Ladies and gentlemen, good day and welcome to the Ipca Laboratories Q4 FY 2021 earnings call, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors Limited. Thank you. Over to you, sir.
Hi. Thanks, Malika. Good morning, everyone, and a very warm welcome to this Q4 FY 2021 earnings call for Ipca Laboratories hosted by DAM Capital Advisors Limited. On the call today, representing the Ipca management team, Mr. A.K. Jain, our Joint Managing Director, and Mr. Harish P. Kamath, Company Secretary and Senior Corporate Counsel. I will hand over the call to Mr. Jain to make some opening comments and then we will open it for question and answers. Please go ahead, Mr. Jain.
Thanks, Nitin. Good morning to all participants and thanks for taking out time and joining us for Q4 FY 2021 earnings call. Today's earnings call and discussions and answer given may include forward-looking statement based on current business expectations that must be viewed in conjunction with risk that pharmaceutical businesses faces. Our actual or future financial performance may differ from what is projected and perceived. You may use your own judgment on the information given during the call. Q4 business performance has not been in line with our expectations. Domestic formulation business just delivered around 1% business growth for the quarter. Last financial year, we had hydroxychloroquine formulation business sales of almost around INR 37 crore for the quarter in domestic market in view of significant demand post then President Mr. Donald Trump announcing it to be a game changer. Q4 FY 2021, HCQ S formulation business was around INR 20 crore.
The adverse effect of lower domestic formulation business has impacted almost around 4% of domestic growth. We have also observed lower domestic formulation business in last 10 days of March compared to normal. There could be two possible reasons for this. One is lower stocking by the wholesalers due to March year-ending. Second could be possibly our field staff in central India, their annual budget in this financial year, they have not earned much. Some of the businesses were pushed by them to the next financial year. We can corroborate this by the opening of first udial business in the current financial year. Ex -hydroxychloroquine or twin therapy, which accounts for almost around 50% of the business, has recorded almost around 9% business growth over previous financial year. Our cardiovascular business in domestic market has recorded almost around 6% business.
Similarly, the newer therapies which are like CNS 11% growth, Uro 7% growth, Derma has given almost around 23% kind of growth and Ophthal has given almost around 61% kind of growth. Even Nutra has grown by around 43%, but these are smaller businesses and we are seeing that there's revival overall in the business. Some of the therapies like antimalarials, antibacterials, cough and cold, they continue to show decline for the quarter and also for the whole of the financial year due to COVID impact. We have improved our overall gross margin during the quarter Q4 to 72% as against 68% in Q4 last financial year. This improvement is attributable to superior product mix for the quarter and overall prudent procurement to keep the cost in check in spite of all-round increases in the prices in the market. Overall, FY 2021 has been a strong year for the company.
We have achieved a consolidated business of around INR 5,482 crore with 16% growth. Our consolidated EBITDA is at INR 1,566 crore with 50% growth. Our captive lab formulation business has improved to around INR 2,195 crore. 60% of overall formulation business of around INR 3,574 crore as against 56% last year of around INR 1,760 crore for last financial year out of INR 3,130 crore formulation business that we did last year. From 56%, the integrated business has moved to almost around 61%. This has been the key strength that company has been working to improve our delivery performance and keep the cost in check. Our FY 2021 performance has also impacted overall positively by almost around INR 365 crore additional business we have done during the financial year on account of chloroquine and hydroxychloroquine business which includes both API as well as formulation business.
We have done on formulation side almost around INR 185 crore of additional business. On API side, that figure is almost around INR 180 crore for the financial year. COVID-19 has posed tough challenges for the financial year due to supply disturbance, logistic issues, labor availability for production, field staff sitting at home for a considerable time. Healthcare challenges of medical fraternity as well as uncertainties faced by us. We could still deliver a strong performance during the financial year due to dedication of our staff, support we received throughout the year from our vendors and customers and medical fraternity. Above all, our integrated business capabilities helped us to deliver better. Having given the small brief, I would now like to open the floor for question answer.
Shall we start with the question and answer session?
Yeah.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone, if you wish to remove yourself from the question queue, you may press star and two. Participants are rquested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment for our question queue assembles. The first question is from the line of Rajesh Kothari from AlfAccurate Advisors. Please go ahead.
Good morning, sir. Ajit sir, is it possible for you to give a little bit more color in terms of how do you see the export opportunity? I think six months back also we were talking about it in your Dewas CapEx update. Do you see more opportunities over the next two, three years?
Overall, if you look at our business guidelines for the current financial year, we feel that because we did a lot of substantial amount of your additional business last year on account of chloroquine, hydroxychloroquine, overall business growth will be little lower. We are confident to achieve a business growth of almost around 9%-10% in next financial year. We feel that our domestic formulation business will be very strong in the current financial year, and overall, we expect a business growth of almost around 16%-18% in domestic formulation. Our promotional branded business, which we do in the rest of the world market, is expected to grow almost around 13%-15% in next financial year.
Domestic API will show a decline because of some kind of additional business what we did last year for supply of some API to the local company for their export to the U.S. That was an additional business. There will be a domestic API business will decline by almost around 28% in the financial year. Institutional business, last year business has grown up almost around 95%- 96%. From that base, we are expecting a 5% improvement overall business growth in institutional business. As far as generic business is concerned, that also includes lot of one-time business we did on hydroxychloroquine. Overall business growth on generic side is likely to be around 5%. In API business, we will have a lower growth of around 10% overall.
Overall, we expect around 9%-10% business growth in spite of higher base due to the exceptional business what we did last year. Broadly, our margin guidelines would remain that our EBITDA could be almost around 25%-25.5% in next financial year. As far as Dewas is concerned, work is delayed because of COVID situation again. Last three months, practically oxygen is not available for fabrication. Since the land which we bought, there we had almost around 50,000 sq ft buildable building, which we converted into a COVID center, almost around 258-bedded COVID center to help the local administration to win the challenge over COVID in that particular area, and we have provided also oxygen plant there and all.
On downside, what we feel is that there was a big rumor in construction worker that COVID center is coming up and the site had almost around 300 workers and all they disappeared because of that. The contractor was facing a tough time again to bring the construction workers. I think the whole project work is getting delayed by three to four months because of all these kind of developments. Dewas, maybe in the third quarter, end of fourth quarter, it may go towards the installation now in view of all these kind of scenarios.
Great, sir. Thanks for the update. I'll come back in queue. Thank you.
Thank you. Ladies and gentlemen, please limit your questions to two per participant. Should you have a follow-up question, would request you to rejoin the queue. The next question is from the line of Aditya Khemka from InCred Asset Management. Please go ahead.
Hi, thanks for the opportunity. Good morning, Ajit sir. Ajit sir, on the domestic business, domestic formulation, first of all, in your opening remarks, you gave a number as to this was the sales number for CQ and HCQS put together throughout FY 2020 related to COVID. Can you repeat that number for me? I missed it.
Hydroxychloroquine formulation business was around INR 151 crore. That is an additional business we did. Hydroxychloroquine business formulation business was around INR 34 crore. Overall, INR 185 crore business we did, which is exceptional last year. On API side, almost INR 137 crore. On API, which is a chloroquine business and hydroxychloroquine API business was around INR 43 crore, so INR 180 crore. Overall, exceptional business was around INR 365 crore overall for the year. As we have, I think in first quarter, the last quarter of the financial year, that hydroxychloroquine business for the quarter was almost around INR 37 crore. As against that, we did in this quarter around, I think, around INR 20 crore business. It's down by almost around INR 17 crore. That's the overall number. Because of base effect, that has impacted 4% of the growth for the domestic formulation business in this particular quarter.
Understood. Sir, your guidance for next year, the EBITDA margin was about 25%, is it? Am I hearing right?
Yeah, 25%.
Okay. Thank you. Now, sir, just understanding this particular quarter's gross margin. I see that your domestic business has struggled in this quarter, and that's understandable. Your gross margin has still substantially gone up from what you reported in 3Q and 2Q. What led to the expansion in gross margin, sir?
Let's say it's a better product mix which we have sold in the current financial year. Like, say, lower margin business like antimalarial, antibacterials, and all that business. Even cough and cold, they were at a lower side. Secondly, we did very good business in promotional market in this quarter, almost around 32% kind of growth. All these businesses are with much better overall margin. Also in marketplace, lot of prices has moved up. As far as we are concerned, we could still buy lot of APIs and all that at, or intermediates, at a much cheaper prices because of our contracts with the buyers on a medium-term contract. Our overall cost on that account has not moved up overall. That kind of benefit we are currently also enjoying.
Maybe in the first half of the year, we will continue to enjoy those kind of benefits. Therefore, we don't expect, in spite of significant rise in API prices and intermediate prices, that may not impact us that much. The packing material prices because of commodity rises and solvent prices and these kind of things will have very small, because their consumption to the overall consumption may not be that significant. There the prices have moved up significantly.
Understood. Sir, last question from my side. On the sales and marketing expenses that you report as a break-up of your other expenses. I can see in FY 2020, it was about INR 212 crores-INR 213 crores. Could you give us a sense of what that number was in FY 2021?
I think we have saved almost around INR 90 crore of expenditure on account of marketing in last financial year, current financial year.
As you go forward, you obviously would expect this to come back?
Yeah, some of these costs, a majority of these costs is expected to come back.
Thank you, sir. I'll get back in with you and all the best.
Thank you. The next question is from the line of Kunal Dhamesha from Emkay Global. Please go ahead.
Good morning. Thank you for taking my question. Sir, can you provide our capacity utilization at various plants in terms of API and formulation?
Overall, on formulation side, we have still good amount of capacity. There's nothing to worry as far as, we are not really looking for much of the capacity expansions on formulation side currently. Except some putting some packing lines at our SEZ plant in view of our future pipeline products which are coming there. Except that, there are no proposal to expand overall capacities on formulation side. We still have good amount of capacities on formulation side. As far as API is concerned, yes, we are definitely running with capacity constraint and continuously we keep on doing some kind of incremental changes and all that, which are resulting in little higher capacities and all that. I would say that we are still working on almost around API side are almost around 90% kind of capacity utilizations currently.
We definitely need capacities and those capacities will be available only maybe around on the end of the third quarter or fourth quarter as far as Dewas is concerned. At Ratlam we have some kind of work is going on, and that should get over by the end of, I think, second quarter, completely validated, and also those capacities could be available.
Dewas, you are saying quarter three, quarter four is the installation, and then the capacity could come online maybe six months later?
Yeah, the validations and all that will start your stability and other things, and then by the time it get inspected and all, it will be almost around. A lot of inspections are required. It's a one year overall journey. Real business, by the time we'll start producing intermediates here and start giving it to our Ratlam side and then increase the overall output from there. In real terms, this plant's API business will start, we take it still maybe around nine months to one year after the capacities are installed.
Sure. With the intermediates, et cetera, getting supplied from Dewas plant, do we expect significant structural improvement in the gross margin from the current level in quarter four?
No, intermediates, we are already producing some of those products, so it's only the additional capacity will increase. It will not have additional margin increase as such.
Sure. Okay. Thank you. I'll get back in the queue.
Thank you. The next question is from the line of Abdulkader Puranwala from Anand Rathi. Please go ahead.
Hi, thank you for the opportunity. Just a continuation to the previous participant. As per your guidance on the API side, which is a 10% for FY 2020. If you adjust that for the one-off sales that we had in FY 2021, that translates into a growth of about 21%. Now with the new capacity stated to come only in FY 2023, what gives us the confidence of achieving this 10% year-on-year growth in this API business?
Actually, some of the bottleneck issues were already resolved. We have considered all those aspects and then looked into overall business growth. API, we are confident of around 10% kind of growth.
Sure. What will be your CapEx plans for the next few years?
I think next year we will be spending almost because Dewas is a major project which will be there. Overall, and right now only the civil construction work, that will not fully complete it. Overall, Dewas will have around INR 250 crore-INR 280 crore kind of CapEx and other than that, almost around INR 300 crore kind of CapEx. INR 150 crore-INR 200 crore is our normal CapEx and some kind of additional CapEx is there at Ankleshwar site and others. Overall, it could be INR 550 crore-INR 600 crore kind of CapEx in current financial year.
Sure. Thank you so much.
Thank you. The next question is from the line of Nikhil Upadhyay from Securities Investment Management. Please go ahead.
Hello.
Yes.
Hello.
Hello.
Yeah. Thanks for the opportunity and congrats on a great year last year. Sir, two, three questions. One is on your growth assumptions that you have given for next year, the expectation. I just want to understand on the promotional and on the institutional side, if you can just help me understand the kind of growth, because on institutional, if I remember, there was some additional business which we had done in Q3. If you were expecting that may not repeat. On INR 365 crore and all across quarters, our commitment or our discussion has been that INR 400 crore is the maximum size where we see the institutional can remain. If you can just help me understand what gives you the confidence of sustaining around 5%, 10% growth.
Similarly on promotional, do you see that because the base is very low of last year and a lot of the patients are coming back to the market or coming to the clinics, which is giving us this 13%-15% kind of growth? Just to understand it better.
No, that's our overall broad assumption because by and large, COVID situation has subsided in various continents overall. Even countries like CIS, the cases are low, so businesses are becoming normal. French-speaking African market, another business area which we have. That has given even last year good growth and they are in much better shape. Overall, that also will contribute and other geographies which were impacted by COVID, that also will contribute to the overall good promotional business. Looking into all that aspect, we have given that kind of growth projection for overall through the promotional market. Yeah.
On generic contrary, your assumptions are quite low of 5%. I would have thought because we had issues with U.K. and we were expanding markets in Europe and we were quite positive that as we expand, the growth in Europe can sustain significantly. Vis-a-vis that, our growth estimate of 5% looks pretty low. If you can just help me understand, generic, where do you see this disconnect? The issues were much higher in generic markets, regulated markets last year.
This is mainly because, let's say, base figure has lot of hydroxychloroquine formulation business, which may not be there in current financial year. On that base, then we have given a projection of 5%. It is also on account of overall much better business we may do in Europe in current year.
Okay. ex- HCQS.
Another area which may impact is we have a lot of businesses related to paracetamol kind of exports, where the prices were moved from INR 300, INR 350 to almost around INR 900 level. It may take some months to subside. Still maybe around three, four months more to subside. Right now, downward trend has started, but not that much. Some supplies have started easing off the materials there, chemicals which they use, but major chemical, which para-aminophenol, the supplies are still not eased and therefore the prices are high. That may impact some kind of business on European generics on that account. All that aspect we have considered, and base effect is also there because of hydroxychloroquine formulations which is there. All that we have considered and then given the 5% kind of growth.
Okay, just one last thing. If we remove HCQS and one-off issues of paracetamol, the underlying business for rest of the products where we had brought in changes in U.K. and entered markets, ex of these one-off issues, is the business growing at 15%, 18%, or what's the business growth trajectory?
Yes. That kind of growth is being achieved regularly.
Okay. Lastly, on API, we've seen some drop. On the export side, domestic side you explained. On the export side, the certain price drop has also played some role here?
Certainly, yes. Certain prices have definitely dropped, and that also has played a role.
Okay. How do you see over three to five years? The way we are seeing in terms of volume, the way most API players are talking of expansion in capacities and demand coming very strongly. Any inquiry levels or any software issues which you can help me understand how you are looking at things and how things are improving for us?
API business has, last two, three years, has definitely improved and will keep on improving. Demand side is very strong.
Okay, fine. Thanks. I'll return back to you.
Thank you. The next question is from the line of Chirag Dagli from DSP Mutual Fund. Please go ahead.
Yes, sir. Thank you for the opportunity. Sir, can you comment on our API portfolio pricing scenario? How is it by and large?
Sorry to interrupt, Mr. Dagli, sir, there is a disturbance coming from your line. Could you mute your line while the management answers your question?
Listen, pricing side, certain prices are definitely down. All other product portfolios, because of material cost increases, some kind of price increases are there. Overall, if you say what kind of intermediates we are producing overall, the price of increase has not been that significant overall. Except like, say, in artemisinin and all, where the prices from $165 have moved to almost around $250 right now. We have contracts for $165 for a little longer period of time. We may not be getting impacted to that an extent. Similarly, there are some kind of other intermediate also we are able to get at much cheaper because of our overall long, medium-term contracts and all. That may not have much of impact on us.
Okay, sir. That was helpful. The second question was, any updates on the Nagpur site?
Nagpur site, because of COVID scenario and all, we could not attend to that much on that. We have already, I think, in recent time, we have applied for the environmental clearance, and that process will now go on for five, six months. As that process get over and we start getting all the permission, nothing great would happen on grounds on current financial year.
Understood. Okay, sir. Thank you.
Thank you. The next question is from the line of Charulata Gaidhani from Dalal & Broacha. Please go ahead.
Yeah. My question pertains to the second wave. In the second wave, how much would be the benefit in pain management for India?
Let's say if you look at pain scenario, last five, six years, we have been growing by almost around 18% CAGR on pain. In last financial year also, as far as pain is concerned, our overall growth has been almost around 14%, but that also included hydroxychloroquine. Overall, pain segment has given a very good growth. Zerodol AB brand has given almost around 18% kind of growth in this tough situation also in the current financial year. We expect pain to give much higher growth in current year because of that scenario. That's what the trend we are currently witnessing in first two months of the current year.
Okay. Right. That was helpful. My second question pertains to most of the growth in Q4 has come from institutional. You expect similar growth to continue over the next few quarters?
Let's say, as far as the generic businesses are concerned, by and large, for my many major, except domestic formulation, most of the people have done their budgets and they were significant, the higher performance compared to the overall their annual targets and all. Overall, because of that also, I feel that the businesses may be in Q4 is on downside. We will see return of business in the first quarter of the current financial year.
Okay. Last question, how many MRs do you have? If you could give any change in the reach that has taken place?
In COVID scenario, we have really not expanded our overall sales force size. Currently, we have almost around 4,000 MRs currently. In current year, we are just adding few more MRs in neuropsychiatry and on Ophthal side, which are very small business segment, but they are doing well for us and some more number of people maybe on pharma side we may add. Overall addition of people may not be more than 200 in current financial year. Once the COVID situation is behind us, then we will look for what kind of further restructuring is required to get the higher growth from domestic market.
Okay. Thank you. Have a good day.
Thank you. The next question is from the line of Naresh Suthar from SBI Life Insurance. Please go ahead.
Yeah, thank you. Most of my question has been answered. One clarification on the growth guidance. The 9%-10% growth guidance, if I remember correctly, first quarter of last year had the majority of HCQS. Is it right to believe that from second quarter onwards, the growth of 9%-10% will be more like mid to high teens? I mean, the normalization will take apart from second quarter itself?
First quarter itself, I think first two months trend are very significant and we will see much better growth. Even after, perhaps, taking into account the base effect of hydroxychloroquine, extra purchases last year. Even that business will be very strong. Overall, we are pretty confident that we should be able to achieve almost around 16%-18% kind of growth. Looking at what kind of numbers we have achieved also in the first two months of current year, that itself will translate into very good growth for the whole year.
No, my question is more on the overall business. Will it be like second half would be more kind of Y-o-Y at 20%+ growth and first half would be 5% kind of growth because of HCQS? That's how I should look at it.
That's not because of HCQ. Let's say in first quarter, we did almost around INR 137 crore business on domestic API, which was an exceptional business. That way definitely overall first quarter growth will be very low or maybe having a negative growth in first quarter because your hydroxychloroquine business was there in the first quarter in domestic market. Domestic will still be in a growth in spite of that base. Some of the other things, other business, like API business, will go down. Some of your even institutional business where lot of hydroxychloroquine formulations were exported. There you will see some kind of impact. We may not be able to achieve the overall what kind of turnover we achieved in last year in first quarter. Thereafter the growth will be good.
Understood. Second question is more on the longer-term margin trajectory. In FY 2020, we did around 20%. Now with the savings of COVID or other things and operating leverage we have, now guiding for FY 2022, 25%, 26%. Now this significant increase over last two years has been achieved. After that, how do you think about the margin trajectory in two, three years' time? What are the levers you have to improve from here on?
Overall, let's say our formulation side, still we have a lot of surplus capacity, so we need not incur much of the CapEx on that account. That average operating leverage is still available. Your overall productivity, last few years, we have seen that good amount of MR productivities are moving up, except the current financial year because of COVID that has not moved up. It is little down in current year. That also will keep on improving and that will also help in overall, maybe in the domestic market and also in international promotional market, both the places. Those productivity expansion will also help in our overall margin. Third is what kind of your process changes on API side, what we are continuously working on to improve the reaction efficiencies and all that. That's a continuous exercise to reduce the overall cost on that account.
Overall drive of the company towards your integration, that is also helping. You have seen that our overall the captive lab formulation businesses are definitely moving up, and that also helps us to improve overall margins and keep cost in control. These are the things which will keep on improving overall margin for the company for two more years.
Okay. Thank you very much.
Thank you.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal. Please go ahead.
Thanks for the opportunity. Just two clarifications. On the API side, you said growth of 10%, 11% on guidance for FY 2022?
Yeah, domestic API will go down little bit, but export API will grow. Yeah.
Overall API to grow by 10%, 11%, is that correct?
No, not overall. I said export API. Domestic API will go down. Overall API may show around 3% kind of growth.
3% kind of a growth. The EBITDA margin guidance of 25%?
Yes.
Okay. Thank you.
Thank you. The next question is from the line of Cinderella Carvalho from Centrum Broking. Please go ahead.
Thanks for taking the question. Any update on U.S. FDA? Have you heard anything? Any clarification?
I didn't get your question, please. Yeah.
Yeah. Based on the U.S. FDA, anything we have heard from the agency?
We are in regular touch with FDA. Since we have your import alert and all that. Probably, what we understand from FDA is that there will be a physical inspection of the site, and because of COVID scenario, they are not able to visit and inspect. As far as we are concerned, whatever was required to be done, that has been done, and we are also continuously getting our plants and systems and practices and everything audited from third party, even though that may not be required, but that for our own confidence and all that, we are continuously doing that. We are confident that once they visit us, hopefully things will be much better for us.
In terms of your domestic growth, if you see the first two months, we have seen a very strong growth in the domestic market. How is our expectation versus growth in terms of half of the year and any benefits of this COVID scenario have we seen in these first two months? Across the globe also, if you could give color on how is the growth in this quarter as we speak.
We don't have overall COVID portfolio in domestic market. That's basically hydroxychloroquine is a drug for rheumatoid arthritis. It was repurposed for the purpose of COVID. It was only the initial period of start of the COVID hydroxychloroquine business for the overall business was very high because of that initial requirement. Once the other drugs were started coming in the market like favipiravir or remdesivir and all, the overall sale of hydroxychloroquine was lower. Secondly, this is also a very cheap drug. It's not a very expensive drug. Whole treatment happens with this drug may less than maybe around INR 100 or so. It's a very cheap drug. As such, we don't have as such the COVID portfolio.
In spite of that, in the first two months of the current financial year, there is a significant recovery overall in the business, and that may also be because of COVID, because a lot of medical professionals were not able to identify whether it is a COVID case or whether it is a typhoid case, or whether it is a malaria case to start with in the rural India and also in the urban India. A lot of these kinds of mix of treatments were given to the patient till the time identification happens and all that. Overall, your antibacterial sales in the domestic market is also good. There is a good revival of even in the antimalarial business. Cough and cold, which was not performing well, had a significant growth in the recent times.
Overall, the portfolios which were declining for the whole of last financial year, suddenly, we saw a very good growth coming in that. Also, there was a revival in other businesses. Pain portfolio continued to do well, and it's even much higher growth, which we are seeing compared to the last financial year. Overall business has been good.
Sir, just relating with the same phenomena, if we say that our domestic core and base business have been growing stronger, and if this similar trend continues over coming six months also, do we think that the promotional and all other expenses in relation to the overall business also, this could help us deliver better margins than our guidance?
Margin guidance we have given based on the overall taking into all those kind of scenario. If actuals drastically differs from our overall projections, then probably the margins would be definitely different. We have considered all those aspects like how much of the promotional cost is going to come back and what kind of our overall 16%-18% of growth we have projected in domestic market. Looking also into what kind of growth which we are getting in first two months of the current year. It's very difficult to say that what kind of scenario will be there even in June. It's very difficult to say that. It's also very difficult to say why so much of the antibacterials were selling, why so much of cough and cold and even antimalarials were selling in current period. It's difficult.
Tomorrow situation may be a little different also. Looking into the overall revival of the business, overall our specialty business growth, that's what we have been proceeding more towards the specialty business in the last few years, and overall growth in pain portfolio and cardiac portfolio, we have given that kind of growth projection.
Thank you. The next question is from the line of Yash Gupta from Angel Broking. Please go ahead.
Good morning, sir. Thank you for the opportunity. My first question that you have given a domestic growth guidance of 16%-17%. Sir, how much we are expecting a volume growth and the pricing growth? Is that we are expecting a good pricing growth in FY 2022?
The pricing growth this year, NLEM products pricing growth is already negative, less than 0.5%. That may not be there. Overall, our prices are normally increases are in the range of around 5%. Maybe 5%-6% price growth on your non-scheduled formulations and practically zero growth on scheduled formulations, which are price-controlled formulations. Overall, it may not exceed more than 5%.
Okay. Second question, you have mentioned that you have medium to short-term contracts for the raw material. If this productive pricing continue to be for, suppose, next six to nine months, also we are going to remain our price contract will be at the same price or is there any revision in the raw material price?
The prices are applicable only up to the period of contract. Prices will keep on taking into account overall volume of purchases and also sometimes when your volumes are high, you get a much better prices. That advantage definitely will be there on some of the drugs. Some of the drugs where volumes are lower, you may have to pay even the higher prices. That definitely will be the scenario. By and large, for a large part of the current financial year, we have good amount of contracts which will keep the cost low.
Okay. Thank you, sir.
Thank you. The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, everyone. I think you have answered this question in previous participant's question. Current LTM is somewhere around 20%, you are guiding to 25%. There are headwinds such as change in marketing cost normalizing in second half of FY 2022. What are the timings you have assumed to achieve that, to bridge that gap of 5%, if this is from the current quarter, perhaps?
You have seen that overall our gross margin levels in last financial year has also moved up, and we are continuously improving overall our material cost efficiency ratio. Also, the overall product mix improvement is there. Also, the better realizations are there also on account of your currencies compared to overall. These are factors which are there, which are helping in overall in margins.
Okay.
Improvement is continuously there.
Okay. Second question on the API category addition, which will come in FY 2023, like it will start ramping up. What kind of growth we will see post FY 2022 in API business on a normalized basis? Will it be a 10%-12% kind of a growth from there or will it be 15%-20% kind of improvement?
Once the plants are commercialized, then we like to give the guidance. May not be upfront because today I give you guidance and then if there are some delays and some exceptional or third wave comes in, we really don't know today. I'll not like to give the guidance before my capacities are put in place. Once capacities are put in place, we will definitely give the guidance on that.
What will be the capacity addition to the existing API capacity, both Dewas and the other one in Ratlam?
Dewas plant will have a capacity for almost around 300 tons of overall productions. Ratlam, what we are currently doing, we'll also add to around 150 tons of overall API production.
That will be what percentage to the base number?
Maybe around 10%-15% capacity addition will be there, depending on production.
Yeah. Thank you. That's all.
Thank you. The next question is from the line of Ranvir Singh from Sunidhi Securities. Please go ahead.
Yeah, thanks for taking my question. Just on margins front, you have explained. Just I wanted to clarify, given that exceptional revenue which you got from HCQS, if you remove this part, then what would have been EBITDA margin in FY 2021?
Those kind of businesses came with significant margins also. That's why our overall margin in the current year is almost around 29%. We are guiding a 25% margin, which also has some kind of improvement. Overall, beginning of the year, if you see, we were guiding for around 1.5% increase only from 20%-25% kind of EBITDA. We were talking of around 1.5% improvement. As against that, your overall improvement has been significant in the current year also because of the factors of additional business what we did in current year. From that level, we are guiding around 25% kind of margin improvement, which also includes improvements in overall margin. Everything of that is taken into account.
Okay. You are saying 150 basis points kind of improvement from base margin, excluding the EBITDA margin. That's what I said.
Currently, we are not taking 150 basis points kind of base margin improvement because lot of those costs which are relating to R&D, which are relating to marketing, will come back. We have only factored around, say, on a normalized margin, around half a percent improvement in current year.
Because INR 365 crore exceptional income from that HCQS, even we take a highest range of margin 60% or 50% of margin, if you assume, still we get some 27% kind of EBITDA margin or 26.5% in FY 2021.
That's why I was wondering that whether on domestic we have got more than this number.
Can you please repeat, sir? Your voice was breaking, sir.
All the businesses, what we did last year was even at much higher margin than what you were talking about. Because of that only this overall EBITDA has moved to 29% kind of thing. Overall margins was only around 1.5% kind of improvement, which has improved little better because of your expenditure side, it was much lower on marketing side. Your domestic business also did not help.
Okay. Just another one. Can you give a geography-wise breakup of revenue?
Domestic business, we did almost around INR 1,982 crore of sales. Promotional market, around INR 403 crore in the year. Domestic business has 4% growth overall for the year. Promotional market has 6% growth for the whole of the year. As far as generic businesses are concerned, we did almost around INR 804 crore as against INR 560 crore in last year. Around 22% kind of growth. Institutional business from INR 176 crore, it became almost around INR 385 crore. Overall formulation export business was around INR 1,597 crore as against INR 1,222 crore last financial year. Around 31% growth was there in export formulation business growth overall. On API side, domestic API has moved up significantly also because of that INR 137 crore sales one-time business what we did. That business growth is almost around from INR 250 crore to around INR 386 crore. That includes INR 137 crore of the exceptional one-time business.
Your export API business from INR 922 crore, it has moved to around INR 1,120 crore. Almost around 21% growth on that overall. If you look at the quarter number, your domestic formulation business is around INR 434 crore overall. Promotional market business is around INR 101 crore from INR 76 crore in last financial year. Generics, by and large, if you look at, is around INR 159 crore as against INR 164 crore last year. There's a decline of around 3% there. Institutional business is INR 76 crore as against INR 40 crore last year, so around 92% overall growth. Overall export formulation business is around INR 338 crore as against INR 282 crore last year. Around 20% kind of growth. Overall formulation business growth is around 8% to INR 771 crore as against INR 713 crore last year. That's the overall breakup.
Thank you. The next question is on the line of Prakash Agrawal from Axis Capital. Please go ahead.
Yeah. Hi, thanks for the opportunity.
Yes.
My first question.
Yeah, hello sir. Sir, on the raw material prices, we've been hearing on some calls that the prices have gone up. What is your on-ground check? Are you feeling the same and what is the gross margin outlook?
Yes. I will give you the price trend on various business segments. Overall in, let's say, formulation side, whatever API we procure, except paracetamol and except one or two small API, we didn't pay any kind of much higher prices. Also you will notice that we have good amount of integration, and therefore our formulation side the prices are not moving up except paracetamol, except for one or two other small paracetamol. As far as intermediates are concerned, let's say your antimalarial, your artemisinin prices have significantly moved up in market, but our more or less procurements have remained at lower price, which I have already talked to you earlier. Another big impact comes from another drug called lumefantrine. There your intermediate prices have moved up, but we had a kind of mix of that. Somewhere we have paid higher price, somewhere lower contracts were also there.
That's a mix of it. As far as other intermediate, like say metformin and some of the chloroquine kind of intermediates and furosemide intermediate, there the price increase has been in the range of around 15%-18% kind of those prices increases happened in the last quarter of the financial year. There some of the higher prices are paid. As far as solvents are concerned, by and large, if you look at, it's around 18%-30% kind of prices rise has been there in solvents. Some of the solvent prices has not moved up. Like say, IPA prices just moved by 2%, which we use. Methanol prices have moved up almost around 45%. Toluene prices have moved by 20%. Methylene chloride prices moved by almost around 23%.
Significant movements were there, overall their consumptions may not be even 5% of overall API cost side. That overall doesn't have much of impact. As far as packing materials are concerned, we have seen significant rise in prices because of commodity prices has gone up. If you look at aluminum foils, mine large from 15%-26% kind of price rise we have seen. On plastic side, 12%-30% resin prices we have seen, 12%-30% kind of rise on resin side. On paper side, if you look at from 5% to almost around 17%-18% on different kind of paper. Recycled paper has gone up by almost around 19%. Kraft paper has gone up by around 18%-19%, your other papers has not moved up that much.
Your FBB board, which used for show boxes, which has a large consumption, has just moved by 6%. As far as glass is concerned, there is almost around, because of LPG prices going up and oxygen going up, those prices increase was also very significant. I have given you segment-wise price increases.
You expect to absorb or pass on to the customer and your gross margin outlook, sir?
Gross margin outlook we have already given. Yes. That's on gross margin side. Yeah.
Okay. Second question, sir, on the various acquisitions we done on the API side, Sejavta, Bayshore, and Ramdev two to three years back. We have talked about synergy benefits which would play out in next two, three years when we acquired it. Where we are in the overall journey and when do we see the scale up on these three assets?
See, Bayshore has started giving profits in the current year. It's a front-end kind of thing for us, and ramp-up of that Bayshore will happen only when your Ipca get qualified and the issues are clear because that's going to promote our mine. This will be front-end for the U.S. business. Till such time they are only doing the small trading with, which doesn't have a large percentage of profit. They have still given almost around INR 5.5 crore profit on INR 160 crore sales in the current financial year. Last year, they were in loss, around INR 155 crore and INR 13 crore-INR 14 crore kind of loss was there. Second company what we have is, Onyx Scientific in U.K. That business growth is very strong.
They get EBITDA margins of more than 30%, and at PAT level, they contributed almost around 23 crore PAT on almost around 96 crore, 97 crore of business. That's another company. Ramdev, lot of restructurings are getting done. We are doing some kind of validation there, and therefore capacity utilization was also lower. There were a lot of intermediate sales was happening from there, which we don't foresee to be our strategy. We are discontinuing those kind of products which were contributing around 30 crore of business. Their sales in the current year has come down, but they will bounce back. They have contributed around 8 crore of loss on Ramdev side. As far as another associate side is concerned, we have company called Trophic Wellness, where we have now increased our stake to around 40% in the company.
They are a nutraceutical marketing company. They have done a business from INR 85 crore last year to around INR 103 crore in current year. Their PAT has increased from INR 15.5 crore to almost around INR 22 crore in current financial year. There's another company called Krebs, which is at Vizag and Nellore. Their operations has resulted in losses, but we are continuously working to improve that. Lot of processes are getting improved. Capacity utilizations are an issue there. That's what needs some kind of new product introductions and all are planned. Hopefully, Krebs will also start performing, and hopefully the losses will come down significantly in current year, and thereafter it can turn into profits. Yeah.
Okay, sir. One more, if I may. On the other expenses side, sir, percentage to sales is higher. I understand sales in Q4 is lower, but is there any one-offs in other expenses?
If you look at our overall expenditure side, more or less it is around INR 275 crore or so, INR 275 crore-INR 300 crore. In current year also, expenditure side is more or less on that line. Except that around INR 13 crore we have provided for impairment on Krebs in current year. To that extent it is higher. Also there is a higher expenditure on some kind of repairs and maintenance side. Almost this quarter we have paid almost around INR 9 crore-INR 10 crore higher compared to the normal, which is an very abnormal cost. It's largely because a lot of those kind of costs which was getting postponed has happened because of COVID scenarios and contractors not available. A lot of other issues were being faced in the current year. A lot of those kind of work has happened in the last quarter of financial year.
That cost is higher. You can consider that's an abnormal, but that's a normal cost. Otherwise it would have come in all the quarters otherwise. That's not a cost which can be postponed or it's not abnormal cost. Abnormal is there for only for this quarter. Overall, if you look at on last year, the expenditure base was very low. Because of that, you are seeing that overall there is a significant increase in other expenses. When you compare it with the other quarters of the year, you don't find that's exceptional, except these what two costs I have talked about, that's higher. Another cost which has moved up significantly is your freight. Sea freights are practically double. Airfreight somewhere has gone up to 5x- 10x now.
That cost we must have paid in even in the fourth quarter, where overall exports are little lower. We have paid almost around INR 5 crore additional cost. The freight costs are significantly higher at current time.
13 crore impairment is for this quarter or for the year, sir?
This quarter we have provided INR 13 crore impairment.
Okay. Thank you, sir. Thank you so much. All the best.
Thank you.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi. Thank you. Sameer Baisiwala.
Yeah.
Maybe you covered this, or maybe I missed it, I don't know. If I look at your fourth quarter sales, every single segment, you have six, seven of those, has shown a meaningful quarter-over-quarter decline. Why is that so?
There are three segments where we are seeing decline. One is your antimalarial has declined. Another is your cough and cold has declined. Antibacterial has declined in the current financial year. These three segments have declined. It's by and large the effect of COVID in the current financial year. Cough and cold, nobody was going to the doctors. The scenario is absolutely reversing the first quarter current financial year. Malaria incidences were low. All other segments, even in the first quarter, Derma, Uro, CNS, those segments were declining. They have seen a very good recovery and good growth has given in the second half of the current financial year. Some of the pain has done overall almost the region which is promoting Zerodol has almost around 18% kind of growth they have reported.
It's a mix of everything and also because of the abnormal situation because of COVID.
Fair enough. I think you're breaking down the domestic branded business in different segments.
Yeah.
I think to overall business composition, which is exports, branded institutional generics, API, domestic exports, all of them. All of them have shown a very meaningful quarter-on-quarter decline. That is what is a bit surprising to me.
Let's see. If you look at the Q4 projection, the numbers which are given. Overall, promotional business has grown by almost around 32% in the current year. Yes, generic business has declined except your institutional business, which has grown by almost around 92% on that. Overall formulation business and exports is around 20% kind of growth.
No, sir. I'm looking into the fourth quarter. fourth, no, sorry, third quarter.
Third quarter I'm talking. Fourth quarter number I'm talking.
Yeah. Institutional has come down from INR 138 crore -INR 76 crore. This has grown 96% again.
From 39 to We don't see from your sequential basis. We don't see on quarter-to-quarter. We see on last year versus every quarter is different, and demands of drugs are also different according to seasonalities and other. What works in IT doesn't work in pharma that way.
Okay, sir. That's fine, sir. The second question I had is, I think the industry made some representation to the government for better pricing for domestic formulation. Any update on that? I think for non-NLEM to give for this year higher price more than the 10% limit that the government has set.
It's all discussions stage there. There are no commitment that's come. First of all, what formulations currently we are selling it at a huge loss. Price from INR 300 has moved to almost around INR 900. Nobody in the industry is making money on that. It's being sold at huge loss, and in fact, the business is also higher because the COVID demand is so much on paracetamol. Industry is still continuously selling and nobody is stopping that kind of business because there are losses. Yes, there are proposals with the government, and normally government at COVID time and when there's crisis time, they normally don't consider price increase. Maybe when situations are little stabilized, government may look into it, some kind of industry demand on that.
One final one, if I may, and that is with three sites an import alert. I was wondering because these observations are, what are they, two, three years or maybe more old, and the remediation work is also. Is there any concept of obsolescence when FDA comes, whenever it does, that these things have expired and it basically becomes unfortunately all over again, or it's not like that?
No, it's not like that. As a practice, we are also getting our plants continuously audited by international agencies. Even currently also we are audited. Robust processes are in place. We are not worried on that account.
Okay. Good luck. Thank you so much. Thank you.
Thank you. The next question is from the line of Amar Maurya from Al fAccurate Advisors. Please go ahead.
Yeah, sure. Thanks a lot for the opportunity. Sir, just wanted to understand, if I reduce the one-off revenue and one-off margin, is it like on the yearly basis, our margin would be around 20%?
No. It would be higher, much higher. Yeah.
Okay. Because as you indicated that INR 365 crores kind of a revenue would have a margin probably higher than 65%-70%.
Gross margin.
Okay, gross margin. Okay. EBITDA would be what, sir, 20%?
No, somewhere more. Yeah. Somewhere very high, somewhere in the range of 25%, somewhere very, very high.
Okay. Basically, around 23% kind of the base margin you would be?
A little higher than that.
Okay. Basically, on 23%, 23.5%, we are talking about a 150 basis points margin expansion in the FY 2022. Is that fair to assume?
We have projected around half a percent kind of, so it's around 24.5, that kind of level, and half a percent improvement in current year. Yeah.
Okay. Secondly, sir, what would be our overall capacity in API today? If you can indicate, like you had highlighted, but if you can indicate what is the expansion we are doing on the overall capacity in next two years.
Overall capacity, that's a very difficult thing to talk about because some product may have 20 steps, some product may have two steps, three steps, or if you produce larger amount of metformin volume, your capacities are Because it's a very, very less sizes and overall production numbers are very high. Tonnage is very high. Broadly, if you look at, we are currently at almost around 90% kind of capacity utilization. Some kind of capacity we keep on creating by incremental work throughout the year, and because of that, we are able to overall increase the business in API side.
Thank you. The next question is from the line of Rahul Sharma from Karvy Capital. Please go ahead.
Sir, what is the perspective on the different regions across export markets where you have performed in the year? Like the Europe, CIS, Africa, and others.
Rahul, in this financial year that is FY 2021, EU, there is a growth of 31%. Australia and New Zealand, there is a growth of 18%.
Sir, numbers could you give?
EU is INR 419 crore versus last year, INR 319 crore. INR 100 crore growth. Australia and New Zealand, INR 151 versus INR 178, 18% growth. This year, there was also some U.S. sales of HCQS in the beginning of the year, about INR 21 crore. Last year, it was not there. Canada, from INR 78 crore -INR 105 crore, that is 34% growth. There is a decline in South Africa business from INR 110 crore -INR 80 crore. INR 30 crore decline is there. It is a tender business, basically.
Tender business.
Total generic from INR 660 crore, we have done INR 804 crore, that is 22% growth.
INR 78 crores to what decline, which region was that, sir?
South Africa, from INR 111 crore -INR 80 crore.
Sir, before that, INR 78 crores to complete.
INR 78 crore is last year was USA, Canada put together, which has become INR 127 crore this year. This INR 127 crore also include INR 21 crore of U.S. HCQS business, which was not there in the previous financial year.
Okay. CIS, sir, how much is CIS, sir?
CIS is more or less flat, INR 167 crore versus INR 164 crore. In some continents, because of this COVID situation, the sales got impacted.
Okay, sir. Sir, another thing was how R&D shapes for the year, sir?
There is a slight half percent incremental expenditure as a percentage of sales in the R&D cost this year.
Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah, thanks and good afternoon. Sir, on the EBITDA margin guidance that you're giving, now we have a new base. When we think about next three, four years, and I think you mentioned that there can be improvement on this base. What kind of numbers do you think the margins would stabilize as your capacity grows?
Saion, if you see our audited financial results, in FY 2020, we had a margin of about 22%-22.5%. In the beginning of the year, we gave a guidance of 150 basis point improvement in the margin. Correct?
Which means that our margin ended up at 29% because of some additional business in HCQ S and HCQ Plus. Okay. Excluding that additional business and its margin, on a standardized basis, maybe this year we did an EBITDA margin of about 24%-24.5% versus 22.5%, which was there in FY 2020. About 150-200 basis point improvement in the margin, which was the guidance what we gave. Okay. This margin is at the back of decrease in our marketing expenses by about INR 90 crore. Similarly, we also lost business. Okay. This year, the marketing cost will come back, our domestic business will improve, so that will get offset. On EBITDA margin level, we are guiding about 25% EBITDA for the current financial year.
Going forward, our guidance remains same, 12%-13% top-line growth from the next financial year onwards, and about 100-150 basis point improvement in the EBITDA margin.
Okay.
This has been our guidance for last four years. We have not deviated from anything.
Got it.
This year there is an improvement in margin mainly because of this extra sales in HCQS, and they came with a very good margin.
Okay.
A reduction in the marketing cost.
The marketing cost in the fourth quarter, so you said INR 90 crore for the full year.
Yeah.
How much is the fourth quarter?
Fourth quarter more or less everything was back on track. Perhaps except for last maybe week of March because of lockdown coming in again.
Okay. Understood.
Most of that cost will get spent in the current financial year, so we don't foresee there is any reduction in those costs. We will also see good growth in the domestic branded businesses.
True. Okay, sir. Thank you.
Yeah, thanks.
Thank you. I would now like to hand the conference over to the management for closing comments.
Yeah. Apart from whatever questions asked and answers given, we have nothing more to add. Only thing, we reiterate our guidance for the current financial year. Top line will grow by about 9%-10%, and we are confident of achieving about 25% EBITDA margin for FY 2022. With this, we close this session. Thank you.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Yeah, thank you. Bye.
Thank you, everyone. Have a good day.
Yeah, thanks, Nitin. Bye.
Bye.