Ladies and gentlemen, good day and welcome to Indoco Remedies Limited Q4 and FY25 earnings conference call, hosted by Dolat Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Rashmi Sancheti from Dolat Capital. Thank you, and over to you, ma'am.
Thank you, Manav, and good afternoon, everyone. I, Rashmi Sancheti, on behalf of Dolat Capital, welcome you to the Q4 FY25 earnings call of Indoco Remedies. We thank the Indoco Remedies management for giving us this opportunity to host the call. Today, we have with us the senior management of the company represented by Ms. Aditi Kare Panandikar, Managing Director, Sandeep Bambolkar, Joint Managing Director, and Pramod Ghorpade, CFO. I will now hand over the call to the management for the opening remarks. Over to you, sir.
Thank you, Rashmi. Good afternoon, everyone. Thank you all for joining this call today. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are projections or estimates about our future events. These estimates reflect the management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Indoco does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new confirmation, future events, or otherwise. Now, I'll request our Managing Director, Ms. Aditi Panandikar, for her comments. Thank you.
Good afternoon, everybody, and thank you for joining us on this call today. Many of you have been partners with us through our many quarters of success, and I thank you for being patient with us through this quarter, which no doubt has been quite painful for this entire year, which has been one of a kind for Indoco. Let me start by talking about the key factors that are responsible and have impacted the business of the company this year. As you know, earlier in the beginning of the year, we formed a 100% subsidiary, Warren Remedies Private Limited, with an intention to take products over the counter. As you know, Indoco has a long history of ethical products, and in order to service the OTC segments properly, as well as to manufacture cosmetic licensed products, we have invested in people, infrastructure, as well as the supply chain.
The first year of OTC has given us limited success by way of sales, and the Nielsen numbers indicate a good growth at the tertiary demand stage. The investments in the infrastructure and the costs of running the facility, as well as the costs associated with advertising on television, radio, as well as digital media, have taken their toll, and we had expected this kind of a negative impact in WRPL for the first two years. Secondly, there has been a great impact on the company's performance because of the Master Manufacturing Plan, which we have put in place across all our solid orals sites. As you all know, globally, pharmaceutical products are witnessing pricing pressure, either due to patent claims or government intervention to provide medicines at affordable prices. This has called for supplying quality products at much cheaper and competitive prices.
While the cost of goods and material costs are consistently going up, the only way to stay competitive is to increase efficiency in manufacturing. Meanwhile, mostly for our European markets, a business which we got into more than 20 years ago, we have steadily built good market share across many geographies for large volume solid orals products. For example, we have, with our partners, Perrigo and several other players, over 60% of the market in the UK for paracetamol. When it comes to allopurinol formulations, we have over 80% of the market in Germany, 35% of the market in the US, and several other geographies.
Having acquired this market share, we felt it proper to invest in our manufacturing sites to make them more compliant going forward in order to enable us to run better technology, reduce manpower used in manufacturing, packing, processing, and supply, as well as increase batch sizes to get better returns. We had therefore planned this kind of improvement across all our four manufacturing sites of solid orals. However, several times during this year, particularly in the second half, many of these sites had to take a planned shutdown for this at the same time. This has impacted the supply of product to Europe and the U.S., and this has shown in our results. Point number three was the most unplanned and unexpected event, which is the Warning Letter on our sterile plant in Goa.
As you know, we were inspected first by US FDA in February 2023, after which we were classified OAI. Thereafter, there was a surprise audit in June 2024, which has resulted in the warning letter. On my earlier calls, I have explained that while we were to be prepared with our remediation actions by November 24, FDA's early audit in June meant that several of our updates were yet pending with the FDA, and therefore we ended up getting a warning letter. The warning letter on the sterile plant meant that several of the products we were supplying to the US market could no longer be supplied, as many of them were manufactured and packed under aseptic conditions, and our updates were yet pending.
Therefore, Warren Remedies Private Limited, its impact on our consolidated numbers, the Master Manufacturing Plan, and the subsequent impact of lack of having sufficient product to sell in Europe and the U.S. of solid orals, and last but not the least, the impact of the Warning Letter on the U.S. business has taken its own toll on the company's performance for this year. There have been a few positives in this entire year though, and the biggest and largest positive is the sales of our star product, Cyclopam. Happy to share that the product added INR 25 crore incrementally in one year alone, and today, as per IQVIA, we are clocking a turnover of INR 178 crores at PTR rates. Apart from that, across the organization, various initiatives to increase digitization, digitalization, to reduce other operating costs, to control CapEx going further are in full swing.
I'm very confident going forward we will see a lot of positives from this. While we are at it, there is one good positive message I would like to share about the Plant II in Goa. Plant II in Goa, our sterile facility, which is under Warning Letter, was earlier inspected by EMA, or the European Medicines Agency, and the audit has gone very successfully. We have no criticals, no majors, and a few minors. My team at Plant II is extremely enthused with this audit, and it shows that we are on the right track towards providing remediation even to the U.S. Another good news to be shared is, as recently as about 24 hours ago, we have also received some positive communication from U.S. FDA, which allows us to restart a couple of our lines in Plant II.
I'm confident that both these events will help us gain returns in sales that we have been missing on the international business, which has largely impacted the overall performance of the company. Now, for greater details on the financial performance of quarter four and the whole year, I hand over to Mr. Sandeep.
Thank you, Aditi. Good afternoon, everyone. Let me first begin with the business highlights. The standalone net revenues of the company for the fourth quarter, FY24-25, are at INR 3,411 million compared to INR 4,351 million for the same quarter last year. For the year, standalone revenues are at INR 14,948 million, as against INR 17,620 million. Consolidated net revenues for the company for the fourth quarter, 24-25, are at INR 3,839 million compared to INR 4,391 million for the same quarter last year. For the year, consolidated revenues are at INR 16,413 million, as against INR 17,882 million. Standalone EBITDA to net sales for the quarter is 1% at INR 35 million compared to 13.2% at INR 574 million. Standalone EBITDA to net sales for the year is 8.6% at INR 1,280 million compared to 14.6% at INR 2,580 million.
Consolidated EBITDA to net sales for the quarter is -0.2% at -INR 0.8 million compared to 11.1% at INR 489 million for the same quarter last year. Consolidated EBITDA to net sales for the year is 6% at INR 993 million compared to 13.7% at INR 2,443 million. Domestic formulation business revenues from domestic formulation business for the quarter are at INR 1,851 million as compared to INR 1,911 million. Major therapeutic segments like vitamins, minerals, nutrients, gastrointestinals, and urology performed well during the quarter as compared to the same quarter last year. On the international business front, revenues from international formulation business are at INR 1,104 million compared to INR 2,140 million. Revenues from regulated markets for the quarter are at INR 786 million as against INR 1,458 million. Revenues from U.S. business for the quarter are at INR 308 million as against INR 675 million.
Those for Europe for the quarter are at INR 466 million as against INR 765 million. And for South Africa, Australia, and New Zealand, they are INR 12 million against INR 18 million. Revenues from emerging markets for the quarter are INR 318 million as against INR 682 million. And revenues from API business for the quarter, INR 409 million as against INR 217 million. Revenues from services, AnaCipher, and Indoco Analytical Solutions are at INR 47 million as against INR 83 million. That's all about the business highlights for the fourth quarter, and I now request the participants to put forth your questions. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have a first question from the line of Vivek Ficom Family Office. please go ahead.
Very good afternoon, everyone. Thanks for the opportunity. I just had a quick question on a few molecules. How has brinzolamide and dorzolamide molecules performed over the last, say, one year? And how do you, based on our assessment, expect them to perform over the, say, coming one to two years? And which geography is driving the growth of these molecules or this therapy as a whole of ophthalmic? Thank you.
Yeah, thank you for your question. So, as I mentioned in my opening remarks, our sterile manufacturing site for ophthalmic products at Goa, which is Plant II, has been under Warning Letter since June this year. And for the greater part of this year, we have been handicapped and have not been able to manufacture products which have been made in aseptic conditions. So, dorzolamide, as well as brinzolamide, as well as dorzolamide timolol, and other ophthalmic products which are largely with aseptic filling, we have not been able to supply. And therefore, as of this year, if you see, there is hardly any sales coming from these products. Possibly, a very little amount might have been sold in the first quarter, which is quite minimal. You also asked about what is the potential of these products in the U.S. I'll let Mr. Sandeep talk about that.
brinzolamide, the market right now is about $65 million. There are about three players in the market. So that is about brinzolamide. dorzolamide has many players, and the market has shrunk considerably.
However, we are integrated on both dorzolamide and brinzolamide with our API, and we'll make every effort to get our market share.
Thanks a lot, ma'am, all the ladies. Thank you.
Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have a next question from the line of Nithin from Aum Capital. Please go ahead.
Yeah, thank you for the opportunity. Am I audible?
Yes, Nithin.
Yeah. So my first question is, when are we expecting US FDA inspection? Are there any efforts from our side? You mentioned that EMA Europe inspection got cleared, and we also got a positive letter from the USA. This could help a couple of lines to start. So can you please elaborate the impact on our revenue and profits from these two developments?
Yeah. So thank you for your question. As I said, the U.S. FDA update is very, very recent. We are now looking at what this allows us to do. As I said, a couple of lines, they have allowed us to restart. We are looking at the products which were approved from those lines so we can start commercial manufacturing and supply. As such, for this year, I think it would be safe to say that any incremental effective sales from this plant would only begin in the second quarter this year. I would be very hesitant to put any numbers on this, but I think it is safe for you to assume that there are several approved products as well as several filings from this site. And your question on when are they likely to audit and things, we are continuously trying to get them to come down earlier.
Our last updates, most of the updates on the remediation would be completed by July or August this year. So I think as a site, we have to be ready anytime after that.
Got it. My next question is, so how much should we have spent on this ongoing refurbishment of manufacturing plants till date? Can you elaborate that?
We spend close to INR 4 crore per quarter on remediation expenses.
Total amount?
All four quarters this year.
Okay, and what is the total investment in Warren Remedies in terms of net equity and corporate guarantees we have given so far?
So in Warren, there are two parts. One is about our toothpaste business, Sensodent-KF, which Madam explained. And second is our investment into intermediates and API manufacturing. So both put together, till now, we have invested close to about INR 280 crore for both the plants and certain activities on the marketing setup and distribution network.
If you can give a breakup if you have?
Large component of this is a debt.
Sorry?
A large component of this is financed through debt.
Got it. Got it. So what is the total outstanding debt now that we have, and what will the peak consolidated debt on the books, and what will the repayment plan for this?
Yeah. So total short-term loan, which is there, is 20, and long-term loan is 330 overall. While in Indoco, we have close to about 400 as a long-term debt and about 211 as a short-term debt. So all put together, close to about debt level is about 960.
Will that be the peak one, or will there be any further debt also we'll be taking?
We estimate that this is like a peak.
Okay. Got it. Got it. Thank you so much. In case I have any additional question, I'll come back and get you.
Sure.
Thank you. We have our next question from the line of Sudarshan Padmanabhan from Invesco. Please go ahead.
Yes. Thank you for taking my question. I would like to understand a little bit more on the cost structure. I mean, if I look at our other costs and the employee costs below the gross margin, we spend as consistently increasing over the last few years, and I see that proportionately, the top line is not expanding. You did talk about expenditure towards the OTCs and bringing up the capacity of manufacturing to better standards, so how do we see these costs, say, in the next few quarters and next few years? Because it looks like it has consistently been spending without seeing visible benefits, at least in the last few quarters.
Yeah. Thank you for that question. So like I mentioned earlier, this has been a year of several setbacks when we have not been able to optimally utilize our manufacturing plants because of plant and other shutdowns. Also, with the warning letter and the remediation costs, there have been several additional costs at the sterile site as well. If you look at this year, therefore, and you study the performance for revenues, the international business is actually at 48% compared to the previous year. Whereas all the manufacturing sites that are engaged in activity, the fixed costs at those sites have been going. So typically, this is a mismatch between the revenues and the cost structure that we are holding. That is largely responsible.
Coming to other expenses and the increase, in fact, the Master Manufacturing Plan is our attempt to be able to control a lot of the other expenses and bring them in harness. As part of the Master Manufacturing Plan, we have aligned manufacturing of several large molecules at various locations. We have increased batch sizes. We intend to bring down the manpower employed at various sites. And all in all, we expect this year, on a much higher expected manufacturing base, to actually manufacture 25% less batches. So all of this should help us control these costs which are going out of hand. Some of the largest heads that have been increasing under other expenses, one is stores and spares, and the second is lab expenditure.
Stores and spares, a lot of it has got to do with the remediation and therefore some of the work that we've had to do on products. Also, with regard to, as we have tried to synchronize products across various sites, we've had to also go for spares at various sites for manufacturing those products. I don't expect this kind of a base to stay on a long-term basis. As of now, I think we are doing close to INR 140 crore on other expenses, but I am hopeful in another quarter to be able to arrest it at INR 120 crore.
With respect to the utilization and again connecting to the CAPEX, if at all we require, because as you mentioned, because of various issues, we are not able to utilize the capacity. I mean, what would be I mean, I'm not asking for a precise number, but what could be on a blended basis, the utilization across capacity? And also with us completing the remediation, probably should that cost we talked about the four crore, if I'm correct, that cost should more or less be behind us?
I wouldn't say all cost of remediation for U.S. is behind us. Like I said, updates will go on till December. We have to factor that in. I think your first question was more about what was the first part of your question? It was about.
The utilization across the plants even several different.
Yes. Yes. Yes. Yes. So because of this restructuring of products across sites, what we have achieved really is bringing down the complexity of the product mix at each unit. And in turn, increasing capacity because then that means fewer changeovers, better efficiency in testing, and several other things. So quite frankly, I think your question was about how much revenues can we get from this kind of a turnover. So even of a steady year like the earlier year when we did not have manufacturing problems, we were very confident on multiplying by at least two and a half times our top line from this business. So I think last year, other than India business, was at close to INR 800 crore, if I'm not mistaken. And we can easily look at up to INR 2,000 crore with this revenue. With this capacity. Sorry.
So I don't think we would be requiring major capacities apart from maintenance CAPEX, right?
No. No.
Yeah. And then with respect to normalization in the international business, I mean, how do we see both the U.S. and European business gathering momentum? And in light of things, while margins have been a little difficult for us or anybody to kind of put a precise number, how do we see the margins expanding in the medium term?
So the last part of your question?
Margin expansion, I mean, from these?
Oh, ladies and gentlemen, please stay connected. We have the management line disconnected. Ladies and gentlemen, thank you for patiently waiting. We have the management back with us. Over to you, ma'am.
Yeah. Hi. Sorry about that. I think the line got disconnected. I was in the middle of answering the resumption of supplies and sales to Europe and U.S., so let me start again. I hope you got everything before that.
Yes. Yes. Yes, ma'am.
Yeah. Great. So coming to U.S. business, U.S. last year total revenues for U.S. market in 2023/24 were INR 286 crore, of which there were substantial amount coming from sterile. Close to INR 200 crore was revenue from the sterile plant alone, which this year is only INR 42 crore. Whereas solid orals, which were only INR 52 crore last year, are at INR 81 crore now. So solid orals contribution has really gone up. And as we get into 2026, 2027, 2028, where more solid orals will go off patent, for which we already have tentative approvals, I expect solid orals business to ramp up. This business is coming from Plant I, incidentally, which has also been revamped as part of the Master Manufacturing Plan. Coming to sterile, as I said, with this latest positive stroke coming from U.S. FDA, we expect resumption of supplies in the second quarter this year.
Gradually, you will see a pickup till the last quarter. Coming to Europe, normal base for Europe used to be around INR 300 crore. This year, it got impacted because of inability to supply, etc., of solid orals. I expect it to go back to the INR 300 crore level in the coming year. I hope that answers your question.
U.S., I mean, we would basically see a step-up jump from the second half of this year. It would be more of an FY27 rather than an FY26 kind of scenario.
Yes. This is a year of us coming back to our normalized values of the prior year.
Sure. Sure. And ma'am, you have given some color on the costs coming down by about INR 20 crore a quarter. What is the kind of margin that one should expect? Because the margins have come up quite sharply from where it was. So some color on that in the near term, I feel like no longer.
So like I said, when you have to run eight manufacturing sites all having fixed costs, but you're able to efficiently supply only out of two, I think you can do your own math. And that is what has really put the pressure on margins. Therefore, I would like to wait for another quarter for numbers to talk for themselves because it's a dynamic between both. It is not sufficient for us to complete our restructuring of manufacturing. We also should be able to supply from those sites very effectively. As of now, we have sufficient orders in hand and feel confident that we'll be able to do that. But I would like maybe Q2 would be the right quarter for you to show this upside. And then from there, I will be more confident telling you about improvement after that.
Yes. On the U.S. domestic business, I mean, we have taken a lot of initiatives in the past, I mean, through our investment, through research, etc. Where do we see or when do we start seeing the benefits of that? Because we still continue to lag the IPM curve.
Let me just quickly correct you on that. Because when you compare with IPM, we might be lagging. But vis-à-vis a covered market, we are doing very well. So as you know, we are one of the companies which has got a very high stake in acute and subchronic. And just to give you some numbers, we have for the fourth quarter, our stomatologicals has grown by 2.5% as per IQVIA, whereas as per the market is minus 1.4%. Another category where we have a large stake, which is respiratory, where the market has grown slower than us, and so is anti-infective. So if you look at our performance in India, within the zone where we operate and are present, we have done pretty well.
Regarding the impact seen on our numbers, that is largely because a couple of our toothpastes, which now are sold by Warren Remedies as OTC, and I have explained this earlier, we have changed the supply chain, and it has taken us almost a year to catch up and come back to normal levels, so the last month, I think month of April, is the first time we are seeing again growth in the sales of the toothpastes, which have gone OTC in IQVIA, so what is suffering really is the projection. If you look at the consolidated picture of India business performance, you will see that we have grown at more than 8.5%, which is at par or even better than the industry growth.
Sure. Thanks a lot, ma'am. I'm done. Thank you.
Thank you. We have a next question from the line of Malik from BNK Securities. Please go ahead.
Yeah. Hi, ma'am. Thank you for the opportunity. One question which I had is that in the opening comments, we mentioned that Warren Remedies' operational costs have been impacting our margins. So would you be able to quantify or give some idea on how much that impact is? You answered it partially to the previous participants, but a little bit of more understanding on that.
No. I think by and large, I can just give you the way you could look at it is IRL is standalone, and we also give consolidated results. So in consolidation, we have two entities. One is Warren Remedies Private Limited, which manufactures and sells OTC toothpaste of cosmetic license. And it also manufactures certain API starting materials for us. So there has been a good investment in that. The second entity is FPP, which is a company we acquired in U.S. to create our front end. So both these entities have impacted our margins. But at this stage, we are not really given out those numbers. But safe to say that the impact coming from both these entities on the consolidated numbers is expected to go down this year.
But if the main entity where we had major constraints because of product availability and the U.S. FDA warning letter, if that gets corrected, this impact is not going to really hurt our numbers too much.
Understood. Understood. And for clarification, you mentioned the remediation cost, which we have been incurring. Can you please repeat it?
So we have been incurring close to INR four crore every quarter on remediation, which includes costs of the remediation partners, certain improvements to be done at the site, etc., etc.
Okay. Okay. And is my understanding correct that by July, August, the site would be ready, and anytime inspection could be due after that?
We would hope. We have to wait and see. The site will be ready after August.
Okay, ma'am. Thank you so much. Thank you.
Thank you. We have a next question from the line of Kunal Mehta from Omkara Capital. Please go ahead.
Hello. Have our gross profit margins improved over the last few quarters from 68%? It has improved to 72%.
We can't hear you. Sorry.
Hello? Is my voice coming enough clear? Our gross profit margin over the last few quarters has improved from 68% to 72%.
We can't understand what you are saying.
Okay. One second.
Hello, Kunal?
I think we lost him.
We'll move on to the next question from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Thanks for the opportunity. Ma'am, as you had rightly guided in last quarter that Q4 will be even worse than Q3. So do you think we have bottomed out in terms of losses or Q1, Q2, we will continue to see some losses as well? Anything that you would like to say given how things are?
So thank you for reminding me. I had kind of painted a picture of Q4. And as you have seen, it has not been a great quarter on margins at all. And yes, I believe we are at the rock bottom of the losses. And from here on, I don't expect any further deterioration.
But losses will continue at least for a quarter or two?
Like I said, losses, continuing losses or coming out into profit is a function of both revenue and arresting of costs. And out of the three factors which have impacted us, the Master Manufacturing Plan related impact has now almost gone. 99% it's over. Regarding Warning Letter, to the extent of 50%, I think we would be back on our feet. And regarding Warren Remedies, as I explained, when you go OTC and you start pumping into ad expenditure, investment, people, the kind of infra we put up, we were anyway planning to have a couple of years of muted. So I don't expect the losses from Warren Remedies to further increase. So net net, I think you will only see improvement from Europe.
Okay. Ma'am, on the European side, you had indicated that post our Master Manufacturing Plan will start seeing growth even from FY24 numbers. FY25, again, we have seen degrowth in numbers. But in FY26, we'll start seeing growth from FY24 EU numbers. So what kind of growth are we expecting in the European market for next financial year?
So like I said, at this point, we should look at doing numbers equivalent to or better than the previous year.
Okay, so FY24 should be considered as the base.
Yeah.
On that, we should be flat or should grow somewhat?
We will grow. We will grow. But you must understand, coming out of such a period, it's not easy for us to talk of growth. Like I said, let the numbers talk for themselves.
Sure. Sure. And on the India growth side, India business growth, so except for if you remove the Warren Remedies and our base business, if you coAnaCipherder what kind of growth should we expect for next financial year? And what are our plans for launching new products? And how do you see the scale-up in those new products?
Yeah. So three questions. Let me start with Warren Remedies because you said keep Warren Remedies aside. But just to quote, as per Nielsen, which is a report we now look at to study the health of our toothpaste, we have got good volume and value growth in the market in excess of double digits. So I expect this to create good demand. And from here on, I expect Warren Remedies-based sales to also grow in a good fashion, at least in double digits. Coming to Indoco Remedies Limited, today at IRL, our contribution of new products to total growth is in excess of 4.5%, which is way higher than the industry average of 2.5%. So most of our new launches are doing very well. This quarter, for example, we have launched a product, Drotin, and its brand extension among several others.
On new products, certain products like Noxa, we continue to be market leaders. With Niona, we stay number two. Most of our new products have done very well. Coming to IRL standalone without Warren, without new products, if you look at our legacy products without new products, then most of our legacy products, other than Febrex Plus, which has got impacted from market. Market of Febrex Plus is, I think, down -4%. We are flat. Azithromycin, which is our brand ATM, market is also down, and we are equivalently at the same level. Other than these two brands, almost all other products of Indoco have shown very healthy double-digit growth. Cyclopam, as I said, has grown by 25%. If you look at a product like Cital, also, it is growing in double digit for the year. Yeah, that's it.
On the Indian business, can we expect, including the new products and the higher sales of new products that we have launched in FY24 and 25, can we expect 12%-15% of growth in the domestic market?
We will attempt to do much better than the market.
Sure. Sure. Okay.
Okay.
Okay. And on Warren Remedies, do you think we can break even next year or FY27 is the only year we can break even there?
I think safe to say 27.
Sure. Okay. Thank you, Anish. All the best.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have a next question from the line of Rajakumar, an individual investor. Please go ahead.
Yeah. Good evening, ma'am. Thanks for the opportunity. Can you hear me?
Yes. Yes.
Yeah. Ma'am, just a couple of questions. First is on the CapEx. I see about INR 276 crores of CapEx is waiting to be capitalized. So I just want to know what is the CapEx budget for the current year. And also, this INR 276 crores is more to do with the remediation expenses that we are carrying out, or is it that it's going to augment our existing capacity?
There are two parts to it. Some of it, very little, is towards remediation because most of the CapEx on remediation was done in the earlier year also. Most of the CapEx spent this year has been for putting the master plan in place and expanding capacity. For the numbers, I will hand over to Pramod if you'd like to give a question.
Sure. So with regards to CapEx, as Madam also mentioned about our investment during the last couple of years, and particularly last year when we invested heavily, so overall CapEx investment was close to about INR 200-plus crore, plus what we have invested in Warren. So both put together more than INR 300 crore. While your question about the plan for this particular financial year, 2025, 2026, we don't intend to spend much on CapEx. We have controlled CapEx, and most of the CapEx work is almost at a finishing stage in all sites. So we don't anticipate much CapEx except the routine maintenance CapEx.
Okay. And what would be the charge that you'll be taking on account of this increased CAPEX once you I assume you'll cap this in FY25, 26? That is also going to kind of hit your.
See, we can't hear you very clearly. Can you repeat that last part?
No. My question is, this INR 276 crore, once capitalized, you'll be taking a hit on the depreciation for FY25, 26?
Yeah. Yeah. Depreciation on the depreciation.
Yeah. That's going to put pressure on your existing already. The bottom line is bleeding. So just want to know what would be the additional hit you'll be taking?
Yeah. So currently, if you see, depreciation is in the range of about INR 100 crore, close to INR 100 crore. So in addition to this, the assets which will be capitalized, out of that, some assets are which are long-term in nature. So about INR 9 to INR 10 crore would be the additional depreciation on the new assets.
This is per quarter?
Per annum.
Oh, per annum. Okay. Okay. Yeah. And the next question is, I see that the rating agency has currently kind of downgraded your credit rating. So I mean, what is the plan? Do you have a plan to get your rating up, or this is something not going to happen in the short to medium term?
Yeah. This is Sandeep Bambolkar. See, when we went through a similar patch in 2016, US FDA and UK MHRA plant issues, we had similar problems, and the rating agency had downgraded us that time also. But immediately when we had a good performance ever since 2018, right up to 24 now, we have always been A1 plus in the short term and AA minus on the long term, which is the topmost rating company of our size can have. And subsequently, we have been having excellent borrowing rates. So this is a limited-period phenomena which we have to face. And as soon as we are out of it, they will come down and upgrade us once again.
Okay. And so just continuing on the same question, given that you have a significant borrowing cost, is there a plan to organically only reduce this, or do you have any other monetization plans to reduce the debt?
No. It will be organic only. From our cash accruals, we'll repay the loans, and you will be surprised that even today, our loans are in the range of 8.5%-8.75%. I agree for a company of Indoco's quality, they are slightly on the higher side, but we have borrowed as low as 4.75%-5.5% when our performance was good and the rates were under control, so let's see. It's a function of global rates, rates by RBI, and our performance. Three in one. I hope you got it.
Yeah. Yeah. I got it. But my worry is you've got too many things to take care. So the path to profitability is going to be a long path, is what I think.
Yeah. That is true. But like I said, since we understand that much of our problems this year are on account of a cause effect that we are in control of, as the product supply begins from the sites, and we are able to bring in efficiency and control costs, we feel pretty confident that we'll be able to come out of it. But thank you for your concern.
Yeah. Thanks a lot, ma'am. Thanks for answering all my questions. And all the very best for the future.
Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. We have our next question from the line of Vishal from Systematix. Please go ahead.
Hi. Good evening, and thanks for the opportunity. On your OTC business, would you be able to share how much are we spending on building these OTC brands annually in terms of advertisement, promotion, channel spend?
No. Sufficient to say that it is quite high compared to the ethical business. And our immediate competitor spends close to 35% of their revenues on it. That much I know. So because Sensodyne is our biggest competitor and the largest player in the OTC segment for sensitivity toothpaste. And their budgets are in that range. For us, partly, it's going to be a bit high. In the first year, I think we have spent close to 40%. But it will slowly come down as the sales go up. Hello?
Vishal, are you there?
Got cut.
Hello.
Hello.
Hello.
Hello.
Sorry, I got disconnected.
Yeah. I'm there. I'm there.
Yeah. I said in the first couple of years, we were not expecting to break even because costs associated with advertising in this industry and product promotion are pretty high. We have to remember we are going from 25,000 dentists as customers to lakhs and lakhs of end users, supply chain, wholesalers, grocers, retailers, and the whole ecosystem. So it's going to be a little bit high initially. But going forward, as the sales go up, as a percentage, it should come under control. But this is a business which requires, in the initial two to three years, heavy investment on brands.
In some sense, you spend about INR 16 crores on remediation. So would this spend be even larger than what you spend on remediation, the spend on your OTC brands?
Yeah. Yeah. I mean, it is larger.
It is a larger number.
Yeah. Larger number. Certainly.
This has all come up because of the strategy to do it OTC. Had you not probably thought of taking it OTC, you would have not spent this money at all.
Yeah, but our pace would have been limited to the scope of what they could in the sensitivity market, which is very limited in the ethical space.
So, any sense on how these—what are the numbers—are we getting to see on a monthly basis for these OTC brands?
So as per Nielsen?
Yeah. Yeah.
As per Nielsen, at tertiary levels, our brand is growing at 18-19% in value. But there are many other parameters to be looked at when you're taking your product OTC. I mean, there are terms which are also new to me yet, but I'm getting familiar with them. Things like weighted distribution, numerical distribution. So it's about creating reach. And fundamentally, from all these numbers, it's looking good. It's not as if the pace have not grown. They have shown a 10% growth, but we were expecting to do much better. And today, we get 99% of our sales coming through the chemist channel, whereas Sensodyne gets more than 35% coming from grocers, where our presence is negligible. So it is one-one channel which we have to bring in, and that will open the market for us. The sensitivity market, otherwise, is INR 500-600 crore market.
The moment you go look at the sensitivity toothpaste market in Nielsen, it is a INR 1,100 crore market. It's a no-brainer that we have to go for this.
Okay. And you still continue to promote these as a prescription brand?
Other variants of those. Not the same product.
But earlier, you used to get your sales as a prescription brand before kind of going OTC.
Yeah. But the prescriptions continue because we realized that when we were purely ethical also, if a patient approaches a doctor and says that they are using an XYZ brand, the doctor does not stop them. And incidentally, these toothpastes, if you look at the amount of prescriptions they were dependent on, it is very small compared to any other category. So this is a category which depends less on prescriptions and more on repeat purchase and end customer kind of thing. I hope that answers your question. So our two ethical divisions in dental, they continue to carry variants of Sensodent-K and Sensodent-KF, but not these two products. So Sensodent-K Fast Relief and Sensodent-KF Cavity Protection is now purely under OTC.
Your price point is similar to the larger brands in the category?
Yeah. Yeah. Yeah.
The GSK brands, basically?
Yes. Yes.
It is at the same price point?
Similar. Yeah. Yeah.
Okay. And you are not promoting this as a trade generic. You are promoting this as a direct-to-consumer product.
No. No. No. No trade generics for us. Not here. No. This is proper OTC. The setback we got this year has largely got to do with the channel change. Earlier, in the ethical business, we had the system where a carry-and-forward agent would carry our product, and the primary sale happened directly to the stockist. Here, we have super distributors who then sell out. So they are our business partners. And with this shift where they have to sell more and more to wholesalers and distributors who are non-pharma, or they have to sell to pharma distributors who ask from them different terms, this phase has been a little bit tricky for us, but now it has all settled. So I feel confident going forward. We will see higher growth.
Would you also put this on these modern retail stores, or you would restrict to pharmaceuticals?
We would have to. We would have to because 30% of Sensodyne's market is coming from modern trade.
So we will get to see your products on modern trade channels?
Yes. Yes. Gradually. We already made small initiations. I believe we are on Amazon now, and it will come on others as well. But for us, because of predominantly the history with the ethical side, it will still stay very large in chemists, and then we'll be adding grocers, and then modern trade. It will go in that fashion.
All right. And just one final one, if I can. So the need kind of to put so much of CAPEX in the last few years, were we really kind of facing capacity constraints, or this is more about the future that you are looking at?
A bit of both. More for the future.
All right, so I'm asking this because we have kind of stretched our balance sheet in doing this, and.
Yeah. So you're asking me if we could have postponed anything?
Yes. That's what I meant.
No. I think opportunities like that, that you cannot really postpone. Like I explained to you, people generally try to get market share after they have capacity. Ours is the other way around. We have market shares. Now we have to use the capacity optimally.
All right. All right. Got it, ma'am. Thank you very much. Thank you.
Thank you. We have our next question from the line of Moksh from Aum Capital. Please go ahead.
Hello. I want to know what going forward, how much R&D as a percentage of it, are we going to increase it from our current 5%-6%, or are we planning to decrease it?
No. We are not planning to increase or decrease, but we are maintaining it at 5%. Even on a lower top line this year, in absolute terms, it has come down because we are now being a little bit more picky about the products we take up, how many, because we have enough in our pipeline waiting to be filed. So considering the company is going through these times, we have decided to be very choosy about how much we invest in R&D for the next couple of years. But it will still stay at around 5% of top line. I don't think it will come below that.
Okay. That's it from me. Thank you.
Thank you. Ladies and gentlemen, that would be the last question for today, and I now hand the conference over to the management for closing comments.
Thank you all on behalf of Sundeep, Pramod and me. Thank you for joining us on this call, and as I said right at the beginning, thank you for your patience as we pull the organization out of this situation. I look forward to meeting you under better circumstances. Thank you very much.
Thank you. Thank you.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.