Ladies and gentlemen, good day, and welcome to Gland Pharma Limited Q4 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee, Vice President, Finance and Investor Relations. Thank you, and over to you, sir.
Thank you. A warm welcome to Gland Pharma's earnings call for fourth quarter of financial year 2023. I have with me Mr. Srinivas Sadu, Managing Director and CEO, Mr. Ravi Shekhar Mitra, CFO, to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview from Mr. Sadu, followed by financial overview by Mr. Mitra. After the opening remarks from management, operator will open the bridge for Q&A session. Our earnings presentation has been submitted to the stock exchanges, is also available on our website. Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and are based on management estimates, these must be viewed in conjunction with risk and uncertainties involved in our business. The safe harbor language contained in our SEC also relates to this conference call.
This call is recorded, and the playback shall be made available on our website shortly after the call. The transcript of the call will be submitted to the stock exchanges and made available on our website. I now hand over the call to Mr. Sadu for his opening commentary. Thank you. Over to you, sir.
Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for the fourth quarter and full year fiscal 2023. My best wishes to all our shareholders, analysts, and their families. We have formally closed the acquisition of Cenexi and welcome it to be a part of the Gland Pharma family. This is our first overseas acquisition and our move into the next phase of growth and expansion. This acquisition is aimed at expanding our CDMO offerings in the European market. It is in line with our strategic roadmap of building a European manufacturing presence with sterile injectables. It provides access to leading know-how and development capabilities in sterile forms, including vials, prefilled syringes, and other innovative technologies such as ophthalmic gels and needleless injectors pen finish. It will help us establish our presence into the branded CDMO space and biologics.
Our priority is to focus on a seamless integration of businesses. We made progress on our path to building a Bio-CDMO and signed our first contract with Plasma Protein at our Charleroi facility. We're also in advanced stages of other discussions on bio-similar opportunities. I must say we are testament to our strength and the robust infrastructure installed at our facility in Charleroi. We closed this quarter Q4 FY 20 23 with a revenue of INR 7,850 million as against INR 11,030 million in Q4 FY 2022. Our PAT to that INR 787 million for the quarter against INR 2,859 million in Q4 FY 2022. Our full year FY 2023 revenue stood at INR 36,246 million, a degrowth of 18% over FY 2022.
Our full year FY 2023 PAT stood at INR 7,810 million against INR 12,117 million in FY 2022. We have generated INR 3,640 million of cash flow from operations in FY 2023. The performance has been subdued because of lower sales in some of the key products during the current year as compared to previous year. Finance facility shutdown has taken a capacity expansion. Strategic shift at some of our customers has impacted revenue. We have initiated an action plan by transferring some of the products to other customers. We are focusing on ensuring the supply continuity across our portfolio of products and have stocked up inventory for key products to avoid any material shortages. We completed nine ANDA filings during Q4 FY 2023 in line with our filing plan.
We made further investments in our R&D this year and were able to make 29 ANDA filings during FY 2023. As an important milestone, we received our first China approval and have also initiated launch of our product Dexrazoxane. We should receive another three-four product approvals in China during the year. Our progress in the complex portfolio is also going strong, and this year we filed a total of three complex products during the year. During Q4 FY 2023, upon excluding capital R&D expenditure, the R&D expenditure stands at INR 603 million, which is 7.68% of the revenue for the period, as against INR 443 million during the previous quarter. For the full year, our R&D expense stands at INR 1,844 million, which is 5.09% of the revenue for the period.
As on 31st March 2023, we along with our partners have 334 ANDA filings in the U.S. and 1,601 product registrations globally. We continue to hire the right talent at our U.S. subsidiary, strengthen the business development initiatives, and building new partnerships. We are also strengthening the plant operations team with new capacities coming online. This year we again saw physical audits start after the halt due to COVID. We have successfully completed U.S. FDA audit with no observations at our API facility in Vizag. We continue to invest in constant improvement. Our teams across all our sites remain prepared for any regulatory audits. Let me summarize the performance across various geographies. Our rest of the world markets account for 22% of our Q4 FY 2023 revenue against 17% during Q4 FY 2022.
Our full year FY 2023 revenue for these markets stood at INR 6,894 million, as against INR 8,481 million in FY 2022. We maintain inventory of raw materials and packing materials to be able to cater to the demand. We continue to raise our products in these geographies. Our key markets continue to remain MENA, LATAM and APAC. Our core markets, namely U.S., Canada, Europe, Australia and New Zealand accounted for 70% of the revenue as against 64% in Q4 FY 2022. Our full year FY 2023 revenue for our key markets stood at INR 26,861 million as against INR 29,248 million in FY 2022. Part of our new launch product portfolio, we have shipped out 10 product SKUs during the quarter.
We are constantly working on improving material availability and resolving any production delays. India market accounts for 8% of our Q4 FY 2022 revenue. Our full year FY 2023 revenue for Indian market stood at INR 2,501 million as against INR 6,278 million in FY 2022. We saw impact from normalizing of COVID-related sales in Indian markets. We are focusing on integrating the business and connecting with brands and understand the importance of a seamless integration. Our focus is on leveraging synergies between the businesses to generate stakeholder value. This acquisition has the potential to drive value creation over the years to come. In 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 and full year 2023. Thank you.
Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our fourth quarter and financial year ending 2023 earnings call. Our earnings presentation has been uploaded on the website. Let me begin by sharing the financial performance of the quarter and financial year of 2022, 2023. For the fourth quarter, we have reported revenue of INR 7,850 million, a reduction of 29% on year-on-year basis. Revenue from operations for fiscal 2023 stood at INR 36,246 million, a year-on-year decrease of 18%.
Key reasons for reduced revenue during the year are inventory rationalization across customers in the U.S. market, high price pressure with increased competition impacting revenue and higher base of last year due to COVID-related product sales. In terms of bifurcation of revenue during FY 2023 at core markets, core markets comprising of the U.S., Europe, Canada, Australia and New Zealand have contributed 74%, followed by ROW market adding 19% of revenue. India contributed balance 7% of the revenue from operations. Our full market has seen a decline of 23% during fourth quarter of FY 2023 as compared to same period of last financial year. It has registered an 8% de-growth during the financial year. ROW markets have witnessed a reduction of revenue of 10% for Q4 FY 2023 and 19% de-growth on a full year basis.
India market declined by 68% for Q4 FY 2023 and 60% for FY 2023. Other income for the fourth quarter was INR 389 million, which includes interest on fixed deposit and foreign exchange losses in operations. For FY 2023, the other income was INR 2,405 million, of which interest on fixed deposit was INR 1,794 million, and foreign exchange gains on operation was INR 571 million. Gross margin of the company improved during the quarter as compared to same quarter previous year. Gross profit margin has improved for the year as compared to the previous financial year, largely due to favorable geography mix.
We have reported an EBITDA of INR 1,684 million in Q4 FY 2023 compared to INR 3,484 million in Q4 FY 2022, which is a decrease of 52%. EBITDA margin for Q4 FY 2023 stood at 21% as compared to 32% for the same period of the previous financial year. EBITDA for the full year ended March 2023 was INR 10,248 million compared to INR 15,102 million for the previous financial year, a decline of 32%. We have reported EBITDA margin for FY 2023 at 28% as compared to 34% of previous financial year.
Power and fuel costs have gone up 17% in Q4 FY 2023 and 31% in full year FY 2023 due to increase in power tariff and oil and gas prices. Employee costs have increased by 9% in Q4 FY 2023 and 19% in full year FY 2023, largely due to additional headcount to support the new production lines in Pashamylaram plant and the Bio-CDMO facility in Shamirpet, as well as the annual increment impact. Other expenses increased by 11% during FY 2023 as compared to the previous year, majorly due to the increase in professional fee paid for the M&A.
The total R&D expenses for the financial year 2023 was INR 2,014 million compared to INR 2,273 million for the previous financial year, which is a decrease of 11%, which stands at 5.6% of the revenue. R&D expense for the fourth quarter was INR 678 million, which is 8.6% of revenue compared to INR 559 million in the previous financial year. The increase in R&D revenue expense is due to the higher number of ANDAs and DMF filings during the fourth quarter. The higher percentage of revenue is due to the lower revenue base in Q4 FY 2023. Our net profit for the fourth quarter was INR 787 million, a significant reduction of 72% compared to Q4 FY 2022.
During the financial year 2023, our PAT was INR 7,810 million, which is a decrease of 36% as compared to last year. We have reported PAT margin of 10% for Q4 FY 2023 and 22% for full year FY 2023. Subsequent to year-end, one of our customers filed for Chapter 11 bankruptcy in U.S. and hence we have provided the outstanding balance of INR 565 million and has disclosed as an exceptional item. Our effective tax rate was at about 29% in fourth quarter and 26% for the fiscal year 2023. Though the gross profit margin improved over the previous year, but due to meaningful reduction of revenue over the same period had negatively impacted the EBITDA and PAT margins.
Some of the measures related to cost reduction and efficiency improvement are being undertaken and will have a favorable effect on margins. Cash conversion cycles stood at 256 days for the financial year 2023 as compared to 180 days as of last financial year-end. The increase in working capital was due to higher inventory and receivable levels. Increased receivable and inventory days have pushed the overall cash conversion cycle. We are actively monitoring both our receivable and inventory position for improving our working capital and operating cash flow. Total CapEx incurred during the financial year ended March 31st, 2023 was INR 2,230 million used for increasing API and formulation capacities. We are adding new capabilities for Combi- line, for microsphere, additional bag line and large suspended block in Pashamylaram facility in Hyderabad.
Our ROCE on ex cash basis as on 31st March 2023 stood at 17% and fixed asset turnover at 2.6 for FY 2023. As on March 2023, we had INR 37,707 million of cash, part of which we have utilized subsequently for Cenexi acquisition. As we have completed the acquisition of Cenexi, we are now moving forward from pre-closing activities to post-acquisition integration stage. We are gearing up for the dedicated efforts for seamless integration of both companies and realization of synergistic benefits. On this direction, apart from forming a dedicated team for PMI from both Gland Pharma and Fosun Pharma, we have also engaged with a global management consulting firm. With this, I would request the moderator to open the lines for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their answers 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 Rishabh Shah from o3 Capital. Please go ahead.
Hello, am I audible?
Yes, you are.
I also just have a couple of questions. My first question is, it seems there are many companies, as we have seen new age companies, they are entering into the CDMO business and due to that our company has been having a lot of problems. How are you going to tackle with such an intense competition entering into the CDMO business?
Mr. Saurav, it was difficult for us to comprehend your question. Can you please come again?
It seems so that these are many companies entering into the CDMO business. How do you going to tackle such an intense competition?
Members of the management, are you able to hear the question?
I think the question is related to the competitive landscape, right, in the present scenario. Am I right, Mr. Rishabh?
My question is in the new companies entering into the CDMO business, how are you going to tackle with such an intense competition, competitive environment?
Yeah. If you really see the pure development from a B2B business landscape, still I think not many players are there. You could see some CMO players coming in and manufacturing products for companies. Our own model where we develop products and license out, still I think there is not that much competition like before. Yes, in terms of companies who are developing the products and trying to outsource like contract manufacturing, there is a competition, there is a price pressure.
If you look from our strength perspective, you know, from regulatory side or from quality side, we're maintaining a clean record and that should sustain us in the long run compared to the newer players. Where, you know, you're able to see the balance regular inspections, how they're going on and whether they could sustain with low margins in the longer run. Especially in injectable business where the CapEx is very high and maintenance are very high. With large, with low margin, competitive landscape, survival in the long run could be difficult.
I think a time will come when companies have to, you know, raise with the margin profile so that they can invest into future growth or allocating investments into future growth as well as maintaining the existing business per their standard.
Okay. Thank you. Since as our business is so much focused on CDMO and CMO business, if you could help me out with the percentage of repeat orders which you are receiving from the customers.
You mean the repeat orders from the customers?
Yes. What is the percentage of the repeat orders you are getting?
If you look at from a volume, quantity perspective, our FY 2022 and 2023 volumes are almost similar. The degrowth has happened from specific, few products and as well as COVID-related products. If you see our domestic sales last year compared to this year, we lost almost INR 380 crores, mostly pertaining to the COVID sales that happened last year. Also one of our largest products, mitomycin, which we had the initial exclusivity, it went down from almost INR 440 crores- INR 65 crores. That has actually, what do you call, beaten the numbers a bit because we lost the exclusivity last year. These two main factors have contributed the degrowth of INR 7.50 crores.
There are also products where we have grown, products that went up and they doubled our revenue. There's also a degrowth is happening. Again, that was a COVID-related product. In terms of, the degrowth has happened specifically for three of our major products which got hit. I think it's a combination of COVID as well as the exclusivity what we got on the product. On the majority of the products still we are able to maintain that unit. While there's a pressure on prices, still the units have gone up. If you really see the breakup of the revenue bridge what you see, normally our new product launches help us to grow about 10%, but this year it only contributed 3%.
That shows a bit of competition in the market when we launched that product. That has not contributed substantially. It's a combination of what products we sold, also the competition at which people are launching at the scheduled expiry date.
Okay. sir, since the majority of your business is in U.S.A., what do you think about the growth in India? Are there any plans to grow in India?
That, that's been a planned. If you see now we are focused on injectables, and most of the injectables in India are tender-driven business. A lot of products comes under price control. With the facilities what we run, it's very competitive in terms of competing in this space. While we are looking at some opportunities specifically on margin-driven products. Because most of the portfolio falls under the controlled price control, so that's been a deterrent for us.
If I could squeeze just one more in.
Sorry to interrupt you. I would request you to please come back in the queue. The next question is from the line of Kartik Mehta from Klay Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity. I just want to understand in terms of base business, while there will always be competition and it's not something which we don't see in the industry, what is your assumption for reaching stable rate of revenues per quarter, even if it is on a half yearly or an annualized basis? The problems which you mentioned in terms of competition, new products not competing even more. We need to get some color from you from the perspective of, are there any new products which will compensate for this while your gross margin continues to remain where it is? What is it at the expense side or is there any large product which you expect?
Also in terms of the broad revenue items, in terms of the fact that you'll also be integrating an asset.
From the business perspective, like I said, you know, the major products got hit. To cover that loss, it takes a lot of other products to get launched that's smaller. If you look, like I said, from the unit perspective, we've still maintained at the company level. The volumes have grown in some other products. There are specific products where we lost business too. Now, there are several large molecules which will be launched. Looking at the last year experience, if you see, even a $500 million-$600 million product after they launch, you know, it got the prices got down almost 80%-90%. There was a crash when it got launched.
Whether it's sustainable in the long run, we can't say, but that's been the case so we can't really vouch for the products, if the big products will do well under this competitive scenario. We have almost 28 products which got approvals this year. That approval, you know, the filings are on track and all the facilities are on track in terms of supplying these products. In terms of margins, you can see we have invested heavily and, you know, some of the lines are not on commercial scale yet, you know, whether it is biologics line, whether it is some of the market share lines we have established recently. The two other lines, they're still under approval process.
That's actually adding up to the cost we have filed several products on a transfer from other lines. This will get commercialized again, that should increase the revenue. With the Cenexi acquisition, there are a lot of opportunities opening up in terms of different customers who we are working with in the U.S., where they're sourcing products from European other CMOs for the European market. We are working with them how to shift those kind of volumes to either the Cenexi site in Europe or to India and then move there. In the longer run, we see the business is strong and with the kind of portfolio we have and with the kind of distribution and contracts we have across the globe.
There are headwinds in the short term, like we said. It's getting stabilized, you know, when we do such large molecule and, you know, get.
Would you want to give some color on the broad, revenue guidance, combined entity, if not for, if possible, throw some color on the China approval and the opportunity, if any, that comes in, that one can, see in the revenue upside in FY 2024?
Karthik, Sumanta this side. We have taken a kind of a conscious position, given the volatility into the market as well as our past experience on the product. We refrain from giving any kind of a direction, either on the top line or on the margin profile side of it. That is point one. Also, I'd like to highlight here that in the previous question, Mr. Sadu has indicated three AC crore INR of team, which is an assessment, which is an assumption. It's because of some of our product being used for COVID and non-COVID as well. It is not a like a verified number, just for clarity of everyone. It is a assessment, management assessment could be that kind, could be kind of a impact on the domestic side of it.
Yeah. Okay. Without talking about the guidance, any color on the business, and I'm not talking here in terms of the numbers, product approval, licensing for launches in this year and next year? Thank you.
In next quarter, you know, we have almost 11- 12 products which are getting launched. Like Mr. Ravi said in his speech, you know, we have a customer who's going through a transfer process, where we are trying to move those products as well to the customer. There are also several opportunities where because of price pressure, large customers are transferring their products to our side, which could see some good business in terms of unit LAN numbers in the second half of this year.
China in particular, would you want to just probably highlight?
It's too early to comment on the numbers. It, I would say.
Not the numbers. In terms of the number of launches. We have an idea about how the market is.
We're launching one product this quarter, it gets shipped out, and then three or four products are expected in the next nine months.
Thank you.
Yeah.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah. Hi, good evening. Just on the current status, you mentioned, you know, Q4 has been impacted by closure of some lines, the finance. What is the current status of all the lines during this quarter and next three months? Do we expect more closures and the earlier ones have been resolved, if you could clarify that?
The past quarter we have as a part of a capacity expansion, we have closed a production line, which is because we're not able to cater to the demand. We added one more line to that. May 15th, we have opened up that. The commercial production started again on that line. That's the only line which got shut down. That's specifically to add one more layer because we've been contemplating that for a while and we're not able to meet the demand. We took that call.
One more line has been added apart from the one line which was started from, restarted from May 15th. Is that right or?
We had two layers before. We added one more layer to that line. That's why we had to take a shutdown for that.
Okay. Now three lines are operational is what I understand.
Three layers, yeah, correct.
Okay, lovely. In terms of, you know, you mentioned about, you know, last quarter, you know, you will not mention about guidance, but I'm trying to understand that gross margins are there. Inventory rationalization is largely done by the customers or you think there is more inventory in the system?
I think, a few products, I think for one more quarter it will be there. That most of the customers have rationalized. That's the reason, you know, while the end market volumes have not come down for most of the customers. If you look at even of the largest product, you know, we sold 50% of actually the end market, number of units. That should get back in the next few quarters. Other than that, I think most of should get rationalized, yeah.
No. Inventory is volume only, no? I'm a little confused there.
Yes. Inventory at the front end customer level. They were maintaining a higher inventory levels earlier, but because of the high interest cost and everybody's rationalizing their inventory, they're de-leading to a lower levels. You know, some customers used to maintain nine months to 12 months inventory because if you have a GPO NF contract, they have to maintain minimum six months inventory. Now with the high interest cost, they're trying to reduce their inventory further levels. Our transfers from our them has reduced. That's impacted our business a bit. The end market wise, still the sales are robust in many products.
Okay. Okay. Understood. Demand is there, but in general, there is a destocking or a reduced inventory level that is being kept.
Correct. That's the reason actually because they've pushed out, because of very rational inventories, they had pushed out some orders and that's why we are ending up with, higher inventory at our levels.
Okay. You mentioned about, you know, one large product, micafungin. How about, you know, Heparins and Enoxaparins? You earlier used to mention about a little bit on the size. Would that have contracted significantly and demand still prevails for those kind of products?
The heparin is mostly price driven and, you know, we consciously took a call that we will not go for very low margin because it doesn't make sense utilizing the capacity for low margin, so that's what happened. Enoxaparin we have grown as number of units we have grown, but some markets the pricing is low. The revenue has gone down by about 10% for enoxaparin as a company, but the volumes have gone up by about 7%.
Okay. Heparin, sir?
Heparin actually we have gone down in terms of units. That's a combination I would say of price and also, you know, last year we had lot of sales the last quarter because of COVID. I think it's a combination of both.
Okay, lovely. Thank you. I have more question. I'll join back.
Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead. Neha, your line has been unmuted. Please go ahead with your question.
Yeah. Can you hear me?
Now. Please proceed.
Yeah. Sorry about that. Sir, could you explain to us, what is the, you know, sort of the one-off impact, if at all there is any in the quarter? What should be the base that we should be working for when we look at a normalized business, given there was Pashamylaram shutdown, et cetera, that we saw in the quarter? Hello?
Management, we are unable to hear you.
On the revenue side, I think, the one we called out is that Pashamylaram plant shutdown, that should be around INR 30 cores-INR 40 crores has been impacted. I think on the others, it's also the ROW and all what we mentioned is seasonality. On the expense side, we have spent a bit on the M&A disclosures and.
Understood. Even if I were to adjust this INR 30 cores-INR 40 crores, when you say seasonality, does it mean that some of the sales has probably slipped into, you know, the first quarter as against last quarter?
Yeah, it could be last quarter or the next quarter. For example, one of our, the ROW tender, which we are supplying substantially. Those quantities, you know, some going the next quarter and new tender coming up, which we participated now. Because of that, there's a shift in the, you know, which quarter it got sold.
There could be some bit of it which comes back in first quarter or second quarter?
Yeah, correct.
Okay. Overall, we haven't lost any tenders, in our ROW market vs last year, right? Let's say vs last quarter.
Tenders, no. We have not lost the tenders. You know, like I said, Heparin, we intentionally reduced our sales because the margins are pretty low for that. You know, compared to the cost of holding those inventories and committing to the volumes, larger, you know, for a longer period of time, you know, it's lot more riskier because the margin profile is low for these supplies.
Understood.
We stayed away from that. otherwise, from tender perspective, we have not lost any.
Understood. I think in the opening comments you mentioned about strategic shift at some customers. you know, could you know, quantify are there certain customers that have, you know, stopped taking supplies from Gland and therefore we are looking for alternate, you know, supplying this to alternate customers? Is there some amount of lost sales that we have seen because of these strategic shift that you're talking about?
One customer has shifted almost 14- 15 products. They exited this market. That's not an immediate, they did give us time. We are actually already shifted some of these products to another company and a few more to be shifted, but they continue to have those three or four larger products, still continue to sell those. The other company which we mentioned was going to file a bankruptcy, now it's in the public domain. That, those products are still, you know, they are going for liquidation. If somebody buys, then that business will continue. Otherwise, whoever buys it, that business should move to them. That, we're not yet clear how that business goes. That's the only, I think, business where we don't have clarity yet.
You know, would you be able to quantify in the first place the 14-15 products? What is the size of that in terms of, you know, number, you know, like, sort of to understand how this will move?
The customers which gone through the bankruptcy?
No, no. The 14-15 products that you mentioned, you know, the customer shifted to another, player or has shifted out from that.
That's already been shifted. Most of the products have already been shifted and getting relaunched the next quarter. We can't really quantify yet on how that goes, but, you know, we're pretty confident of that business doing okay.
Okay. That will come back in the subsequent quarters for us as we shift it to our customers.
Correct. Correct.
Understood. Okay. Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead. Shyam, you may proceed now.
Good evening. Are you able to hear me? Hello?
Yes.
Yeah, great. My question was on the core markets and the divergence between what about U.S. vs, say, Europe and the rest of the markets, right? Full year, I think U.S. has declined 7%. These other markets have declined higher. And I think for the quarter maybe there is a lot more convergence. Just want to understand the differences between these two markets and, you know, is there something that is specific that is driving on a full year basis, like the weakness in the, in non-U.S, core markets?
Not really. I think it's a question of timing and what kind of products. Like you said, you know, Repatha is the largest product for us. You know, if you see as a company, we lost over INR 150 crores for that. I think the ROW, that's one of our major product as well. Because of the pricing, we didn't participate or we didn't want to supply for many offers what we got. I think it's more to do with which quarter we sell. You should include last year. If you're comparing with last year, there were also sales, so they linked to COVID like we said.
Do you, Mr. Sadu, do you see any divergence in the pricing pressure between these two core markets? Do you think it's just a function of which product is when and if there is a COVID element? It's so difficult to get an underlying trend saying, okay, U.S. is, say, whatever pricing pressure and the rest non-core is, rest core is higher, lower?
I think the price-wise, you know, if you see as a company in both markets, you know, we see like a 1% increase if you look at the pricing for these products. Although the growth will come from the new products like you said, but the price reduction when you see the revenue bridge, you know, the margin gap, it's 1% lost on the because of the pricing. It's mostly because of the revenue, the big growth. We are not able to absorb that the fixed cost what we have on the sites. That has impacted the margin. That's the reason why the contribution margin was still we are at 54%. From pricing a little price, still it's okay.
Got it. Helpful. Second question is just on the supply of your raw materials and, you know, stoppers for Indegene. Can you just comment on where are we in the journey, prefilled syringes, stoppers? Do you face any constraints today? And if you were to look at fiscal 2024, you've also talked about inventory for both finished and I think raw materials being higher. Are we good on that and we shouldn't see a supply shock like what we saw last year?
Yeah. From, I think, supply side mostly it's, I would say 90% stabilized. Few products, few, filters and tunings, on and off, but not a major, I don't think there's any major issue on that side.
Got it. Mr. Sadu, just I know you're not giving a quantitative number for top line, it's just a question of getting the demand now, either say, let's assume ROW through the tenders. If you were to Since supply is not a constraint, you can now start looking at being, if I use the word aggressive, to try and get demand, because supply is not an issue. Would that be a fair statement to make? As you look forward, also you're getting this NX, see what about EUR 25 million per quarter coming through. Roughly, I'm just quarterizing an annual number. Is that how we should broadly think of fiscal 2024? I know you're not giving a number, but help us construct the revenue bridge for, say, 2024. That'll be useful. Thank you.
Yes. Absolutely. I mean, one is working with the partners closely on the front end pricing, how it's, how it's going to work. The market landscape is different compared to earlier. The assumptions what you made earlier when you, when the product gets genericized and with what price you go and bid, that's completely different now. There are also opportunities lost because we are assuming that the prices won't fall that long. Although we had leeway in terms of a cost and transfer price and what we could have made a bid for a contract. Because assumptions went wrong, the partners couldn't get those. Right.
Now we are working closely with them, how compared to other bids, what price they are at and what price we can offer, and internally, how much we can go down in terms of transfer prices if there's a need. We are working very closely with them and aggressively looking at each product where we have lost market share. We have actually mapped which are the products which we lost substantial market share and the reasons behind that, and we are working towards that. That's one big action item we're taking. Of course, Cenexi, big focus for us because that market we have never penetrated, and this is an opportunity for us.
Several business opportunities we are looking at, already there are big discussions happening with companies, how to move products there. There's also other angles where we are able to talk about taking products from plant to Europe, through this acquisition. Then like you said, of course, you know, there's a consolidation that's going to happen, with the regular revenues what they're generating today.
All right. Thank you and all the best. Thank you.
Thank you. The next question is from the line of Saion Mukherjee from Nomura Securities. Please go ahead.
Yeah. Hi, good evening. Can you share the impact that can potentially come from your partner who has filed for bankruptcy, assuming that, you know, those suppliers get impacted?
Hopefully now because they have gone for liquidation and people are looking at aggressively how to get our contracts. In fact, there are also customers who are reaching out to us, you know, without knowing the bankruptcy process, whether they can buy out the contracts. Because there are three or four products where they have GPA contracts attached, which has a good value. It could be a temporary impact where, you know, supplies are stopped because we also need to recover the money. I think long run this will be protected because it is under this process where if somebody acquires it, they have acquired the contract where they have to pay the clear money and also they get rights for the GPA contracts where they get transferred.
Hopefully, you know, short run it might be an impact, but till the time it process ends, they date for end of June, you know, by the time the sales process should complete. We should get a clear idea of who's going to get these products. If the business is somebody's going to buy the business in total or, you know, somebody's going to buy products or the contracts.
I'm just wondering, in case, I mean, in the interim, you are not supplying, right? Somebody else is probably meeting the demand at this point. If that is the situation, then why would someone buy those assets? The value would keep eroding as time passes.
The business has not stopped. While they have removed a lot of people, they still kept the quality regulatory and commercial staff. There's also inventory lying in the channel that's being supplied. They have inventory of almost four months or five months, that's not a challenge. There's no stoppage of business. Business is running as usual. It's just that the accruals are going into escrow accounts where we get access to. That's not an issue.
Sir, I mean, I mean, you're not sharing the number, but I mean, is it a meaningful number in the sense, is this one of the large partners that you have? I mean, I just in the case of an eventuality, there is a disruption, it could have a meaningful impact, or do you think it would be a smaller?
The business what we do with the customers is around INR 200 crores per year.
Okay.
Yeah. We are pretty much confident that it's not 100%, at least 70%-80% should come back, at least for the products where they have GPA contracts in place.
Okay. Okay, understood. Sir, on the, you know, Cenexi acquisition, the numbers that you disclosed, imply that, you know, the EBITDA has come down materially for the second half. I know when you did the acquisition, you did mention that, you know, first half was inflated. If you can give us some indication as to, you know, what's the right level of EBITDA for Cenexi that we should work with.
Yes. Sam, like last time, when we spoke about the Cenexi, we told that it's a half year, it's not indicative of the full year. However, the second half of the calendar year 2022 has also been impacted because of the high energy cost, which we are expecting to improve now because that is now kind of behind them. In terms of revenue, they have definitely grown. EBITDA margin is currently the full year what we have achieved and should be better, I think, still that's what the projection is. I cannot give a number right now.
Because of the cost factors, it's going to improve and the product profile which we are currently working on is in a better margin profile than the previous year. Numbers we'll talk about later on once we have a full clarity on the plan.
Okay. If I can on, you know, sir, you mentioned about competition in Heparin and Enoxaparin, particularly in Heparin, right? Where it has come to a level which is not very lucrative for us. I mean, how important are these two products? Now, I remember like initially it was very important, like how big contributor are these two products to your overall revenues? If you can give some color on, you know, what is really driving it. Are these the Chinese player who are beating down the price? Do they have some cost advantage which is leading to this sort of erosion?
Yeah, absolutely. If you see heparin are directly now, the two Chinese players have directly launched in the U.S. That's one major roadblock I would say. If you look at from a number of perspective, the heparin for the company is around INR 60 crores in FY 2023. That's for the company. We are working on a strategy where, you know, we have nine SKUs whereas lot of other companies do not have nine SKUs. We're seeing how we can increase that volume going around, looking at the basket instead of an SKU level. We are working on that as well. We are also working with our own parent company subsidiaries and qualifying their crew to get a better pricing.
Once we get better pricing, I think we'll be in a better position than now.
The same situation is in enoxaparin as well?
Enoxaparin, U.S., what happens is, of course, you know, they're again direct suppliers from China. There's a competition in that. The compliance of the GPO is not there yet. You know, although our partner has a recent contract, the compliance is around 55%-60% as against normally 80%-90%. The off-take is not as per our estimate, which kind of impacted our pickup of the stock this year because we had larger inventory last year. They are rationalizing that inventory that has impacted. Should, I think if not this quarter, next quarter, not June quarter, but probably September quarter it will start. I think that we product enough.
Okay. Can you share the total contribution for heparin and enoxaparin for FY 2023 for the company?
For the company, for enoxaparin and heparin together is INR 970 crores.
INR 970 crores. Okay, sir. Thank you.
Thank you. The next question is from the line of Anandha Padmanabhan from PGIM India. Please go ahead.
Thank you for taking my question. Sir, just to understand, in Q1 we will continue to see the impact of production shutdown, or so that would again be a factor that will play in the next quarter as well, if I have to understand that right?
No, it's started now. Now from May 15th the line is back on track in commercialization. probably half quarter impact, but it's back on track. As I said earlier, three bios, now we are producing three bios, so that should make up for the quarter number.
Okay. With respect to Cenexi acquisition, by when do you expect the acquisition to get closed or completed?
It's already closed, last month.
By when should we expect to close? For Q1 itself we should see the consolidation happening?
Yeah, I think consolidated this year, the next quarter, for two months, because we closed on April 27th. The consolidation happens in next quarter for two months, May and June. For two months, yeah.
sir, heparin and enoxaparin for FY 2022, how big were they? Contribution of heparin and enoxaparin for.
Around INR 1,100. About INR 1,100.
INR 1,100.
INR 1,200.
FY 2020.
Yeah.
Sorry.
FY 2022 it was INR 1,200 and FY 2023 is about sorry, INR 980.
INR 980.
INR 7-INR 980. Yeah.
Okay. Okay. In U.S., do you see in terms of the pricing pressure or in terms of there are some news flows of some key players' facilities getting impacted because of increased regulatory action? Are you seeing any impact of the same in terms of customer inquiries on your contracts or in terms of demand?
The volumes of certain products have gone up because of this. The pricing has not gone up that much. We had some 70 products, the volumes have gone up. I think more and more, we are getting inquiries on certain products.
Okay. Thank you, sir. I have a few more questions. I will come back to the queue.
Thank you. The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good evening. Just a clarification on your inventory levels. It seems to have gone up significantly worldwide.
Yes. Like I said, because of the cut down of inventories at our partner level, it got pushed out a few months and that got added up at our end. Because of this situation of last year, we're trying to keep up a little more inventory than usual. You know, like you said, from heparin, enoxaparin there's a lot of inventory with us. One is anticipating the pickup from next quarter onwards. The other is, you know, we don't want to sell at a low price. Once, you know, I just talked about how we want to manage U.S. situation. Once that gets finalized, then we will start utilizing that.
Yeah, we are focusing on that and seeing that how to reduce that inventory for sure.
Okay. This customer who has filed for bankruptcy, did their take off from you, decrease significantly in quarter four compared to quarter three?
Not big way, I would say probably 25%-30%. We actually started reducing supplies looking at the receivables to reduce the receivables. We kind of reduced supply at the end.
Understood. The other customer who exited the business, when did exactly they stop taking products from you? Which quarter was that?
It's this quarter, the previous quarter and, but we have already canceled those products and getting launched, they are this the coming quarter. Some are getting launched in June, and some are getting launched in July.
Yeah. Sorry. When did they stop taking products from you? Was it 4Q or 3Q or 2Q?
4Q. Last quarter.
Okay. Okay. Thank you.
Mm-hmm.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Yeah, thank you very much, and good evening, sir. First of all, what was the profit share for the quarter and for the full year?
You want the full year?
Yeah, Q4 and full year. I remember it used to be around 10%, 11%. Has this materially changed?
Yeah. full year is 8% and quarter four is 7%.
Okay. That's a straight, 300- 400 basis point hit to your margins, no?
Yes.
This is all the impact of the end market price erosion, which is now getting filtered down to you as a supplier.
Yeah. It's both actually, because, along with that, there is also the impact of the high margin inventory, you know, lowering at the customer end, which we were talking in the beginning.
Yeah. Which means the revenue mix. The high margin stuff is kind of not moving.
One second. Yeah. The product mix also. Like, products like mica has high profit share.
Where do you go from the 7% now if you look out in the future? Is this a new level or you think, you know, you're gonna go get back to your previous levels?
From profit share perspective?
Yes.
I think it all depends on, you know, currently, so much shortage is happening, probably the pressure on some of these products are not that much. The mica, now it has gone away. Like I said, it's from INR 400 crores, now it is at INR 65 crores. The volume should increase a bit because it's also taking considering the high inventory they held last year. They were using that inventory. That should go up. I would still feel that it should settle around 10%.
Okay, that's very good to hear, sir. The second question, you're talking about the end market price, pricing pressure, so your customers are sort of losing market share, so you want to sit down and plan the price volume metrics. I wasn't too sure that I understood your comment fully. What percentage of the business does that planning, you know, apply to? Does that mean that we should brace for a sort of portfolio-wide or something price erosion in fiscal 2024, as your plans, you know, get finalized with the customers?
I think, you know, we can't very generalize on same plan for all products, right? This is a different, three are different kinds. That's why we are getting each product level. Some products actually there's a lot of margin, where customers can pay, but they don't want to do it. You have to be the customer and what's the logic behind not going after the higher market shares when there is a high margin between, you know, the selling price and costs. There are also products where, probably our transit price is little higher, where we have worked on reduction of costs over the last, you know, 12, 18 months.
You know, part of our, I would say, you know, 30%, 40% of our R&D cost goes into lifecycle management where we reduce costs. Where we can actually go after a higher market share. There are different factors for different products. That's what we are trying to do, which products we have lost market share or where we have lower market share and where there's a possibility to increase those volumes. There's no one solution to all products and each they actually differently.
Fair enough, sir. What's the average picture? What should we expect in fiscal 2024? You know, just roughly about, you know, is it about lower pricing, higher volumes for the base business? What percentage of your business is getting impacted? Is it like 20%? Is it 50%?
No, we can't really give a number. That's what I'm saying. We also have some high margin products where the volumes currently are not that much, and we are trying to see how we can increase those kind of volumes also. Some some partners, they really don't want to go after, what do you call, a competitive bid. They don't want to participate bid. We have to sit with them and say, "How to get into this kind of bids?" and stuff like that. It's a combination of both. One, probably where we still have margins, where they can go aggressively for market share or where probably the volume is helping to absorb our fixed costs. Even if the margin is lower, but if it's frequent.
Okay. And I've got it, sir. One final question. Not too far back, maybe, six quarters back, your operating margins used to be 35%, and this quarter it's 21%. It's a very, very big move. How should we think about it? I'm not looking at next two quarters, but like in a year or two, how is the business going to evolve and what's the right range? Or any guidance, any qualitative points on this would be very helpful. Thank you.
I think it's a combination of the lower base also because of costs, they're almost fixed. Like I said, they're only added costs in the recent times where it's not commercialized. These lines will get a bit on track next few quarters. The revenue base is lower, but the costs are similar or little higher than last year. That's why it has gone down. Once your revenue base becomes normalized, this is, this will automatically go up.
Yeah. It's like the leverage impact which has affected us. Injectable cost, most of it is being fixed and inflation and power costs has gone up. While the gross margin percentage remaining similar, impact has been direct because we are dividing by a lower base of revenue now, the cost has gone up.
Also, if you see the R&D cost because the base is lower, we spent like, you know, last quarter is almost 7% because of the complexity of products what we are dealing today. So our original plan was stick around 4%-5% with the normal growth what we have as a company. Because our base is lower now, you know, that's showing at 7% and it's showing at lower EBITDA number because the absolute number is still as per the plan. As per the year, normally I think it's higher this year is around 5%-6% or something. But historically it's been around the range of the 4%.
Okay. Got it, sir. Thank you so much.
Thank you. The next question is from the line of Alankar Garude from Kotak. Please go ahead.
Yeah. Hi. Good evening, everyone. Sir, in the past, we used to be quite confident of the growth trajectory in ROW. Would you still maintain that ROW will grow at a significantly faster pace for us, say compared to U.S.?
The base has gone up. You can see last year a substantial increase in the base. That's why you see the U.S. business is very large, and that's why the percentage growth looks small, smaller. The efforts are there how to increase the growth in especially the Asia and MENA markets, where we see substantial opportunities opening up there, even compared to LATAM.
Understood. Sir, has there been any meaningful change in the gross margin profile across geographies in the past one year? Because I remember a couple of quarters back, you had talked about ROW margins being significantly lower than U.S., as well as the other regulated markets.
I think it's in the similar range like it used to be. In fact, the price pressure in U.S. was larger, whereas other markets it's still, except one or two products, but mostly it's been stable.
Understood. Sir, final question, quite similar to the previous question. If we go back in here, we were guiding for about 20%-25% top line growth with a 35% EBITDA margin for FY 2023. Now vs that we have delivered about 18% drop in sales with about 28% EBITDA margins for the full year. While we are not giving a numerical guidance, would it be fair to say that structurally this is the new normal now, or we are very close to the new normal now?
I can't really say that because, you know, like I said, it's been, it's been very dynamic situation out there. With the, with the high interest rates, people are looking at how much inventory they have to do it. Now the inspections start happening. We have to see how that's going to play out. You, you have seen three or four big players having issues in the U.S. Is it going to come back to maybe four years back where the companies had these kind of issues? Is it going to settle? It's very difficult to tell. We have to see how strong from the company perspective, from regulatory perspective, from quality perspective, from development pipeline perspective. You know, we're doing the best what we can.
You know, we're filing more than actually what we were doing before. We're always guiding around 23, 24 ANDAs. We filed 29 ANDAs. We're not stopping with that. We are moving on the complex area. We filed three complex injectables. The microneedle is ready. In that sense, as a company, structurally as a company, we are strong. I would say, you know, better than a lot of other companies are going through this process. Now from market dynamics, we have to wait and watch because of the competition and some are exiting the market. Naturally, you know, it could be a shorter impact for us, but the same people may be very importing the products from others and selling in the market. There the competition has reduced.
Either, you know, one way it might be disturbing for us to see that some business is lost. Positively, we are thinking, well, let's see positively. They're also exiting several other products where they're more competitive for our own product. Probably, you know, there's an opportunity for us there. It's, it's a give and take. There could be a temporary issue with that, but in the long run, if the competition is going down, raising the market, so, you know, possibly we should think that maybe it's going back to, you know, three, four years ago where there were better competitors if these guys exit in the market.
Okay, sir. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Parsha from Bernstein. Please go ahead.
Hi. This is Nithya. Thank you for the opportunity. One question on the lines shut down. We saw an incident line shut down earlier in the year and then a Penems line shut down. Are these planned line shutdowns or unanticipated ones? Why, given the substantial nature of these shutdowns, is this something that can be communicated to the market in advance? What can we expect next year? Are there any planned shutdowns?
From, from the Penems perspective, this line, you know, we've been contemplating, but we've been holding up because of the supply situation. We didn't want to disturb the market for a while. While we have, put up the value, but we never connected to the line. If you see our own, the other Penems product, we have doubled our revenue last year. There's an opportunity to grow there. We thought, you know, we'll take one time hit, but then there's an opportunity out there to take it. That's the reason why we took that call and, took the shutdown. It was the timing was not very clear when we wanted to do it, but we did that. I think, so that was the reason for it.
In the near future, we don't have plans to take a shutdown, at least a planned shutdown. Unplanned, of course, we don't know.
Got it. Thank you. The next one on heparin, I don't quite comprehend your comments. Last quarter, you had mentioned that at least from a U.S. perspective, the demand was still intact. Your ability to supply was what was constrained because of the coated stopper non-availability. Is the U.S. demand still intact? Have you solved for the coated stopper issue? Will we see heparin in the U.S., the revenues from heparin in the U. S., will it be back in FY 2024? How should we think about it?
I think heparin in U.S., you know, the impact was, you know, like I said, in line code, the 30 ml is the largest code what we sell. That continued to sell. That stopper issue has gone away. We have enough to supply now. That's happening. We are not selling too much of the other codes. That's why now we are focusing on how to get back into the other alternative codes to increase that business. The revenue impact for heparin is, has come more from India and the ROW, in the U.S.
Got it. One quick one on enoxaparin. Enoxaparin, again, last quarter you had mentioned, Sadhu, that your run rate is approximately $50 million. As the rest of the hospitals as well convert to your product, that can potentially go up to $70 million. Do you still anticipate that to happen in FY 2024?
The Nitya, that's what I told, you know, the compliance, what we thought of getting to 80.90, the compliance rate is only around 55%. The estimated volumes around $20 million, $23 million, that is standing around $15 million, $16 million. The efforts are made how to increase that compliance. The partner is discussing with the detail because that's not a fair thing that you only have a $55 million, $6 million. That's work in progress. As of now, the forecast is at around $15 million, $16 million cylinders as of 2023.
Understood. If I might just squeeze one very short one. Do you anticipate any substantial increase to the cost items in terms of any investments, plant-related investments you anticipate to make in FY 2024? Are most of the costs in the P&L already?
P&L costs are all taken in. There's no incremental cost which will come up because of plant coming into commercialization.
Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mrs. Sumanta Bajpayee for closing comments.
Thank you. Thank you everyone for joining us today. We appreciate your participation during the call. We request if you have any clarity, please reach out to me. Thank you again. Good night.
Thank you. On behalf of Gland Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.