Hi, good morning, everyone, and a very warm welcome to Ipca Labs Q1 FY 2022 Earnings Call hosted by DAM Capital Advisors Limited. On the call today we have representing Ipca Labs management, Mr. A.K. Jain, Joint Managing Director, and Mr. Harish Kamath, Corporate Counsel and Company Secretary. I will hand over the call to Mr. Jain to make some opening comments, and then we will open the floor for Q&A. Please go ahead, sir.
Good morning to all participants. Thanks for taking out time and joining us on Q1 FY 2022 Earnings Call. Today's earnings call and discussions and answer given may include forward-looking statement based on our current business expectations that must be viewed in conjunction with risk that pharmaceutical business faces. Our actual future financial performance may differ from what is projected or perceived. You will use your own judgment on the information given during the call. Our business performance has been better than our own expectations for the quarter. Domestic formulation business delivered 25% growth over previous year. Excluding INR 54 crore of domestic hydroxychloroquine institutional business, which we have done in last year first quarter, if we exclude that, then domestic formulation business has grown by almost around 41% in Q1 on a lower base. Some of the therapeutic area recorded a very strong performance.
Our pain segments have given almost around 36% growth, which contributes almost around 39% of our businesses. That is excluding hydroxychloroquine business, what we have done with institutions. Including that segment has just given around 6% growth overall. Cardiovascular and Antidiabetics have grown by almost around 14%, which has contributed almost around 18% of the business. Antibacterial has done really very well. The business from INR 18 crore has gone to almost around INR 50 crore. It contributes around 8% of the business. Overall growth in this business segment has almost around 173% for the quarter. Derma is another business where last year first quarter we were facing problems because of lockdowns and other things. That recovery has been very strong. The business last year was almost around INR 13 crore.
That has gone to almost around INR 25 crore. The business growth has been almost around 89%. Derma contributes almost around 4% of the business. Similarly, even anti-malarial in this quarter has done well, almost around 98% kind of growth. Its contribution is around 6%. The INR 20 crore business last year first quarter has gone to almost around INR 39 crore. Cough and cold is another segment where continuously in last financial year there was a decline. In this first quarter of the FY 2022, there's a sharp recovery in cough and cold business. That has also grown by almost around 83%. It contributes almost around 3% of our overall business. Overall, it's a broad base. Most of the therapeutic area, we had a very strong growth in the first quarter of the current financial year.
If you look at CAGR growth of domestic business in Q1, on a base of FY 2022, it works out to be almost around 16.34%. That has been a really good growth. On the base of Q1 base of FY 2022, if you look at, then it becomes almost around 16% kind of growth. There's no point in looking growth from the base of FY 2021 because the business was facing problems because of lockdown. On a base of Q1 FY 2022, it's almost around 16.34% growth. Broad-based treatment of hospitalized patient helped the antibacterial business growth. At the same time, selective lockdowns did not much disturb the overall market in Q1 of the current financial year.
Excluding almost around INR 259 crore exceptional business in Q1 last year on account of chloroquine and hydroxychloroquine that we had done last financial year. If you exclude that, on lower base of last financial year, we have recorded business growth of almost around 23% in the current year, overall for the company as a whole. We have achieved an EBITDA margin of around 27.1% for the quarter, in spite of 2% lower currency realization compared to the last financial year, higher material cost with market risk, increasing basic chemical prices, intermediate prices. Petroleum product prices are at very high, which include all the solvents which are used for API. A lot of those costs and technical costs, because of commodity prices going up, is also very high, and higher energy cost, transport cost, and shipping cost.
Shipping cost, more particularly the container cost, has significantly moved up. Also the promotional cost has started returning back in the first quarter of the current financial year, as the situations are becoming normalized now. COVID-19 has posed tough challenge due to COVID infections at plant, and loss of life due to COVID, as well as selective lockdown also disturbed the plant productivity due to less availability of manpower at certain of our plants during this quarter. Having given the brief presentations, I will now like to open the floor for question and answer. Thanks once again for taking out time and participating on this call. Thanks, Nitin.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star, then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star, then two. Participants are requested to use hands-up while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star, then one. The first question is from the line of Tushar Manudhane from Motilal Oswal. Please go ahead.
Yeah. Thanks for the opportunity, sir. Just on this, on the raw material cost, so how do you see the outlook now for the coming next three to six months, whether the costs are stabilizing or continue to rise?
There is still continually rising trends are there. More particularly, again, the flood in China and lot of other issues are still disturbing the markets, more particularly for the basic chemicals and your intermediates. Yeah.
Would be the logistics cost as well?
Logistics cost is also, in fact, the container hiring cost is further going up. The European containers, which was available much earlier at a much lower price, now reefer containers are almost around $6,000- $7,000 now and U.S. containers as well. Because a lot of the shipping companies are from China, and there is a tremendous amount of disturbances there. We have to book container well in advance. There's a lot of disturbance as far as the freight is concerned, and that cost is moving up. Yeah.
Given that we had some amount of inventory, which would have taken through for this quarter, maybe will the cost impact could be more reflected in the coming quarters?
Actually, cost increases is there, but at the same time, the pricings are also continuously getting revised. In domestic also, we are taking little higher pricing. Normally, we take around 4% price rise. This year, our average price rise may be around 6% now. To some extent, that will get compensated. As far as API business is a virtuous leg, because what inventory you have, you price goods in line with that, and then price goes up again, you revise the prices in the market. We don't sign any kind of long-term contract, so the prices keeps on revising. It doesn't have much of impact there. Maybe some kind of impact may come.
Just lastly, if you could also extending the API on the sales aspect, how do you see for the full year? Is there any one-off pattern or this is kind of a normalized trend rate to go by?
Let's say the business was good in the first quarter of current year. Domestic API business, we were expecting very significant decline because of last year we had almost around INR 156 crore of API business, which we sold API to an Indian company, which are interim exported the product to U.S. for COVID-19. Excluding that also, against our expectations, the API business has done very well. The current year also appears to be good as far as domestic is concerned because domestic market is also growing very well. Domestic API business little better. On export side, we have projected for whole of year around 10% kind of growth.
There will be some impact here and there because we were exporting some API to market like Iran, where there are issues currently because India is not buying the oil, and therefore your rupee payments mechanism which is there, that rupee is not available. Even though you have orders in hand, shipments are not happening. That may have little impact here and there. More or less, it's going to be in line with our overall expectations of the current year.
Thanks a lot, sir.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to one per participant. For any further questions, you may contact for follow-up. The next question is from the line of Kunal Dhamesha from Emkay Global. Please go ahead.
Good morning. Thank you for taking my question. First question is regarding the gross margin. If I look at your mix, it has not substantially shifted, that the domestic is still around 40% of our revenue. If you look at the gross margin, they have compressed quite a lot on a sequential basis so a part from high raw material cost, is there any other reasons for that?
Basically, there are two reasons. One is, let's say the product mix which is sold in this particular quarter. As I told you that there are significant jump in some of the product portfolios like your Antibacterials, Antimalarials, and cough and cold, and all those type of portfolio. Traditionally, their margin levels are low. Their cost of manufacturing is higher. Some of these, like antimalarials, we have very low margins. Their business growth has been significant. That also impacts. We cannot see the pharma business sequentially. It has to be seen with the reference to the quarter-over-quarter. You cannot see that. It has to be with reference to each quarter. Product mix is a little different. That's one factor. Of course, the cost of material has also gone up. It's also the product mix, which is also impacting overall on material cost side.
Last year, first quarter, if you look at most of those business were getting chloroquine, hydroxychloroquine, which has happened, that has happened at much, much higher margin level. Margin of the material cost was almost around 27%. If you look at overall our material cost for whole of the year, it was around 32% kind of material cost. Currently, for this quarter, it's around 33%-33.4%. It's a little increase also because of overall product mix changes, yeah.
Sure. Second question is on other expenses. You alluded that you know that commercial activities are coming back. Still, I believe we are still at around INR 300 crores. Do you expect this INR 300 crore cost line to move up materially in the coming quarter?
More or less, I'd say cost increase trend would remain a similar kind of trend which we have witnessed in the first quarter. First quarter, there is some kind of exceptional entries also there of some provision of diminution and value of investment. Around INR 16 crore we have provided on that. Excluding that, there are no exceptional as far as expenses are concerned. If you look at your energy costs, your gas cost has moved up almost around 50%, 55% in this quarter. Energy costs has significantly moved up. Your shipping costs has significantly moved up. Promotional costs has come back. Last year, first quarter, most of the field staff was sitting at home. They were only paid the salaries. Normally, there are almost around 5,000 people who travel separately. There's travel cost, and also there are your allowances.
That cost was not there. That cost has returned back. Secondly, on human resources cost side, if you look at since the domestic business has outperformed and has given a significant growth. We also made a much higher provisions for the incentive payment to the field people. Lot of those incentive payments also depends on how they perform in subsequent quarter. It's based on our judgments, we made a higher provision, maybe significantly lesser amount we have made provision. It all depends on how in future that will work out. There could be reversal or there may be requiring additional provision. Generally, trend has been very good and focus has also opened very well. We don't see any kind of concern as far as domestic is concerned.
Just a small follow-up on that. You were expecting to add around 200 MRs in this year. Has that cost also been incurred as we kind of hired those 50 people, that's already entering to our model?
That has already built up. Let's say, we have added people in your CNS segment is one segment we have added people. Another we have added people is in ophthalmic segment, we have added people. Some people we added in towards the derma business. Derma business for us is doing very well now. Very good recovery has happened. It's not that these products people have become productive, but their cost has come in the first quarter.
Sure. Thank you.
Okay.
The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hello, sir. Thank you for the opportunity. Sir, my first question is on India business. You have mentioned we have seen very good recovery in some of the segments. I understand both of these are seasonal in nature. How do you see India growth panning out in next few quarters?
We indicated that, yes, there was some impact of COVID also impact because there was a great risk involved for the hospitalized patients, and there is a sharp recovery in the antibacterial. Normally, the antibacterial sales happens very good in your rainy season because a lot of infections happens around that time. The first quarter is one where those infections are at a lower level. This year, it has also helped by the overall kind of infections. Overall, trend is still good. We have projected for the current year that this domestic business should be growing around 16%- 18%. Change in the year that we may have to revise our guidelines for that.
Okay. This 16%- 18%, you might revise later on but s o far you're seeing good trends?
Yeah, we are seeing good trend. Yeah.
Okay. Sir, my second question is on your capacity expansion for API. Could you please provide upd ate there?
We are still facing problem because this whole expansion got delayed because of COVID-19. In Dewas, we are set in process of setting up plant. We also created there 250-bedded COVID-19 hospital system. Because of that, the workers run away, and we had almost around three months gap in project implementation. Project was supposed to be Being operational by the end of the third quarter. We'll go to the fourth quarter to do your entire validation and also the plant will not be available for any kind of commercial production in the current year. It will become operational in the next financial year only. We are setting up one more plant that also got delayed, and I think that should be somewhere in the end of third quarter. That should be operational. Some kind of additional quantities may be available in the fourth quarter for business.
Broadly, we should be expecting these new plants will be contributing from next fiscal year onwards?
Next fiscal year onward.
Okay, sir. I will go back in the queue. Thank you for your answers.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. On the export side, just wanted to understand the outlook. Clearly, this quarter is an impact of the base of last year's quarter. On the outlook side, how do we see the branded business and the generic business shaping up, especially in Europe, of generic business?
Some of the branded businesses we are doing currently in, let's say, CIS market, there is also impact of currency, that Ruble has moved almost around to 72-73 level from 68-69 level. There is a minor impact of that also will be there. Some of the markets are also disturbed like Myanmar, that we were doing good business in currently because of all those turmoil which are there. That market is disturbed. Some of the other markets, maybe in Africa and North African markets are doing fairly very well. It's a mix trend. We have projected almost around 14% growth, but it's likely to be little less than that, maybe around 12% or something like that. That will have some kind of little disturbances as far as that business is concerned.
Generic businesses, last year we did lot of businesses relating to hydroxychloroquine and all. Also the Para prices. Paracetamol is also one of the good product which goes in Europe and other markets in a big volume. Because of para prices moving up to almost around double the level than last financial year. Currently, the buying levels are low. The generic European business may have some kind of impact of that. Overall, your API business, we should be able to achieve around 10% kind of growth. Domestic API should be able to do better than that. Overall, our guidelines continue to remain around 10% kind of growth, 8%-10% kind of growth for the next year, for the current financial year. Looking at overall trends after second quarter, we will decide on and revise our overall guidance for the current financial year.
Okay, thanks. Any outlook, sir, for the gross margin? You mentioned not to look at quarter-on-quarter, there is a sharp jump in the high-margin domestic business. How do we see the upcoming year as gross margins? This seems pretty low to us, seeing your past performance.
Our guidelines for this year on EBITDA margin side was almost around 25%, and in first quarter we had recorded around 27% kind of growth. This is likely to be better. After second quarter we will revise our guidelines upward.
Any color on gross margin, sir?
Gross margin is a quarter-on-quarter kind of, let's say, in this quarter here, a lot of good businesses happened where the cost was on higher side. That trend may not continue for a longer period. Overall, material cost will come down little bit. Gross margin levels will improve.
Okay, thanks. Lastly, on API business, we're looking at your annual report. Currently, this Pisgah and Ramdev is still at loss-making at the PBT level. How do we see the turnaround? There was a thought that we'll consolidate and scale all these businesses. What is the one-two y ear outlook on these subsidiaries?
Pisgah in current year may continue to remain a loss-making. Basically, we had taken that for France business, and now the business has started happening. We already won the two projects, and there are good amount of work in progress is happening on that. It takes time for a new entity to establish there and all that. That work is currently happening. Pisgah, we don't expect that to make money. Ramdev, we are changing the complete product portfolio because they were more on intermediate side. In Ipca, we don't do much of intermediate business. There is hardly any intermediate business.
We are now focusing more on API side. Lot of APIs are taken for qualifications and lot of stability and those kind of works are going on. Maybe current year they will be on losses but on a longer term, maybe next financial year, we should be able to turn that around.
Okay. Thank you, sir, and all the best.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yeah, thanks for this opportunity and congrats for the good second quarter, sir. Sir, just a clarification from the earlier question that you mentioned Ramdev, which is in the intermediate business and you're trying to switch this to API manufacturing one. While we are creating capacity for intermediates and for integration and all, like in Ratlam, also in Aurangabad, there is in Dewas. Why are we changing here, sir, from this?
These are all small. Ramdev is not a very big plant. It's more suited for high-value, small API kind of things. It's not a intermediate. People doing mostly the intermediates for smaller products which are not there in our product line, and we don't want to be there on those product lines. It doesn't make sense. As far as the intermediate journeys are concerned, it's more basically to support our capital consumption. We don't do any kind of intermediate business as such. We don't sell intermediates.
Yes.
Yeah. That's the change. Wherever we are setting up your intermediate production is only to support our API.
Okay. My first question is about this, that you mentioned that this Dewas project possibly will be commercialized starting FY 2023 or something like that. Is it part of the FY 2023, or do you think that it will be only in the second half of the FY 2023 or something like that? Also, what is the update on the bottlenecking project that you were doing in Aurangabad? You said about Ratlam.
Yeah. Ratlam, that's actually progressing well. I think third quarter it should be commissioned. Fourth quarter, that should be available for business. As far as Dewas is concerned, it's a new site. We will have to, after three qualifications and we do everything, it may not aid immediately to business because we'll have to generate data and file everywhere with the regulators, and then invite them for inspections. Yeah.
Even if for intermediate?
In intermediate we don't do. What we do is the initial phase, we will produce intermediates for our own and -1 at here and there, send it to Ratlam. We will increase our Ratlam productivity. By the time, let's say six, eight months time, all the data will generate there, then submit to the regulators, and then there'll be some kind of your time lag for their inspections and all that. After that, once that site is qualified, then only you can export the API from that site. Any kind of new sites you create, there is some amount of pain for a period of time to get all those kind of approvals. Even in 2023, that pain will remain because it's a process by itself.
This process has to be completed, regulatory approvals need to be taken, you start exporting. That time will be required. Any new greenfield site. Additional, your existing site, whatever expansion you come, from day one there, you can do the business.
Just on the Dewas, the objective is to have an external sale, or it is largely to have more of a backward integration for the existing operations?
No, Dewas is purely for external business, and capital consumption.
Okay.
No intermediates. Yeah, it's basically an API site.
Okay. Fine. Second question, sir, if you can just talk something about the, how should one really look at the associate companies where we have gradually expanded our holding, let's say CRAM or the Trophic Wellness or the Avik. All these three are having some unique capabilities, but we are at the almost negligible levels before having a kind of a majority stake. Your view from those, what is the kind of outlook or consistency we have for Ipca?
Overall, let's say Trophic Wellness is a company which is dealing into nutraceutical products, there's a different kind of marketing model there. It's your direct selling to the customers kind of model is there. That business is doing very well. I think overall last financial year, we did a, I think, business of almost around INR 100 crore and net profit of more than INR 20 crores. That is there as far as Trophic Wellness is concerned. That business is also shaping up very well for nutraceutical. Your wellness is one particular area where, in longer term, that business has been doing well and will have a much higher growth. We have increased our overall holdings. When this company was started, there were three partners were there, one of the partner wanted to exit, we bought his stake.
There were three partners in this. Ipca was also one of them. With that, overall our stake has gone up, and it has become our subsidiary company. That's one. As I have already talked about Ramdev, that Avik and CRAM. Plant is more suiting for your high value, small volume kind of this kind of products, and that's the journey we are having from that particular plant. As far as the Avik business is concerned, it's more on the steroid side, steroid. We have not increased our stake in that company. Our stake more or less remains at the same level, yeah. As far as Krebs is concerned, yes, it's basically a fermentation plant. There are two plants. One is at Nellore, and another is at Vizag. Nellore plant is already on breakeven and it has started earning money.
As far as your fermentation plants are concerned, we are still facing some kind of issues there. Hopefully, by this year-end, we should be able to because we have overall a lot of changes we have already made there, and we are also changing the line. We should be able to now come to the breakeven in Vizag, which is, I think, maybe the third or fourth quarter of the current financial year. It's basically a fermentation plant with very large fermenters base. It's not a small fermenter base. It's very large. Classic fermenters are there in that plant. It basically was producing Simmba, but their process is not efficient, so those also we are changing now.
Excuse me. This is the operator. Mr. Patra, may we request you to come back for a follow-up, please.
Thank you.
We take the next question from the line of Kunal Randeria from Edelweiss. Please go ahead.
Thanks for taking my question. First, on the domestic business, a lot of brands like Zerodol and extensions, CTD, Folitrax, these are number one in the market and have huge market share. I'm just wondering if the upside, at least in terms of market share expansion, seems challenging. I'm just wondering what your thoughts are for the longer-term growth for some of these brands.
Zerodol is a very large brand today. At that level also, if you look at in last whole year, we have grown by around 18% on Zerodol, and the whole market was challenging. Currently, even in first quarter, Zerodol as a brand has grown by almost around 26%. We are very confident that we will take the brand to the newer level. There's huge potential to keep on this kind of work. There's nothing as far as we are concerned. There are no worry as far as Zerodol growth is concerned. As far as your hypertension brand, CTD, is concerned, yes, we are expanding its overall more offering in terms of your combinations and others on CTD brand. Again, here, as far as overall hypertension markets are concerned, it's very small if I look at it that way.
We have long way to go with it and to make it further very big. I don't think so we have any concern on that. As far as other therapies are concerned, like rheumatology, we have more than 20% kind of market share, where most of those brands are having a leadership at the marketplace. All rheumatology brand, most of those brands we have leadership. Recently, we have launched, I think in November, also in the market, and that product is also having leadership in the market, and we are doing very well on that. Your disease prevalence of rheumatology is very high. It's a common disease. We are continuously expanding the market. It's only last one and a half year because of COVID, there are challenge in expanding market. Overall, little growth has come down on rheumatology side.
On a medium term and longer term, we don't foresee any kind of issue in growing that market further and continue to maintain leadership and still grow that market very well. Yeah. Others, most therapies of ours are basically growing. Like, say, derma, it's a growth market for us. Urology is a growth market. CNS is a growth market for us. Ophthalmology, all these are high growth market for us. They will continue to do very high growth. At the same time, we don't foresee any kind of issue in growing our existing these kind of portfolio. Our challenges are only relating to antimalarials, which has become very small part of overall market, overall in our pie. Of course, in first quarter, it was 26%, overall, for the whole of the year, it is only around 4% of our business.
That's only one which is a declining market. Some of their old legacy products like beta blockers and all, they are on declining side on sales also. Rest is all our portfolio is more linked to the overall to the growth markets, yeah.
Sure. Just a follow-up to this, sir. aceclofenac as a compound, is that also you believe can convert 20%-15% in coming years?
Aceclofenac is continuously taking your market share from other because the GI issues with aceclofenac is much less compared to all other NSAIDs. It's all continuously taking the market share from others, and we are driving that basically.
Sure. Just a little clarification, please. What would be the tax rate guidance for this year and next year?
I think current year and next year, we will remain on net. Thereafter, we will opt for that lower rate of tax of 25% because by the time then the net credit should be almost whatever accumulated net credits are there that will consume.
Okay. Thank you, and all the best.
The next question is from the line of Charulata Gaidhani from Dalal & Broacha. Please go ahead.
Congrats on the good set of numbers. My question was more pertaining to the Sartan prices. How do you see growth with the decline in Sartan prices?
Sartan prices have sharply come down. Losartan was the main product for us, there also prices have sharply come down because of overall intermediate prices coming down. Whatever cost reduction is there on manufacturing, that we have passed on overall to the market. Luckily, then overall our business has not grown up on that, but our volumes has gone up. We have taken good market share in quantity terms, but our overall topl ine on rupee terms has not moved up in first quarter of the current year. We have sold higher volumes in the market. More market share in terms of quantity we have. Yes, let's say, your overall revenue going down, but we have to produce more quantity to compensate for the reduction in the prices.
Okay. How do you plan to overcome this?
Plan to overcome is, let's say, the market forces will always play. Sometimes the intermediate prices are higher, sometimes the prices are lower. We also are sourcing from India also on that. Some of your knee-jerk reactions are not there to these kind of markets. Basically, it's a dynamic situation. Sometimes there are more number of producers come to the market of intermediates, intermediate prices fall. Sometimes some plant gets some issues or the other plant has issues relating to any kind of pollution issues or some kind of drag downs or all. Suddenly demand moves up. Those demands are not fulfilled, market prices move up.
These are the issues can only be addressed if you are having captive productions of some of the intermediates or some of those are in your supporting manufacturers are producing that. That's the long-term focus for us, to internalize some of those intermediates.
Okay. Do you expect improvement in profitability going forward?
Profitability in the last few years are moving, and will continue to move upwards as our associates are moving towards the higher value chain. Yeah.
Yeah. Okay. Thank you. All the best.
Thank you. The next question is from the line of Kunal Dhamesha from Emkay Global. Please go ahead.
Hi. Thank you for providing the opportunity again. We are planning to commercialize Dewas probably in FY 2023. Will we have higher operational costs related to it once we get a cost base, there will be no revenue, at least as you suggested, for some time till we get the plant in full speed and so on. What could be the quantum of those operational costs initially?
Let's say, when you start the plant, immediately their operational costs may not get fully recovered. As I said, that we will produce n-1 from this particular plant and shift it to our Atlanta plant and keep on producing API from there. It's not going to be a complete loss or no revenue. That situation will not be there. n-1 will be transferred to Atlanta, and then from there the APIs will be produced. That's going to be initial journey. Till the time plant gets regulatory approvals from the regulators. It's not that this will be incurring huge amount of losses on operational costs and all. Yeah.
Sure. The second question I have is again on Sartan. I think two quarters back you were looking to add a continuous manufacturing facility for Sartan. I think the market forces have moved quite significantly. Are we still on track to do that investment?
We said that we have set up one particular continuous process plant to produce one particular intermediate. It's a technically set process is there. We have successfully done that to improve the yields and others. On one particular step, we are continuously facing the problems for the MOC of the particular equipment. That challenge is continuously there. We are in process of consulting with a lot of experts and finalizing now that what kind of reactions need to be taken on that. It may be another few more months here and there, and thereafter, that plant will be completely operational, because that one particular step challenge is still there. We will reduce the intermediate cost of that particular product significantly.
Sure. Lastly, beyond FY 2022, what are our CapEx plans?
The CapEx more or less now, because almost on API side, we don't have surplus capacity. There will be also some kind of intermediate journey will be there. Formulation side, as the business start moving up, some kind of balancing equipment and all will be needed. Maybe I think one and a half years after, we may need even capacity for our domestic production also, because Sikkim plant is almost running at full capacity now. We may need to make some kind of more investment there. Overall CapEx cycle may remain around INR 400 crore level for next two-three years.
Sure. Thank you.
Thank you. The next question is from the line of Dipali Patadiya from Sameeksha Capital. Please go ahead.
Hi, am I audible?
Yeah, you're audible.
Hi. First of all, congratulations for such a good set of numbers. I understand that you said that you might revise your guidance on revenue growth and margins, but specifically on EBITDA margins, like we guided for 25% for FY 2022, and now we are at 26.6% for this quarter. Directionally, how we should be looking at for the upcoming quarters, FY 2022 as whole, and what will be the growth levers? What will be the levers that will be driving the margins? Also in the longer term, if you could help us understand how EBITDA margins might shape up.
Basically, if domestic business does well, then overall margins will definitely improve. The second quarter is always very heavy for us. As I said that July was very good, and August trend is also very good. If the second quarter your overall business is good, then overall for the whole of the year, then there'll be much better EBITDA margins as compared to the overall guidance what we have given. After looking at second quarter numbers and all, we will revise the overall guidelines for the whole of the year. As I said, that trend is good. The business trend is very good.
Okay. Thank you. My next question is on institutional business. We saw good set of numbers there as well. Can you help to understand what drove this kind of numbers in institutional?
Listen, we are completely competitive on most of APIs, and we are most cost-competitive as far as all active materials are concerned. Two years back, because of certain changes in your policies for your U.S. donations to the world, those business has come down a little bit, and what challenges we had with the Global Fund and all. Those all issues are behind us now, and we are getting the good businesses from private vendors and also from institutions. On the portfolio side, we have added injectables on artesunate, and that's also doing very well for us. Overall, the business is good. We have future product pipeline also there on that. Overall, this business will continue to do well.
Okay. Thank you, sir.
Thank you. The next question is from the line of Uday Shah, an individual investor. Please go ahead.
Yeah. Thank you. Sir, overall plan for our investment in Makers Laboratories and Resonance Chemicals, if you can give some color?
Ipca has no investment in Makers and Resonance. It's a separate company. I don't know anything of Makers and Resonance. I will not be able to give you any answer on that.
Okay. Thank you, sir.
Thank you. The next question is from the line of S Mukherjee from Nomura. Please go ahead.
Yeah. Thank you, sir. Sir, can you, on the API business, once those expansions are in place, what kind of capacities we will have compared to the current levels?
Overall capacities will increase by almost around 20%, yeah, with all the three plants: two plants at Dewas and one which is coming up at Ratlam itself, yeah. Around 20% API capacities will go up, yeah.
Do you think it is enough for, or should we think about? Actually, I'm just thinking about a medium-term growth for the API business as these capacities come and the product mix that you have. How should we think about growth over a medium-term for API business?
All these capacities on API is our whole future product capacity. All these products which are taken up for API manufacturing are basically linked to our formulation journey. By and large, these capacities which we are creating is, let's say that at some point of time, the U.S. will get cleared, and then we'll fall short of capacity. It's also we are bridging those kind of edges, otherwise, when the U.S. get cleared, we may not have the API capacity even to have for our captive consumptions, because we can't then, whatever customer base we have created and servicing them, they cannot be denied those APIs. At the same time, our API volumes are also moving up. Because of that, we are creating this kind of capacity so that when the consumption grows on the formulation side, we have sufficient capacities to meet our demands.
Sir, I was looking for external sales. How will that grow if you take a three, four-year view?
We don't see that API business per se growing by more than 10% year-over-year.
Okay. That's the limit that you see on the API business growth.
Yeah.
Okay, understood. Sir, just on the domestic business, is it possible for you to share the underlying volume growth? Of course, this quarter is exceptional, otherwise, how much volume growth and price increase that you see? You mentioned 4% in a normal year. What is the volume?
This year average price increase is 6%.
Yeah. That I think this year, right? Generally, it is?
Normally our price increases are around 4%, yeah.
Sure.
More or less we are closer to your wholesale price increase overall. This year, since all the inflationary trend is there, and also because all the material costs are moving up and energy cost is moving up. All those costs are moving up, so therefore, we have taken little higher price increase than that. Rest is all volume growth. If we have grown like 23%- 24%, it's only the 6% is coming from price increase. The rest is all volume growth.
Okay. Sir Zerodol, what kind of volume growth that brand, how kind of growth you expect there, volume growth in Zerodol?
Zerodol, last year it has grown by 18%, so it's almost around 14%-15% is volume growth. The first quarter, it's almost around close to 3% is volume growth.
Sir this 14%- 15% volume growth in Zerodol, do you think this is sustainable, you think over the medium term?
We still see a huge amount of volatility as far as Zerodol is concerned, going on.
Okay. Any kind of competitive pressure you have here, sir? Competitive dynamics, any kind of price pressure et cetera is possible you see, or you think the market itself there's enough opportunity to grow this. There's space for everyone to grow.
As far as the competition from brands of Zerodol is concerned, they were there always and they will continue to remain. We have leadership across products and across all the states of the country. Every state we have leadership, and there is a huge difference between us and the second biggest.
Yeah.
Therefore, those some kind of price competitions and all, it's not there. Zerodol is also not priced aggressively. It's priced around the competitors' prices only. As a larger brand, we are not taking any kind of premium on pricing because it's a huge amount of volume growth. The price growths are more when it's somewhere on maturity side, the growth start moving on maturity side. We are not too aggressive on taking prices growth on that. It's more or less around the competitions only.
Okay. Sir, last question, just quickly on the tax rate. You mentioned FY 2022, FY 2023, we should get 17%-18%, FY 2024 we should take 25%?
Yeah.
Okay. Thank you, sir.
Thank you. Next question is from the line of Ashish Thavkar from Motilal Oswal Asset Management. Please go ahead.
Yeah, thanks for the opportunity. On the revenue guidance, you said 8%-10%, and you might consider it revising upwards. Does this guidance include the HCQS numbers or the 8%-10% is excluding the HCQS of last year?
Ashish, the guidance given was vis-à-vis the income of whole of the last year. Last year, whatever sales that have come of HCQS, CQP, everything is included in the guidance.
Okay.
Yeah.
Okay. Fair enough. Sir, correct me if I'm mistaken, because I think last year you guys had said FY 2023 we will revert to 25% tax because in FY 2022 we will exhaust all the credit?
Yeah. Ashish, FY 2022, that is current financial year and next financial year. That is FY 2023, we will remain more or less in MAT tax only. We will be utilizing the MAT credit available. In subsequent financial year, we will revert to that lower tax regime, which is about 25%.
Okay, i n FY 2024 you are talking?
FY 2022 and FY 2023 it will be current tax rate will continue. FY 2024 it will perhaps change to that 25% regime.
Okay. Perfect. This was all on my side. Thank you so much.
Thank you.
Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.
Thanks for the follow-up. Just one question on the new generics business. Are the U.K. issues completely behind you now? Have you sort of stepped up your launches there? Just any kind of guidance, longer-term guidance would be great.
During Q1 FY 2022, U.K. business has grown by about 15%. As mentioned in our last conference call, we have already started marketing generics in U.K. in our own trade name. Slowly, one after another products are getting registered and we will expand our product offering in our label in U.K. market in the quarters to come.
Sir, any aspirational guidance for next three years in U.K.?
More or less, U.K. market should continue to grow around 10%, 12% of growth year after year. Probably for next three- four years. European market should grow much faster than the U.K. market. That is the overall guidance as far as the European generic business is concerned.
Sir, any particular reason why U.K. is growing slower coming out of a sudden?
U.K. is highly competitive. The margins in the U.K. generic business is the lowest margin what we get amongst all our generic group businesses.
Okay.
Thank you. The next question is from the line of Surya Patra from PhillipCapital .
Yeah. Thanks for the follow up, sir. Just one more question on the cost front only. This quarter, other expenses, if I see, or rather, in the previous quarter we had seen a kind of saving in terms of marketing and distribution costs to the tune of INR 60 crore-INR 70 crore, and which has now normalized. There is a kind of promotional expenses which is now normalized. All that has happened. Despite of that, I think the run rate in terms of percentages to sales what we are currently seeing, that is lower compared to the kind of trend. This saving, is a kind of one-off quarter specific or you think any directional indication there?
No. Whatever other expenses of this quarter minus whatever small exceptional item of about INR 16 crore-INR 17 crore, this trend should continue in the coming quarters. The other expenses, you do measurement vis-à-vis our FY 2020 Q1, not FY 2021, because FY 2021 there were hardly any promotional expenses. There were no incentives, there were no daily allowances. If you see today, apart from those things coming back and also higher inflationary cost because of fuel, energy plus switching.
I'm saying, sir, this is the rate of saving that we are witnessing. I'm not saying that it has got elevated. The absolute number could be looking higher, but I am saying that in terms of percentages to sales it is a kind of meaningful saving.
No, Surya, if you see our CAGR growth in the sales of last two years, is more than 17%-18%. The cost inflationary trend won't be to that extent. This particular trend will also go as we move ahead also. If you see percentage of sales, all this cost, it will go up according to the inflationary pressure, not beyond that.
Of course. Yes, sure. Yeah.
When your sales grow higher, as a percentage, it will go on reducing.
Okay. Just one question on the Onyx side, sir. How is the performance there? Whether the COVID-related thing, is there any continuing impact from that or what is the kind of outlook that you are going to give on that front?
As far as Onyx is concerned, since last three years, quarter- on- quarter, we are growing. As far as this COVID-19-related, we have not felt anything as far as the Onyx operation is concerned.
Okay. Just one statement that sir has mentioned about a very definitive kind of clearance of the plant from the USFDA side. Any progress that you are witnessing, sir?
Between last quarter and this quarter, there is status quo. Nothing so far.
Sure. Thank you, sir. Wish you all the best.
Thank you.
Thank you. Ladies and gentlemen, this was the last question. We now end the conference. Over to Mr. Nitin Agarwal for closing comments.
Sir, do you want to make any last comments, sir?
No, nothing. Nitin, most of the things were covered during the question and answer session. I don't think anything is further left out.
Okay, sir. Thank you very much everyone who took the time out and participated in the call. Thank you the Ipca management team for the valuable time. Good day, everyone, and stay safe. Thank you.
Yeah. Thanks, Nitin, and all participants. Thank you.