Good morning, ladies and gentlemen. Welcome to the Q2 FY26 earnings conference call of Glenmark Pharmaceuticals Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be no 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 touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Utkarsh Gandhi, Senior General Manager in Vesta Relations for Glenmark Pharmaceuticals. Thank you, and over to you, sir.
Thank you, Lizanne. Good morning, everyone, and welcome to the Q2 FY26 earnings conference call of Glenmark Pharmaceuticals Limited. Before we start the call, a quick reminder to everyone that the information, statements, and analysis discussed during this call describing the company's or affiliates' objectives, projections, and estimates are forward-looking statements based on current expectations, forecasts, and assumptions, which are subject to risk and uncertainties, which could cause the actual outcomes to differ materially. No representation and warranty, either expressed or implied, is provided in relation to this document. The company undertakes no obligation to update or revise forward-looking statements, whether because of new information, future events, or otherwise. From the management team, we have Mr. Glenn Saldanha, Chairman and Managing Director, and Mr. Anurag Mantri, Executive Director and Global CFO.
Like always, I'll provide a brief update on the overall business for the second quarter, and then hand it over to Glenn and Anurag for their opening comments on the current and future potential of the company. Following that, we'll open the floor up for Q&A. In terms of our overall performance for the second quarter, Glenmark's consolidated revenue from operations was at INR 60,469 million, as against INR 34,338 million in the corresponding quarter last year, recording a YOY growth of 76%. For the six months ending September 30, 2025, Glenmark's consolidated revenue was INR 93,113 million, as against INR 66,780 million, recording an increase of 39.4%. In terms of our regional performance, starting off with India, sales for the formulation business for the second quarter of FY26 were INR 11,650 million, as against INR 12,817 million in the corresponding quarter last year, recording a decline of 9%.
Glenmark has a unique legacy three-tiered distribution system in India, unlike peer companies, and there was increasing uncertainty within the distribution channel following the announcement of the GST regime change on August 15. During the second quarter, Glenmark's primary sales were affected due to one-time reduction of distributor inventory levels, some postponement of orders, and impact of freight and reverse logistics, all in anticipation of the GST regime change. Growth was also impacted due to the base effect of the discontinued tailend/low-margin products. The company expects reported growth for India business to be in line with the secondary sales growth starting the third quarter. In terms of secondary sales growth for the second quarter, Glenmark continued to outperform the Indian pharma market.
As per IQVIA, Glenmark's India formulation business recorded a growth of 10.8% in the second quarter and 11.4% as per March/September, compared to the overall market growth of 6.4% and 7.3%, respectively. In terms of its core therapeutic areas, Glenmark continues to outperform the overall market as per the IQVIA secondary data. We are now ranked 13th with a market share of 2.3%. We have, in fact, now added a couple of additional brands to the IPM Top 300. We now have 11 brands in the IPM Top 300 as of March/September. In terms of our key core therapeutic areas, we are ranked second in dermatology, third in respiratory, and fourth in the cardiac segment as per the IQVIA March/September data. In terms of some of our key launches in India, starting off with Tevimbra and Bukinza.
As we had announced earlier, Glenmark had launched both these products under their Tevimbra and Bukinza in partnership with B1 in the first quarter. These two brands have seen a very strong uptake in the market in a short period of time as a differentiated treatment option available across multiple solid and hematological tumors. The company expects these two brands to further gain momentum and meaningfully contribute to the India business growth over the next two to three years. Lirafit, we continue to see strong market share in Lirafit and Liraglutide market. As announced earlier, we plan to launch other GLP-1 agonists as well. Jabris, which was partnered with Pfizer, and we launched the product in January 2024. Again, as a novel treatment for moderate to severe atopic dermatitis, Jabris has been well received by dermatologists overall. Our consumer care business recorded secondary sales of 10%.
Candid Powder continues to hold leading share in the market as per the IQVIA data. Our scalp portfolio delivered very strong growth during the second quarter, and some of the other direct-to-consumer brands also performed well. We recently transferred the India consumer care business into a wholly-owned subsidiary called Glenmark Consumer Care Limited to bring better focus to the India consumer care franchise. Moving on to North America, the North America business recorded sales of INR 44,656 million for the second quarter, as against INR 7,405 million for the second quarter of last year. Net of the outlicensing income for the ISB 2001 deal, the core business growth in North America for the second quarter was 7.4%. In the second quarter, we launched two very interesting products: Mycophenolate injection and Eribulin mesylate injection.
We now have more than 10 injectable products launched in the US market and continue to build a strong institutional business franchise in the region. We are obviously leveraging our strong development capability in respiratory. We are awaiting approval for two ANDAs for the generic nasal sprays, which we have filed earlier. We are also, as announced earlier, we have filed the ANDA for generic Flo 44 MCG. We are working on additional filings in the respiratory area as well. We plan to file two ANDAs in the upcoming quarter and launch three to four products each quarter going forward. Glenmark's marketing portfolio, as of September, has 53 applications pending at various stages of the approval process, of which 25 are para 4. Moving on to Europe, Glenmark's Europe operations for the second quarter was at INR 7,600 million, as against INR 6,874 million, recording a growth of 8.5%.
Glenmark's European operations returned to growth in the second quarter, driven by a robust uptake of new product launches. Glenmark continued to perform overall, outperform the overall pharma market in key branded markets like the Central and Eastern European countries. The Western European business also recorded double-digit growth. Branded respiratory portfolio continues to have a strong trajectory in the region. As mentioned earlier, again, we are focused on sustaining increasing contribution from the branded markets and the branded portfolio in Europe. We now have seven respiratory products which have been commercialized across the region, and we are awaiting launch of additional two to three products over the next 18 months. Glenmark also launched Winlevi in the U.K., and initial response has been very positive. We will be launching it in other European markets as well once we get the final approval.
On the emerging markets, for the second quarter of 2026, revenue from the emerging markets was INR 6,585 million, as against INR 7,041 million, recording a decline of 6.5%. Growth in the emerging markets continued to be impacted by geopolitical uncertainties, which resulted in lower uptake in certain markets in Latin America and East Africa. However, our Russia business did well. As per IQVIA March/September data, Glenmark's Russia business recorded secondary sales growth of 8.1%. Rialtris continues to do well in Russia and gain further share. We continue to be ranked amongst the leading companies in dermatology and expectorant market in Russia. In Latin America, as mentioned, we witnessed some subdued secondary sales during the quarter. We have launched multiple differentiated respiratory products, including Rialtris in markets like Mexico, and expect stronger performance in the forthcoming quarters. In Middle East and Africa, also, growth was impacted due to lower uptake.
However, again, Rialtris, as a brand, continues to do well in the region. In other markets where it has been launched in the last few quarters, we have seen good uptake for this product. APAC region, we did well. We recorded double-digit growth during the quarter. Respiratory and dermatology, in both areas, we continue to perform well. Rialtris, again, will be a key growth driver and will be launched in additional markets like China and Thailand by our partners in the forthcoming quarters. Quickly giving an update on our global innovative specialty portfolio. Rialtris, as mentioned, marketing applications for Rialtris have been filed in more than 90 markets. The product is now commercialized in 49 markets. Recently, we announced that our partner, Grand Pharma, had secured approval for Rialtris in China.
We are working with Grand Pharma to launch the product in the first half of the coming fiscal year. Our partner in Thailand, Argonaut, is also preparing to launch Rialtris in the fourth quarter of this year. Winlevi, so as mentioned, the company has launched Winlevi in the U.K. We are expecting approval in other European markets as well. As soon as we get the approval, we launch the product. Our partner, Cosmo, received a positive CHMP opinion in August 2025. Winlevi, we are also under regulatory review in South Africa. Kinhayo, which is Envaflolimab, we have already filed 14 applications for Kinhayo, and first commercial launch expected towards the end of this year. We have received authorization from regulatory agencies to supply Envaflolimab in Kenya. We also initiated a global multi-center phase three trial in the new adjuvant-adjuvant NSCLC setting. Trastuzumab deruxtecan.
In Q2, we announced an exclusive license and collaboration agreement with Hengui Pharma for Trastuzumab deruxtecan, which is a next-generation HER2 targeting ADC. Glenmark has gained rights to register, develop, and commercialize the ADC in several emerging markets. This is Hengui's self-developed HER2 targeting ADC. It was approved in China for treatment of HER2-positive non-small cell lung cancer. It is also undergoing other clinical trials in HER2-targeted solid tumors. Finally, on IGI, quick update on the various IGI pipelines. ISB 2001, obviously, the one big update was that post our deal announcement in July, we got the approval from the U.S. FTC and received the upfront payment of INR 700 million in September. As mentioned earlier, we are eligible to receive up to INR 1.225 billion in development, regulatory, and commercial milestones, along with tier double-digit net sale royalties.
Glenmark Pharma will be leading the commercialization across emerging markets. ISB 2301 is the next molecule in our IGI pipeline. This is a first-in-class multi-specific NK cell engager developed for solid tumors. The first program from IGI is Immunite Platform. The key update here is the clinical candidate was selected in October, and the program has entered IND enabling studies. Finally, on immunology portfolio, ISB 880, which is the IL-1 RAP antagonist, which was licensed to Almiral. Recently, Almiral announced that ISB 880, or LAD 191, as they call it, has moved into phase two studies in hidradenitis suppurativa, which is a large dermatology indication. ISB 880, sorry, ISB 830 X8, which is STAR 310, this is the OX40 antagonist licensed to Astria.
Recently, phase I trial was initiated by Astria, and they presented initial data at the European Academy of Dermatology and Venereology Conference in September 2025 as a late-breaking oral presentation. Based on the initial results, the molecule looks positive in terms of its efficacy as well as safety profile. There is potential for infrequent maintenance dosing, which is a key update there. I think with that, I will hand it over to Glenn for his opening comments.
Thank you, Utkarsh. Good morning, everyone. Thank you for joining the call today. I've been running Glenmark for 25 years now, and this is, in fact, my 100th earnings call as a listed company CEO. Since our IPO 25 years ago, Glenmark's revenues have grown more than 80 times from INR 200 crore to INR 16,000 crore.
We have delivered phenomenal returns to our shareholders as the stock price has gone up over 200 times during this period. Across these years, investors have always questioned our huge investment in innovation and our ability to deliver anything meaningful. In the past, to keep supporting this ambition, our operating margins and balance sheet have constantly been under stress due to high debt and other practices like high-cost pre-collections from distributors to manage our cash flows. We knew that we were building something strong and building a strong R&D platform, so we kept going. The ISB 2001 deal clearly vindicates our years of investment in innovation. With this deal and with the receipt of INR 700 million, we are able to pay down all our debt, and we're net cash positive. We are also currently changing some of the legacy practices like pre-collection.
Today, since we have surplus cash, we thought it's the best time to undo some of these practices. Additionally, we have now corrected some other anomalies in our balance sheet, which will help us improve our overall return ratios. All this will be covered by Anurag shortly. Post Q2, Glenmark is entering a new phase called Glenmark 3.0. I see Glenmark in the next 5 to 10 years as a glorious phase for the firm. We will accomplish our journey of moving up the value chain into becoming more of a branded-led company globally. In Glenmark 3.0, if I look at each of our businesses, our India business is a very strong business. We've built very strong brands such as Telma, Astoril, Candid, Alex, and we are leaders in the therapeutic areas that we operate in.
We are in the top three in dermatology, top three in respiratory, top three in cardiovascular, and oncology continues to do well for us. Our OTC business, our in-licensed products such as TEVIMBRA, BRUKINSA, and our chronic business will continue to outperform as we go forward. As per IQVIA and Avax, we've been consistently among the fastest-growing companies over the last decade as per secondary sales. Unlike our peers, we've had a legacy three-tier distribution system. We thought we had optimal inventory in the channel. However, with the unexpected change in GST announcement in the middle of October, the distributors decided to reduce their inventories due to price differentials. Today, most of the distributors have brought down the inventory levels to below threshold, so you could see some restocking happening going forward. From Q3 onwards, we should get back to INR 1,150-1,200 crore run rate for our India business.
Additionally, our India business should deliver over INR 4,800 crore in top-line revenues in FY 2027. Our U.S. business, on the U.S. side, our U.S. business continues to demonstrate strong growth going forward. We look forward to our respiratory launches, our Monroe plan coming online. The in-licensed products continue to deliver good growth, and the next three sole FTF/exclusive products should launch in FY 2027. Overall, FY 2027 should be a very strong year for the U.S. business, and the growth momentum should continue post that as well. In Europe, our business continues to deliver very good results. Our respiratory launches, Rialtris, and Winlevi should be major growth drivers for the firm going forward. Growth for the region should be in the double-digit range in the second half of this year. In emerging markets, while Q2 is an aberration, overall, our emerging market business continues to be very strong.
The main growth drivers in EM will be our specialty launches like Rialtris, Envaflolimab, the Hengui HER2 that we just licensed, additional in-licensing, and eventually ISB 2001. Due to this, our emerging market business should see remarkable growth going forward. If I move on to IGI, in IGI, we've invested heavily over the last decade in building a world-class multi-specific antibody platform technology. This is a plug-and-play technology. The excellent ISB 2001 clinical data clearly validates that the platform works. Hence, we see all future assets coming out of this platform having a higher probability of success. Not too many companies, including oncology-focused big pharmas, have a multi-specific antibody platform technology. This is very unique and gives us a huge competitive advantage. At IGI, we're currently running over four multi-specific preclinical and discovery programs that will be coming into the clinics over the next five years.
The first is ISB 2301, which enters the clinics in FY 2027. IGI will keep spending INR 70 million-INR 75 million a year to bring its pipeline forward. Assuming these multi-specific programs work, each of them could be as valuable as ISB 2001. So out-licensing deals could be pretty big going forward from IGI. With the three partner programs of ISB 2001, ISB 880 entering phase two, and ISB 813 AD, and a world-class multi-specific antibody platform technology, IGI could be amongst the most sought-after valuable company in the next five to seven years globally.
Friends, in summary, post our Q2 results, I see Glenmark 3.0 as a company entering a very strong revenue growth phase of 12-15%, strong operating margins of 23% going forward, targeted to go up to 25+% in the years to come, a well-funded company generating strong free operating cash flows, being zero gross debt in FY2026, generating industry-best ROCs and ROEs in FY2027 and beyond, excellent world-class R&D portfolio with ISB 2001, ISB 880, and ISB 830, a world-class multi-specific platform technology in IGI that is delivering subsequent assets like ISB 2301 and the three new programs, large out-licensing partnership deals over the next five years. In the early years, some of our previous deals were in the range of INR 20 million-INR 50 million upfront because we needed the cash.
Now that we have a strong balance sheet and are well-funded, we are in a position to realize the full potential of the pipeline similar to what we did with ISB 2001. IGI is being self-funded for the next three years. During this time, we'll progress a very exciting pipeline of 2301 and three additional multi-specific programs in the clinics. Post three years, we can expect additional milestones from our partnered assets to fund IGI, potential new deals for the four programs that we're currently running, and possibly an IPO to raise additional funds. Hence, we will ensure that IGI continues to remain self-funded even going beyond the three-year mark. To conclude, our FY2027 revenues, we expect to be about INR 17,000-18,000 crores in terms of top-line revenues. I will now hand the floor over to Anurag to give his opening comments.
Thank you, Glenn. Good morning, everyone. As Glenn highlighted, the Glenmark 3.0 is now entering a phase of strong and sustainable growth. This will be a growth-oriented phase with a strong balance sheet and prudent capital allocation. To strengthen our balance sheet, bring in tax efficiencies, and focus on the cash flow generation, we have implemented some key changes in terms of our provisioning norms and standard operating procedures. While the one-time IGI income in this quarter would have impacted our capital ratios, the balance sheet restatement ensures that our financials represent the true capital efficiencies of our core business. Let me just outline the key changes which we have instituted in terms of our overall way of operating and the financials. We have discontinued in the past, actually, due to various operational constraints. As Glenn mentioned, we had the legacy pre-collection arrangements with the distributor across geographies.
These were high-cost arrangements and as high as 20% in some cases, which adversely impacted our margins. With constraints now removed, we have discontinued these pre-collections, resulting in a large increase in debtors. The transition will support, improve the operating margin, and help us to continue a strong margin trajectory going forward. This will also help us enhance our working capital efficiencies and sustain a net working capital cycle of around 110-115 days, which will be in line with the peer companies despite a diversified global presence. On provisioning, let me explain to you the one-time provisioning and charges of debtors and inventory. We have revised our policies on debtors and inventory and, in line with the prudent accounting norms, restated certain provision and charges to better reflect our true return ratios.
These balance sheet charges are tax-efficient, cash-neutral, and very value-accretive for the shareholders, driving improvement in key metrics such as ROC and ROE. We are at debtors' level of around 90 days and inventory level of around 80 days now, which is in line with the industry or perhaps better than the industry average in terms of inventory days despite our geographical spread. This will help us support the growth from Q3, FY26 onward. These are provisions, and hence, any recovery of debtors and inventory in the future will add to profitability. Now, let me give you the cash flow reconciliation from the FB deal. I will start from the opening cash of 31 March 2025. We had an opening cash of INR 1,705 crore. From ISB 2001 deal, we got around INR 5,950 crore. That takes us to our cash to our INR 7,655 crore.
Out of this, we have repaid the gross debt of INR 1,300 crore. We have paid the cash tax and interest, cash tax of around INR 75 crore and interest of around INR 150 crore. The capex in this H1 was around INR 500 crore. We have also paid the one-time expenses of around INR 650 crore. These included one-time bonus payouts to IGI team for successful execution of the deal, deal execution expenses, IP and documentation transfer charges, also the closure of the facilities in Switzerland. As you know, in these geographies, typically, closing of the facilities, you have to dispense a lot of liabilities at the time of closure, which included employee-related liabilities, local authorities charges. All these have been now settled with the authorities and various other miscellaneous items. With this, the approximate INR 2,874 crore was spent like this.
It includes also the legal settlement of around INR 2,000,000,000, which we have actually provisioned earlier and has been now expensed out. This includes the one provision which we made in quarter one, if you recall, that INR 37.55. Out of that, almost INR 11,000,000 we have repaid in this quarter, and some of the provisions of the past year we have repaid in this quarter. This does not include any P&L charge, only cash outflow, and this is only for cash reconciliation purpose. This adds up to INR 28,740,000,000. Besides that, if you recall that we had a, because of India sales, we had an H1 business cash deficit of around INR 5,000,000,000. That leaves us with a change in working capital of around INR 16,000,000,000, which is primarily due to debtors and inventory.
This is debtors because of, as we said, because of the stop of pre-collection. There was an increase in debtors of around INR 800 crore. Similarly, inventories are actually to build up the quarter two, sorry, H2 businesses. We had to actually, and inventories, as I told you, it is still at 80 days as compared to the industry practice of 90 days. It is all healthy inventory which we have to build up to support the growth rate of the business in H2. That is all that two of the one of change in working capital of around INR 1,600 crore. That leaves us with the cash of around INR 2,600 crore, INR 2,647 crore to be precise. That actually gives the full cash reconciliation.
With all the above changes, we are in a very strong position and have ensured that we managed to fully express the true future potential of our business. To summarize, Glenmark 3.0 will be immediately impactful as our EBITDA margin will trend towards 23% and strengthen further over a period of time. We will continue to maintain a strong balance sheet by sustaining zero debt and focusing on robust free cash flow generation. This will enable to maintain industry-leading return ratios of around 25-30% of ROC and 20-25% of ROE going forward. With this, we can start the Q&A.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchstone telephone. If you wish to remain yourself on the question queue, you may press star and two. Participants are requested to yield answers while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nithin Agrawal from DAM Capital. Please go ahead.
Hi, thanks for taking my question. Glenn, a couple of things. One is, clearly, this whole, the way the Q2 results came out, they were really from the corrections that were there in the P&L balance sheet were fairly unexpected. That is for the record. On this part, Glenn, you have heard your explanations and how you see things going forward. But as an assurance, I mean, is this, I mean, from what have you done so far, is it, I mean, are we done with these corrections on the legacy issues on the balance sheet and the P&L, or I mean, is this literally the end of it? If you would like to just reconfirm that.
Nitin, very clearly, if you heard my commentary, right, I mean, we are clearly in a position where we'll take each of the pieces, okay? For example, for India, we are clearly guided to INR 1,150 crore-INR 1,200 crore starting Q3, and next year, over INR 4,800 crore of sales, right? That should tell you that the India business is back on track. As far as the balance sheet changes, right, the pre-collections, we are pretty much done with everything. We've changed the model completely, right?
It's clearly, I think, and the balance sheet changes is clearly reflective in our ROC and ROE, right? If you see the, obviously, this year, ROC, ROE will be very high. Next year also, we will have industry-best ROCs and ROEs, right? Given all this, we are pretty much done with, and a lot of provisioning. We've made a lot of provisioning. Some of that could obviously get added back as we go forward, right? Particularly debtors and inventory. I think, from our perspective, there are no further changes in either the P&L or balance sheet corrections which need to get done going forward.
Nithin, basically, just to add to that, actually, we have looked at all the provisioning norms, and we have now made it on a basis of principles, certain principles. We had a new auditor also in place, and then we discussed thoroughly with them. We have now made a very standard process of the provisioning norms. Going forward, I can assure you that's the reason we have actually taken a one-time in terms of debtors was largely because of pre-collection, and inventories are in line. All these charges actually will help us that balance sheet is in a very strong place and truly reflect the capital employed in the business because that will help us to truly reflect the capital employed in the core business and improving the ROC and ROE accordingly.
Thanks. Glenn, just to talk, working a little bit on that, you mentioned in your opening comments that in the past, because of investments in R&D and everything, cash flows have been a constraint for Glenmark in the past. Now, with that constraint being eased, what kind of changes do you think, I mean, what impact does it have on the business? I mean, what flexibility does it give you for the business from a going forward basis?
Look, the way I see it, Nitin, for the journey for Glenmark, at least for the next few years, is very clearly related to continuing to be a high-growth business, right? We are back in the growth phase because all these years, right, we were investing heavily in innovation, right? And we could not optimally invest in the base business. We are now back into a high-growth phase as an organization. I anticipate my aim is to grow this business around 15% as we go forward, right?
If you see India, for example, last month, we had a 17% growth, which was among the highest in the industry, right? We are back into a high-growth phase, right, as an organization. Our focus is to grow this business organically, so we will continue to grow organically in most of our geographies. Just by focusing on organic growth, we will get to those high-growth numbers going forward, right, as an organization. Of course, free cash generation, we talked about the EBITDA margin going to 23% immediately. Eventually, as the business scales, we'll go up to 25%. The free cash generation is a must-have, right, for us.
Although we have realized zero gross debt, right, by the end of FY26, thereafter also, we will ensure that the business will continue to generate free cash, and then we'll figure out, right, what the next steps are with the cash that gets generated by the business from FY27 and beyond. The journey ahead is a very different one than what we faced in the past, right? In the past, a lot of constraints came because of our high investment and innovation, right? Now that with 2001 deal happening, the cash coming in, automatically, the next steps for the organization is very different, right, where the business will throw a lot of free cash from FY27 and beyond, right? This year, of course, we are well funded, right, for this year.
FY27 and beyond, the business will throw a significant amount of free cash, right, as we go forward. On a very high EBITDA, almost INR 17,000-INR 18,000 crore top line with EBITDAs of 23% plus, right, will generate a significant amount of free cash. Yeah, yeah, go ahead.
Yeah, just to build on that. H1, I think our guidance is almost INR 1,800 crore EBITDA or thereabouts. I presume, given what we've discussed so far, we should have some generation of free cash in the second half of the year?
Yes. If you see that, I think we are still at INR 2,700 crore of cash in the books. As the business generates, we will surely be in a cash positive a s Glenn mentioned, our aim will be to have a completely gross debt zero by end of this March, end of this fiscal. The business will continue to have a cash generation, and we'll have a, as we outlined, we'll have a very prudent capital allocation going forward to grow the business.
Thank you so much.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Thank you for the opportunity. My first question is, you mentioned you paid around INR 650 crore as one-time bonus and some deal-related charges, etc. If we see that number as a percentage of the money which you got from the deal, almost coming to 10-11%, right? If you can explain, is this the global norm of paying such high amount to employees as an incentive, or why you have paid such a high amount, if you can just throw some light on it?
Damayanti, first of all, that INR 650 crore is not employee bonuses, okay? It's not only deal cost. It combines a lot of different line items that Anurag mentioned, right? Anurag, go ahead.
Yeah. Basically, Damayanti, employee bonuses are one part, which is in line with the biotech companies where you have to actually incentivize the R&D team and specifically to give them the continue to build the pipeline in the future. That's absolutely in line with, and we looked at various consultants' inputs on this. That's one part of it.
Besides that, it also includes the, because we run this deal in a, and most of the quite big pharmas, most of the big pharmas enter the data room. We set up the data room, legal charges, due diligence charges, a lot of consultants were involved. All this actually, and especially all this was actually done into the European geographies and U.S. geographies, which is a very high cost in terms of the lawyers and other fees. That is also included. It also includes the LCDF closure charges, which was regulatory-wise in these geographies, it's not easy to close the facilities, specifically to dispense a lot of liabilities. It included all the settling of all the employee-related liabilities, local regulatory liabilities, and everything. This is not only that, so it's a combination of that. With that, I think these numbers are very reasonable, I must say that.
Anurag, can you specify as a percentage, what was the actual one-time paid, and then there are other expenses that will be, I guess, more clearer?
I think because of confidentiality reasons, Damayanti, it's impossible to talk about specific deal bonuses or any specific line items, right, on the call.
It also included the IP and documentation transfer charges, which we have also had to do as part of the transfer of this ISB 2001. All these have been actually booked on this.
Okay. My second question is on India business. Glenn, again, I think we are looking for some clarity because GST came as a window. If GST change did not happen, you would not have taken this write-off, or you used this window as an opportunity to clean up the issues on the distribution side. Because two years back also, you did this inventory write-off, and at that time, we thought it is like over, it is a cleaned-up base to start on.
Damayanti, if you see my opening comments, right, we thought we had an optimal inventory level in the channel, right? However, the GST thing came as an unknown, right, for us, right? It was totally unexpected, right? The distributors, because of the differential, right, in the GST rates, right, they started reducing their inventories, right? Today, if you see, that is all for us. Now they have reached inventory levels which are below the threshold, right? You could see some amount of restocking. This was completely unexpected from our side, right?
Glenn, if I may interrupt, I think this discussion on GST, etc., has been going on for some time, right? I believe industry is also involved as a part of discussion.
Glenmark has a unique distribution model, okay? We have a three-tier legacy distribution model. Most of the industry is already on CNF, okay? They have CNF. That is making the big difference, okay? Right? Because of the three-tier distribution system that we have. That is what has impacted us. It has not impacted the rest of our peers. Again, it is a one-time thing, as I mentioned. From Q3 onwards, you should see sales coming back. We have even guided to INR 1,150-INR 1,200 crore from Q3, as well as next year, INR 4,800 crore and above.
Just to be on the same page, if you can explain, what is the third layer which is additional for you against peers?
We have a superstockist structure, okay, which is we have superstockists or distributors, right? Most of the other companies have a CNF model where the inventory and everything is on the company, right? Inventory and receivable collection from stockist is on the company. Whereas for us, when we do the billing, the inventory is on the distributor, and it is his responsibility to collect from the channel. That is the uniqueness of the model.
Okay. Okay. I'll get back in the queue. I have a few more questions. Thank you.
Thank you. The next question is from the line of Kunal Renderia from Axis Capital. Please go ahead.
Yeah. Good morning, everyone. Firstly, again, on the India business, Glenn, in Q3 FY2024, you had undergone some kind of restructuring, and now we have this restructuring in Q2 2026. Do you mind telling us what the difference was? The extension of the question is, since you still have a three-tier distribution structure, in future, if there are any sudden changes from the government or from the industry's end, do you run a risk of something similar happening?
Kunal, I explained what currently happened, right? In terms of the future, look, the distributor inventories are now at very low levels, right? Automatically, in fact, we are expecting some restocking. In future, if there is any other change that happens, it is impossible to predict, right? I do not think in the future we will be at a disadvantage because of the three-tier system. That is pretty clear for us, right, as of now, right, whatever we can see. Because the inventory levels have come down to very low levels now.
All right. Then again, in Q3 FY2024 also, I think there was some intention of getting the inventory down, right, if I'm not wrong?
That's correct. That was an inventory we reduced.
Yeah. Kunal, actually, at that point, I think we explained that what we did is we basically consolidated some of our stock points. While we had the three-tier system, we actually had, over a period of time, built some inefficiencies in terms of how many stock points we had across the country. We just thought we would consolidate some of that business. That was a change that happened in Q3, I mean, 18-24 months back. I think what has happened this time, Glenn has explained, and I think we spoke about the future as well.
Right. Okay. Okay. My second question, again, I think Anurag did explain the INR 1,650 crore of working capital that's gone in the cash flow statement. To be honest, I can't really see it in the cash flow of the balance sheet. My question is, if the inventories have now gone down, I mean, how is INR 1,650? You can kind of split it between receivables. I think some payables would have also gone up or what if you just can give the split?
Kunal, if you see that there was an inventory gone up by around INR 250 crore on the face of the balance sheet, and debtors were close to INR 400 crore on the face of the balance sheet. The underlying to what that is that we stopped the pre-collection, so that has actually increased the INR 8,000,000,000 of the debtors. That is what the reconciliation. Inventory levels also, it's all we'll have to, as a going concern business, we'll have to keep building the inventories for the next H2 of the and to support the growth. Which is a normal inventory of INR 33,000,000,000 today we are carrying, which is 80 days of the just 80 days of the inventory levels.
Yeah. Kunal, just to clarify, I mean, we can connect offline as well. If you see the cash flow, I mean, there is part of the INR 700,000,000, right, where we received the cash, but the P&L booking will happen in subsequent quarters. That is sitting in other current liabilities and other non-current liabilities. I mean, that's why if you adjust for that in the cash flow statement, broadly, you will get to the working capital increase that we are talking about. We can explain, we can talk it offline also in further detail.
Basically, it's the INR 1,500. If you see, out of the INR 6,000 crore gross number, is that what we received? We have booked only INR 4,500 crore in this P&L. Balance INR 1,500 crore, what Utkarsh mentioned, is sitting in other current liabilities. That's actually what the number is, actually. We can give you the full reconciliation of that.
Since we've taken, when we explained the cash, we took the full cash at the start, right, the entire INR 5,950 crore. That's why we have to adjust. We have to take the actual cash impact for the working capital increase.
Right. Just one more thing, again. You have a net cash of what, around INR 1,568 crore now. I believe you still need to pay the tax on the proceeds of the ISB 2001 payment. Can you guide to what your number could be by the end of FY 2026 and its tax number?
Okay. Net cash of right now we are sitting is actually INR 2,647 crore, exactly to be precise. In terms of the taxation of this, we have actually really worked that very well in terms of, and we have brought down, despite the three levels of taxation, which is Swiss taxation, U.S. taxation, and India taxation on this money flow. We have actually brought it down to close to a $90 million total cash outflow of the taxation.
The charge will be higher, but because of various, we have worked out with the various structure of absorbing the losses in the various entities. This has come down to almost 12%-13% of the total deal value of a cash outflow. That will be there, and it will be going, I think large part will be going in H2, I think balance will be going in the next year also. This has completely been built up in our cash flow planning. As Glenn mentioned, with this, we are FY2026, we will be a gross debt zero shortly of that.
Also, Kunal, the business will generate significant cash will get generated in the second half, okay, right, from the business, right? Just keep in mind.
H2 is expected to be much higher than H1. I think, as Glenn mentioned, it is almost INR 8,000 crore of revenue, which is expected in H2. That will actually also be a strong cash generation. Besides paying the full gross debt, we will still be cash positive. You will be cashing out it.
You will be ending with at least this amount, if not more. That should be a takeaway?
Amount, Kunal, I would not say that. I think what I would guide is that our first target will be to have paid all the gross debt, and the second will be to actually support all these taxation and discharge all the liabilities in terms of that. I think it is only two quarters, so you have to be patient with that, but we will still be cash positive.
Sure, sir. Thank you. Thank you.
The next question is from the line of Tarang from Oldbridge Asset Management. Please go ahead.
Hi. Good morning. Just a couple of.
Sorry to interrupt, Tarang. We are not able to hear you clearly.
Am I audible?
Yeah. Yeah. Go ahead.
Okay. Perfect. Just on the India business, in terms of inventory rationalization, the channel unloading that you all have done, what is the quantum of it? Is it close to about INR 1,000 crore?
A little less than that, I'm guessing.
Yeah. Around INR 1,000 crore. Yeah. See, our targeted run rate, as Glenn mentioned, going forward is INR 1,150 plus. I think that's what I think if you remove that INR 150 crore, what we have booked, so close to INR 1,000 and maybe a little higher than INR 1,100 crore sort of number we could have hit this quarter.
Got it. Second, the INR 830 crore IGI and one-time charges line item, it doesn't include the R&D associated with IGI in Q2, right? That goes in separately as well.
No, it does not. It's only included the one-time charges. It does not include the running expenses of R&D.
Okay. Glenn, just you have attributed a lot of your write-offs in this quarter and the previous quarters to your spends on innovation. If you look at the last 12 quarters, the quantum of write-offs that the business has taken, it's actually a 1:1:1:1 split between Monroe, India, Zetia, and other antitrust regulations. The fourth one would perhaps be related to your intangibles or your R&D spends. Okay. The question really is, if you add them up, the quantum is pretty significant, and we can take the numbers offline. Really, the idea here is to look forward and try to get a sense on what are the kind of controls that you've instituted within the organization. T his is not addressed specifically only to Glenn. It's really everyone who's listening to the call, the top management, the board, the CFO rather, right? This can't keep happening. Monroe, litigation, India, and obviously the R&D, the IT innovation spends. Just wanted to get a sense on how are you really foolproofing it going forward? What are the checks and balances, the controls that you're doing? Are there additional committees that are being set up? Do you have someone who's really keeping a razor-eye, razor-eye sight on what's really happening? Please.
Kunal.
No, this is Tarang.
Sorry, Tarang. The first part, right, look, many of the things you mentioned, right, we had a difficult patch as an organization, right? There is no taking that away, right? Whether it is Monroe, right, all the FDA challenges we faced and the fact that the facility has not manufactured anything for the last three-four years, and we continue to have that operating expenses. Intangibles, a lot of the intangibles, we were able to take certain write-downs. Zetia, we booked the revenues. Unfortunately, we had these class action lawsuits where we had to pay back a lot of things. I mean, these are not in anyone's control, okay? From an operational standpoint, it is impossible to predict any of these, right? Otherwise, from an overall business perspective, right, we have very strong controls in place, right?
We have a lot of governance committees that are formed now to look at the various aspects of the business. We have a great leadership team overseeing most of our businesses. Some of the three, four points that you mentioned are clearly, it's impossible to predict, right? The issues we faced in Monroe or the issues we faced with regards to the litigation costs that we ended up incurring. Even there, I mean, we have strong compliance committees now in place, right, to oversee some of the litigation aspects, right, to make sure we don't have those issues again. I think as an organization, right, we've evolved significantly. There's no taking away that the last four, five years, right, prior to the 2001 deal, were difficult years because we got hit with a lot of different things from different areas, right?
Be it litigation, be it Monroe, be it some of our other business challenges that we faced, right? That, obviously, in my opening commentary itself, I mentioned, led to an increase in the debt level and led to an increase in certain things that we had to do, right, from a cash flow perspective, right? Today, we are in a very different place, r ight? I mean, today, the business is rock solid. The growth is very strong. The margin profile is strong. We are sitting on cash, and we will continue to sit on cash. We'll have no debt on the books. There is a lot of strength in the underlying business, okay, today, which we struggled to keep in the past, right, or have in the past.
I think that gives us the confidence that the next decade will look very solid for us, right, given all that we've got going. Plus, we are unique in terms of innovation. Nobody else has a pipeline that we have. Nobody else has a platform that we have globally. I think my personal view is the next 5-10 years should be transformational for Glenmark. I've been doing this 25 years now, right? As I said in my opening comments, right, we've delivered significant returns to shareholders 200 times when you think about it, right, since IPO, right, in terms of shareholder value creation, revenues growth. Look, we are a fundamentally very solid company, okay? Right? We've had a phase, certain phases. Every organization goes through certain phases where there have been challenges, right? Unfortunately, we got hit with all this in the last five years. Now the ISB 2001 deal and the kind of cash flows and the strength in the underlying business, right, overall, the next 5-10 years should look very strong for us.
Got it. Glenn, just, yeah. Glenn, just to retort to it, I think, like you called out, right, the last decade, so to say, for the business has been quite challenging from the point of view of the kind of deployments that you did in your innovation business. The longevity of this business takes time. In some sense, ISB 2001 has been a strong reminder of the capabilities that you've created.
What has also happened in the last three, four years, so to say, with the business is that for reasons that are best known and for challenges and risks that are best being navigated by the business, the business has not been able to deliver on free cash flow. While it somehow comes back-ended with these write-offs coming through, that is where probably our sort of concern stems from. What is done is done. As you have called out and the team's called out that you all are looking forward to the future, the only request here is that if you all could create a mechanism where there is actually some kind of tap in terms of trying to manage your free cash flows.
Because as analysts tracking this business for the last five years, at least, while you've been running it for the last 25 years, been tracking it for the last five, six years, these write-offs are extremely difficult for us to also evaluate the longevity of the business going forward. A sincere request if this is something that, as much as it is under your control, obviously, you're running a business, there are risks associated with running a business. As much as it's under your control, if you could really put a needle on it, it'll be really, really helpful. Last question. Over the next two, three years, for all the cases that have been settled, the quantum of cash flows in the next three years would be in the ballpark of INR 800 crore-INR 1,000 crore. Does that number hold good, or is there an upside risk to that as well?
Sorry. Can you repeat that?
For all the cases that have been settled? Yes, all the litigation spends for different cases that the business has undergone, right? Litigation spends, the cash outflow, while you all have taken a provision for it, but you'll have cash outflows coming through some bit of it in 2026, 2027, and 2028. The number that I'm building in is about INR 800 crore-INR 1,000 crore. Is that the number, or it's significantly lower or higher? It'll be helpful.
It's lower than INR 800 crore. It's slightly lower than that, okay, Tarang.
Okay. Okay. Thank you. All the best, guys. Thanks.
Thank you.
Thank you. The next question is from the line of Bino Pathiparampil` from Elara Capital. Please go ahead.
Hi. Good morning. Thanks for the cash flow reconciliation that Anurag offered at the consolidated level. Just also wanted to understand at the subsidiary level, at the IGI level. This entire $700 million, I assume, came to IGI, and how much of it is still with IGI?
No. IGI, as we outlined that as a capital allocation, we have said that IGI will be covered for the next three years of their capital allocations, which is INR 70 million per annum. Almost INR 210-INR 225 million will be allocated to IGI. Most of them actually has been because IGI is a wholly owned subsidiary of Glenmark Holding. Most of that has been actually then come back as a thing. Some of this will be, because of the tax planning perspective, some of this will be dividended out in the next year. It will be a phased-out dividend. For IGI capital allocation, it's only INR 210 million-INR 225 million, which is allocated for them.
Out of the INR 700 million, only INR 210 million-INR 220 million goes to IGI. The remaining came to some other entities of Glenmark. Is that right? My understanding, right?
Yeah. Yeah. Basically, that will flow through everything to Glenmark, and it will be parked in the treasury services.
Okay. Out of the current INR 2,700 million cash, which is on your consolidated books, almost entirely, when you say INR 200 million, roughly 70-80% of that is sitting on IGI books now. Is that my understanding correct?
Not IGI books. Partly is that, but actually as of September, but then we have transferred the money into October also. Also, even if it's IGI, it's not physically sitting with IGI, actually, because then it's been actually crossed, there was an intercompany debt which has been there b ecause Glenmark has a better strength to earn the treasury income, that has been, now we are, see, in treasury, we are running as a consolidated basis. That is how we are actually parking into treasury.
Sorry. The entire money came into Glenmark, I mean, non-IGI Glenmark entities. Is that correct? Entire INR 700 million then?
Yes. Physical fund-wise, everything, whether it is in the form of loan or the dividend or the other flow-through, it has been under control of Glenmark.
Okay. You will transfer INR 70 million a year to IGI for the expenses?
Right. Absolutely. INR 35 million for this year, right, and then INR 70 million every year as we committed.
Understood. This INR 70 million will be fully expenses? Will it pass through P&L as well? Because that is expense which is incurred by IGI, right?
Yeah. In P&L, you will see a revenue item of INR 70 million every year and corresponding expenses. It will be neutralizing that.
Understood. Thank you very much.
Thank you. The next question is from the line of Karthik Bane from Bajaj Life. Please go ahead.
Thank you very much for allowing me to ask questions. My question is on the product. Four assets that we mentioned on the multi-specific platform, are they all trispecific antibodies or also various other antibody formats like bispecific, SCFP, FAB, etc.? The second question is about the timeline that you have mentioned, five years. Is this a timeline for recognition of the revenue outsourcing revenue from these four assets, or is this a timeline for these preclinical assets to enter the clinical phase one?
When we say multi-specific, right, all these are more than trispecific or more than trispecific, right? They have multiple binding sites, right, on the antibody. This is all next-generation programs that we are working on, right, which can be transformational just as we did ISB 2001. Regarding your question on timeline, we said we will 2301 enters the clinics next year, FY 2027, right, which again is a multi-specific. Then beyond that, as we go forward over the next five years, you'll see one by one of these assets coming into the clinics. Regarding timeline to partner, we said we will continuously evaluate partnerships, right, and we will try and close partnerships in the next five years, right, as we go forward.
Okay. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to Mr. Utkarsh Gandhi for his closing comments.
Yeah. Thanks. I'll just hand it over to Glenn for his closing comments.
Yeah. Thanks, Utkarsh. Just to close, right, I think, look, this is the best phase of Glenmark I have ever seen in the last 25 years as we are making an orbital change for Glenmark, which allows us to reflect the true potential of the company. In summary, my commitments to the shareholders in Glenmark 3.0 is to aim for sales of around 15% every year with an ascent on a higher branded portfolio. On the margin side, a 23% EBITDA margin moving up to 25% in the years ahead. Focus on strong free cash flow and maintaining a zero gross debt balance sheet going forward.
Improving our return on capital employed of 25-30% and continue to focus on improving it further as we move towards a more innovative-led driven portfolio. Strive to create world-class cutting-edge innovative assets that will enhance value creation for Glenmark shareholders going forward and enhance the payout ratios with an increased free cash flow generation, which should happen in the years to come starting FY2027. With that, I want to thank you all for joining the call today. If you have any follow-on questions, feel free to contact either Utkarsh or anyone from the management, Anurag or myself. Thank you very much.
Thanks, Lizanne. I think we can close the call. Thank you, everyone, for joining.
Thank you, Bemba, to the management team. Ladies and gentlemen, we are here with Glenmark Pharmaceuticals Limited. That concludes this conference call.
We thank you for joining us, and you may now disconnect your lines. Thank you.