Ladies and gentlemen, good day, and welcome to the Gland Pharma Limited Q2 FY 2023-24 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing Star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee. Thank you, and over to you, sir.
Thank you. A warm welcome to Gland Pharma's earnings conference call for second quarter of financial year 2024. I have with me Mr. Srinivas Sadu, Managing Director and CEO, Mr. Ravi Shekhar Mitra, our CFO, to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview by Mr. Srinivas Sadu, followed by financial overview by Mr. Ravi Shekhar Mitra. After opening remarks from the management, operator will open the bridge for Q&A session. Our earnings presentation has been submitted to the stock exchanges and 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, and this must be viewed in conjunction with the risks and uncertainties involved in our business.
The safe harbor language contained in our 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. I will now hand over the call to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr. Sadu.
Thank you, Sumanta. Good evening, everyone. Welcome to our second quarter fiscal year 2024 earnings call. I want to begin this call by wishing you and your family good health, happiness, and prosperity. As the end of 2023 gets closer, and this will be our final call for the year, I would also take this opportunity to extend season's best regards on behalf of Gland Pharma.
Let us discuss the quarter's financial performance and business highlights. Like the previous quarter, we have provided updates on the standalone Gland's entity and the group performance, including the financial data from our recently acquired CDMO business operating under Cenexi. We're delighted to report a consistent performance in line with our expectations for the quarter. The revenue growth trajectory has been steady across key markets and products, mainly fueled by new launches and consistent market share of our top products across our B2B partners. We reported a revenue of INR 13,734 million in Q2 FY 2024, as compared to INR 12,087 million in Q1 FY 2024, and INR 10,444 million in Q2 FY 2023, demonstrating a quarter-on-quarter and year-on-year growth of 14% and 72%, respectively.
In Q2 FY 2024, our core markets of the U.S., Europe, Canada, Australia, and New Zealand contributed 74% of revenue, up from 70% in Q2 FY 2023. Total sales to the United States, the company's largest market, increased by 22% quarter-over-quarter and 9% year-over-year. During the quarter, 15 molecules, mostly in the U.S., were launched or reintroduced in these markets. The new introduction to the market also included some niche products, such as Calcitriol, Sulfazine, and Desmopressin, for which our partners have begun to see traction, and we remain optimistic about the future growth in volumes. During the quarter, the pricing environment for most of the products remained stable, and we saw an increase in volume for some of our older products, including Ketorolac, Rocuronium, Fluorouracil, and Espumisan.
In addition to the U.S. market, we also see increased sales in Europe and Australia. Maximizing the reach of our U.S. approved portfolio is the key factor in our continued growth and market expansion. Rest of the world markets contributed 19% of our revenue in Q2 FY 2024, compared with 21% in Q2 FY 2023. These markets experienced a 9% decrease on a quarter-on-quarter basis, mainly due to uneven procurement schedule of the rest of the world business and lower sales of our key partner in Cenexi. We expect the rest of the world demand to remain stable as we align strengths to expand our market reach and establish new partnerships. The Indian market accounts for 6% of our Q2 FY 2024 revenue and has seen growth of 21% as compared to the same quarter last year.
We continue to operate within the realm of opportunities in which the portfolio holds the potential to improve the overall health of patients significantly. From a margin and profitability standpoint, we reported an EBITDA of INR 3,205 million, with a net profit of INR 1,941 million in Q2 FY 2024. Moving on to operations. The company emphasized efficiency in operations and productivity enhancements while delivering consistently high-quality products. We continue to put first regulatory compliance with agencies and our partners. We also concluded a successful audit by EU authorities at the Pashamylaram site. On the R&D front, total R&D expenses for Q2 FY 2024 were INR 351 million, or 3% of our operating revenue. We filed 1 ANDA during the quarter and received approval for 5 ANDAs.
We have also made progress with the complex portfolio, and in next 5-6 months, at least 3 products are ready for submission.... As of 30th September 2023, Gland and its partners filed 336 ANDAs in the US, 275 of which were approved and 61 under work. The company has 1,641 product registrations worldwide. Now coming to Cenexi business. Due to the annual summer closure, our Cenexi business in France and Belgium only operated for 2 months, resulting in only partial revenue bookings for the quarter, while incurring fixed costs for the entire quarter, resulting in a negative EBITDA margin. Cenexi revenue for the 2 months was INR 3,588 million, with a gross contribution margin of 77%, an improvement over last quarter, and EBITDA of negative INR 268 million.
The revenues and performance are consistent with the historical trends, after normalizing the shutdown impact. The post-integration activities have commenced, and the One Gland Family initiative is advancing. While we feel great to access a new business opportunity, the focus is to streamline deliveries and operational efficiencies to cater to the current demand to improve order and hasten the completion of the technology transfer projects on hand. Some of the present low-margin businesses will be phased out to make way for newly secured businesses. The lag will primarily be due to technology transfer activity before the commercial batches are shipped out. Until then, we'll have modest growth in revenue. To improve capacity and operational efficiencies, we will invest approximately EUR 60 million in CapEx and working capital over the next 12-18 months. In the medium term, we anticipate Cenexi to begin turning results consistent with acquisition periods.
While the investments bear fruit and near-term issues influencing Cenexi profitability are resolved, we remain confident that the company will generate long-term value. Overall, we have been satisfied with the quarter and remain optimistic about Gland's long-term prospects as we head into the second half of the financial year 2024. I now pass over the call to our CFO, Mr. Ravi Mitra, who will share more insights about our financial performance for the quarter. Thank you very much. Over to you, Mr. Mitra.
Thank you, Mr. Sadu. Good evening, everyone. Thank you very much for attending our second quarter earnings call. Let me begin by sharing the financial performance of the second quarter and first half of the financial year of 2023-2024.
Revenue from operations for quarter 2, FY 2024, stood at INR 13,734 million, an increase of 32% on a year-on-year basis. The growth was driven by the inclusion of revenue from Cenexi and the improvement of U.S. markets in the base business. We have witnessed a 14% increase in revenue as compared to the previous quarter. Revenue from operations for the first six months of fiscal 2024 stood at INR 25,821 million, a year-on-year increase of 36%, primarily due to Cenexi. Other income for the second quarter was INR 532 million, which includes interest on fixed deposit of INR 325 million, and foreign exchange gains in operations of INR 82 million.
For H1, FY 2024, the other income was INR 907 million, of which interest on fixed deposit was INR 676 million, and foreign exchange gains on operations were INR 82 million. The gross margin for Q2, FY 2024, was 62%, a significant improvement as compared to 50% in Q2, FY 2023, due to the high gross margin of Cenexi. On the positive side, our base business has also witnessed an improvement in the gross margin on a yearly basis due to improved margins in the US market. We have reported an EBITDA of INR 3,205 million in Q2, FY 2024, compared to INR 2,969 million, which is an increase of 8% compared to the same period last financial year.
The EBITDA margin for Q2, FY 2024, stood at 23%, as compared to 28% for the same period of the previous financial year. For the base business, which is ex Cenexi, we have reported the EBITDA margin for Q2, FY 2024, at 34%, up from 28% in the same period of previous financial year. On our base business operation, we managed to reduce the power cost by 5% during this quarter as compared to the same period of previous year, and maintain manpower costs at the same level. The EBITDA for the six months ended September 2023 was INR 6,187 million, compared to INR 5,668 million for the same period last year, an increase of 9%.
We have reported the EBITDA margin for H1, FY 2024, at 24% for the group and 32% for the base business. Our net profit for the second quarter decreased by 20% and stood at INR 1,941 million, compared to Q2, FY 2023, and remained similar as compared to the previous quarter of the current financial year. During the quarter, we recorded a PAT margin of 14%. During the six-month period of the current financial year, our PAT was INR 3,882 million at 15% margin. The total R&D expense for the second quarter were INR 351 million compared to INR 414 million for the same period of the previous financial year, thanks to that 3.5% of the revenue from operations on an ex-Cenexi basis.
The total R&D expense for the six-month period was INR 808 million, which is 4.3% of our revenue. On a standalone basis, our effective tax rate was 26% in the second quarter, and similar 26% for the first half of the current financial year. Total CapEx incurred during the quarter was INR 971 million, largely spent on Combi line and an additional bag line in the Pashamylaram in Hyderabad. At Cenexi, we have concluded our assessment of CapEx and working capital needs. As part of the strategic plan, we are preparing to make investments of approximately EUR 60 million over the next eighteen months. These investments will be instrumental in enhancing our capacity and operational efficiencies. We have already initiated investments in the PFS line and high speed MP line, along with procurement of essential inventory spares.
As of September thirtieth, twenty twenty-three, on a group level, we had a total of INR 22,627 million in cash and equivalent, an increase of INR 2,209 million over the previous quarter of June thirtieth, twenty twenty-three. Due to loans on Cenexi's books to the tune of INR 3,127 million as on September thirtieth, our net cash position was INR 19,500 million. Cash flow from operations during six months period was INR 4,218 million. The working capital reduced and stood at INR 22,904 million as on thirtieth September twenty twenty-three, as compared to INR 24,010 million as on thirty-first March twenty twenty-three, due to decrease in inventory levels.
Average cash conversion cycle stood at 196 days for the six months ended September 2023, as compared to 226 days of same period last financial year. 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 handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue are assembled. The first question is from the line of Saion Mukherjee from Nomura Securities. Please go ahead.
Yeah. Hi, good evening. Mr. Ravi, can you share the milestone income for this year, you know, this quarter, in terms of percentage of revenues ex Cenexi?
Ex-Cenexi, milestone revenue was 5% of the revenue for this quarter.
It was 11% in the previous quarter. Am I, am I correct on that?
Yes, that's correct.
Okay. What are your expectations, like, this is a normalized level going forward?
In terms of, milestone or I-
Yeah, milestone, yes.
Well, it could be up and down in the quarters, but it will be between what we have achieved this quarter and last quarter, so between 5%-10%.
Okay. Another question on Cenexi, just to get some clarification. So you mentioned there is a shutdown that you take every year. So what is the impact on revenue? So you reported around INR 360 crore of revenue. So is it that once the plant started, there is some shipment? So how should we think about the normalized revenue run rate for, you know, Cenexi? And also around Cenexi, if you can, you know, talk about how should we think about, you know, in general, margins going forward. I think last call you mentioned about 15%-16% margin, you know, over time. So if you can guide around the margins going forward, please.
If you look at the annual basis, which is, you know, steady business of Cenexi, it's around EUR 190 million-EUR 200 million. If you look at last year, it's around 10-10% of EBITDA. You know, just looking at the next two, three quarters, I think the trend is similar. So on a quarterly basis, it should be around EUR 50 million-EUR 55 million, if it's a full quarter revenue. The EBITDA margins will be around the same, maybe 10%-11%. But on an annual basis, it should be 10%, but we have to see. We are putting efforts to improve the efficiency of the delivery to improve the EBITDA margin.
Okay. Just one more question, if I can: We have seen recovery in the U.S. market, you know, from the lows that we had in fourth quarter. So what are the trends that you are seeing in terms of new launches and price competition, and what are your expectations for the next couple of quarters?
Price overall is stable if you look at from the previous quarter to current. The relaunches what we have done, out of 14 products in the U.S. what we launched, 4 are entirely new and about 10 are relaunches what we have explained last quarter. And new launches have contributed about 10% of growth quarter-on-quarter, and the quantity is over 11% growth for the quarter. So, we're generating more volumes. We are a little aggressive on pricing. With the new lines coming on track, we are able to absorb a bit more fixed costs. That way, we are able to be more competitive, I would say, some, while maintaining the margins.
So some of the products, like Ketorolac and Docetaxel, they are more aggressive, and that's why you see an uptick in the volumes. Yeah. So overall, I think, the older products focus more on, volume, volume mainly because of the new capacities which got added post FDA approval, line approvals last quarter. And we're able to compete better, I would say, because of, better costs.
Okay, great. Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Good evening. Thank you for taking my question. Just one on the core business margins. We have come back to around 34, close to the mid-thirties that we have guided in the recent past, right? So, how should we look at margins on a core business going forward? And what are some of the levers that we have? Is it just operating leverage, or you think there is the pricing environment? If you could also comment on whether there is a deceleration in the erosion. You talked about being a little aggressive on pricing, so just want to connect those two comments.
So I would say, 32%, you know, if you look at the products what we sold, still enough has not come back. So it will start coming from next quarter a bit and, the last quarter of the fiscal with more volume. So normally, the margins are little lower. Once that comes, probably the EBITDA margins might slide a little bit. So I still consider that 32%, that could be the targeted EBITDA margin, because the Enox is comparatively lower margin product, which will start kicking in from next quarter and subsequent quarters. In terms of price erosions, yeah, I would say, if you look at the growth, or sorry, the volumes in new products, price variance is almost nothing.
So it's almost like flat, so no price erosion happening. And some of the new products are doing well. I mentioned about few niche products, including regulators, and they are done well. So some products are doing well, and some of the older products, like I said, because of better cost efficiency, we're able to aggressively sell, so we're able to sell more volumes. So 11% volumes at the base what we have is quite substantial, and we continue to see which are the products which we can increase in terms of volumes and maintaining similar kind of EBITDA margins.
Got it, sir. So just trying to disaggregate just the U.S. Y-o-Y growth of 9%, right? So you're saying volumes are 11 and -2 is price. I'm just... Or, you know, and this 11 includes new products, right? So how will we look at volume growth for base products, and what is being contributed by new, for example, as a geography, say, U.S.?
So for U.S., our base business, new launches, compared to previous quarter, the growth is about new launches contributed 15%, and also quantity has actually has contributed 15%. So both are, both are high. The price variance is around, I think, about 1%, lower, so it's almost like flat.
Mm-hmm.
If you... margin was higher last quarter because we launched some more products. It all depends on how many approvals we get and how much elasticity. It's a factor of approval timing. So if more products approved, and then you can, that will increase again. So that's normally between 5%-10% like that.
Got it, sir. Just a second question on are we, you know, reinstating or bringing back some kind of a revenue guidance? You seem to have given a 30%-32% on EBITDA, but anything on the revenue guidance, say, the second half or for, you know, medium term?
We're still, you know, staying away from giving the guidance, but the idea is to give a steady growth quarter-on-quarter. That's how we are seeing the next few quarters, so yeah.
Yes, sir. So I'm referring to your point number two in the qualitative comments you mentioned in the presentation, which talks about improved prospects for growth. So what does that mean?
Basically, we're saying, you know, we're going to give a growth, we don't want to give a number to you, but it will be steady growth.
Understood, sir. And last question, just quickly, EUR 60 million in CapEx for the, EUR 60 million, sorry, in CapEx for Cenexi. Is this, previously envisaged or something that once you've looked at the, facility you have put in place, and what is it, predominantly for? Thank you.
So, the 60 million is not only CapEx, but also building the working capital inventory level, et cetera, because we're putting capacity there. So out of that, 30-35 million would be the CapEx. And that would. We have anticipated during our evaluation because we needed to change the lines to high-speed lines what we have here, and also put high end like the AFH lines there. So it was all earlier estimated yes. So if you look at the operating costs of Cenexi, the manpower and all that is pretty high, while the gross margins are pretty good. And while during the evaluation, the business itself, we knew that if it can replace with some better lines, we can improve the efficiencies and also cost structure is better.
That was for the previous nine. And so if we look at so many tech transfer projects happening to the website, it's about 25-odd projects are happening. So we are initiating these projects coming end of next year or beginning of 2025, so that needs additional capacity also. So while, like I said, the increased capacity was initially there, but there are also areas where we need to invest into the short-term improvements.
Got it, sir. Thank you, and all the best. Thank you.
Thank you. The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good evening, all. Congrats on a good set of numbers. I was just working out, given your ex-Cenexi EBITDA margins of 34%, it seems Cenexi has made an EBITDA loss in the quarter. Am I getting it right, or is there something wrong?
EBITDA loss. Yes, EBITDA, EBITDA loss, it is, and that's what is explained, you know, between two months revenue and three months expenses. That is a negative when you're having an asset with ten percent, eleven percent EBITDA margin. So one month is substantial, so it's in line with our estimates. On an annual basis, you know, it is going to come back to the normal levels, yeah.
Okay. So, you know, next quarter, we can expect 50% higher revenue that will cover up the EBITDA?
Yeah, like I said, around 50, between 50-55 is the normal run rate in terms of revenue. Yeah.
Okay. And, just a bookkeeping, the tax rate for the quarter was higher. Any change in full year tax rate, expected tax rate?
Yeah. So, this is again because of Cenexi, because if you see standalone, we are the same tax rate level. But in Cenexi, there are different entities, some have negative EBITDA and some has positive. So it is on that basis, on the consolidated basis, it, it add up to that.
Does it change anything as of now for the full year expected tax rate?
No, no, no. Full year, this is pretty normalized.
Okay, thank you.
Thank you. The next question is from the line of Pramod Dangi from Unifi Investment Management. Please go ahead.
Yeah, hi. Thanks for taking my question. So the question on the working capital. We have seen the drastic improvement in inventory in March this year. It's been led by the category raw material. In half year also, we have seen the increase in the inventory. So is it because of the increase sales or is it the inventory trade actually went up? And is it led by again, the category finished goods or something else? So if you maybe you have seen the increase in the trade receivables as well, you know.
Yeah. You are referring to the consolidated inventory or excellence?
Consolidated. Both of them are consolidated. So, you know, the latest went from INR 900 crore to almost INR 1,700 crore, this half, first half.
Yeah. So you have to consider that March was not Cenexi consolidated. So today the consolidated inventory is about INR 20 billion. But if you look at standalone results, it is INR 17 billion, which has come down from INR 19 billion. So that is the inventory reduction which has happened at a plant base. But since we acquired Cenexi, we need to also consolidate their inventory. So the difference from INR 17 billion to INR 20 billion is the inventory lying at Cenexi.
Okay. And is it same for the debtors also? Which went up from almost, like, INR 900 crore to INR 500 crore increase.
Sir, sorry to interrupt, but the line for you is not very clear. I request you to please use the handset while speaking.
Is it better now?
Okay. Yes, little slightly better, sir. Please go ahead.
Yeah, yeah. So I'm seeing that the debtors also went up almost by INR 500 crore. So is it the same case in the debtors also?
Yeah, debtors is similar, but in standalone also, debtors have gone up by about INR 200, and that is because our revenue has gone up as compared to March quarter.
Okay. On a standalone basis.
Yeah, yeah.
Okay, got it. Thanks.
Does that answer your question, Pramod?
No, no. That's all. Thanks.
All right. Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah, thanks for taking my question. Just one clarification. What would be the profit share? You mentioned the margin was 5%. What would be the profit share in the quarter?
About 11%.
Okay. So that's similar to the last quarter?
Yeah.
Okay. And sir, could you give us an update on our complex pipeline? I think I missed your comment, in the opening remarks. You know, how many, how many, products have been filed? When, when, when can we see approval of these products? And, you know, what sort of pipeline that we have there?
We have... We're going to file another 3 in this fiscal year. We have already filed 7. So total pipeline, we have about 19, so 7 filed and another 3 are getting filed this year.
When can we expect the seven?
Next year. Yeah, I think it's next year and fourth quarter.
So next year we should start seeing. And would these be meaningful in terms of revenue contribution? Or, you know, do you think the larger products probably come later?
Some are meaningful, I think, about a billion-dollar product, and some probably smaller.
Okay. Okay, got it. Thank you so much, sir.
Thank you. The next question is from the line of Nitya from Bernstein. Please go ahead.
Yeah, hi. Thank you. Two questions. We-
Sorry to interrupt, but the line is not pretty clear. It's breaking up in between.
I'm clear. Better?
No, it's not audible still, ma'am.
I'm sorry about this. Maybe I'll just reach out to Sumanta later.
All right. Thank you. Ladies and gentlemen, to ask a question, you may please press star and one. Participants, if you wish to ask a question, you may press star and one at this time. The next question is from the line of Nitya with Bernstein. Please go ahead.
Is the line any better now?
This is much better, ma'am.
Yeah, yeah, it's better.
Yeah. So, the EIR shutdown and therefore the impact on the revenues, this seems like something... Is this something you could potentially plan for, as in manufacture additional batches early on? So can we expect some improvement next year, or is this something that we should expect, year after year?
I think it's expected every year, you know, that's how they work. So, you know, on an annual basis, you know, it's considered every year that one month they don't work. So yeah, unfortunately, that's the reality.
Okay, understood. In terms of Europe and ROW, if you can help us understand what explains the contraction in revenues on a YOY basis?
I think it's more to do with because Europe compared to Europe to other countries, and most of our ROW business is around Enoxaparin, so that. And also, Caspo. Caspo, which is a high-value product. I would say it's more of the timing, which quarter it goes, rather than anything else, and of course, the pricing of Enoxaparin.
Understood. But I thought you had supply issues last year with Enoxaparin that I think then therefore there's not any issue.
No, that was for the US market, but ROW, still, the volumes actually still reduced. The demand has gone down overall, and also the competition is high in other markets. And the pricing also we are seeing, you know, it really works for very, very low margins, too. So it's that kind of a thing. The competition.
Yeah, I think market is to come back.
To, from here on, on an average?
Yeah, the last quarter is expected to come back a bit. The next quarter.
Understood. Thank you so much.
Thank you. The next question is from the line of Chintan Sheth from Girik Capital. Please go ahead.
Thank you for the opportunity, and congrats on great recovery in the margins in the base. Couple of questions. First, on the base part, you know, you mentioned that outlook seems to recovering. Does that mean... And, you are kind of not alluding to the numbers, but if you - if, if one has to, you know, triangulate in terms of the new supplies to start from next quarter, for the Kabi business, and that will incrementally one can expect the sequential revenue growth will be positive directionally? Not, you know, asking on the specific numbers.
But can we expect that sequential numbers will start to improve from the base of, say, INR 1,000 crore we reported this year, will look like a steady state going upward trajectory going forward?
Yeah, that can, that can come from there. We will, we will. That's the statement I made. You know, we will grow at steadily, while we're not able to launch at that number yet. It will grow steadily.
Correct. And second, on the margin front, I understand the lower margin part and lower value product you will, you know, start supplying from next quarter. But as the base, the revenue base will improve, there will be some significant leverage which you can, you know, derive from. And your guidance of 30%-32%, is it more conservative, or do you see more pricing pressures in the coming quarters, which you know gives you a cautious outlook in terms of giving out the, you know, margin guidance at 30%-32%?
I would say it's a cautious approach also. While the price erosion has stopped and it's stable-
Mm-hmm.
And then depending on which part we are able to have, which is really kind of, but at least, we're making sure, you know, we not go below, you know, the 30 number which we've been contemplating. So we said probably 30, 32 will be a good bet.
Correct. Correct. And lastly, on, you mentioned about the CapEx plans at Cenexi. Any numbers you want to guide in terms of our base business, how much CapEx we have been planning? And lastly, on the China, if you can, if you can, you know, give some outlook there, that was one of the, you know, sought after market, earlier we were looking. Anything to call out for, say, expect from FY 2025 onwards?
On the CapEx, for the base business, for FY 2022-2024, we'll be doing INR 250-300 crores, largely in the same projects which I mentioned in my speech.
Mm-hmm.
For next year, it should be around INR 300 crore.
Okay. And, on the China bit?
The product what we launched is still not into the,
VBP.
VBP agenda. So probably we are hoping that next year, if it does get into that group, then the volume will expand. Currently, it's being sold only in the private sector, and we're trying to be so waiting for the agenda to open.
Any plans for the additional products to be launched over there? Or we will be writing that-
One more product, I expect to be launched next quarter.
Okay. Okay. And yeah, that will be from my end. Thank you, and under the revised.
Thank you. The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, everyone. Can you share what could be approximately inventory levels in Cenexi?
So it should be around INR 300 crore.
Okay. So approximately somewhere around, with a turnover of $200 million, that could be more than... So they, they have asset from, of INR 1,700-INR 1,800 crores, right?
Uh, so-
20%, more than 20. Why I'm asking is, you had this 4-week shutdown, maybe next year or if it's a recurring thing, would it be better we, you can manage it better because of by doing a better inventory management in terms of so that the eventual impact on revenue could be lesser? Is that possible?
No, in fact, we are looking at, because we mentioned, like, we are putting new lines and there are many technical projects going on, so probably build up the inventory there.
Yeah, yeah. My, my point was the impact on financials and revenue would be lesser if you have higher, if you have inched up your inventory at higher levels so that you can. It doesn't impact your sales.
Yeah. So shutdown was in month of August, actually, but the September was running operation. So end of September, kind of normalized.
Yeah, I'm not asking last one. I'm asking on a recurring basis going forward, could you manage this impact which happened in this year, and there won't be any loss of sales because of that?
So actually, the shutdown means there is no sales also, no dispatch also, but we need to plan that in a full year basis.
Okay.
I mean, it is too early to tell and maybe we have to evaluate the inventory and the sales, that work is going on. What is the optimum inventory to be kept, so that the dispatches will not get hampered? Probably, later on it will be done.
Okay. Second, you mentioned in the press release, EUR 60 million kind of investment in Cenexi. I presume this is CapEx, OpEx altogether. So, what could be asset turn from this investment? Like, anything you can guide us, what could be with the current capacity plus this capacity, which turns out in next 18 months, what kind of asset turn could be planned, or what kind of peak revenue turn it could be possible in Cenexi?
Give me a second. Yeah, Ritesh. So, today, the asset turn is about 2, because the revenue [is] EUR 200 million and the fixed asset base is about EUR 100 million. Now, after we invest this in next 18 months, which is about EUR 30-35 million, the peak revenue which can achieve on this capacity is about going up from EUR 200 million to EUR 240 million.
Okay. Okay.
And the-
Okay. Okay. So approximately 20% kind of. And there would be existing capacity also on the current base that you can take it up, right? The utilization could be at lower levels. So even that could be possible. That we will not have taken in the calculation. Sure. My last question, on the margin side, in past you highlighted Cenexi can have a peak margin of 13%-15%. So do you stay with that number, or is there a possibility of that number be on the higher side, even you have you would have looked at the asset in detail, then you would have looked at the cost structure in detail. Is that possible, possibly?
I think we can't comment too early. Maybe, end of next year will be better off. So currently, we want to stick to our number. In the near term, if we can get to 13%-15%, that would achieve. Then once we have this new CapEx implemented and then the revenue starts generating, then, there could be improvement on that.
But with the current level of gross margins, which Cenexi enjoys, in the medium term basis, there is a possibility of these operating margins moving up from the current range of 12%-14% to a higher range?
We are currently analyzing that data. As of now, in the near term, it is not, but we'll see how the efficiency increases. Like also we mentioned that OTD improvement is one of the key areas we are focusing on.
Okay. Okay. Thanks. Thanks. That's from my side. Wish you good luck for the coming quarters.
Thank you. We have the next question from the line of Dheeresh from White Oak. Please go ahead.
Yeah, thank you, sir. So just, just to understand, this one-month shutdown, this is necessitated by the complexity of the plant, or this is like a cultural one-month break? Because I don't see Indian companies talking about one-month, you know, plant shutdowns.
No, it's annual French holiday at our plant.
Got you. So it's only related to the three French plants and then, or it also in the-
Even Belgium, even Belgium has that thing, so one month holiday, yeah. Three weeks in Belgium and four weeks in France.
Okay. And this is like a across industry thing in France, or this is-
Yeah
just specific to the fact that this company wants to, you know.
Across industry.
Across industry.
Across industry. Yeah.
Understood, sir. Okay, thank you.
Thank you. The next question is from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.
Hi, thank you for the opportunity. Sir, within ROW, you made that point on the timing issue and lower Enoxaparin and heparin sales in this quarter. But in general, can you please highlight which markets are doing well for us, which are the focus markets? Has Brazil recovered fully? Something on that, please.
Yeah. So Asia, Americas and these markets are doing relatively okay. LATAM is now recovered 100%. Brazil, like I said, you know, start coming back from next quarter. It's not recovered 100%. Some products are moving, but not, not enough selling between. But other market, markets are in line with what I was saying.
So earlier, sir, we used to have this target, and this was just maybe a year, or so back. We used to have a target of 30% contribution from ROW. Now, with Cenexi coming on board, currently it's about 19% for us, and there have been some changes, in the way the business has moved in the last one year or so as well. So keeping all these factors in mind, how should we look at the ROW contribution for us, maybe in the next 3-5 years?
So as a group, you know, the dynamic change now. As a group, we have to see when the partners that in Cenexi business, you know, they also have some sales in ROW. So we have to see if, you know, they are willing to take our products to those markets. So the dynamic change, I would say, after the acquisition compared to before. So the discussions are on how we can actually leverage those partnerships to grow our business in those markets. Because this business not only sells products within Europe and US, but within other markets also. So if you can add our products to that pipeline, that will again start growing.
Would it be fair to say that ROW will grow at a much faster pace compared to, say, U.S. and Europe for us?
Well, the base is lower, so hopefully it should grow faster than other markets.
Fair enough, sir. One final question. Can you throw some light on the B2B and B2C competitive intensity, which we have faced in the past in the US particularly, and how is the situation now?
I think it's still, it's still there. Now, it all depends on how our products are positioned. So, especially products, like I said, which are very aggressive in pricing, we are able to compete with our better cost now. So focus goes on those products. But again, even all the B2C players don't have the entire portfolio. They still continue to use those products. So those products are being supplied by us. So I won't say the intensity is less, and the players are still there, and they are selling it based on how you position a product depending on the competitive intensity.
Understood, sir. Thank you, and all the best.
Thank you. The next question is from the line of Nitin Agarwal from Dam Capital. Please go ahead.
Thank you for the question. Sir, my question is regards to our new relaunches that you talked about. I mean, so two questions. One is, A, you know, what prompted this largest number of relaunches in the quarter? And two, you know, typically, how does the relaunch process work? Do you end up shipping in a reasonable amount of inventory along with the relaunch?
It's a mix of two. One is, as you know, the Athenex products, you know, that went to bankruptcy and that those products have been acquired. So the acquired company has liquidated stocks what they got from the previous entity, and then they continue the business. So when you say relaunch, some of the products went to this new entity, which acquired this. So the business continued. So there was a lag, I would say, between maybe up to two months, where they have used the inventory, and then we started shipping to continue the business. So that is most part of the business. And there are few products where the company, they're not doing well in terms of, you know, they have their own margin requirements.
We have taken back those products from these companies and then offered to others who are willing to sell this product. It's a combination of both, but mostly products that we got back from the bankruptcy.
Okay. In terms of the second part, when you relaunch the products, does it imply a lot of channel filling, which also comes from a lot of channel filling of inventory, which also comes in?
I'm sorry, can you repeat that?
I mean, does a relaunch typically come with a reasonable amount, some amount of inventory, you know, as part of the launch process?
Not, not that much. Because normally, when, when you're taking a product and somebody's trying out to sell, normally they go with the lower inventory so that they'll not end up with huge. So not too much channel inventory there. Actually, few products which we launched even the previous quarter, so those being... Again, you know, we supplied few of those products as well. So now these products also will continue. So I think it's a, it's a combination of both.
Okay, lastly, I mean, your outlook on the, I mean, U.S. generics market, I mean, have you seen any meaningful reduction in competitive intensity? Have you seen any meaningful reduction in the pricing pressure or, you know, overall on a basket level?
I would say, I mean, the drop has stopped. I mean, earlier every year, every quarter, you used to see, falling prices. I think that's not happening now. So it's basically a little bit stable. So I think, that way, we're able to predict better than before.
I think, have you seen any people withdrawing from the product or from, from certain products? Has that increased over the last few quarters?
Yeah, it did. You know, it also, it also depends on the regulatory issues, country factors, and also people are looking at. It's not really wise to sell some products when there's no margins. So there, we withdraw certain products as well.
Okay. Thank you very much.
Thank you. The next question is from the line of Karthik, an individual investor. Please go ahead.
Sir, good evening. Actually, I would like to find out, at present, the return on net worth is approximately 10%. Is there any consideration, wherein, a buyback is being thought of, sir?
Currently, this is under evaluation, so we cannot comment right now.
Okay. And second point, one more follow-up question. Like, during the last conference call, it was told that there is, there are a few commercialization with the customer is in process. Is there any update on new like agreements with the customers for the new products, like, on biopharma especially?
Pardon?
On the China market, during the last conference, it was told that the customers visited plant and some commercialization is going on, like commercial terms finalization is going on. Is there any advancement on that?
Yeah, the plasma project, what we have taken up, that's happening. So those batches are currently under manufacturing. So that moves forward, but nothing new on the other in other areas.
Sir, and one more thing, the technology transfer, whatever is taking on the Cenexi, how long is it expected for completion totally, the EUR 60 million, which are your commitment?
There are several projects, and in the timing-wise, it varies from next year, mid to end of next year. Commercialization, you know, some we call it for end of next year and in 2025.
Okay. Sir, and, one more point additional to this. This is my final question. Like, is the... Like, previous slot, some loss due to the, loss of, sales due to non-availability of, syringes and this, whether in this quarter, any of the sale is accounted, or is there still any, loss due to this, sir?
No, no, there are no issues in terms of supplies anymore. From supply side, it's all smooth.
Yeah, thank you.
Thank you. The next question is from the line of Harsh, from Bandhan Asset Management. Please go ahead.
Yeah, thank you. Good evening. Just on this, 20% sequential growth in the US market, except Cenexi. I think this has already been answered, but if you could reiterate the break up in terms of the 20% growth. I think so you mentioned 15%-16%, through, new launches, including the relaunches, and then the remaining is coming from price erosion and base business volumes. Is that a fair assumption?
So new launches from here is about 15%, and also quantity, increase in quantity about 15%. And price variance were negative, about 1-1.5%. But otherwise, the minus already went down, like I said, but it made up volumes and relaunches.
Sure. If we are disclosing, could you please help us understand the nature of the distribution partners or the commercialization partners in the U.S. market, primarily for these relaunches? Because last quarter, I think so we had almost more than 15 products relaunched, and this quarter as well, the number is similar. What is the nature of these customers? Are these large customers like Fresenius as such, or is it a mixed batch on the overall basis?
Yeah, it's a mix of Pfizer, Fresenius, and also I think Fosun US. So it's a combination of everything, but mostly from the large customers.
Okay, sir. All good. Thank you.
Thank you. We have no further questions. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments. Over to you, sir.
Thank you, everyone, for joining us today. We appreciate your participation with the call. Feel free to contact with us if there is any question which remain unanswered during the call. Thank you. Good night.
Thank you. On behalf of Gland Pharma Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.