Ladies and gentlemen, good day, and welcome to the Q1 FY 2023 earnings conference call of Gland Pharma Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee, Vice President, Corporate Finance & Investor Relations. Thank you and over to you, sir.
Good evening, and warm welcome to Gland Pharma's earnings conference call for first quarter of financial year 2023. I have with me Mr. Srinivas Sadu, Managing Director and Chief Executive Officer, Mr. Ravi Shekhar Mitra, Chief Financial Officer, to discuss the business performance and to answer queries during the call. We will begin the call with the business highlights and overview by Mr. Sadu, followed by financial overview by Mr. Mitra. After the opening remarks from the management, operator will open the bridge for Q&A session. Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and based on management estimates. This must be viewed in conjunction with market risks, uncertainties involved in our business. The safe harbor language contained in the press release also pertains to this conference call.
This call is being recorded and the playback shall be made available on our website shortly after the call. The transcript of this call will be submitted to the stock exchanges and made available on our website as well. I will now hand the call over to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr. Sadu.
Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for the first quarter of fiscal 2023. My best wishes to all our shareholders, analysts and their families. I must say it's a tough start to FY 2023 with few supply chain issues which were ongoing for the last couple of quarters. Hit us hard on our quarterly dispatches. We face delay in receipt of APIs and primary packaging materials which caused delay in production. We are making all efforts possible to minimize the impact of these disruptions by qualifying new suppliers as well as optimizing our production planning. We lost productivity during the quarter on account of delays in material supply.
At our Dundigal facility, we lost nearly 78% of our available production capacity of bio and liquid vials during the quarter owing to supply chain disruption, but we should be able to go back to normal utilization levels from next quarter. In spite of the ongoing supply side disruption, we ensured the new product launches were not impacted during the quarter, which are key to our business growth. We also initiated cost optimization and productivity initiatives, as part of which two lines at our Dundigal facility were shut down during the quarter to make the modifications for mitigation of production bottleneck, thereby improving production output. Both lines became operational from July, and the lost production will be covered during the next three quarters on account of improved productivity.
We closed this quarter Q1 FY 2023 with a revenue of INR 8,569 million as against INR 11,529 million in Q1 FY 2022 and our PAT stood at INR 2,292 million for the quarter against INR 3,507 million in Q1 FY 2022. We have generated INR 3,328 million of cash flow from operations in Q1 FY 2023. We continue to make progress on our key focus areas to build a differentiated portfolio along with expanding geographic penetration. We continue to make investments in R&D and were able to complete six ANDA filings during Q1 FY 2023 in line with our plan. The progress on the complex portfolio also is in line with expectation.
We have also finalized next set of products for filings in the China market upon detailed assessment of our parent, Fosun Pharma, and with this we are confident of building a robust portfolio for the China market. The addressable market sales for the next set of products in the China market is $1 billion. We ensure timely new product launches and managed to launch 14 product SKUs during this quarter. To highlight a few, we commercialized products including Bortezomib, Methotrexate, Inducel and Cyanocobalamin in the U.S. market. We were granted 180-day CGT exclusivity for Zinc Sulfate Injection in the U.S. market from its first commercial marketing date of 27 June 2022. We also launched other products including Bortezomib in Australia and Oglifloatin in the Canadian market.
During Q1 FY 2023, upon excluding capital R&D expenditure, the R&D expenditure stands at 4.1% of our revenue for the period, in line with our historical trend. As on 30th June 2022, we along with our partners have 316 ANDA filings in the U.S. and 1,567 product registrations globally. We are recruiting talent to further strengthen our capabilities in biosimilar manufacturing and complex development. We are experiencing increased attrition and hence are ensuring we build enough resources keeping in mind anticipated growth initiatives of the company. Let me summarize our performance across various geographies.
Our rest of the world markets accounted for 12% of our Q1 FY 2023 revenue for the quarter as against 19% in Q1 FY 2022. The delay in material supplies has hit our ability to take up rest of the world orders with low delivery times. The good aspect is that the demand stays strong. We are working on ensuring we can build inventory to meet the demand for our rest of the world portfolio. We anticipate another quarter for us to go back to normalized levels of inventory for this market. Our key markets continue to remain MENA, LATAM and APAC. We registered our products, Ethacrynate sodium, Ganciclovir, Foscarnet Sodium, and labetalol hydrochloride in new geographies during the quarter. Our core markets, namely U.S, Canada, Europe and Australia, remained strong during the year despite market challenges.
Our core markets accounted for 82% of revenue during Q1 FY 2023, as against 65% during Q1 FY 2022. We continue to maintain our new launch momentum in our core markets. There's visible price pressure in the U.S. which is impacting profitability for certain products, but as our new launches scale up, the impact will normalize. The quarter was impacted with shortage of API and primary care materials, which should relax over the next couple of quarters. We remain confident of our launch pipeline that will ensure sustainable growth in the market. The key products in the core markets contributing to the sales were Enoxaparin Sodium, Ketorolac Tromethamine, and Ertapenem. Indian market accounts for 6% of our Q1 FY 2023 revenue. The Indian market sales were impacted by shutdown of our dedicated insulin line during the quarter to accommodate line modifications.
The demand for insulin remains strong and will cover the loss in production by improved productivity during the rest of the year. I would like to touch upon a little about our growth initiatives. On the geographic growth, as has been seen from our performance, we have expanded our penetration in the rest of the world markets. China remains a key geographic focus, and we expect to start receiving approvals in the current year. On the portfolio front, we are progressing well on our complex injectable portfolio and have completed installation of manufacturing lines. We're also in the process of evaluating manufacturing lines and technologies involving microspheres and combi vials. On this front, we have made significant progress in building internal capabilities and are also exploring opportunities for external partnerships.
Another key focus area remains biosimilar CDMO business, on which again we are seeing a lot of interest from our partners. With this, I wish everyone good health. I would like to now hand over the call to our CFO, Mr. Ravi Mitra, who will share details about our financial performance for the quarter. Thank you.
Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our first quarter earnings call. Our earnings presentation has been uploaded on the website. Let me begin with sharing the financial performance of first quarter of financial year 2022-2023. Revenue from operations for Q1 FY 2023 stood at INR 3,569 million, a 26% decline due to various reasons as explained by Mr. Sadu in his opening remarks. Some of these are transient in nature, and we would like to restate that our differentiated business model remains robust with a focus on supplying quality products to our customers. In spite of the continued challenges in unavailability and delayed supply of critical materials, our efforts were to ensure that sufficient level of inventory remains available at our customers' end in our core markets.
Other income for the first quarter of financial year 2023 was INR 744 million. It includes foreign exchange gains and operations of INR 342 million and interest on fixed deposit of INR 326 million. Gross margin for Q1 FY 2023 was 56%, an improvement of 284 basis points as compared to Q1 FY 2022. Higher percentage of sales from regulated markets and favorable business model mix, along with focus on optimizing cost levers, have positively impacted the gross profit margin. We have reported an EBITDA of INR 3,443 million in Q1 FY 2023 and EBITDA margin of 37%. During the quarter, we have managed to maintain EBITDA margin in higher band of our earlier communicated target range.
In Q1 FY 2023, we have witnessed increase in power and fuel cost by 53% year-on-year basis and 36% from last sequential quarter due to increased power tariffs and oil and gas prices. During this quarter, we faced shortages of power, resulting in increased purchase of power at higher tariff. The situation has normalized now, and we expect the cost of power to come down. Manpower-related costs have increased by 22% on year-on-year basis due to recruitment of the additional lines coming in and yearly salary increment in staff. If you compare the staff costs on a sequential basis, it's marginally due to increase in headcount. Our net profit for first quarter was INR 2,292 million and PAT margin of 25%. Effective tax rate was at 25.7% for the quarter.
The total R&D expenses for first quarter were INR 410 million compared to INR 438 million of the same period previous financial year, which is decrease of 6% and stands at 2.8% of the revenue. Cash flow from operations for the first three months of current financial year was INR 3,329 million. Cash conversion cycle stood at 241 days for the quarter, same as first quarter of last year.
In anticipation of business recovery for the rest of the financial year, we are building up our inventory, and that is the reason for higher inventory and resulting higher payable days. Due to supply related issues, most of the sales during the quarter were back-ended, and hence you see increase in receivables, which we expect to regularize with normalization of business. Total CapEx incurred during the quarter was INR 414 million. Our ROCE on ex cash basis was at 21% for Q1 FY 2023. The reduction is primarily due to substantial decrease of post-tax EBIT in this quarter. As on June 30, 2022, we had total INR 37,892 million of cash and equivalents. We have evaluated a number of M&A targets in the recent past.
Current market dynamics making the valuation of our target assets more reasonable has provided impetus to our goal of acquiring right strategic fit for our growth plans. With this, I would request the moderator to open the lines for questions. Thank you.
Thank you very much, sir. 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. The first question is from the line of Tarang Agrawal from Old Bridge Capital Management. Please go ahead.
Hello, sir. Good evening. Three questions from my end. First, you know, if I look at each of your markets, business loss seems to be material. Would it be safe to presume that a significant proportion of business loss was owing to supply bottlenecks and, you know, changing front-end market environment? Because in your presentation and in your opening remarks, you've also alluded to, price reduction in some markets, you know, impact of a high base in the other markets. Just wanted to get some sense as to whether it's really on the demand side or it's on, really the supply chain bottlenecks for each of your markets?
Yeah, primarily it's
Okay. Yes, sir. Please go ahead.
Primarily it's a supply chain issue, right? I mean, if you look at the three baskets.
Okay.
U.S, we are if you look at the revenues if you look at quarter-on-quarter, we still grow by about 4%. Year-on-year, I think de-grown by 4%, but then there's a timing issue of certain products. I would say it's still a lot of products in the U.S. actually have grown substantially, right? Because of the syringe shortages, we have allocated most of our supplies what we got to the U.S. market to cater to the contracts what we got, like I mentioned last time. We kind of didn't have enough syringes to supply to domestic and rest-of-the-world market. That has impacted sales in other markets. From domestic perspective, you see two major issues.
Of course, the syringes what I just told. The other is with taking a shutdown of a couple of lines to increase the productivity. That has contributed about INR 30 crores- INR 40 crores of loss of domestic sales. While there's a large base last year on the domestic, if you look at first quarter of last year, it's almost INR 180 crores. Out of which INR 70 crores- INR 80 crores was related to products like Remdesivir and Enoxaparin which were COVID products. If you remove that, still, you know, we're probably off by about INR 7 crores- INR 8 crores. Major impact I would say in domestic is because of the shortage of syringes and also the ROW business also because of this.
Okay. That's helpful, sir. Just second follow-up. In the U.S, despite the kind of launches that you had in this quarter, you know, growth has been nice, but it's one would have presumed that the sheer size of those products would translate into maybe better business. Is there a lot of heightened competition out there in the U.S, even in the supposed big products?
Yeah. The competition is there, but, you know, if you look at the percentage-wise, the new product, the growth has contributed about 4% of the growth came from new products. Also, you know, you need to see when the product got launched. Many product got launched in, either May or June, so it's kind of not 100% recognized. That's one aspect. Also, while large products have some competition, there are also smaller products, $20 million, $30 million products, where competition is not there, where we just mentioned Zinc has a smaller product, about $28 million, but still we have exclusivity for that. You'll see more of that coming in the next few quarters.
That way, I think it's a combination of competition in some large molecules, not being able to recognize for entire quarter because most of the launches happen middle of the quarter or end of this quarter.
Okay. Thank you, sir.
Thank you. The next question is from the line of Dheeresh Pathak from WhiteOak Capital. Please go ahead.
Yeah, thank you for the opportunity. The profit share number for the quarter, if you can share, please?
Just a second.
Perfect.
It is about 10% of the revenue.
Okay. The CapEx number took low, so what is the guidance for the full year and where are you spending the CapEx money this year?
That's okay. CapEx full year guidance remains same, INR 300 crore as we last time. We are building up this microsphere combi-line, as Mr. Sadu was talking about little while ago for our complex products and that ordering and pending which should start soon. First quarter was more of a timing thing, so we'll end up at INR 300 crore. Other than that, complex injectables line in Pashamylaram we are also adding more API capacity. Also 1 bag line we need to add because of the increased demand we have seen. These are the large items where the CapEX Will go.
Thank you. Last question, in terms of the biologic CDMO, if you can share any further progress you've made from the last communication you had?
There are four actually customer wins which has happened during the quarter. We are discussing about the commercial terms and, you know. That's where the status is.
First revenue, should we expect to see the first revenue with the CDMO?
Yeah, I think this is too early to comment at this point of time. We have like, how we are discussing that we have seen a lot of traction and ongoing discussion with our parent also. At this point of time, we would refrain from commenting at which particular month or quarter this revenue will start coming. We capability-wise, team-wise, we are all ready and that's why customers are coming and visiting.
Okay, thank you so much.
Thank you. The next question is from the line of Amey Chalke from Haitong Securities. Please go ahead.
Yeah. Thank you for taking my question. I have two question. First is, Mr. Sadu, is it possible for you to quantify how much of the impact from the supply shortages and the plant shutdown is there during this quarter? How much of the sales loss is recoverable in the coming quarters?
If you look at the market-wise, I would say, U.S, we lost because of syringes. We lost about INR 25 crore. ROW, about INR 100 crore we lost. Domestic, we lost about INR 40 crore, I would say. Recovery-wise. Yeah, go ahead.
Even if we add these numbers, the total is still lower, right? From what the growth trajectory we were hoping to be on. Is there any also impact on the demand side of the business? That was the second question.
I would say not the demand side. You know, if you look at the timing, right? Last year, if you see Micra Pump Gun is a big product. If you see, look at last year first quarter, almost INR 126 crore came from that product. Whereas, you know, this quarter we didn't supply anything on that. It's more of inventory issue where, the customer is liquidating it, and we don't want to supply more now. But if you look at end market, the sales what the customer or partner is selling is consistent. So that will come back, you know, in a quarter or so. That's more of a timing issue because normally our partners have those, you know, 3 months-6 months inventory.
Because our model is little different. That's what is happening. It looked like little bulky last year, but that will come back in a quarter or so.
Sure. The second question is related to our PFS suppliers. What I understand is that even these PFS suppliers are struggling to cope with the demand to provide, so even in coming next one year or so, I understand they would be operating at full capacity utilization. What could be the way out for us? Is it if you have any thoughts on the same.
For rest of the world, we're already qualifying other suppliers. Because U.S. still I think we have enough supplier commitments from BD. We are qualifying a Chinese supplier as well as Italian supplier for rest of the world markets. We're going to use those for this. I think, you know, that can be mitigated by this.
Do you think that whatever growth expectation we have from our business that would be pushed by these suppliers all as well in the coming years and there won't be any supply disruption?
Yeah, yeah, we're pretty confident, yes.
Sure. Just last question on the staff cost side, because the last quarter when I'd asked same question, I was told that there was some one-time item on the staff cost and it was expected to normalize from this quarter onwards. However, rather it has gone up during this quarter. If you can provide some guidance on the staff?
Yeah. What we have referred was for one-time bonuses given off. If you compare now with Q4, I think it's incremental staff cost which has come is on account of additional headcount and normal yearly increment.
Okay.
That impact is not with the additional one-time bonus which we talked about earlier. That is now not there this quarter.
Should we assume this INR 98 crore to be a normalized base for the staff cost?
Yeah, that's correct.
Sure. Thank you so much. I will join back.
Thank you. The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.
Hi, good evening. One clarity on this India revenue. This quarter we done about INR 61 crore. If I look at the March quarter or the December quarter, we were doing very close to INR 400 crore. You talked about INR 30 crore impact from the supply restriction, right? That insulin facility. Can you please explain the decline from close to the INR 60 crore?
If you see the last quarter, there was export restriction on Naphazoline product. We were supplying a lot of domestic supplies to, you know, third parties. Most of the revenue came, almost INR 100 crore revenue came from supplying to third parties, but with lower margins. You know, we could supply with the different syringes. If you look at the logistic cost, the import cost, and also the dollar, it's not making any sense, you know, to operate at the price levels that they return under price control with India. We didn't continue to supply to those. Because of the restriction last quarter we did that, but at least we had some margin at that point of time.
This quarter, you know, because of increased costs and also the U.S. dollar not helping us because we had to pay duty for the import of materials, so we actually stayed away from those supplies.
Okay. You're saying that this is largely this, you're not taking up now. It's not that the business is shrinking from other segments. That business is simply not taking up now.
Correct. Correct.
Okay. When things recover now, let's say 2Q or 3Q, India business will be about INR 100 crore quarter revenue?
Yeah. On our own front end, B2C is around INR 60 crores and then around INR 30 crores of insulin, INR 25- INR 30 crores, INR 90 crores and another INR 10 crores of miscellaneous. Around INR 100 crores. Correct.
Okay. That's helpful. Second question is just clarity on the R&D spend. Annually, if I look at the revenue expenditure of the company, we're doing about INR 160- INR 180 crores R&D spend a year right now, and we are filing about almost close to 25 ANDAs in the U.S. market. That's almost like very simply a $1 million spend per year. And now you're changing business model more towards your own filings, not doing contract filings. Do you think that in 2 years-3 years this INR 180 crores can become a INR 400 crore R&D number for you? I'm not talking about your partnership and the stuff. And as you file more complex product R&D becoming 2x in two years, three years.
We've been filing our own products since I would say last 3 years, not just now. If you look at our initial percentages with the lower base, the percentage was same, but the absolute number was lower than what we're doing for the last 2 years-3 years. We don't think that will increase that much. Even for the complex products, you know, we always collaborate with our partners. They do pitching some of the studies they do up front. We don't anticipate that to go that high. We still keep that as a percentage of the revenue, around 4%.
Okay. Thank you.
Thank you. The next question is from the line of Sudarshan Padmanabhan from JM Financial. Please go ahead.
Yeah, thank you.
Mr. Padmanabhan, if you can speak closer to the device, please. Your audio is not audible.
Can you hear me?
Yes.
Good. Yeah. Yeah. My question, you know, is to understand the extent of, you know, shortage. I mean, we've been hearing the shortage from the third quarter to the fourth quarter and just seeing , you know, a significant part in the first quarter. Now that, you know, we are into the second quarter, I mean, in terms of intensity, how do we see things easing up, say, from the second quarter? And when we are talking about, say, the second half to kind of normalize, what gives us that kind of a confidence in that kind of commentary?
While the syringes is a major impact, which has happened, there are also issues around four or five products where we have filed alternative tubing or filters. With that case, we also lost some productivity on that, about, you know, 16-18 productivity days across sites and across lines. That kind of sorted out. Syringes we have seen some quantities coming at the end of the quarter, so that way we're able to cater to the U.S. market, which without impact still it would probably impact was about INR 20 crores- INR 22 crore. We have delivery schedules from BD for this quarter as well. Looking at that, I think we are more comfortable on the syringe side. The heparin product is where impacted with stoppers from West.
That still, we have not got the resolution yet. You know, that has impact about INR 40 crores - INR 50 crores. We are working around the alternative stopper for that. We see that as the only risk, about INR 40 crores - INR 50 crores of heparin which couldn't supply. We don't have a solution for that yet, which we are working with West for alternate supply. Otherwise, we are good with other.
Okay. I think having the INR 50 crore a year, I think you are saying that they, you know, most of the issues are sorted and that should come in the second half.
It's not INR 50 crore per year. I'm saying the quarter, INR 50 crore was lost. That's what we are now trying to see in order to recover. The schedule we got from West is in November.
Okay.
We wanted that actually, you know, the last quarter and at least pushed to this quarter. That will help. The schedule we got is in November.
Sure. My second question is on the, you know, demand side specifically. I mean, I don't, you know, you don't share the order book and, you know, some, you know, towards that. But when I look at, say, the U.S. business or the ROW business specifically, with respect to, number one, you know, the newer customers and existing customers increasing the wallet in terms of volume and, you know, whatever that we have missed, because if you look at the ROW, we've lost about, you know, INR 120-odd crore. I mean, is this sales kind of, you know, kind recoverable, say, in the next nine months?
Would this INR 120 crores be added, say, in the second quarter or the third quarter, you know, in addition to the typical INR 230 crores , INR 220 crores , you know, crores kind of run rate that we have?
No, with the capacity concern, I don't know whether we can recover everything what we lost in this quarter. At least, the growth what we told in our normal business, that could be maintained. What we lost about INR 250 crores or INR 300 crores, odd crores this quarter, it could be difficult to recover 100% of that.
Okay. In terms of the demand as far as volumes, I mean, whether are we seeing a, you know, increase in the volumes on a year-on-year basis as far as the demand is concerned across ROW and the developed markets?
The demand is there. You know, if you really, you know, go by molecule-wise, right? I mean, you know, in Oxaliplatin from quarter-on-quarter basis, like 3x we sold in the first quarter. Last quarter is about INR 47 crore in the U.S. We did almost INR 160 crore this quarter. Demand was there.
Same like Methylprednisolone is almost like 90% growth. There are six or seven molecules which have grown almost 90%, 100%, 200% like that. That way, you know, we don't see demand dropping off. You know, pre-COVID, there are some products which are doing, you know, prior to COVID, which has not really come back. The total market has not come back. You know, Vancomycin was one of our top five products, right? I mean, if you look at the total market, you know, 30%-35% market has never come back. What we hear from the market is more people moving to RTUs because of the compounding business, you know, issues with the labor force and all that.
There are some issues with the older products, but there are a lot of other products which are actually extremely well compared to others.
Okay. One last thing. I mean, earlier we had been talking about the 18%-20% kind of a growth. Would this year, you know, be a kind of, you know, given that the first quarter is pretty bad and we are seeing a recovery in the second half, so what is something that you are looking at and, you know, would this year be significantly lower and probably FY 2024 and FY 2025 should be relatively better? Any color on that?
Yeah, you know, if you can just forget one quarter, then probably the growth will be stronger. If you include this quarter because it's difficult to recover what is lost in this quarter to 100%. It will be a lower growth year. Moving forward with the demand what we are seeing and, you know, the growth what we have even shown for a lot of the other products other than where we face shortages, we feel confident that we could maintain the growth what we told before this in the next few years.
Okay. Sure. Thank you a lot, Sudarshan.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah. Thank you for taking my question. Just on the China business, I think in presentation you've mentioned that inspection has been completed. When do we expect exactly revenues from China come through? What's your filing that we expect from China over the next year?
For two products, they are in a clearance phase. They confirmed that there's no need of inspection. Something should come by the third or the fourth quarter. That's what we are anticipating. Five products getting filed in Q1 FY 2023 and then another 6 products-7 products in FY 2024.
Got it. In terms of, you know, margins just in the year, you know, now that given your commentary that supply chain issues could partly get resolved and the company have the mixtures improved, how should we look at the margin in light of the, you know, higher costs? This is ex other income. Margins ex other income. Will it be, you know, similar to what we have done in the current fiscal?
Yeah, it should be around that range. Yeah, I would say so.
Going forward, what would drive this margin higher? You know, because given the uncertainty in the cost environment, how much of that would be dependent on the new markets coming through versus, you know, existing product mix, you know?
Once we start getting some complex product approvals, you know, those are higher margin products, so we should be able to get the increase in margins. Also, once we start leveraging more lines in this facility, we just added three or four new lines, which we need to start manufacturing. Like I said, the fixed costs are there already. Then, you know, this will start adding to the actual margins for the coming years.
Okay. What would be the guidance then for, you know, the rest of the next two years in terms of margins?
Margin guidance. I would say 33%-35% maybe.
Understood. Thank you so much.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.
Hi, good evening. Thank you for taking my questions. First question on the biologics business. You shared that, you know, we have got four visits. Typically, what's the process, you know, let's say from site visit to actual contracting, you know, what are the steps? The visits that we are getting from clients, are those new clients for us or, you know, some of the existing clients, but they're, you know, biosimilar division or biologics division visiting us. How should we think about that?
Three are new customers and one is known customer with a different division. I think it varies from multiple clients. Few are looking at transferring the technology and looking at making the clinical batches. The other is looking at doing more analytical development for the what they have done. One client is looking at taking a client for like two months and putting up their own some of their people for the technology transfer. It depends on who the customer is, but it's at various kinds of batches happening.
You know, secondly, in terms of I think just clarity on the earlier participant's question on the margin. You said, you know, FY 2024, 2025 or 2023 beyond, we are targeting 23%-25% range. Is this, would you say, including other income or is the like-for-like, you know, without other income, just core operating profit that we are targeting?
Hopefully, you know, the other income, you know, if you really look at today, it's part of it is on interest and other is operational income. If you can utilize this to get a good asset, you know, this will go down. Like if you can acquire a good profitable asset. On an overall basis, other than the other income, we are looking at 33%-35%.
Sure. On the, you know, acquiring the assets, what's the priority now? I think at some point we had the priority was complex products followed by the backward integration. Is it the same, or, you know, has anything changed from that plan?
I mean, we are looking at, you know. I mean, ultimately, we don't go one by one, you know. We have options, we're looking at whichever asset we find we have to go after it, because all these are important either for profitability or for growth of the business. It's not like one, it's not a sequential thing. We look everything at the same time, and whenever we get an opportunity, we try to look at it.
Okay. Thank you.
Thank you. The next question is from the line of Mayur Patel from IIFL AMC. Please go ahead.
Hi. Thanks for the opportunity. Most of the questions were answered, but on the margins side, 31.5% core EBITDA margins, which you managed to, in this tough environment, maintain at least status quo. Should we see that the worst is behind, you know, from the margins perspective or API-related pressure and the syringe-related disruption can lead to some more downside in the short term, before it starts going up to your desired 33%+ levels?
I would say, you know, it's one of the toughest quarter in terms of everything, right? I mean, the costs of utilities are high. You know, power shortages in our states are very high, so we have to use utilities for that. You know, we have to airlift lot of goods because of the shortages of materials. That has been absorbed. I would say, you know, the worst things have already happened. I think, you know, hopefully if some of these comes back to normal, the margins should only improve.
Just one more question, if I can. You very, you know, nicely explained about all the problems across markets, mostly supply chain driven. Earlier, ROW, you know, market was growing at a very sharp, very significantly higher rate than the other markets, which was also helping us to report, you know, very, 18%-20% kind of growth or even more in some of the quarters. Had, except for the supply chain issues on the demand side, whenever the syringe supply normalizes, the ROW can come back to that same high growth rate in your view?
We have clear visibility on ROW because most of the tenders are won for couple of years. We know how the order books look like. It's mostly the supply constraints, what we have in order to supply. That way we're not too concerned about the growth in ROW. It's more to do with how much you can supply.
You were expecting around September or so the syringe supply would normalize. What is the expectation currently?
Actually, it's the same thing, right? I mean, while we are also qualifying other syringes for other markets, but even with BD, this quarter, we should be good enough, you know, to normalize the supplies. At least, you know, if you look at from April perspective, today we are better off in one way. We are able to cater to most of the U.S. needs, except maybe couple of million syringes. By this quarter, we should be able to cater to the demand.
Okay. Thanks a lot.
Thank you. Next question is from the line of Ashish Thakkar from IIFL. Please go ahead.
Yeah, thanks for the opportunity. We had guided to launching seven products in the U.S. within the next few quarters. We have an addressable market of around $1 billion-$3 billion. What's our take there? Are we still on it?
Give me a second. Yeah. Yes, we are actually, you know, we have approval for three products which are planning to be launched. The rest, you know, we have goal dates of, I think next month, so, you know, we should be able to launch most of it, yes.
Okay. Okay, fair enough. Like, other participant had this question on biosimilars. While we understand that, you know, three to four clients you're in active discussions with, but some timelines as to when can we see that first dollar revenue coming in. Broadly, roughly, in your expectations versus where you are engaged with your clients currently. Some flavor on that part would really be helpful.
Because we are actually not, you know, meaningfully adding to near-term numbers for this. At least the first dollars, you know, hopefully we are trying to get in the last quarter of this year if this discussion, everything goes well.
Okay. Anything to say about the tenure of the contract, the duration? Where you would like to begin with?
What happens with this is initially, you know, people want to test waters, right? I mean, these are all new businesses we are entering, new tech cons we're entering. They would like to give a smaller contract for a year or so, or it could be a project-based thing, you know. Some of these get converted to commercial scale after they do the clinicals and, you know, they come back to us for technical batches and stuff like that. Once they start up, and normally once they started taking batches here, of course they have to continue till the product reaches a conclusion, right? That's how all these contracts remain.
Okay. Fair enough. Thanks, and all the best.
Thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to two per participant. Should you have any follow-up, may we request you to rejoin the queue. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. Just on this, biologics again. How much would be the operational cost already into the P&L, related to this biologics?
Give me a second, Tushar. INR 15 crores, Tushar, for this quarter.
Broadly INR 15 crore next 1 years-3 years and yearly.
Sorry, your voice is not clear. Can you repeat?
INR 15 crore as a normal quarterly run rate to consider for biologics at least for next 1 years-2 years.
Yeah. We are already all manpower all is there. The team is full there. This will be there.
Copy. Sir, because of this constraints on account of syringes or would there be any penalty on account of delay or periods or that is taken care of despite shortage of ancillary materials?
No, no. That's why, you know, that was given to U.S. where normally penalties exist. There we're not losing anything. But other markets we are not catering because of the shortage issue. Domestic and other markets there's no penalty.
Okay. Just one more. Typically these, syringes or even the stoppers we would be having a long-term contract, right? Because we're irrespective of the product, these materials would be anyway required. What is it that went wrong or this is more like a phenomenon which has been faced by the other companies as well? How do we take care that this doesn't repeat going forward?
We do have contracts for syringes. You know, always, you know, it's because it's a single supplier, especially for the U.S. It also linked to the CFT device. There has to be a discussion with the supplier how to manage it. It's not like, you know, one stopper fits all, right? There are hundreds of different stoppers depending on which product. Which stopper is compatible with which product. The R&D decides which stopper to use. It's not that all stoppers are under shortage. Like they're supplying 150 products. There are only like 5 or 6 stoppers which are getting into this issue. It's not like it's a problem with all the stoppers.
Syringes, unfortunately, there are very few players and, especially in the U.S, very few approved suppliers. Because we need to put a safety device for this and it's a combination product, we can't change the syringe without the device being changed, and there's only one device. That's the restriction we have.
Sorry if I'm hogging a bit, but just one last question on this aspect slide. Given that there are limited number of suppliers for such kind of materials, they would also have their order book kind of filled already from the other global players. Even if we get into contract today, would we need time to get the material in play?
No, we already have a contract with them, Tushar. We already have a contract with them for almost 50 million syringes per year, but still they're not able to supply. It's more to do with how much is the demand and how much they have. They have also added new capacities which they're saying they're going to get online by September or so. The overall demand across the globe has gone up in the last couple of years, and that's why the constraint is. I would say they are more. I think they're giving us as a ratio of how much orders versus how much they can supply. That's been the case. I think that is getting resolved now that there's a gap of almost 6 months-7 months where they didn't supply much.
Okay. Got it. Shashikant, any forward-looking trends in FY 2022?
Sorry to interrupt, but for any follow-up questions, maybe I request you to please join the queue, please. We have other participants waiting in the queue. A reminder to the participants, please limit your questions to two per participant. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, hi. Thanks for taking my question. Sir, on the partnership, typically for the products that you have launched, in the recent past, let's say over the last, you know, two years or so in the U.S, typically how many partners you sell the product in the U.S. market? And are these like exclusive contracts or more of them are non-exclusive in nature?
Some products are exclusive, and some are semi-exclusive, I would say. Especially the big products or wherever there is patent litigation or some BE study need to be done, they're usually exclusive because they also pitch in with the upfront costs. Otherwise, normally the other will give semi-exclusive. Even if they give exclusive, we'll have a clause if they don't hit a percentage of market share, then it becomes semi-exclusive.
Okay. On average, would you say? For the less complex products you would have multiple players, right? Would that be like two, three players? Or typically, like how many players you generally have a contract with? For regular-
Normally we go with two people. If they're not performing, then we go and give for the third person also.
Okay.
Not only our product, we also, you know, sometimes get the same product for tech transfer or as other model. Ultimately the product which we are manufacturing might be for three or four players.
Right. In the past, I think, you had long-term contracts or bulk, you know, for large number of ANDAs with Athenex, with Fosun, et cetera. Do you—like, have you signed any such large contracts which you can disclose in the recent past, either for the U.S. or maybe for the non-U.S. markets?
You mean like set of products?
Yeah.
Not as a set of products, but you know, two, three products, you know, like bunch of three products at a time. That's how we sign. But not like 15 products, 17 products like that. No. Normally we do that when a new company starts their own business, when they're looking at a portfolio. Where they also look at some old products also where we have option to give them.
For the companies who are already there, they normally look at two products, three products, depending on the portfolio what we have. We sign up like three products at a time or two products at a time or one product at a time. As a portfolio like Athenex also when they started the company, that's when we have signed up. Likewise, Xiromed, when they started the company, we have signed up a portfolio of products. Same like Alvogen. You know, these are all like newly formed entities where we have helped them with the portfolio.
Yeah. Yeah, that's what I was referring to. You'd like these bulk contracts, you didn't have any in the recent past?
No. No.
Okay. Sir, just one bookkeeping. I know you've given the inventory days receivable and payable. Is it possible to sort of mention that in INR million? That is the inventory and receivable numbers.
I don't have it right now with me. I can give you offline. You can also calculate it based on the sales. The method of calculation is given in the presentation, but we give it to you offline.
Okay. Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
You mentioned, you know, the employees being raised.
Mr. Agarwal, sorry to interrupt, but your voice is breaking up. May we request you to move to a better reception area, please?
Is this better?
Yes, sir. Please proceed.
Oh.
Sorry, but your voice is breaking up. One second, sir.
You meant because of addition of employees, it had been higher. What about other expenses impairment? Other expenses went substantially higher, despite lower revenues. Are these operating costs here to stay and how do we think about it? Or is it due to escalation of duties which is coming down now and lower?
Other expenses for this quarter is INR 808 million. March was INR 899 million, so this quarter has come down actually. Last year June was INR 783 million. It's about 3% up actually. Not so much. Only power and fuel has gone up substantially.
Also come down, right? The represented percentage to sales.
Most of the cost is fixed in injectable facilities. It's not so variable, especially with other expenses in relation. That's why we have a leverage effect whenever our sales go up or down.
Okay. Trying to understand this.
Sorry to interrupt. One second, but your voice is breaking up. One second, sir.
Okay. Is that better?
Yes.
Okay. In terms of timing for qualifying from other injectable, you know, syringes players. I heard saying that, you know, U.S. is largely in play with BD, and you're trying to qualify others, with respect to ROW case. How long should this qualification take? Because you mentioned, some normalization from next quarter. Reference was upcoming quarter or the current quarter?
The current quarter, for domestic and some of the rest of the world markets, you know, it's because it's a glass syringe, so you don't take much time. You can quickly replace it. Some markets like Brazil or Saudi were more regulated. There we need to submit data, and that might take, you know, 3 months-4 months.
Okay. Lastly, on the specification.
We're losing you.
Seems like we lost the connection for the current participant. We move to the next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Thank you and greetings everyone. Can you talk a bit about the pricing pressure in the U.S. that you mentioned, and specifically in the context that I thought that your partnerships in your business model is a fair bit insulated from the end market competition.
The impact of price for us I think is about 1%, so it's not much. You know, that's been the case, you know, over the years. Either there's no impact or, you know, 1% or something. There's not much impact for us on that front.
How does it percolate down to your P&L? Is it through profit share or how does it work?
Yeah, it's through profit share. Yes.
Okay. I'm just wondering if the end market product pricing involves 10% or 15%, would the impact not be much bigger for you?
Because overall revenue-wise, it's only about 10%, for us. Even that fall won't impact much.
Okay. Exactly. That was the question that if you are having 1% impact, what does it mean for the end market pricing? That would be about 10%, right? 1%-10%. That's what you're saying.
Yeah. Correct.
Okay. Okay. That's all from my side. Thank you so much.
Thank you. Next question is from the line of Rakesh Nayudu from Motilal Oswal. Please go ahead.
Thanks for the opportunity. My question is to Srinivas Sadu, sir. Sir, until about a few weeks back, you were guiding about a high-teens kind of growth trajectory overall. What exactly has changed in a few weeks that says we are getting these kind of numbers? That is number one. Second question is, you talked about you think disruption-led sales loss of around INR 250 crores, of which the COVID impact seems to be around INR 150 crores. So should we, I mean, when we build numbers, take INR 100- INR 400 crores off the estimates that you don't have an easy comp year to see that?
Yeah. Rakesh, can I just repeat the question again? Both the questions. Can you just split and come back again?
Sure. I mean, my question is, I mean, until about three weeks back, if I recall correctly, where you were guiding a high-teen kind of growth trajectory overall. I mean, what essentially has happened, that we are seeing such a sharp contraction in the numbers overall across all the segments. What exactly is that we are missing out?
See, one is, you know, what we anticipated to get delivered, you know, got delivered late in the quarter. You know, we were anticipating to get syringes delivered beginning of June, end of May. It got shifted to third week of June. That is a big impact. That's when, you know, those 4 million, 6million- 7 million syringes couldn't get delivered, so that got shifted. From a line shutdown perspective, it was there even prior to this quarter. That was a planned one. We were probably discussing over the entire year, not for the particular quarter, but that impact was there just because of the delay of supplies.
Sir, I mean, to understand it just very clearly, this syringes issue, is it for the U.S. market? I mean, in the last call you had alluded to the shortage being in for the U.S. market. Now you're telling that, the same shortage issue is there in the Indian market as well. I mean, obviously, the cost dynamics have changed. How should we actually look at this? I mean, should we expect a resolution of this in the current quarter or in the immediate foreseeable future, or it's something which will take more time?
These syringes are used for, you know, not just U.S. market. These syringes are used for U.S. when some of the pre-regulated markets in other markets also, right? Other than the specific and also other markets where we can't replace the syringes overnight. We have actually supplied most of our U.S. demand with what we got. The impact for the U.S. was little lesser. Probably INR 20 crores - INR 25 crore was impact for the U.S. The impact was large in other markets where we couldn't supply because of shortage. There's no different thing going on. That way, you know, there's no separate set of syringes what we get for the Indian market or for the U.S. market.
Now, Indian market, you know, we can use other syringes, but we also need to see, you know, because we have a contract, you know, for INR 50 million crores, you know, better pricing. You know, if you go and buy from others, there's a little higher cost. With the added logistic cost increase, dollar fluctuating, the margin profile was not helping us to sell in Indian market. That's why we stayed away from selling in Indian market with other syringes.
Sir, what component of these INR 250 crore lost sales in this quarter is COVID-related?
You're asking whether you compare with last year first quarter? That's what it is.
Yes, sir.
Last year first quarter, like I said, you know, Indian sales last year was INR 180 crore. Out of which INR 80 crore was COVID-related, where, you know, we made remdesivir and additional enoxaparin. That was INR 80 crore from Indian market, yeah.
That segment was needed to see a similar kind of trajectory over the rest of the current fiscal year?
Yeah, correct. That's gone. Yeah, correct. That's like a one-time surge.
Sir, I mean, then help me understand your previous guidance. I mean, how are we confident that, I mean, even if we exclude this quarter as one-off, how are we confident that we will be able to do high-teen kind of growth for FY 2023? I mean, I'm also looking from the context of what Hepalink and Nanjing Pharmaceutical Factory is talking in terms of how they're going to, let's say, ramp up their production in enoxaparin and other products. How should we actually be looking at your guidance for FY 2023 now?
If you look at our last year sales to this year, our Enoxaparin itself in the US is, you know, additional revenue, we're getting around INR 300 crores, right? I mean, last year entire year for the US, we did about INR 250 crores?
About INR 250 crores. This year the run rate is around INR 160 crores per quarter. It's almost like INR 620 crores. There itself, you know, we have a big surge in the numbers for that product.
You are confident of maintaining the market share in the second half as well, right? I mean, because, I mean, the dynamics could change in the second half.
No, these are all contracted, right? I mean, that's why, you know, we've been maintaining. This contract was there for a couple of years and till we got enough syringes, we've been tied to that contract. That's why we have to start supplying in this quarter, compromising on the local supplies.
There won't be any penalty for not being able to deliver the earlier supplies.
No. I mean, if you know the history, the partner already had this contract for few years and was taking from the innovator. You know, we had an agreement to move that contract to us because we licensed our product when we didn't have approval. When he took that from the innovator, then we gave him the right to license that product till we get our product approval. He got that contract. There was a time limitation on that. It's just more to do with us giving him the right to take the product from the innovator. That's my view.
Okay. Thank you, sir. I join the line.
Thank you. The next question is from the line of Alankar Garude from Kotak Securities. Please go ahead.
Hi. Thank you for the opportunity. My first question is, can you help us understand what percentage of your IP-led and tech transfer contracts have a profit share built into the agreement? Does this differ across markets?
This profit share model is only for the U.S. market, not for other markets. Our own IP-led products, profit share might range from 40%-50%. Whereas the tech transfer models is more on royalty, where we have a 5% royalty on net sales. That kind of model.
Okay. Basically no profit share as far as the tech transfer model is concerned.
Yeah, correct.
Fair enough. Secondly, sir, so we have seen some selling by key personnel, including you, Srinivas Sadu, during the last couple of months. Can you please help us understand the reasons for now completely selling off your stakes in the company?
These are all stock options which the employees got three years ago and in some tranches. As you know, the taxation won't help you to keep long, right? You have to pay a perquisite tax and you have to pay exercise price. There's substantial amounts of money where you have to pay upfront. If you don't pay that then you have to pay the interest on that. That's one of the reasons why employees have sold off.
Understood. I thought actually the tax obligation would be a small proportion of the overall ownership, but that was not okay.
Not really because you have to see at what price people have exercised it. You have to pay an exercise price plus the price at which it is exercised minus the price at which it got.
Awarded.
awarded. On that you have to pay a perquisite tax, which for many people it could be 35%, 40%. You'll end up almost 60% of 50%-60% of the price. That's substantial amount. If you wait for long that, then there's no meaning in actually people getting any money because then they have to pay interest on the loans they take to get this, right?
Understood.
Internally, we also have an understanding that people should not trade stocks and all that. People can't actually, employees cannot buy and sell. We also have that policy just as a good corporate governance. We don't want that issue.
Understood. Maybe one final question from my side. If you look at Fosun specifically, $40 billion of debt, and then there have been some concerns of late on cash flows. Is there any change at all as to how Fosun is strategically looking at Gland as an investment?
Not that we are aware of anything. You know, Fosun is a strategic investment for them. Gland is like an injectable platform globally for Fosun, it remains same. Fosun Pharma is also listed in a separate company. Our parent is Fosun Pharma. Direct holding and the board members are from Fosun Pharma Limited. There is no also any impact, as Gland is an independent company to perform business either financially wise because there is no interdependence on the business side or the, you know, there's no financially, you know, no dependence on Fosun or any intercompany, any deposits. It's Gland as a whole will continue to operate like it was doing earlier.
That's what we are, you know.
Sure, sir. That's all from my side. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments. Over to you, sir.
Thank you. Thank you, Steven, and thank you all the participants for joining us today for our first quarter earnings call. If any questions still remain unanswered, please feel free to reach out to us. Thanks, and looking forward to interact with you again in our second quarter's earnings call. Thank you. Good night.
Thank you. Ladies and gentlemen, on behalf of Gland Pharma Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.