the number one player and second place, so far as the private market is concerned?
I think we had given in the investor deck what our market share.
Why don't you send it out to them?
Yeah, we can send it out to them. Yeah.
Yes.
I think it's about ZAR 200 million in prescription. That's the gap that we have between number one and number two, so yeah.
Okay, sure. Thank you, sir. Thanks for that. Just one last question, sir, from my side, about the domestic formulation business. So from the various studies, what it is available that respiratory segment, which is generally is one of our leading segment, has seen some kind of a moderation in terms of growth. Possibly it is because of the high base of the last two years. And despite that, we have seen a kind of improved margin scenario, what you are mentioning about the domestic formulation business. So, is it not right that respiratory is one of the most profitable business considering our scale and the kind of end-to-end integration what we are having?
Oh, so if you look at the IQVIA data, we've actually grown faster than the market in case of respiratory. And respiratory and cardiac are the two, you know, therapies where we've grown faster than the market this quarter. So not sure why you're saying that it's been subdued. And of course, like you have said, which is absolutely right, the margins in respiratory, because it's primarily in-house, it is better, so we get the benefit of that.
Okay. So that means once we see a revival in the respiratory, then possibly that will support the margin profile going ahead.
Yeah, which we've already witnessed partially in this quarter, and hopefully will continue in quarter three.
Sure, sir. Yes, thank you. Wish you all the best.
Ladies and gentlemen, in the interest of time and fairness to all participants, may we request all participants to limit the question to one per person to enable everyone to ask a question. Thank you. Our next question is from the line of Nitin Agarwal from Dam Capital. Please go ahead.
Thanks. Thanks for your question, Kumar. Just following up on the U.S. I think if I remember correctly, for the last two quarters, you mentioned that the Revlimid sales have been broadly in line with what we were in Q4, and there is a $25-odd million, almost $25-odd million delta, which you've done in the quarter versus Q4. You know, so I just want to just double check. You know, is it fair to assume that all of this $24-odd, $25-odd million dollars delta, which has come through in versus Q4, is all on our regular business, you know, primarily driven by the non-revenue business?
No, no, it's a combination of increase in Revlimid, as well as other products as well. So, I'm referring to quarter four to quarter one, so there was some increase in Revlimid as well. In quarter one to quarter two, there has been, you know, insignificant increase in the Revlimid,
... Thank you very much.
Thank you. Our next question is from the line of Krishnendu Saha from Quantum AMC. Please go ahead.
Hello. Can I, can you hear me?
Yes, sir, please go ahead.
Yeah. Thanks for taking my question. Most of the questions have been answered, but just just two follow-up questions. albuterol, we had a market share of 16%-17%, but I heard you said 12.5% or 9%. So when do we get back to that number? And number two on that, and another question is that the Goa plant MDI aerosol capacity increased by 201 million what I read. What is that Goa plant aeros for which region is it actually catered to? And if you could just tell us the plants where the inhalers are filed from. So Indore, Goa, Fall River. So just you can let us know what the future filings for the FDA are from. Thanks.
Okay, I'll just take the second question first, and then maybe, you know, Umang can give some color on albuterol. So the, you know, the capacity that you're talking about in Goa, that's primarily for the international market, the EMEU market, and that's where we had a, you know, increase in the capacity.
Thank you.
On the first question on albuterol, on market share. Yeah.
So I think the market shifts between three versions of albuterol. We sell one of the smallest versions of albuterol.
Yeah.
Every time the market shifts between these, that market share gets impacted.
Yeah.
So, you know, that range is always 2%-3%. Now, we are hoping to build our share from.
So we hope to get back to the 16%-17% in the near future.
I think that, you know, fortunately or unfortunately, is not completely in our control because the market buying behavior is dependent on which variant they keep.
Sure.
In the event that they decide to keep the variant we have, obviously, the share will go up. In the event they don't, then the share will only increase marginally as it has been doing.
Yeah. And if you could just talk us through the plans which are for the FDA, for the filings, for the inhalers.
We have two inhaler plants, and we are trying to file. One is in Indore and one is in the U.S.
Okay. Thank you.
Thank you.
Thank you. Our next question is from the line of Vishal Manchanda from Systematix. Please go ahead.
Hi, good evening. In the U.S., can you update on what's the, what's our market share in Leuprolide?
So Leuprolide, we, we are going to increase share now, because there was price listing, et cetera, that needed to happen. Current market share is sub-3%. Actually, it's close to 1% right now, but it will be built up over a period of time.
So, it should start ramping up as we have seen in case of Lanreotide?
Yeah. I mean, the trajectories won't be similar, but yes, we will be increasing market share.
Okay. And, just one more on the sub-Saharan market. Your sales have doubled on a QOQ basis. So one, should we assume the current quarter run rate to remain stable over the subsequent quarters, and what led to this doubling of sales on a QOQ basis?
Yeah. See, I think it's a combination of, SAGA is a combination of, South Africa, sub-Saharan. You have CGA also sitting in that, which is our access business, where the increase of sales has happened. And, QCIL is also sitting there. So, you know, the growth... We've seen some growth out there. Main growth is in QCIL, which is anyways under, you know, sales. So, you know, we will discontinue showing QCIL from next quarter. But of course, you know, that mar-- that is mainly a standard business, so it comes at a lower margin. So yeah, so that's how you should look at the SSA numbers.
Any broad sense on what would be a sustainable quarterly run rate for this market?
It's a very small-
for the current year?
... You know, contributor to our overall revenue. So, and of course, it's a tender dependent, so it can, you know, be lumpy as well. So keeping that in mind, it's difficult to talk about sustainability of that. But of course, like I said, QCIL will go away from the numbers.
What, what is the number that we should knock off for QCIL?
We've given those numbers in the investor deck, right?
Also, press release.
The press release as well. Your INR 6,678 crore becomes INR 6,490 crore after knocking off QCIL.
Got it. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, in the interest of time, the management will be able to answer two more questions. Our last two questions for the Q&A session. Thank you. Our next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.
Thanks for the opportunity, sir. So, sir, this year we are launching one peptide product. And except this product, what is in the pipeline? Will you throw some light on the pipeline of the products?
I think we've mentioned that we have four to five partner products in the peptide range, and hopefully one will launch in the next quarter, and then in the next two years, we will launch the others.
Despite these peptides, sir, what are the other products?
Yeah, we have inhalation assets as well. We have our... And some will be filed shortly, some are in the process of filing. And then we have some other products as well.
Okay. So in the initial slide, sir, it was mentioned that the logistics cost has improved. So would you throw some light on it? So how it will take shape in upcoming quarters?
Sure, sure. So, so we monitor our air to sea mix, right? Of all the products that we export out of U.S. to our geographies, internationally. So that mix, you know, over a period of time, has obviously moved in favor of sea, which has actually helped us with the reduction of overall freight. That's one factor. And the second factor is that overall, the air rate as well as sea rate, both have actually come down substantially, right? On YOY basis, air rate has come down, you know, close to 8%-9%, and sea rate has actually come down by almost, 60-70%. So those are the advantages that we're getting, and at least in near term, we are expecting this great advantage to continue.
Thank you, sir. Thanks.
Thank you. Our last question for today is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for the opportunity again. So, sir, you know, directionally, when I look at when we started the year and gave the guidance of 21%-22% EBITDA margin, and we are currently giving guidance of 24%. And if I look at the various moving parts, the biggest delta, which has come from U.S., right? So, so that kind of speaks that there is, you know, improvement in pricing, there's improvement in volumes of existing product. But then your commentary is, you know, mixed on pricing, you know, so can you throw some light, you know? Because, you know, if, if it's just volume improvement, it might not have led to a lot of EBITDA improvement, right?
Because some of these products would be low margin, and we have kind of lost market share in the high margin products on a year-on-year basis. So what explains the delta in EBITDA margin guidance improvement, you know?
Look, so first of all, it's a combination of U.S. and India market. It's not just the U.S. market. I would like to just clarify that point. In India as well, like we said, the chronic mix has gone up, right? So with the chronic mix going up, which has higher gross margin, that leads to better EBITDA margin as well. There is some bit of operating leverage also that we've seen in India. And likewise, in U.S., it's certain products we have better volume, albeit, you know, could be at a with some price erosion. But there are certain products where we've taken right actions as well. So overall, you know, these two geographies have driven the margin because they are a large portion of the business as well.
At the same time, there are other businesses where, like South Africa, I talked about, where the margin improvement is clearly visible between quarter one and quarter two, and hopefully that trend will continue there for three and four as well.
Sure. In the current guidance of 24%, I think what we are baking in is probably a good $220 million-$225 million quarter in the U.S. in quarter three. Let's say if the trend continues in the U.S. into quarter four as well, would it be fair to say that there could be upside to this 24%?
Yes, there could be. I mean, if the trend of buying changes, there could be an upside, but it's difficult for us to estimate that at this stage.
Right. So right now we are just building in quarter three, because that's what we are seeing, kind of, you know, good trends.
As you know, if the certainty of launches in the U.S. improves because of the remediation we are doing at our sites and the transfers, you know, obviously our confidence in the margin will increase as well. So realist- you know, to answer your question, there are two businesses that, actually three of our businesses are running ahead of their internal estimates, both on the top line and also on the bottom line. One is India, the second is the U.S., and the third is South Africa. And so there is a margin beat on account of all three that we have seen. On our emerging markets business, we are running, you know, even though we are running slightly lower than the internal estimates on top line, on bottom line, we are running because of expenditure control almost to the same extent.
That is the reason.
Sure.
You know, I think the margin trajectory has improved. If you look at our costs overall, you know, the cost basis is 11.5% over the previous year.
Mm.
Realistically, in our business, we never increase more than 11%-12% of cost year-on-year. I think the real issue and the real increment we are getting is on the margin. Also, in the previous year, we had a fair amount of remediation costs built in on account of our facilities, which now is reducing because a lot of the remediation is already underway.
Sure, sure. And, sir, last, you know, what is the PLI benefit that we would have recognized in this quarter?
Yeah, so that's part of the other operating income, and it has increased versus quarter one. We're not giving out the specific numbers, but there is an improvement there because of the products that qualify for this thing. And yeah, just on the OpEx part, just to complete the picture what Umang was saying, I think with de-risking that's happening in the U.S., there could be marginal increase in the OpEx as well in the coming quarters.
Sure, sure. Thank you. Thank you, sir.
Thank you. Ladies and gentlemen, that brings us to the end of the Q&A session. I would now like to hand the conference over to Mr. Ajinkya Pandharkar for closing comments.
Thank you for joining in. If you have any questions, please, email us on investor.relations@cipla.com. Thank you once again, and have a very good evening.
Thank you. On behalf of Cipla Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.