Ladies and gentlemen, good day and welcome to Q4 and FY 2022 conference call of Eris Lifesciences. We have with us on the call today Mr. Amit Bakshi, Chairman and Managing Director, and Mr. V. Krishnak umar, Chief Operating Officer and Executive Director. As a reminder, all participant lines will be in the listen-only mode. 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 and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. V. Krishnak umar, Chief Operating Officer and Executive Director of the company. Thank you, and over to you, sir.
Thank you. Good afternoon, and welcome to our fourth quarter conference call. I am Krishnak umar, and I'm happy to connect with you today. At the outset, I'm delighted to inform you that Eris has entered the elite club of Indian pharma companies who have crossed INR 400 crore of profit after tax in just 15 years from inception. There are less than a handful of pharma companies in this category. We have delivered an EPS growth of 14% in this financial year on the back of a 21% EPS growth, which we delivered in the last financial year. This represents a compounded annual growth rate of 18% over the last two financial years. Now let me take you through the financial and business highlights for the quarter and the year.
As per AIOCD AWACS, the Indian pharma market grew by nearly 4% in quarter four of 2022. Acute therapies grew at 5.5% as COVID and other infections started waning. Chronic and subchronic therapies grew by 2.6%, which is the third quarter in a row of subdued growth compared to the long-term average quarterly growth rate of 10%-11%, which the chronic segment has seen for the longest period of time. In comparison, I'm happy to share that Eris grew at 9.2% in quarter four of this year. Our core cardiometabolic franchise, which is 60% of our business, grew at 14.1% in Q4 compared to a market growth of 2.8%.
VMN, which is our third-largest therapy, has grown at 8.6% in FY 2022 versus a market growth of 12.2%. CNS, which is 8% of our business, grew 33% for the year compared to a market growth of 9%, so nearly 4 times of the market. Women's health, which is again a very fast-growing segment for us, grew at 24-25% for the year compared to a market growth of 15%. When we compare from the pre-COVID base, Eris has grown at 3 times of the Indian pharma market. That is, Eris has grown at a CAGR of 9% compared to the pharma market CAGR of 3%, excluding COVID medications. On this basis, Eris continues to feature among the top ten fastest-growing pharma companies in the IPM when you take it from pre-COVID levels.
At the start of the year, we had guided for three key product launches and 10 total new launches for FY 2022. In line with our guidance, we have launched three key products, Xsulin, which is our brand of human insulin, Drolute, which is our brand in the fast-growing dydrogesterone market, and Linares, which is our brand of linagliptin, a commercially attractive opportunity in the DPP-4 inhibitor segment in oral diabetes. All these three key launches happened in quarter four of FY 2022. In addition, our power brands in diabetes, such as Glimisave, Zomelis, and Gluxit, continue to enjoy dominant market positions in their respective segments. On the back of our strong position in the oral anti-diabetes market, this year marked our entry into insulin through a joint venture with MJ Biopharm, in which Eris holds 70% equity stake.
Through the formation of this joint venture, we bridge an important gap in our diabetes care portfolio and are well-positioned to leverage the market opportunity in insulin, analogs, and GLP-1 inhibitors. By way of detailed financials, our consolidated operating revenue for quarter four stood at INR 306 crore, which represents a 10% growth over quarter four of last year. The consolidated EBITDA for this quarter was INR 97 crores, which is a growth of 2.5% over Q4 of last year. As I mentioned, Q4 of this year has been a very heavy investment quarter for the company in terms of strategic new product launches like Drolute, Xsulin, and Linares, as well as the launch of a dedicated insulin division with a field force of 200 personnel, the impact of all of which is reflected in the Q4 EBITDA margin.
Consolidated profit after tax for quarter four stood at INR 80 crores, which represents a growth of nearly 17% over quarter four of last year. Consolidated revenue for the year stands at INR 1,347 crores and has grown by 11% over last year. Consolidated EBITDA for the year is INR 485 crores, which represents an EBITDA margin of 36% and an EBITDA growth of 12.6% over last year. Consolidated profit after tax for the year is INR 406 crores, which represents a year-on-year growth of 14.3% over last year.
Our standalone YPM grew to INR 5 lakhs in this financial year, FY 2022, up from INR 4.5 lakhs in FY 2021. Our business model continues to be cash accretive, with a consolidated operating cash flow of INR 378 crores in FY 2022, which represents 78% of EBITDA. As guided by our dividend policy, in FY 2022 we have declared and paid a dividend of INR 6.01 per share, which implies a payout ratio of 20% of consolidated net profits. FY 2023 represents the start of an exciting period in the diabetes space in terms of molecules losing exclusivity and hence a deluge of new product launches. We expect to launch more than 15 new products in this financial year, including five to six significant new products.
Moving on, in line with our inorganic growth strategy which we have articulated to you, Eris has today announced the acquisition of 100% equity stake in Oaknet Healthcare, a dermatology-focused domestic formulations company. As Oaknet becomes part of the Eris Group, it brings with it a well-established portfolio of brands in dermatology and women's health, both of which are areas of strategic interest for us. Oaknet had a revenue base of INR 195 crores for the year ended March 31, 2022. The Eris specialty franchise will get a significant impetus with the acquisition of Oaknet. Along with Oaknet, Eris is now present in 87% of the chronic market, which is worth INR 55,000 crores. With a leading presence in the major chronic therapies in the market, namely cardiology, oral diabetes care, insulin, neurology, CNS, and dermatology.
Oaknet has near 100% coverage of approximately 11,000 dermatologists across India with a 60% penetration. Oaknet derives 43% of its total prescriptions in dermatology from dermatologists compared to 38% for the market, which suggests that Oaknet has a very strong specialty franchise. In addition, Oaknet is very strong in medical dermatology, which is curative, and in a tropical country like India, will always remain the bedrock of the dermatology business. This acquisition also gives us an opportunity to scale up the cosmetology franchise, which is largely driven by dermatologists. The deal brings marquee brands like Cosvate and Cosmelan into the Eris portfolio. Four out of the top five derma brands of Oaknet are ranked within the top five in their respective segments.
We've already seen that Eris is in a high-growth phase in the women's health category with a 24% year-on-year growth in FY 2022. The addition of Oaknet will give us the opportunity to cross-sell the Oaknet portfolio as well. The acquisition will be completed by way of a share purchase agreement, as a result of which Oaknet will become a wholly owned subsidiary of Eris and will be renamed as Eris Oaknet Healthcare Limited. The total consideration payable for the stake is INR 650 crores, out of which INR 300 crores will be sourced from internal accruals and INR 350 crores will be financed by borrowings. We expect the transaction to achieve financial closure by the end of May 2022.
We have created significant value from our acquisitions of the Strides domestic business and Zomelis brand through multiple levers, including brand growth, launch of line extensions, expansion of field force productivity, and significant cost reduction. As we integrate Oaknet operations, we expect significant value creation levers to come into play through new product launches in medical dermatology as well as cosmetology, expansion of field force productivity, and other operating efficiencies. Our two-year outlook on this business is a revenue of INR 250 crore, along with an EBITDA of INR 50 crore, which represents a 20% EBITDA margin. This is our target for financial year 2024. We expect this acquisition to strengthen our foundation in the domestic market along with therapeutic diversification, and we are confident that the deal will create value for our shareholders in the long term.
Our growth in FY 2023, as well as over the next three years, will be led by growth in our Power Brands portfolio, leveraging patent expiration opportunities, and through scaling up our insulin and Oaknet businesses. We are also exploring some interesting in-licensing opportunities on which we will keep you updated. In FY 2023, we are targeting an organic revenue growth of 15% and a combined revenue growth of 30%, including Oaknet. We are looking at an organic EBITDA growth excluding Oaknet of 15% and an organic EPS growth excluding Oaknet of 11%-12% in FY 2023. A higher magnitude of depreciation will come to play in FY 2023 on account of the commissioning of our new manufacturing facility later this year.
FY 2023 will also be a heavy year in terms of investments being made, including the insulin business, the scale-up of Oaknet, field force expansion in our cardiometabolic business, landmark new product launches, the commissioning of our new manufacturing facility, and the implementation of SAP S/4HANA. These were the highlights of the quarter. We are now happy to open up for questions.
Thank you very much. Ladies and gentlemen, we 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. Anyone who has a question may enter star and one. Ladies and gentlemen, we will wait while the question queue assembles. We'll take our first question from the line of Amey Chalke from Haitong Securities. Please go ahead.
Yeah. Thank you for taking my question. Yeah. So, on the Oaknet acquisition. Basically, this is around INR 190 crore revenue portfolio. However, there is only one large brand which I can observe, which is around INR 40 crore, 40-45 crore in revenue size, which is also not very sizable, as in where we could really call it as a large brand. This basically also reflects in the profitability of the company, which is substantially lower than our Eris profitability level at this point of time. I really wanted to understand the rationale behind this acquisition with respect to these points.
Also if you can talk about the Clobetasol market, where the Oaknet has large franchise basically, and why this particular molecule and not any other molecule, in this therapy? Yeah.
Yeah. I'll take it one by one. Look, if you go through the financials, you'll find that the gross margins are in excess of 73%, which we believe can be expanded, this year itself and can over a period of time reach 76%-78%. Why I say that? One of the lever there is that there is a lot of price increment headroom which is available, in these, in these leading brands. When you have a 73%-75% of gross margin, it is the line items in between which basically affects the EBITDA. And, generally, the most important factor there becomes productivity. The low EBITDA is on account of low productivity rather than low gross margins. We have our idea around productivity.
We want to increase this productivity to a reasonable level. We look at, you know, we can see a INR 5 lakh kind of productivity over a period of time, but that is something which is possible. As soon as the business starts attaining productivity, the EBITDA margins can swell. If you remember, we took Strides when there was almost no EBITDA, and now we can assure you that Strides EBITDA is in line with the company's EBITDA. That's number one. Number two, you know, you are right about the Clobetasol market. Look, what we, you know, tend to forget a little bit is that India is a topical country, therefore the basic infection, so the bedrock is dermatology, curative dermatology, which is, you know, skin infection, atopic dermatitis, so on and so forth, psoriasis.
Now, why these old products getting out of use is very, very difficult, in my opinion. What it also does is, what Cosmelan doesn't offer is wide range of prescriber base. You, that is, you know, high price point products. If you see, if you go through the products, there are very few prescribers. Here, as KK told you in the opening call, we have almost 60% penetration in the overall population of dermatologists. That is a good point to start. Is Clobetasol something which we can look at 15% year-on-year growth? The answer is no. The good thing is we can look at 7%-9% of price rise for the next five years. That's the kind of headroom the prices do have. But from an organic unit perspective, no.
It gives you a very solid bedrock in entering dermatology for other products, the newer dermatology products and also cosmeceuticals to be built upon them.
Thank you for answering that. The second question is related to insulin. I guess you have already garnered INR 1 crore-plus sales in the first quarter itself. Wanted to know how has been the reception and if any few learnings from this launch, and also the outlook if you can provide on this insulin portfolio.
I think we should be closing into INR 20 crore in the first full year of launch, which, to my mind, would be a record of sort. We just looked into numbers. We couldn't find anybody in the first year getting there. I think that would be a record in sort, and that is playing out very well. As you must be informed that there has been a 10% price hike, which has been given to the DPCO product. Once the new batches come in, we will be incorporating that price hike also. That price hike will significantly improve the gross margins also. We will continue to launch newer products in human insulin range. As of now, we are launching a disposable pen in the month of May.
That will be our entry to disposable pen market, around INR 200-150 crore recent market. We are happy with insulin. The real fun and the scale-up will happen when the newer insulin will come. First year we think that we will be able to garner close to INR 20 crore rupees of sale on around 140 people, division.
This second question related to insulin. Like, what is our offering exactly when we go to the doctor? Is it the pricing or anything else which is apart from the product, in terms of like, any device or anything which you try to sell it basically when you go to the doctor?
Amey, it's a little technical, but since you've asked, I'll be happy to answer you. Look, our game in this market is using insulin and CGM together, so you get a little bit of a pump effect. If you use the CGM while initiating the patients and you monitor the glucose and then adjust your insulin levels. Typically we have seen global data is that there needs to be 10 incremental usage, dosage of insulin to get to the control level. Without having, you know, a running CGM, like a blood a CGM, there has been a hitch in the physician mind to get right there for the fear of hypoglycemia. Our number one offering is usage of insulin with CGM and try to make it, you know, comparable to a insulin pump.
That is where the whole game is. We are initiating a lot of CGMs with the usage of insulin. Combining technology with insulin is the way forward globally. Because of all these patient care initiatives we had, we had an advantage of going there. We are working and talking to people to get in more technology on insulin. Insulin, to our mind, will sell more with better technologies than the product itself.
Sure. Thank you for taking my question. I will join back.
Sure.
Thank you. We'll take our next question from the line of Tarang from Old Bridge Capital. Please go ahead.
Hi. Good evening. Couple of questions from my side. One, how many additional MRs do you think you'll be onboarding in your dermot and cosmeo franchise? Given the GCs on the business, the forecast for 2024 seems a little conservative on the EBITDA. That's number one. Number two, I mean, KK guided a 15% growth in revenue and consequently a 15% growth in profitability, operating profits for FY 2023. One would have presumed profitability to grow much higher given the GCs and given the price increase that the franchise can take. What is driving significantly higher costs in FY 2023 over FY 2022 above the EBITDA levels? Thanks.
15% growth guidance on top line and EBITDA organically, that is being provided for the Eris business excluding Oaknet, right? That's the first clarification. We have provided an EPS growth guidance of 11%-12% for the same business, which is the current Eris excluding Oaknet. I will answer your question on EBITDA growth being in line with top line growth and why is EBITDA growth not faster. I would like to reiterate that FY 2023 is a year of monumental investments for the company. I mean, we have not seen so many categories of investments coming together, you know, in one year in a long time. You know, we have guided to 15 new product launches for the year, including five or six major launches.
This has its own impact, you know, on marketing and promotion. We have the insulin business which is scaling up, right? Because we have created a 200-strong field force only in February, March time frame. The full cost of that 200-member division is going to come for the first time in this financial year, and that's a significant number. That will be the second item. Thirdly, we have the new manufacturing plant at Gujarat that is going to get commissioned in September, October time frame. The operating costs of that manufacturing facility are going to be sitting in our accounts for at least half of the year. Last but not the least, we are taking up SAP S/4HANA implementation.
It's not a major amount, but it is still a you know, finite expense item. Despite all of these costs coming into the P&L for the first time in this financial year, we are still confident of delivering EBITDA growth in line with top line growth. That is something, you know, that is going to happen because a lot of the new products that we launched in the last two, three years, they are scaling up very admirably. For example, Zomelis will be INR 100 crore franchise this year, right? You know, Gluxit should be INR 50 crore franchise this year. Because of the scale-up of products and consistent growth, the YPM will improve, right?
Whatever, you know, acceleration in EBITDA is brought about by the YPM improvement will be partly nullified by the investments during the year, which is why we are guiding to 15% EBITDA growth on a top line of 15%. As far as Oaknet is concerned, we have not provided any guidance for FY 2023 yet. We have shared numbers. At present, in the financial year 2022, Oaknet had an EBITDA margin of 10%, and that does not worry us too much because as Amit said, you know, Oaknet has a gross profit margin of nearly 75%, which is fantastic because our consolidated gross profit margin is 81%. Of the plethora of assets that one sees in the market, you know, which come up for acquisition, 75% gross margin is really a fantastic number.
We will bring operational efficiencies on there.
We will bring, you know, YPM productivity, field force productivity initiatives. We will bring in new product launches, and we are confident that we can take this from a 10% EBITDA margin business to a 20% EBITDA margin business in two years. Our FY 2024 guidance is 20% EBITDA, because our starting point is 10%. As far as the numbers for FY 2023 are concerned for Oaknet, as you might have known, we have still not closed the deal. It will take us some time to do that. By the time we come back to you next quarter, we will have a very clear view on what FY 2023 numbers will be for Oaknet, and we will give you an update at that time.
Correct. Just to follow up, I mean, I understand this glide path from 10%-20%, but I was just wondering, just wanted to get a sense on the incremental number of MRs that are likely to be added to achieve the revenue and operating profitability threshold that you know, you're guiding for.
Currently the business has 650 MRs.
Okay.
We are not planning to add any.
Okay. Thank you.
Thank you. Before we take our next question, we would like to remind participants to ask a question, you may enter star and one. We'll take our next question from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.
Hi, sir. Just checking in. You guys can hear me?
Yes, Anubhav.
One clarity on this gross margin 75%, EBITDA margin 10%. Other than productivity, is there any line item which is really depressing it? Like for example, in dermatology, is there sampling strategy used by the company or something like that? Or is it only productivity?
No, Anubhav, there's nothing else which you could see. In fact, the FRS is well in control. The debtors days have been around 25 days. The two things which we need to worry about is the FRS and the debtor days on the quality side. Both of them are okay. But this business has been on around 700 people last year. The productivity in one of the business is very, very low, which houses 300 people, which is gyne plus plus. That is the point, that is the sore point. If you take that out and only focus on core derma product, the productivity is quite high. The EBITDA margins would also be better there. There's only one piece which is putting it down.
Yeah. Actually, good point. That was my second question is, like when you took Strides portfolio, you pruned down the portfolio significantly. As I see this split of this portfolio, derma is big. Even, you know, women's health is not a very big portfolio. It's small at about INR 20 crore. No big brand exists in rest of the portfolio. Do you think it's worthwhile to even consider rest of the portfolio?
Anubhav, one good news is that last year we gave a break-up of, you know, CNS and nutra, nutraceuticals this way. Internally, the way we are shaped up, the gynecology business did around INR 77 crores last year, the division. We are in line to do INR 115 crores this year. The major impact there had been a product called Drolute, which we are looking at around INR 35 crores in this year. There has been. We had a very good campaign in the last couple of months. It just comes at the right time.
We are having certain possibilities in our portfolio, and we were looking at, you know, how do we take it forward because we have decided that this would be our after cardiometabolic, this will be the biggest franchise over the next three to five years. You know, it just sets in there well.
Sorry, I did not follow. Which product you're saying is so good in Oaknet portfolio, which will fit very well, which is a gap in your portfolio right now?
No, no. What I was saying is, look, Oaknet is now 100% subsidiary. If you read the slide, we say that this is a cross-selling opportunity. Internally in Eris this year, we have seen a very big jump in the gynecology business. We did INR 77 crore last year, and we have taken a INR 115 crore target for this year, which has actually happened because of launch of a dydrogesterone in Eris.
Okay.
We were trying to increase people in Eris in the next year, any which ways, because the productivity does allow elbow room to add people. This division and our brands, we will have a lot of cross play there.
Understood. You're saying that you can improve productivity because you anyways needed people, but, okay. This is true about gynae. What about the other anti-infective portfolio of the company or let's say gastro products, et cetera? Are those meaningful areas you will continue or you may not continue?
We are not disrupting it, Anubhav, the way we disrupted the whole Strides thing. Because while we were taking Strides, we were very clear that what we want to get out of that is around 35%-40% EBITDA over a couple of years. Here we are focusing on the overall expansion of revenues. We are not disturbing the apple cart, if you can call it an apple cart. We are not, you know, talking about tail brands being pruned off. They have their own life over a period of time, you know, tail brands do have problems, but we are not pruning them off, we are only adding. That is the reason we are not saying that we will pull off anything. Rest brands will remain there.
We are not, you know, reducing the numbers. There is no disruption in the entire thing.
I'd just like to weigh in here. The company on its own has been doing a lot of pruning.
Over the last couple of years, because they had a very small franchise in cardiology, cardiometabolic and, you know, some other brands. There is a lot of rationalization that they have done on their own. The focus will be on expansion and growth.
Just one clarity. Out of 650 reps, almost 350 are for derma. Right now, 300 is for rest of the portfolio. The productivity is not too different across the two portfolio, right? Yes, derma is like almost 60% of the revenues here, but not too different, right?
No, derma, you know, what derma houses around INR 122 crores, if I'm not wrong.
Yeah, supported by 350 reps, right?
Yeah. What the other division has around INR 60-68 crore.
Yeah. The derma productivity is like INR 3 lakhs, and the other division has a productivity of INR 1.5 lakhs.
Correct.
Okay. Just for clarity on the prescriptions, let's say if we concentrate only on the derma portfolio, INR 122 crore there. Roughly what percentage of prescriptions are coming from the specialist dermatologist versus GP share?
That's the breakup which we gave, no?
43% of the prescriptions are coming from dermatologists that are specialists. Whereas for the market, 38% of the prescriptions come from dermatologists. Oaknet has a better skew in favor of specialists compared to the average derma market.
In terms of statewide presence, is it a national player or like skewed sales coming from certain states?
Like every business, there are skews and there are certain markets which are not doing well. Give us some time to get into greater details. The first look says that east and north are better and west and north are.
West and south.
Oh, sorry, West and South are not there in the productivity as of now.
Just one clarity on the guidance given for ex Oaknet, basically the base business of Eris. Effectively, 15% guidance means we are talking about adding close to about INR 200 crore incremental revenues. Out of this INR 200 crore revenues, can you just talk about the products that you have not launched so far, what kind of contribution you are assuming from them in this guidance? Let's say INR 50 crore kind of number, INR 70 crore, what's the sense?
Anubhav, that would be quite detailed. I don't think we'll be able to do that on a call. Largely, we say five to six very significant products. One of them we just launched right now, which is called Zomelis-D, which is Dapagliflozin and Vildagliptin. The total, I can tell you from INR 200 crore, the new product will be very sizable. Clearly, to put it that way, we have not done that math.
Just to get the idea of these five, six launches, I think that will be largely public knowledge. Let's say sitagliptin, I'm assuming, Valsartan, Sacubitril, and Zomelis-D, which you launched. These three will be out of those five, six?
Yes, Zomelis-D would be there, Sita would be there. A combination of Sita would also be there, and there will be more. There are a lot more. What I can tell you, look, the future is Sita, a DPP-4 and an SGLT2 combination. That will happen in three to four years, right? Plus, there will be some more products with Dapagliflozin, Gluxit. If you look at everything we say 15, but six of them are very significant. When I say very significant, Anubhav, we have talked about this. We think three years, INR 50 crore and six years, INR 100 crore. That is where we say significant, very significant.
Okay. Thank you. Very useful.
Thank you.
Thank you. We'll take our next question from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Just on this, Oaknet, in terms of the revenue growth for next two years, leaving aside the cross-selling and, on the existing product, like for example, in case of diabetes, you know, there's a good clarity in terms of the molecule, new molecule itself coming to the market. That way, is there any growth potential on the derma side or rather which kind of new molecules you intend to add in the derma space?
Look, we can do a lot, but how much we do, it will have to wait a while. If you ask me the possibilities, the possibilities is new age derma. The possibility is total cosmetology. Because as I said, the bedrock is the dermatology prescription even for cosmetology business. From the probability point of view, there is entire new age dermatology, the antifungals with combinations, and there is cosmetology. But we will have to see how much we can chew. That is something which we will figure out over a period of time. We'll need at least one quarter more to get little more detailed on this.
Got it. Just on the guidance with respect to the organic growth of 15% in top line as well as 15% in EBITDA, effectively, it implies 36% EBITDA margin for FY 2023 on organic basis. Wherein for the fourth quarter we are at 32%. The opening remarks did have comment on in terms of higher spend on the promotional front, given the pace of new launches going to happen for FY 2023. Still you think you'll be able to maintain 36% EBITDA margin for FY 2023?
Yeah, we think that's the reason we have put it there. The reason is very simple. The new brands which were launched in the last two years are now scaling up. That scale is very useful. As KK pointed out, we are looking at Zomelis-D franchise as INR 100 crore this year. This could have been the shortest INR 100 crore for us. We know that, you know, at this price point it's quite profitable. This is what will work to the advantage, which will nullify, you know, all that growth spend which would happen.
All right. Thanks. That answers that.
Thank you. Our next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, hi, good evening. My question actually is similar to the earlier participant. My exit rate of Q4 is about 32% on consolidated and 36% on standalone. There is a ramp-up of product launches, insulin, which are relatively lower margin product, plus the 15+ launches that you're talking about. I understand you spoke about these recently launched products which are scaling up. But given the cost escalation across segments, achieving 36% margin on base business, how confident you are? Apart from the new launches, what would be the other building blocks to that?
Prakash, KK here. One thing I would like to clarify is that starting Q1 of next year, we actually plan to start reporting segment-wise EBITDA.
Mm.
That will give everybody complete clarity in terms of how each individual business is performing. You know, having said that, the interplay of various factors, and this was an expectation that even we had going into the year that, you know, this is a year of such heavy investments, so can we maintain the margin? We ran the math and, you know, whatever the math tells us is that we will be able to do this. If you look at our standalone business this year, we had a 40% EBITDA margin. You know, there is nothing on the face of it which tells me that, you know, we will not be able to maintain that EBITDA. The other aspect, which is basically the loss that will be brought in by insulin, right?
Because this is like the first full financial year. We have considered those aspects and taking all of those into account, it is looking clear that we should be able to hang on to a 36% EBITDA margin on a full year basis. Now, what I have still not worked out is how will this vary on a quarter-on-quarter basis because certain things happen in certain quarters. Like for example, we have said that we are adding 170 field force in the Eris cardiometabolic divisions. Now all of that is happening in quarter one. Similarly, we have spoken about new product launches, and we even discussed some names. Some will happen in quarter two, some will happen in quarter three.
What I can't clarify now is how the quarter-on-quarter EBITDA, you know, profile will vary. On a full year basis, we should be able to be where we have guided.
That is consolidated 36% base business?
Consolidated 36%. Yes.
That will be commendable, I mean, given so many things going on in the company.
Yeah. Prakash, if you just look little closer, you've seen that our gross margins have actually improved in this year.
Yeah.
Yeah. Standalone has gone from 82.5% to 84% this year. We have had around a 150 basis points improvement in gross margins.
It's, it all basically comes down to the product mix. If you have solid brands which keep on growing. Let me tell you, there is no better delta than productivity gain for improving EBITDA. If we are gaining productivity, then it works out very well.
Understand. There's also comment on the ESOP plan. How big it is and what is the yearly P&L impact on that?
We have this round of ESOP that has been issued, the dilution is around 16 basis points. The P&L impact of that will be in the range of INR 3.5-INR 4 crores. That has also been factored into, you know, whatever numbers we are talking about.
Okay, understood. From the tax side, we would be starting to incur from now only, or it would be the fiscal 2025 where you'll enter the 20% tax rate?
Yeah. We ran the math here. It will be a step jump in FY 2025, and let me walk you through that. In FY 2025, we will have both the Guwahati and Gujarat manufacturing facilities operational. Based on the math that we ran, we see a blended effective tax rate of 28%-29% in FY 2025, as production from the Gujarat facility will still be ramping up. This will come down to an 18%-19% level by FY 2030, as production from our Gujarat facility ramps up even further. Just to recap, 28%-29% in FY 2025, going down to 18%-19% by FY 2030. Having said that, we will be able to avail of our accumulated MAT credit till the end of financial year 2029.
Even though the book tax rate will increase in FY 2025, this will not impact our cash flows for the next four or five years after that.
Okay. Fair enough. Lastly, we had about INR 500+ crore cash, and we used 300 and 350 we are taking as a debt. What's the plan here? Are we keeping some for future acquisition? Is the plate full? What is the plan on the M&A side for fiscal 2023?
There are a lot of opportunities on the table at any point in time, Prakash. You're absolutely right. It did not make sense to, you know, completely clean up the kitty. That is one. Second is, on a monthly basis, we expect to throw off INR 30-35 crores of cash as we speak. It is clear that, you know, we don't want to be reckless. I think we've discussed this before. We don't want to make acquisitions just because there is cash. We have taken our time to screen opportunities and all the criteria that I had outlined to you in the past. Like, we will only look at a specialty company. We will only look at, you know, high gross margins.
We have put things through many of those screens, and only those kind of opportunities will go through. This is a very exciting time for expansion, and we are going to be very, very focused on expansion over the next 2-3 years, whether it is organic or inorganic. You know, you may consider this as some kind of war chest for the same.
Okay. Thank you, and all the best.
Thank you.
Thank you. Before we take our next question, we would like to remind participants, to ask a question, you may enter star and one. The next question is from the line of Tarang from Old Bridge Capital. Please go ahead.
Hi. Just wanted to check, what's the cost of debt and how much of it is fixed, how much of it is variable?
Yeah, this will be answered by Sachin, our CFO.
Hi, Tarang. We've taken debt at 6.75%. It's variable, but my sense is it should be fixed for one year at least.
Thank you.
Okay.
Tarang, do you have any more questions?
No, that's it. Thank you.
Thank you. Any participant who wishes to ask a question may enter star and one. We'll take our next question from the line of Gagan Teja from ASK Investment Managers. Please go ahead.
Yeah. Good evening. Am I audible?
Could you speak up a bit, please?
Yeah. Is this better?
Louder.
Yeah. Just a couple of questions. One, what are the contours of your arrangement with MJ Biopharm for the insulin deal? You'll be procuring your insulin from them. Second, again, from a regulatory standpoint, what are the approvals that MJ Biopharm has for its insulin products?
I'll answer the second question first. Starting 2016, MJ Biopharm has been supplying human insulin vials and cartridges to nearly 25 countries around the world. They have approvals for India, clearly, and they have approvals for a bunch of semi-regulated markets.
South Africa is one they got just last month.
Okay. South African SAHPRA has also approved them. Our interest and our alignment with MJ is clearly for the Indian market, where the value proposition is that MJ will be doing the manufacturing and we will be doing the marketing. Insofar as the new product pipeline is concerned, including products like Glargine and Liraglutide, MJ will be responsible for clinical development and regulatory approval and commercialization. That's the overall contours of the deal.
Right. Would it be fair to assume that gross margins here would be significantly different from your base portfolio?
Yes. See, human insulin has been under price control for a long period of time. Human insulin is not a very exciting product in terms of gross margin. Human insulin is not the reason why we even got into this. The reason why we got into this whole venture is for the insulin analogs like Glargine, Aspart, and Lispro, and for the GLP-1 agonist products like Liraglutide. Once those products come into play, and our expectation is Glargine we are pegging in calendar year 2023 and Liraglutide in calendar year 2024. Once those products come into the mix, the gross margin profile of that business will change dramatically. That is our overall thesis on which we've gotten into this business.
KK, if after the 10% price hike, the margins will be as good as the Oaknet margins?
Yes, they will be.
Does MJ Biopharm have a WHO GMP for their facilities?
That is right. They do.
Okay. Sir, one final question. While you indicate that the diabetes portfolio, you know, will see a step jump in DPP-4s and SGLT2 combinations, which will enable you to prop up your growth there. It will come at the expense of sulfonylureas which today are the mainstay for your business. To a certain extent, there will be cannibalization between the two. If you could help us understand, you know, how should we think of your sulfonylureas portfolio, and at the same time, you know, the transition to DPP-4 and SGLT2 could create what scale for you in that segment?
I'll just provide some numbers and then defer to Amit, who can provide you with a lot more insights. See, sulfonylureas market is not going to get replaced. This is basically about. Diabetes is a progressive disease, right? In the initial years, the patient might be on one therapy, and then, you know, as the disease progresses, you progress to what is called polytherapy. You start with one product, then you go to two products, then you go to three products. We don't see a scenario where glimepiride is going to vanish from the prescription. What does that mean in terms of numbers is that the volume growth and the value growth of glimepiride segment will slow down. We are taking glimepiride at a 2%-4% volume growth, and then you slap on some price increase.
It is possible to get 6%-8% per annum growth in glimepiride, which is what we are looking at. Whereas DPP-4 and SGLT2 is crazy because in the first year, you know, the market gets created. I mean, vildagliptin is seeing 50% year-on-year growth even after two years, right? What happens is both segments grow, but glimepiride grows at a slower rate. If you look at the mix of therapy, that shifts to DPP-4 and SGLT2 over time. Those therapies become more heavy. That is not because sulfonylureas are degrowing. Amit, would you like to add anything?
Yeah. Technically it's all about the first-line treatment. Glimepiride metformin has been a first-line treatment for a long period of time. The first-line treatment now is moving to DPP-4 and SGLT2. We will have less initiations of new patient on glimepirides. When diabetes becomes little, it becomes 10 years old, then typically you need a sulfonylurea to get control. As KK has aptly put, we are ourselves budgeting a volume growth of 2%-4% plus some price bolt on here and there. 6%-8% is what we are kind of budgeting.
With MJ Biopharm, is it a contract manufacturing fees plus royalty arrangement or is there a profit share arrangement with them?
See, the profit share is automatically built in, right? Because MJ is an equity partner in this business. MJ Biopharm holds 30% equity share in the venture. It is a long-term strategic arrangement.
Okay. Thanks. Thanks a lot.
Thank you.
Thank you. Our next question is from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead.
Yeah. Hi. Just one question. I mean, could you guide for the effective tax rate you're looking at for FY 2023 and 2024?
Are you talking about effective tax rate for 2023/2024?
Yes.
We don't expect it to be significantly different from what it is now because the Gujarat facility will come on stream, so maybe it might go to 11%-12%. We don't expect a massive jump over where it is right now.
Okay. Just to be clear, the Guwahati facility goes, I mean, like, will not have any tax benefits from FY 25, and that's why we're going to see the jump in 25, right?
That is right.
What's the benefit at Gujarat? What sort of tax benefit do you enjoy?
This is basically there is no special tax benefit available for Gujarat as a location. Under the whole Make in India regime, you know, we will have an effective tax rate of 15% plus surcharge in the Gujarat facility. This is nothing special about Gujarat. This is available, you know, wherever you would set up this facility.
Okay. This will be the new manufacturing facility. Yes. Sorry. Yeah. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference back to Mr. Krishnakumar Vaidyanathan for closing comments.
Thank you. Thank you everybody for your participation in the call. By way of summary, Eris has entered the dermatology therapy through the acquisition of 100% stake in Oaknet Healthcare at an equity valuation of INR 650 crores. Eris' specialty franchise will get a significant boost with the acquisition of Oaknet. The acquisition brings marquee brands like Cosvate and Cosmelan into the portfolio. We expect the Oaknet business to deliver a revenue of INR 250 crores with an EBITDA of INR 50 crores in the next two years. That is in financial year 2023/2024. We delivered an EPS growth of 14% in the financial year 2022 on the back of a 21% EPS growth delivered in the last financial year. This represents a compounded average growth rate of 18% per annum over the last two years.
FY 2023 is a year of significant investment in terms of the insulin business, field force expansion, landmark new product launches, commissioning of a new manufacturing facility and SAP implementation. We expect our organic growth to be driven by growth in our power brands portfolio, new product pipeline, expansion of specialist and GP coverage, and our expansion into newer specialties. For the year financial 2023, we are targeting an organic revenue growth of 15% and a combined revenue growth of 30%, including Oaknet. We are looking at an organic EBITDA growth excluding Oaknet of 15% and an organic EPS growth excluding Oaknet of 11%-12% in FY 2023. Thank you all. Have a good day and stay safe.
Thank you, members of the management. Ladies and gentlemen, on behalf of Eris Lifesciences, that concludes this conference. Thank you for joining us and you may now disconnect your lines.