Q4 20/21

May 31, 2021

Quarterly report

Ladies and gentlemen, good day, and welcome to the ITCA Laboratories Q4 FY twenty twenty one Earnings Call hosted by DiEM Capital Advisors Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from BAM Capital Advisors Limited. Thank you and over to you, sir. Hi. Thanks, Malika. Good morning, everyone, and a very warm welcome to this Q4 FY twenty twenty one and an earnings call for Ipkalapathy hosted by Dyan Capital Advisors Private Limited. On the call today, I'm representing the Ipkal management team, Mr. A. K. Jain, our Joint Managing Director and Mr. Harish Sharma, Company's Exane Senior Corporate Council. 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, sir Jain. Thanks, Nitin. Good morning to all participants and thanks for taking out time and joining us for Q4 FY twenty twenty one Earnings Call. Today's earnings call and discussions and answers given may include forward looking statements based on current business expectations that must be viewed in conjunction with risks 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 clock for the quarter. Last financial year, we had hydroxychloroquine formulation business sales of almost around INR 37 crores 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 twenty twenty one, STK's formulation business was around INR 20 crore. The best effect of lower domestic formulation business has impacted almost around 4% of domestic growth. We have also observed lower domestic formulation business in last ten 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 sales staff in center link to their annual budget in this financial year, they have not earned much. There are some of the businesses were pushed by them to the next financial year. We can collaborate this by the opening first few days business in the current financial year. X hydroxychloroquine, our pain 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 neurotherapies, which are like CNS, eleven percent growth, Euro 7% growth, Verma has given almost around 23% kind of growth and Ophthale has given almost around 61% kind of growth. Even Nutra has grown by around 43%, but these are smaller businesses. And we have seen that good revival overall in the business. But some of the therapies like anti malarials, 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 again 68% in Q4 last financial year. This improvement is attributed 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 twenty twenty one 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 $15.66 crore with 50% growth. Our captive back formulation business has improved to around Rs. 2,195 crores 60 percent of overall formulation business of around Rs. 3,574 crores as against 56% last year of around $17.60 crores for last financial year out of 3,130 crores formulation business what we did last year. So 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 shape. Our FY twenty twenty one performance has also impacted overall positively by almost around INR $3.65 crores 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 INR180 crores for the financial year. COVID-nineteen has posed a tough challenges for the financial year due to supply disturbance, logistic issues, labor availability for production, film staff sitting at home for a considerable time, healthcare cylinders 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 will help us to deliver better. Having given the small brief, I would now like to open the floor for question answers. Okay. The first question is from the line of Rajesh Kothari from Unfacted Advisors. Please go ahead. Good morning, 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 or so we're talking about it, your Devast CapEx update. And do you see more opportunities over next two, three years? Overall, if you look at our business guidance for the current financial year, we feel that because we did lot of substantial amount of your additional business last year on account of chloroquine, hydroxychloroquine, overall business growth will be little lower, but we are confident to achieve a business growth of almost around 9% to 10% in next financial year. We feel that our downstream formulation business will be very strong in the current financial year and overall we expect the business growth of almost around 16% to 18% in downstream formulation. Our promotional branded business, which we do in the rest of the world market, is expected to grow almost around 13% to 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. So that was an additional business. So that there will be a domestic API business will decline by almost around 28 in the financial year. Institutional business, with last year business has grown up almost around 95%, ninety six %. From bed base, we are expecting a 5% improvement overall business growth in institutional business. And as far as gendrick business is concerned that also include lot of one time business we did on hydroxychloroquine. So overall business growth on gendrick side is likely to be around 5%. In API business, we'll have a lower growth of around 10% overall. So overall, we expect around 9% to 10% business growth in spite of higher base due to the exceptional business what we did last year. And broadly, our margin guidelines would remain that our EBITDA could be around almost around 25% to 25.5% in next financial year. As far as Devas is concerned, work is delayed because of COVID situation again. Last two months, practically oxygen is not available for fabrication. And since the land which we bought, there we had almost around 50,000 square feet beautiful building, which we converted into a COVID center, almost around two fifty eight bedded COVID center to help the domestic local administration to win the challenge over COVID in that particular area and provide we have provided also oxygen plant there and all. But on downside, what we feel that there was a big rumor in construction worker. That power center is coming up and almost the site had almost around 300 workers and all that disappeared because of that. So the contractors was facing a tough time again to bring the construction worker. And I think the whole project work is getting delayed by three to four months because of all these kind of developments. So they asked maybe in the third quarter end or fourth quarter, it may go towards the installation now in view of all these kind of scenario. Great, sir. Thanks for that 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 Ingrid Asset Management Company. Please go ahead. Hi. Thanks for the opportunity. Good morning, Aditya. So, Aditya, on the domestic business, domestic formulation, first of all, in your opening remarks, you gave a number as to the source of the sales number with CQP and the CQS put together throughout FY twenty twenty related to COVID. Can you repeat that number for me? I missed it. Overall, hydroxychloroquine formulation business was around INR 151 crores. And that is an additional business we did. And hydrochloroquine business formulation business was around 34 crore. So overall 185 crore business we did, which is exceptional last year. And on API side, almost 137 crore. And on API, which is a chloroquine business and hydroxychloroquine API business was around 43 crore, so 180 crore. So overall exceptional business was around $3.65 crores overall for the year. And as we have I think in first quarter last quarter of the financial year that hydroxychloroquine business for the quarter was almost around 37 crores. As against that, we did in good quarter around, I think it's around INR 20 crores business. So it's down by almost around INR 17 crores. That's the overall number. And that has impacted almost around by four because of this effect that has impacted 4% of the growth for the domestic formulation business in this particular quarter. Understood. And sir, your guidance for next year's EBITDA margin was about 25%, is it? Or how much did you buy? Yes, 25%, yes. 25%. Okay. Thank you. And so now, sir, just understanding this particular quarter's gross margin, so I see that your domestic business has struggled in this quarter and that's understandable, but your gross margins are 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 I said, lower margin business like anti malaria, anti bacterias and all that that business even Cuff and Gold they were at lower side. And 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. And also in marketplace, lot of prices have moved up. But as far as we are concerned, we could still buy a lot of APIs and all that at our intermediates at a much cheaper prices because of our the contracts with the buyers on a medium term contract. So our overall cost on that account has not moved up overall. And 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. And therefore, we don't expect in spite of significant rise in the API prices and intermediate prices that may not impact us that much. But 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. And so last question from my side, on the sales and marketing expenses that you report as a break up of your other expenses, so I can see in FY 2020, it was about INR $2.12 crores, INR 2 13 crores. Could you give us a sense of what that number was in FY 2021? I think we have shared almost around INR 90 crores of expenditure on account of marketing in last financial year, current number, yes. And as you go forward or you obviously would expect this to come back? Yes, some of these costs a majority of these costs is expected to come back. Thank you, sir. I'll get back in the queue and all the best. Thank you. The next The next question is from the line of Kunal Dameshia from MK Global. Please go ahead. 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, so there's nothing to worry as far as and we are not really looking for much of the capacity expansions on formulation side currently, except some putting some packing lines at our ACZ plant in view of our future pipeline products which are coming there. So except that, there are no proposals to expand overall capacity on formulation side. We still have good amount of capacities on foundation side. So as far as API is concerned, yes, we are definitely running with capacity constraint and continuous basis we keep on doing some kind of incremental changes and all that which are resulting in little higher capacities and all that. But I would say that we are still working on almost on API side are almost around 90% kind of capacity utilization currently. And we definitely need capacities and those capacities will be available only maybe around the end of the third quarter or third quarter as far as Novas is concerned. But as a plan, we are 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. So Devast, you are saying quarter three, quarter '4 is the installation and then the capacity could come online maybe six months later? Yes. Then the validations and all that will start your stability and other things. And then by the time it gets inspected and all, it will be almost around. A lot of inspections are required. So it's a one year overall journey and a real business. By the time we'll start producing intermediates here and start giving it to our plant side and then increase the overall output from there. So but in real terms, this plant's API business to start will take a few maybe around nine months to one year after the capacities are installed. Sure. And with the intermediates, etcetera, getting supply from Deva's 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. And I'll get back in the queue. Thank you. The next question is from the line of Abdul Puranwala from Anand Rati. Please go ahead. Hi. Thank you for your question. So just in terms of finishing the previous participant, so as per your guidance on the API side, which is a 10% to FY twenty twenty, so if you look back to for the one off fees that we had in FY twenty twenty one, so that translates into a growth of above 21%. However, the new capacity is stated to come only in FY twenty twenty three. So what gives us this confidence of achieving this 10% year on year growth in this API business? It's some of the bottleneck issues were already resolved. So we have considered all those aspects and then looked into overall kind of business growth. So API, we are confident of around 10% kind of growth. Good. And so what will be CapEx plans for the next two years? I think next year we will be spending almost because Devat is a major project which will be there. So overall and right now only the civil construction kind of work that will not fully completed. So overall, Dewaat will have around $2.50 crores to $2.80 crores kind of CapEx and there will be other than that almost around 300 crores kind of CapEx, INR 150 crores to INR 200 crores are normal CapEx and some kind of additional CapEx is there at Aslam site and others. So overall, it could be INR $5.50 crores to INR 600 crores kind of CapEx in current financial. 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. Yes. Thanks for the opportunity and congrats on a great year last year. I said two, three questions. One is on your growth assumption 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 that we had done in Q3. So if you were expecting that may not repeat, but on $3.65 crores and all across quarters our commitment or our discussion has been that 400 crores is the maximum size where we see the institutional can remain. So if you can just help me understand what gives you the confidence of sustaining around 5%, ten % growth? And 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%, fifteen % kind of growth, just to understand it better? That's the overall broad assumption because by and large COVID situation has subsided in various continents overall. And even countries like CIS, the cases are low. So businesses are becoming normal. French speaking, African market, another business, the area which we have that has given even last year good growth and they are in much better shape. So overall that also will contribute and other geographic which were impacted by COVID that also will contribute to the overall good promotional business. So looking into all that aspect, we have done that kind of growth projection for overall trailer promotional market. But on generic, contrary, your assumptions are quite low of 5%. But I would have thought because we had issues with UK and we were expanding markets in Europe and we were quite positive that as we expand the growth in Europe can sustain significantly. With that, our growth estimate of 5% looks pretty low. So if you can just help me understand generic, where do you see this disconnect? Because the issues were much higher in generic market, regulated market last year. This is mainly because, let's say, this figure has lot of hydroxychloroquine formulation business, which may not be there in current financial year. On that basis, we have given a projection of 5%. It's also on account of overall much better business we may do in Europe in current year. But ex of STQS Another area which may impact is we have a lot of businesses that are going to be based on all kind of exports where the prices have moved from $303.50 to almost around 900 level. It may take some months to subside, still maybe around three, four months more to subside. Right now, it's a downward trend has started, but not that much. Some supplies have started easing up the materials there chemicals which they use, but major chemicals which peramino phenol, the supplies are still not used and therefore the prices are high. And that may impact some kind of business on European generics on that account. So all that aspect we have considered and this effect is also there because of hydroxychloroquine formulations which is there. So all that we have considered and then given the 5% kind of growth. Okay. Just one last thing. So if we remove SCQS and one off issues of paracetamol, the underlying business for rest of the product where we had brought in changes in UK and entered market. So ex of these one off issues, is the business growing at 15%, eighteen % or what's the business growth trajectory? Yes, yes. That's the kind of growth is being achieved regularly. Okay. And lastly on API, we've seen some drop. So on the export side, domestic side you explained, on the export side, is it so the certain price drop has also played some role here or Certainly, yes, certain prices have definitely dropped and that also has played the role. Okay. And how do you see over three to five years? Because 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? The 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 Daghani from DSP Mutual Fund. Please go ahead. Yes, sir. Thank you for the opportunity. Sir, can you comment on our portfolio our API portfolio pricing scenario, how is it by and large? Sorry to interrupt, Mr. Daghini. So there is a disturbance coming from your line. Because you do mute your line or the management answers your question. Pricing side, certain prices are definitely down. And all other product portfolios, because of material cost increases, some kind of price increases are there. But overall, if you see here what kind of intermediates we are producing overall, the prices increase has not been that significant overall, except I'd say in Artemisin and all that the prices from $165 are moved to almost around $250 right now. But we have contracts for $165 for a little longer period of time. So we may not be getting impact a better extent. And similarly, there are some kind of other intermediate also we are able to get it much cheaper because of our overall long term medium term contracts and also that may not have much of impact on us. Okay, sir. That was helpful. And the second question was on the any updates on the Natco side, sir? Natco side, because of COVID scenario and all, we could not attend to that much on that. And we have already I think in a recent time, we have applied for the environmental finance and that process will now go on for five, six months. So as that process gets over and we start getting all the permission, then only we will so 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 Gedani from the Lavalin Brochure. Please go ahead. Hello. Yes. My question pertains to the second wave. In the second wave, are you expecting I mean, how much would be the benefit in pain management for India? Let's say, if you last look at the pain scenario, we have been in last five, six years, we have been growing by almost around 18% CAGR on pain. And in last financial year also, as far as pain is concerned, our overall growth has been almost around 14%, but that also included hydrocyclical. So overall PEN segment has given very good growth. The overall Lazy brand has given almost around 18% kind of growth in this tough situation also in the current financial year. And we expect PEN to give much higher growth in current year because of that scenario and that's what the PEN we are currently witnessing in first two months of the current year. Okay. Right. That was helpful. Second, my second question for the most of the growth in Q4 has come from institutional. So 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, or many major except domestic formulation, most of the people have done their budgets and they were significant higher performance compared to the overall their annual targets and all. So overall, because of that also, I feel that the businesses maybe in Q4 is on downside. But we will see return of business in the first quarter of the current financial year. Okay. And last question, how many MRs do you have? And if you could give any change in the reach that has taken place? In COVID scenario, we have really not expanded our overall Phase four size and currently we have almost around 4,000 medical reps currently. And in current year, we are just adding few more reps in neuropsychiatric and on optical side, which are very small business segment, but they are doing well for us and some more number of people maybe on derma side we may hit. But overall additional people may not be more than 200 in current financial years. So once the COVID situation is behind us, then we will look for that what kind of further restructuring is required to get the higher growth from domestic market. Okay. Thank you. All good. Thank you. The next question is from the line of Naresh Sathal from SBI Life Insurance. Please go ahead. Yes. Thank you. Most of my questions have been answered. One clarification on the growth guidance, the 9% to 10% growth guidance, if I remember correctly, first quarter of last year had the majority of the SICUS. So is it right to believe that from second quarter onwards, the growth of 9% to 10% will be more like mid to high teens? I mean, the normalization will take apart from second quarter itself? Yes. So first quarter itself, I think first two months trend very significant and we will see much better growth even after project there, taking into account the basic effect of hydrocyclic looking, etcetera, as we did last year. So even that business will be very, very strong. So overall, we are pretty confident that we should be able to achieve almost around 16% to 18% kind of growth. Looking at what kind of numbers we have achieved also in the first two months of current year, where the sales will translate into very good growth for the whole year. My question is more on the overall business. So will it be like second half would be more kind of Y o Y at 20% plus growth and first half would be kind of 5% kind of growth because of the situation? That's how I should look at it. That's not because SQS let's say in first quarter we did almost around 137 crores business on domestic API, which was an exceptional business. So that will definitely overall first quarter growth will be very, very low or maybe having a negative growth in first quarter because domestic your hydroxychloroquine business was there in the first quarter in domestic market. So domestic will still be in a growth in spite of that base. But some of the other things, other business like API business will go down. And some of your even institutional business where lot of, I guess, glucan formulations were exported. So there you will see some kind of impact. So we may not be able to achieve the overall what kind of turnover we achieved in last year in first quarter. But thereafter, this is growth will be good. Understood. Second question is more on the longer term margin trajectory. So in FY 2020, we did around twenty percent. Now with the savings of COVID or other things and opportunities we have now guiding for a twenty percent to twenty five percent, twenty six percent. So now this significant increase over last two years has been achieved. So 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, the formulation side is still we have a lot of surplus capacity, so we do not incur much of the CapEx on that account. So that operating leverage is still available. Then your overall productivity is last few years we have seen that good amount of MR productivity is moving up except the current financial year because of COVID that has not moved up. It has been little down in current years. So 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. So those productivity expansion will also help in the overall margin. And 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 the continuous exercise to reduce the overall cost on that account. And overall drive of the company towards your integration, that is also helping. And you're seeing that our overall captive back foundation businesses are definitely moving up. And that also helps us to improve overall margins and keep cost in control. So these are the things which we'll keep on improving overall margins for the company for few more years. Okay. Thank you very much. Thank you. The next question is from the line of Tushar Manu Dhane from Motilal Oswal. Please go ahead. Thanks for the opportunity. So just two clarifications. On the API side, you said growth of 10%, eleven % or On guidance for SR22? Yes. Domestic API will go down a little bit, but export API will grow. Yes. So overall API to grow by 10%, eleven %. Not overall. I said export API. Domestic API will go down. Overall API may show around 2% kind of growth. 2% kind of growth. And the EBITDA margin guidance of 25? Yes, yes, yes. Okay, thank you. Thank you. The next question is from the line of Sindreya Carvalho from Centrum Broking. Please go ahead. Thanks for taking the question. And, so any update on your FFOA? Have you heard any Any clarification? I didn't get your question, please. Yes. The update on U. S. FDA, sir. Anything we have heard from the agency? We are in regular touch with FDA, but since we have your import alert and all that, so probably what we understand from FDA is that there will be physical inspections of the site. And because of COVID scenario, they are not able to visit and inspect. So as far as we are concerned, whatever is required to be done, that has been done. And we are also continuously getting our plans 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. And in terms of domestic growth, if we 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 these COVID scenario have we seen in these first two months? And across the globe also, if you could give color on how is the growth in this quarter as we speak? We don't have almost all COVID portfolio in domestic market. That's basically adenociclurochem is a drug for rheumatoid arthritis. It was repurposed for the purpose of COVID. And in the it was only the initial period of start of the COVID ditosyclerotin business for the your overall business was very, very high because of that initial requirement. But once other drugs were started coming in the market like Crevier Avir or Ramdasivir and all, the overall sale of hydroxychloroquine was lower. And secondly, this is also very cheap drug. It's not a very expensive drug. Whole treatment happens with this drug less than maybe around INR 100 or so. So it's a very cheap drug. So it's as such we don't have access to COVID portfolio. But in spite of that, we 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's a COVID case or whether it's a Type five case or whether it's a malaria case to start with in the rural India and also in Durban India. So lot of this kind of mix of treatments were given to the patient till the time identification happens and all that. So overall, your antibacterial sales in the domestic market is also good. There is a good revival of even in the antibacterial business. Cuff and cold, which was not performing well, had a significant growth in the recent time. So overall, the portfolio which was declining for the whole of last financial year, suddenly we saw a very good growth coming in that. And also there is a revival in other businesses. And PEN portfolio continued to do well and it's even much higher growth which we are seeing compared to the last financial year. So overall business has been good. So just relating with the same phenomena, if we see that our domestic core and base business have been growing stronger and if this similar trend continues over the 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. But if actuals drastically differs from our overall projection, then probably the margins that guidelines would margins will be definitely different. But we have considered all those aspects like how much of the promotional cost is going to come back and what kind of the overall 16% to 18% of growth we have projected in domestic market, looking also into the what kind of growth which we are getting in first two months of the current year. And it's very difficult to say that what kind of scenario will be there after even in June. It's very difficult to say that and it's also very difficult to say why so much of antibacterials were selling, why so much of cough and cold and even antiberials were selling in current period. So it's difficult. Tomorrow's situation may be a little different also. It's very but 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 Penn portfolio and Cardiac portfolio, we have given that kind of growth position. 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. So my first question that you have given a domestic growth guidance of 16% to 17%. So, sir, how much you are expecting a volume growth and the pricing growth? Is that we are expecting a good pricing growth in FY '20 '20 '2? The pricing growth this year, NLBM products pricing growth is hardly any, even less than 0.5%. So that may not be there. And overall, our prices are normally the increases are in the range of around 5%. So maybe 5% to 6% price growth on non scheduled formulations and practically zero growth on scheduled formulation, which are price controlled foundation. So overall, it may not exceed more than 5%. Okay. And second question, but you have mentioned that we have medium product count for the raw material. So if this productive continue if this productive pricing continue to be for, like suppose, next six to nine months, then also we will going to remain our price contract will be at the same price or is there any reason in the raw material price? The prices are applicable only up to the period of contract. So prices will keep on taking into account overall, say, our volume of purchases and also so sometimes when your volumes are high, you get much better prices. So that advantage definitely will be there on some of the drug. And some of the drugs where volumes are lower, you may have to pay even the higher prices. So that definitely will be the scenario. But 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 Jitesh Rathod from Nippon India Mutual Fund. Please go ahead. Yes. Hi, everyone. I think you answered this question in previous participant's question. But still current EBITDA margin is somewhere around 20%, you're guiding to 25%. Percent. There are headwinds such as sales and marketing costs normalizing in second half of FY twenty twenty two. What are the tailwinds you have assumed to achieve that to bridge that gap of 500 basis points on the current quarter March? You're seeing that overall our gross margin levels in last financial year have also moved up and we are continuously improving overall our metal cost to sales ratio. And also, overall product mix improvement is there. And also, there is a better realizations are there also on account of your currencies compared to overall. So these are factors which are there, which are helping in overall margins. And maybe second The deployment is continuously there. Okay. And second question on the API category addition which will come in FY '20 '20 '3, like it will start ramping up. What kind of growth you will see post FY '20 '20 '2 in API business on a normalized basis? Will it be a 10%, twelve % kind of growth standard or will it be a 10%, twenty % kind of situation? Once the plans are commercialized, then we like to give the guidelines may not be upfront because today I give you guidelines and then there are some delays and some exceptional or third wave comes in. We really don't know today. So I would not like to give the guidelines before my capacities are put in place. So once capacities are we will definitely give the guidelines on that. And what will be the capacity addition to the existing API capacity, both Devas and this one, the other one is a plan? Deva's plant will have a capacity of almost around 300 tons of overall production. And Raflam, 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, Bamiyan? Maybe around the 10% to 15% capacity additions will be there, depending on production. Thank you. The next question is from the line of Lanveer Singh from Suniti Securities. Please go ahead. Yes. Thanks for taking my question. So just on margin front, you are going to explain, but just I wanted to clarify, in case assuming that exceptional revenue, which we got from HCPs, if you remove this part, then what would have been EBITDA margin in FY 2021? Those kind of businesses came with significant margins also. And that's why our overall margin in current year is almost around 29%. We are guiding a 25 margin, which also has some kind of improvement. So overall and our beginning of the year, if you see, these are guiding for around 1.5% increase only from 20% to 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 your the factors of additional business what we did in current year. And from that level, we are guiding around 25% kind of margin improvement, which also includes overall improvements in overall margin. So everything is that is taken into account. Okay. Because even so you are saying 150 kind of improvement from base margin excluding that marginal margin, that's what I said? The current year we are not taking 150% kind of gross margin improvement because lot of those costs which are relating to R and D, which are relating to marketing will come back. So we are only factored around say on a normalized margin around 0.5% improvement in current year. Because we are INR 65 crores exceptional income the income from that at CQS, even we take a highest margin of 60% or 50% of margin if you assume, still we get some 27% kind of EBITDA margin of 26.5% in FY 2021. That's why I was wondering that whether on the expectation or the revenue domestic we have got more than this. Why is it breaking, sir? The businesses what we did last year was even at much higher than margin than what we were talking about. And so because of that, only this overall EBITDA has moved to 29% kind of thing. Yes, that's right. And all our guidance has only 1.5% kind of improvement, which has improved little better because of your expenditure side, it was much, much lower on marketing side. But then your domestic business also did not happen. Okay. And just another one, can you give a break up of geography wise break up of revenue? Domestic business, we did almost around INR $19.82 crores of sales. Promotional market around INR $4.00 3 crores in the year. So domestic business has 4% growth overall for the year. Promotional market has 6% growth on the whole of the year. As far as general businesses are concerned, we did almost around INR $8.00 4 crores as against INR $5.60 crores in last year, so around 22% kind of growth. Institutional business from INR 176 crores, it became almost around INR $3.85 crores. And overall formulation export business was around INR $15.97 as against INR $12.22 last financial year. So around 31% growth was there in export formulation business growth overall. And on API side, domestic API has moved up significantly also because of that 137 crores sales one time business what we did. And that business growth is almost around from $2.50 crores to around $3.86 crores, but that includes 137 crores of the exceptional onetime business. And your export API business from Crore, it has moved around Crore, so almost around 21% growth on that overall. And if you look at the quarter number, your domestic formulation business is around Rs. $4.34 crores overall and promotional market business is around INR 101 crores from INR 76 crores in last financial year. Generics, by and large, if you look at is around INR 159 crores as against INR 164 crores last year. So there is a decline of around 3% there. Institutional business is INR 76 crores as against INR 40 crores last year, so around 92% overall growth. And overall export formulation business is around INR $3.38 crores is against INR $2.82 crores last year, so around 20% kind of growth. And overall formulation business growth is around 8% to INR $7.71 crores as against INR $7.73 crores last year. That's overall better. Thank you. The next question is from the line of Rakesh Agarwal from Axis Capital. Please go ahead. Yes. Hi. Thanks for the opportunity. Thank you. My first question hello, sir. Sir, on the raw material prices, we've been hearing on some calls that the prices have gone up. So what is our on ground check? Are you feeling the same? And what's the gross margin outlook? I will give you the price of strength on various business segments. Overall, in, let's say, formulation side, whatever API we procure, except Perastamol and except one or two small API, we didn't pay any kind of much higher prices. And most and also you will notice that we have good amount of integration and therefore, our formulation side, the prices are not very low except there are some or some of one or two other small products. As far as intermediates are concerned, like say, your MP Maleriel, we have that artemisinin prices are significantly moved up in market. But our more or less procurement has remained at lower price, which we are I have already talked to you earlier. Another big impact comes from another drug called Lumafentrine, where your intermediate prices have moved up. But we had a kind of mix of that. Some where we have paid higher price, some where lower contracts were also there. So 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% to 18% kind of those prices increases happen in the first last quarter of the financial year. So 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% to 30% kind of prices rise has been there in solvents like but some of the solvent prices has not moved up like say, IPA prices just moved by 2% which we use. But methanol prices have moved by almost around 45%, toluene prices have moved by 20%, methylene chloride prices moved by almost around 23%. So significant moments are there. But overall their consumption may not be even 5% of overall API cost side. So that overall doesn't have much of impact. As far as packing materials are concerned, we have seen significant rise in prices because our commodity prices has gone up. If you look at aluminum files, by and large from 15% to 26% kind of price rise we have seen. On plastics side, 12% to 30% price. Resin prices we have seen kind of 12% to 30% kind of rise on resin side. On paper side, if you look at from 5% to almost around 17%, eighteen % on different kind of paper, recycled paper has gone up by almost around 19%, Craft paper has gone up by around 18%, nineteen %. But your other papers has not moved up that much or your FBB board which used for show boxes, which is a large consumption, has just moved by 6%. And 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. So I have given you segment wise price increases. But 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 on gross margin side, yes. Okay. And second question, sir, on the various acquisition we've done on the API side, with the Besure, RamBase, we in two to three years back. So we have talked about synergy benefits, which would lay out in next two, three years when we acquired it. So where we are in the overall journey and when do we see the scale up on these three assets? And see, Bayshore has started doing profits in the current year, right? So it's a front end kind of thing for us and that ramp up of that Bayshore will happen only when your EBITDA get qualified and the issues are clear because that's going to promote our buy and buy. This will be front end for The U. S. Business. But since this time, we are only doing the trading small trading with it doesn't have large percentage of profit. But they are still given almost around INR 5.5 crores, profit on INR 160 crores sales in the current financial year. Last year, delivering loss around INR 155 crores and INR 13 crores, INR 14 crores kind of loss was there. Second, the company, what we have is Onyx Pharmaceuticals in UK. That business growth is very strong. We get EBITDA margins of more than 30% And at PAT level, they have contributed almost around INR 23 crores of PAT on almost around INR 96 crores 97 crores of business. So that's another company. Ramdev, a lot of restructurings are getting done. We are doing some kind of validation there and therefore capacity utilization was also lower. And there were a lot of intermediate sales was happening from there, which we don't foresee to be our strategy. So we are discontinuing those kind of products, which were contributing around 30 crores of business. So their sales has in the current year has come down, but they will bounce back. And they have contributed around 8 crores of loss on some day's side. Side. As far as another associate side is concerned, we have a company called Tropic Wellness, where we have now increased our stake to around 40% in the company. And they are a nutraceutical marketing company. They have done a business from INR 85 crores last year to around INR 103 crores in current year and their pay has improved from INR 15.5 crores to almost INR 22 crores in current financial year. And there is another company called Kreps, which is at Weiszagen Nellor. Their operations have resulted in losses, but we are continuously working to improve that. Lot of processes are getting improved. Capacity license are an issue there. So that's what need some kind of new product introductions and all our plants. Hopefully, Krebs will also start performing and hopefully the losses will come down significantly in current year and thereafter it can turn in profits. Okay, sir. And one more if I may. On the other expenses side, sir, I mean 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's around INR $2.75 crores or so INR $2.75 crores to INR 300 crores. In current year also I can expand you the size more or less on that line. Except that around INR 13 crores we have provided for impairment on scraps in current year. So to that extent it is higher. And also there is a higher expenditure on some kind of repairs and maintenance side. Almost this quarter, we had paid almost around INR 9,000 to INR 10,000 higher compared to the normal, which is in very abnormal cost. It's largely because a lot of those kind of costs which was getting postponed has happened in the because of COVID scenarios and contactors not available. Lot of other issues are being faced in the current year. So lot of those kind of work has happened in the last financial year last quarter of financial year. So that cost is higher. You can consider that's an abnormal, but that's a normal cost. Otherwise, it would have come in the all the quarters otherwise. So that's not a cost which can be postponed or it's not abnormal cost. But abnormal is therefore only for this quarter. And overall, if you look at last year, the expenditure growth was very low. So because of that, you are seeing that overall there is a significant increase in other expenses. But when you compare it with the other quarters of the year, then you don't find that that's exceptional, except these two costs I have talked about, that's higher. And another cost which has moved up significantly is your freight. Sea freights are practically double. Airfreight somewhere has gone up to three times to 10 times now. And that cost we must have paid in last even in fourth quarter where overall exports are little lower. Also we have paid almost around INR 5 crores additional costs. So the freight costs are significantly higher at current time. INR 13 crores impairment is for this quarter or for the year so? This quarter we have provided INR 13 crores impairment. Okay. Thank you, sir. Thank you so much and all the best. Thank you. Thank you. The next question is from the line of Sameer Veasey from Morgan Stanley. Please go ahead. Hi, thank you. Sameer Veasey Balam. So maybe you covered this or maybe I missed it, I don't know. So if I look at your fourth quarter sales, every segment, every single segment, you have six, seven of those, have shown a meaningful quarter on quarter decline. Why is that so? The business segment on okay, there are three segments where we have seen the decline. One is your anti materials has declined. Another is your cough and cold has declined and antibacterial has declined in the current financial year. These three segments have declined. It's by and large effect of COVID in the current financial year. So cough and cold, nobody was going to the doctors, but the scenario is absolutely reversing the first quarter current financial year. And malaria incidences were low. But all other segments even in the first quarter, Burma, Europe, CNS, those segments were declining, but they have seen a very good recovery and good growth as given in the second half of the current financial So some of the let's say, Twin has done overall, let's say, we are almost like, say, the division which is promoting $0 almost around 18% kind of growth they have reported. So the mix of everything is also because of the abnormal situation because of COVID. Fair enough. So I think you're breaking down the domestic branded business in different segments. Less into overall business composition, which is exports, banded institutions, generics, API domestic exports, all of them, all of them have shown a very meaningful decline decline. That is what is a bit surprising to me. Let's see, if you look at the Q4 projection, which are the numbers which I have given, the overall promotional business has declined, it has grown by almost around 32% in the current year. Your generic business has declined except your institutional business, which has grown by almost around INR 92 crores 90 2 percent on that. So overall, formulation business in exports around 20% kind of growth. And then, sir, I will see I will get to the fourth quarter, so fourth full year, sir, third quarter growth. Yes, quarter I'm talking, fourth quarter number I'm talking. Yes, institution has come down from 138 to 76 schools. It has not grown 96%. From 39 to we don't see from your sequential basis it's like we don't see in quarter to quarter. We see on last year versus every quarter is different and demands of drugs are also different according to signalities and other. So what works in IT doesn't work in pharma in that way. Okay. That's fine, sir. So the second question I had is, I think the industry made some representation to the government for better pricing for domestic formulation I'm referring to. Any update on that? I think for non NLEM to give for this year higher price more than a 10% limit that the government has set? It's all discussion stage there. There are no commitment has come. First of all, what formulations currently we are selling is that selling is that a huge loss from price from 300 has moved to almost 900. So nobody in the industry is making money on that. It's been sold at a huge loss and you can't in fact, the business is also higher because the public demand is so much on personnel. So industry is still continuously selling and nobody is stopping that kind of business because there are losses. But yes, there are proposals with the government and normally government has COVID time and then that crisis time, they normally don't consider price increase. But maybe when situations are little stabilized, government may look into it some kind of industry demand on that. So one final one, if I may. And that was three sites of import alert. So I was wondering because these observations are whatever two, three years or maybe more old and the remediation work is also. So is there any concept of obsolescence when FDA comms anyway does that these things have expired and it just totally begins unfortunately all over again or it's not like that? No, it's not like that. And as a practice, we are also getting our plants continuously audited by international agencies. Even currently, we are also being bought recorded. So that process is our robust processes are in place. So we are not worried on that account. Okay, good luck. Thank you so much. Thank you. The next question is from the line of Amar Maurya from Alpha Accurate Advisor. Please go ahead. Yes. So thanks a lot for the opportunity. Sir, just wanted to understand like, 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, yes. Okay. So I mean because as you indicated that INR $3.65 crores kind of a revenue would have a margin probably higher than INR 60 5 percent to 70%. So Gross margin. Gross margin. Okay. So EBITDA would be worth, sir, 20%? Somewhere more, yes. Somewhere very high, somewhere yes, range of 25%, somewhere very, very high. Okay. So basically around 23% kind of the base margin, you would be? A little higher than that. Okay. So basically on '23, '20 '3 point '5, we are talking about 150 basis point margin expansion in the financial year 2022. Is that fair to argue? We have projected around 0.5% kind of so it's around 24.5% that kind of level and 0.5% improvement in current year. Okay. And secondly, sir, what would be our overall capacity in API today? And 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, if you are that's very difficult thing to talk about because some product may have 20 states, some product may have two states, three states or if you produce larger amount of MacPhermin volume, it will be your capacities are very, very because it's a very, very less sizes and overall production numbers are very high. Same age is very high. So but broadly, if you look at, we are currently at around almost around 90% kind of capacity license. That's what and some kind of capacity we keep on creating by incremental work throughout the year. And because of that, we are able to do overall increase the business in API side. The next question is from the line of Rahul Sharma from Karkiv Capital. Please go ahead. Thanks, Scott. Effective on the different 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%. The numbers could you give? EU is INR $4.19 crores versus last year INR $3.19 crores, so INR 100 crores growth. Australia and New Zealand, INR One Hundred And Fifty One versus INR 178, 18 percent growth. And this year, there was also some U. S. Sales of HCQS in the beginning of the year, about INR 21 crores. Last year, it was not there. And Canada from INR 78 crores to INR 105 crores, that is 34% growth. And there is a decline in South Africa business from INR 110 crores INR 80 crores 30 crores decline is there. It is a tender business basically. So, total generic from six sixty crores, we have done $8.00 4 crores that is 22% growth. So INR 78 crores to what decline in which region was that? South Africa from INR 111 crores to INR 80 crores. So before that INR 78 crores INR 70 8 crores is last year was USA Canada put together, which has become INR 127 crores this year. But this INR 127 crores also include INR 21 crores of U. S. SCQS business, which was not there in the previous financial year. And CIS, how much is CIS? CIS is more or less flat, INR 167 versus INR 164 crores. So in some continents, because of this COVID situation, these sales got impacted. Okay, sir. So another thing was how R and D shifts for the year, sir? There is a slight 0.5% incremental expenditure as a percentage of sales in the R and D cost this year. Thank you. The next question is from the line of Srianne Mukherjee from Nomura. Please go ahead. Yes. Thanks and good afternoon. As far as on the margin, EBITDA margin guidance that you're giving, so now we have a new base. So when we think about next three, four years and I think you mentioned that there will there can be improvement on this base. So what kind of numbers do you think the margins would stabilize as your capacity? If you see our audited financial results, in FY 2020, we had a margin of about 22%, twenty two point five %. And in the beginning of the year, we gave a guidance of 150 basis point improvement in the margin, correct? With service debt, our margin ended up at 29% because of some additional business in SCQS and CQP, okay? So excluding those additional business and its margin, on a standardized basis, maybe this year we did the EBITDA margin of about 24, 20 four point five percent versus 22.5% which was there in FY 2020. So about 150 basis points, 200 basis point improvement in the margin, which was the guidance what we gave, okay. And this margin is at the back of decrease in our marketing expenses by about INR 90 crores. Similarly, we also lost business, okay. This year, the marketing cost will come back. Our domestic business will improve. So that will get offset. And on EBITDA margin level, we are guiding about 25% EBITDA for the current financial year. So going forward, our guidance remains same, 12%, thirteen % top line growth from the next financial year onwards and about 150 basis points improvement in the EBITDA margin. Okay. Okay. And it says in 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 FCQS and they came with a very, very good margin. Okay. And certain reduction in the marketing cost. And so the marketing cost in the fourth quarter, so you said INR 90 crores for the full year? So how much is the fourth quarter like how much is the fourth quarter? The fourth quarter more or less everything was back on track, perhaps except for last maybe week March because of lockdown coming in again. Okay. Understood. But most of that cost will get spent in the current financial year, but we don't foresee there is any reduction in those costs. But we will also see good growth in the domestic branded businesses. True. Okay. Okay, sir. Thank you. Yes. Thanks. Thank you. I would now like to hand the conference over to the management for closing comments. Yes, apart from other 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%, ten % 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 DiEM Capital Advisors Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Yes. Thank you. Bye. Thank you, everyone. Have a good day. Yes. Thanks, Nitin. Bye. Bye,