Good day, and welcome to the Ipca Laboratories Q3 FY 2021 Earnings Conference Call hosted by DAM Capital Advisors Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors. Thank you and over to you, sir.
Thanks, Janice. Good morning, everyone. A very warm welcome to our earning call hosted by DAM Capital Advisors. From the Ipca management, we have today Mr. A. K. Jain, Joint Managing Director, and Mr. Harish Kamath, Senior Corporate Counsel. I'll hand over Mr. Jain to make some opening comments, and then we will open the floor for question and answers. Go ahead, sir.
Thanks, Nitin. Good morning to all, and thanks for taking out time and joining us on Q3 FY21 earning call. Today's conference call and discussion and answer given may include some forward-looking statements based on current business expectations that must be viewed in conjunction with the risks that our business faces. Our actual future financial performance may differ from what is projected and perceived. You may use your own judgment on the information given during the conference call. I'd like to inform you that the company's business and financial performance in Q3 FY21 has been strong in spite of testing times on account of the global COVID pandemic. We have used our integrated business capabilities in the furtherance of our global drug formulations and API business.
Business and margin growth in Q3 FY21, in comparison with Q3 FY20, are largely driven by domestic formulation business, and had a revival in this quarter. We have recorded around 8% business growth for the domestic formulation business. The business of anti-malaria, antibacterial, cold, CBR segment continue to show decline. Pain and cardio business, which accounts for 70% of our domestic business, has shown 16% and 8% growth during the quarter. The pain segment has recorded business of almost around INR 266 crore for the quarter against INR 229 crore in Q3 FY20, a 16% growth. Similarly, cardio business has grown to around INR 94 crore as against INR 57 crore last year. Other segments like CNS, pharma, ophthalm, gastro, are all now turning positive Q3 quarter. The reduced traveling costs and marketing costs has helped in margin expansion. API business has continued to record an overall 33% business growth.
Institutional business has recorded a significant business during the quarter of almost around INR 138 crore as against INR 47 crore in same quarter last financial year, out of which around INR 34 crore in one time exceptional business has been done. Institutional business for the first nine months of financial year has been around INR 309 crore as against INR 136 crore in last financial year. It has exceeded, in fact, our own annual projection for the whole of the financial year. These upside to some extent were offset by the MEIS benefits are now not available. We used to get around INR 12 crore of MEIS benefits per quarter, so that income is not there right now. Raw material rates are still to be announced. Our material costs on certain key intermediates and availability disturbances has also some impact during the quarter.
The higher cost of freight, almost by around 30, 35%, that has gone up, are also impacting the overall margin. Overall, EBITDA, in spite of all that, has been recorded around 26.98%, as against 24.46% in last financial year, a increase of almost around Q3 last year, around 2.5%. Having given the overview of the presentation for the quarter, now I open the floor for question answers.
Thank you very much. Ladies and gentlemen, we will now begin the question-and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Thank you. Sir, just your comments on the margins, particularly the raw material price and freight prices going up. Any comments on the outlook on this? Is this something which has happened through the quarter and we have even higher impact in Q4 going forward? Any color which you can give how the trend is evolving with respect to these costs?
It's a temporary phase because of certain disturbances also during the each time happens in China, largely on intermediate side because of pollution factors. There are certain availability, let's say, example like Paracetamol prices used to be INR 350 crore a kilo a year. It has gone to almost around INR 550 crore-INR 600 crore a kilo. Because of certain intermediates are not being available from China. Certain key intermediates also we have to get from air because there was certain kind of supply distance. Additional freight cost paid. These are the things which are there, but it's a very temporary kind of thing. Maybe going forward, maybe on FY, again, your Q1 things will be normalized.
Okay. That's helpful. Sir, second question, if you can give some color on the API business. This year has been very strong. Is there any component that you can call out which has driven the numbers? How should we generally think about it for next year and Q4?
API business during the overall nine months has been very, very strong, and largely it has also helped by your hydroxychloroquine and certain chloroquine related business of COVID. That exception was also there during this period. Overall, company as a whole, I think in first quarter we did almost around exceptional business of around INR 360 crore or so. Some business of that nature continues, but maybe broadly maybe your paracetamol maybe around exceptional business, maybe around INR 350 crore. Which I am taking put together not API, it's all formulations and API and everything put together, domestic tender and everything. That has been the exceptional business. Otherwise, let's say higher capacity utilizations and overall, the business penetration has been good for us and also our patent business has done very well and will continue to evolve.
That will certainly help overall in API business impact.
This is really exceptional business. I know that Q1 was very strong, but just for this quarter, you mentioned about the institution business where you have a INR 34 crore income there. Any other such which you think is exceptional or rather COVID related, which is there in this?
Nothing else other than that exceptional.
Just one more thing, if I can. The sartans, it's still holding on. How has it trended through the quarters, and how are we now in sartans in terms of pricing, volume, if you can throw some light. How large it is in our overall scheme of things in API set?
Let's say one of the key intermediates which is used in all sartans as a starting material, their price double, and that has come down to half the level. That is also resulting in overall reduction in the sartan prices in the market because whatever cost reduction is received by company, that is being passed on to the consumer, to the customer. That trend is there. Overall price trend is down because of some significant reduction in the raw material cost. That is the overall change in that.
Okay. Now you'd say it is stable, sir, since intermediate prices are now stable?
Now intermediate prices are stable, yeah.
Okay. Thank you, sir. Thanks. I'll join back.
Thank you. The next question is from the line of Damayanti Kerai from HSBC . Please go ahead.
Hello. Hi, this is Damayanti. Thank you for the opportunity. Sir, my question is on the export formulation business. In the generic side, we continue to see good momentum. Can you update us on recovery on the U.K. business and on the branded promotional market, why we are seeing a bit softer trends?
Overall, let's say, EU including U.K., has given a very good business in the quarter. I think as against INR 76 crore in March financial year Q3, this is on INR 113 crore. Almost around 39% of growth. Our other markets like Australia and New Zealand has also grown by 13%. Canada has grown by 37%. There is some reduction in the business on account of South Africa there. Last year, there was some kind of tender award and all that was there. They are yet to decide in this year. That business is little lower by from INR 43 crore last year to around INR 16 crore-INR 20 crore. There is some reduction. Overall generic business has grown by around 13% for this quarter. Put together with institution, it's almost around 39% growth so far.
As far as your branded promotional businesses are concerned, let's say your CIS market, more particularly Russia, was impacted by COVID. You will recall that in first quarter, we had a significant amount of shipment which was to go in March and subsequently they went. There are because the COVID, the traffic in that market with distributor was less because of COVID. In second quarter, shipment significantly reduced in CIS, and we further reduced the shipment in this quarter. I think Q3 last year was almost around INR 52 crore of shipment. This year, in Q3, we have done a very minimum shipment of almost around INR 16 crore. That has impacted is all because of COVID, and we have restructured the inventories in that market. Future is likely I think that overall branded commercial business for whole of the year will show around 10% kind of growth.
Let's say business in Middle East Africa, West Africa, all that are doing very well. I think West Africa is growing by 23%. Middle East Africa is almost growing by around 30%-40%. Asia is more or less at the same level that was at last year's level. Latin America is more or less around 5% or 6% decline. That's likely to get covered up in the fourth quarter of the current year. It's only the CIS where the COVID impact was very high. That was in first six months of the current financial year. Even though shipments were there, but actual sale on ground was low and that inventory adjustment has happened.
The CIS should normalize from first quarter of next fiscal year, broadly speaking.
Business growth now is very good. Overall it has started returning to normalcy. Whatever shipments were made, which were planned in the month of March, because of lockdown, all that happened in first quarter. That time, shipments were very high, almost around INR 70 crore shipment and they had taken it. That those inventory remained in the system and because of COVID. In this quarter, we have completely controlled the overall inventories in the market.
Okay, that's helpful. Sir, follow from the general part. You mentioned pickup has been good across markets. I was specifically asking how has been pickup on the U.K. last quarter?
That has normalized in various terms.
Okay. My second question is, can you provide us update on some of the key CapEx, say, Aurangabad, Dewas? How are things moving up on the CapEx front?
On CapEx side, the major one is our API plant we are further constructing at Ratlam. That project is doing very well. There are some delays because of, again, COVID, because of your civil construction part, all machines installed and embedded at the plant. Probably in the month of March, we will start the overall commissioning work. By May or so, the plant will be completely ready for validations and all. Maybe from second quarter of the year, we will start the commercial production from that plant. That's one, and I think overall, that investment be around INR 100 crore there at Ratlam. As far as the Dewas plant is concerned, we have already started the civil work for three plants there.
By September, October, the entire installation should be over, and by maybe in fourth quarter of the next financial year, the plant should be ready for ramped up production. These are the two projects currently happening. In addition to that, we have done some kind of one synthetic plant for producing some intermediate, which is set up at Aurangabad. That plant is fully commissioned and because of, again, COVID, lot of installation deliveries of equipment got delayed and all. It's better to happen in the maybe around the second quarter of the year, but significantly delayed it was. Now that plant is commissioned and working well now. We will be looking at maybe I think one more month's result.
We will further set up another plant there for maybe around 50 tons or so to scale up production from that particular entity in next financial year.
Okay. Sir, budget for next quarter, earlier you indicated INR 300 crore-INR 350 crore. That broadly stays or you have planned to increase?
Broadly the capacity is going to remain in that range only.
Okay, sir. That's helpful. I'll get back in the queue. Thank you for your response.
Thank you. The next question is from the line of Abdul Turanwala from Anand Rathi. Please go ahead.
Hi. Thank you for the opportunity. My first question is with relation to the India business. Any colors you would like to provide that over the growth outlook for FY 2022? How do we see this promotional cost panning out in the next six to eight months, or whether it will be tailored to the previous level, or there might be some cost savings which would be possible considering we would be moving into counter seasonal trends as well.
Ladies and gentlemen, we just lost the line for the management. Requesting you all to please stay online while we reconnect the management back to the call. Thank you. Ladies and gentlemen, thank you for patiently holding. We have the management reconnected. Sir, the question is from the line of Mr. Abdul Turanwala. You may please go ahead.
Shall I repeat my question?
No, I didn't hear you.
Yeah. Sir, my question was with regards to your India business. First of all, we would like to know what would be the growth outlook for FY 2022. The second part of the question was in relation to the promotional cost. As you mentioned in your opening remarks, there was some benefit seen in the quarter as well. Going ahead, how do we see this cost rising up? Will it be back to the pre-COVID levels, or there may be some cost savings which will be possible?
Okay. As things are normalizing in India, if the second wave of COVID doesn't happen, we should record almost around 15%-17% kind of growth in domestic market in the next financial year. The business will then be absolutely normalized. As far as cost is concerned, there will be some amount of savings will continue on account of whatever this continuous medical education and conferences part is concerned. Lot of those activities will continue to be on electronic mode, also the medical professionals and companies are getting the benefit of that the travel takes a lot of time and this kind of conferences save their time because they can participate sitting from their clinic or home or whatever it is. Those kind of costs will have a significant reduction, all other costs may start to get normalized in the next financial year.
The travel cost, both international and domestic in this year was hardly any. I think overall, we must have saved almost around INR 25 crore on account of this kind of travel. Once things get normalized, there is no substitute for travel. It may not happen to that an extent. Some cost reductions compared to say, the prior company will continue to be there, but the cost definitely will move up.
Sure, sir. Sir, my second question is with regards to the API business, and this is a follow-up from the previous participant as well. I mean, if I have to understand correctly, what will be the current capacity and what will be operating at? Would that be sufficient enough to drive the 12%- 13% growth that is driving in the last quarter as well? Would that still be achievable in FY 2022?
Let's say assuming the exceptional business that we have done, that kind of growth is possible, absolutely. There are no reasons that why it should not be there. We are confident to have that kind of growth. Certain things which we have done, those business may not be there in next financial year. Overall growth must depend on that, and numbers whatever be there, we will give after the fourth quarter that how things will turn out, overall API business will have that kind of growth. As far as capacities are concerned, we are continuously depopulating and creating capacities within the existing infrastructure and also now have started setting in Ratlam. One plant is under setting up right now, construction and all. Two plants here at Dewas. Hopefully next year additional capacity will also be there.
That will drive the overall future growth in the coming years.
Sure, sir. That would be all from me. Thank you for answering my question.
Thank you. The next question is from the line of Kunal from Emkay Global. Please go ahead.
Yeah. Thank you for taking my question. The first question is on the one-off business that we have done in this year till now. You have said it's INR 350 crore. If I recalculated, it might be INR 30 crore was the HCQ business that we did with the government. INR 26 crore was the shipment that was delayed in the branded ROW market that we did in quarter one, and then another INR 32 crore we have done this quarter for the institutional business. All put together is somewhere around INR 100 crore. Is this to assume that the rest INR 250 crore additional business that we have done which is one-off is into API business?
It's not API. Formulation businesses are there in international. More relating to HCQ's needs which were there in the COVID, and also chloroquine used in COVID in initial phases. Those businesses were, both APIs were there and also formulation businesses are also there as well. Lastly, we have given, I think in first quarter, almost around INR 260 crore. That was the exceptional business. In that, we are not taking this CS business is exceptional because those shipments were just shifted here and there. That's the normal business, normal numbers. It's only the business only relating to chloroquine and hydroxychloroquine, whatever we have done. Additional business on account of COVID. That is the number which I have given. That was approximately it's almost around INR 350 crore.
Okay.
That's of API. It's also there of formulation. It's also there of domestic tender and all that.
Yeah.
Formulations in general, it's formulations. It sells everywhere. That's the overall additional business.
Yeah. Now that we are seeing that the API yielding has also reached a certain level, APIs have kind of deflated significantly. I just want to understand what would be our business for the business next year.
Overall, our budgets are under creation right now, and we are working on that. In the fourth quarter, when we present our results around that time, we will give the complete projections for the next financial year of all this.
Okay. Secondly, on the next plan too, how much MAT credit do you have left? What is the runway there for us when the interest rates might be returning to a normal reasonable?
I think we have around INR 360 crore is the MAT credit available. Out of it, I think in current financial year, we'll be using around INR 100 crore. Next year, some benefit on account of this Sikkim plant will go away. Next year we may be utilizing almost around INR 160 crore or so. Raw calculations are there.
Thereafter, there will be hardly any MAT credit left, maybe around 30. By that time, we will have to decide whether we are opting for 25% interest or so. The cut rate which is currently 17.5%-18%, that will go to around 25%. Still there is one year, and depending on what kind of MAT credit we will have, so we will decide what could be beneficial in that time for us.
Okay. The last question is on, I think I missed some of your starting comments on the gross margin. But can you just, like, quantify what would be the impact of MEIS and when the mix shift towards the institutional business because we have seen exceptional business there and is there any pressure in our core business so what would be the sustainable gross margin level that we should kind of look forward to?
I think overall gross margin levels, material cost ratios will be almost around 51% or so practically in the next financial year also.
Okay. Thank you.
Thank you. The next question is from the line of Chirag Patel from Adinath Shares . Please go ahead. Mr. Chirag Patel, you may please start with your question, sir. There's no response from the current participant, we proceed to the next question from Mr. Dheeresh Pathak from Goldman Sachs .
Yes. Thank you. Our branded export market, I think you said 10% growth. Do you think that for full year of 2021, we will have 10% growth?
Yeah.
Q4 would be quite a good growth, right? Because it's a low base and year to date growth has not been there. Is that a correct way of benchmarking shipments?
Yes. Q4 will be a good quarter.
Almost like INR 120 crore or something like that is what I should expect, right?
Q4 will be a good quarter. Yeah.
Okay. For the Q4 domestic business also, if you can give some guidance. I think last quarter con call, you had mentioned that we might see low teen growth. I think that's possible in Q4, FY 2022?
I think overall, this quarter we have achieved around 8% kind of growth. Some of the businesses now have started showing growth. Others also, the businesses that we are talking about, the Cough & Cold, then the Antimalarials and Antibacterials and more particularly, Pedia segment, the decline has reduced in Q3 . So Q4, these businesses will further be better . Overall, we see that from 8% overall, the growth can be around 8%-10% in third quarter. Next financial year, it could be around 13% kind of growth.
Okay. Just to confirm the CapEx numbers. API Ratlam CapEx is INR 100 crore, which will commission in Q3. Dewas was a INR 300 crore CapEx, which is scheduled commission in Q4 of FY 2022.
Yeah. Some of the expenditure will be done this year, civil constructions and all are done. Yeah.
Right. No, just to mention. API Ratlam was supposed to have 10% capacity, and Dewas was supposed to have 20, 25% capacity. Is that correct?
Yeah. Dewas will add. That's the kind of capacity Dewas will add, yeah.
Okay.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Thank you for taking my question. Just on the export front, I wanted to check whether in the month of December we have seen many companies facing trade challenges on exporting. Do you have seen any impact of that for your trade that is done, and will that extend into the following year or the next year? Having seen the strong growth of the current year, which is really good. Do you see that the integration with the ships starts growing in the next year and hence even after the high growth of the current year, the growth will continue to be strong?
Integrations are concerned, we are currently also maybe around 62% of our entire formulation is backed by our own API. That's the broad number for nine months. 62% of our formulations are backed up by our own API. It's a significant amount of integration already there in the system currently. That's why, in spite of our having lot of this kind of BP products we still have a good margin in the business. It will continue. Right now, what we are talking in terms of is broadly, let's say, learning transport, because learning will also happen on intermediate side. Intermediate side, right now, only one small plant on pilot, on tender basis. Tender plant we have put a fact on the lot. That is the commission already and showing a good results now.
Based on whatever learnings what we have, we will be setting up another plant in next financial year, of around 50 tons or so. Thereafter, the major expansion on intermediate side will happen at our Nagpur facility. We have now idea of say, we have initiated the environmental clearance right now. Maybe that will happen next financial year because environmental clearance and pollution boards clearances and all will take around six, seven, eight months from now, and then work will start on ground. Maybe very small amount of CapEx may happen in next financial year. Major will happen year thereafter, to set up there. There the larger integrations of API side will probably happen.
Okay. In today date, any impact of the trade challenges in the amount of business?
No, we don't face those kind of challenges.
Okay. Interestingly, you have mentioned about your level of integration, which is now 62%. If I remember, in the last quarter, in the fourth quarter, you have mentioned that 65%. That means, despite all the challenges, you have grown from the integration front. Current, your formulation business is concerned. Is that correct?
Yes.
Okay. That is very good. More only, if you can share what portion of your formulation business has been integrated to the level of KSM?
That number is not really very large. The KSM we produce ourselves. Of our key API, lot of intermediates we are producing ourselves here.
Okay. In a different way, what is the share of your intermediate as of now, for the captive consumption only that you have been using as of now or from the current year? What is likely that you are anticipating post this commercialize? What is the kind of progression that you are anticipating for your intermediate?
We don't sell KSM. KSM sell numbers are not there. By and large, the KSM for our main products, major products we produce ourselves. Maybe seven, eight APIs, all the KSMs are produced internally by ourselves. That's a learning curve. Further learning we will take them up.
Okay. Is it fair to believe that as in you said, top six to seven or seven, eight products are core sale product you are manufacturing KSM yourself. Can we believe that those seven, top seven, eight products are fully integrated starting from the KSM as of now?
Not necessary that every intermediate is produced. Some out of that may be imported also.
India itself, not every intermediates are Like, say, sartans are produced from OTBN. We don't produce it.
Okay.
We are working on OTBN, so at one point of time, once the processes are ready, I think we have certain encouraging kind of results are from R&D. Something will work out, but I can't say definitely when that will happen.
Okay.
When we formalize our projects and plan and R&D and all those kind of gaps, whatever are there currently, they are closed.
Okay.
Sorry to interrupt. May I please request you to return the question queue for your follow-up, as we have many people waiting for the turn. Thank you much. Before we take the next question, a reminder to the participants, please limit your question to two per participant only. The next question is from the line of Rashmi Sancheti from InCred Research. Please go ahead.
Yeah, thanks for the opportunity. Just some institutional business, if you can share that this exceptional income is related to which products and which tenders. At the same time, exceptional business currently, which are the products, our injectables and the tablets that which we are supplying, and which tenders?
By and large, this is an anti-malarial business. Broadly anti-malarial business that we are doing. That's basically your artemether lumefantrine is in the two forms are there. One is your conventional IV and also in the dispersible formulation. We do artesunate and lumefantrine as another product. These are the three main products currently with us right now. There are two, three products more are there, which are there in the early pipelines and some of the trials are cleared and then things would happen in the next year. That will also add to the overall, to the baskets, which is not currently in the production. These are the three products which are there on the antimalarial and major businesses. I said that almost around 95% of institutional businesses are happening on these three products.
Okay. sir-
By and large, these businesses are three types. One is your Global Fund related business. Another is related to U.S. donations to the developing world, mainly Africa and other countries. Third is relating to country tenders. Normally we don't give bifurcations of their basket. We have country tenders also. We have businesses relating to Global Fund and U.S. donations to the other African markets. All the three put together, the businesses are there. Only out of the total businesses, almost around INR 309 crore what we have done in the current financial year, only INR 34 crore of business, which is not out of these three products, but again of antimalarial product, is done in this quarter, and that is exceptional business, one-time business. That's why I said that is a purely exceptional business. Nothing to do with these three products.
It was a fourth product, one time business of INR 34 crore given.
Okay, sir. Sir, on your subsidiary sales business, this quarter, after two muted quarters, we have given a strong growth. Which subsidiary is leading that growth and what is happening on the bottom line of all the subsidiaries? If you can give a little picture on it.
Actually, our major one is Onyx Scientific. That's continuously doing very well. That's generating almost around over 30% kind of EBITDA on overall business. I think they have contributed, I think first half of almost around INR 17 crore-INR 18 crore of overall profit in the current year. We have acquired a front end in U.S. called and that is by and large because we are not there currently in U.S. Our formulations are not getting sold. Basically, they do some kind of trading of some tie-up with third parties and their products are being sold. There, this quarter the profit has been very good, almost around I think INR 19 crore of profit there. Overall for first nine months, there is a INR 6 crore profit. There was some loss was there and there. Overall that helped.
Apart from that, we have another subsidiary called Pisgah, that's for the overall for API side. That subsidiary has given the losses and because of the continuing API issues, we are not able to commercialize those API and then continue with that. Once the integration fully happens, I think that subsidiary, we expect that maybe current year and next financial year, they may continue to incur the losses, but thereafter it should start making money. These are the major three subsidiaries which are there. Other than that, we have associate company called Trophic Wellness that's marketing the nutraceuticals in India and we have around, I think 20% shareholding in that company. That company is doing very well. This year they will generate almost around INR 100 crore kind of business and overall profit after tax of almost around INR 20 crore.
Doing very well at the marketplace and business is also growing very good. Apart from that, we have Krebs as another associate where some kind of fermentations and some synthetic products are there. That company currently is in losses, but hopefully we should turn it around in the next financial year.
Okay. Okay, sir. Thank you. That's it from my side and wish you all the best.
Thank you. Reminder to the participants again, please limit your question to two per participant only. The next question is from the line of Rahul Sharma from Karvy Capital. Please go ahead.
I just wanted the clarity on any update on the U.S. FDA inspection of our plants, sir.
We are in touch with them. Whatever required by them is being supplied. I think because of COVID, they are not able to do the re-inspection. As things get normalized, inspections would happen. Beyond that, we can't say because when and how long it will take is difficult to answer.
Sir, another thing, could you share the numbers of branded and generics region-wise, sir, for three months and nine months?
Overall, I think on Q3 we had done around INR 77.5 crore of promotional business as against INR 112.98 crore last year, out of which I think CIS business was around INR 15.85 crore. Your Southeast Asia was almost INR 15 crore. Middle East Africa was INR 12.5 crore. Latin America was INR 10.3 crore. West Africa was almost around INR 24 crore.
That's a broad breakup is there of that. In generic business, EU we have done around INR 113 crore as against INR 75 crore in last year. Australia, New Zealand is INR 52 crore as against INR 46 crore last year. Canada, we have done almost around INR 35 crore -INR 3 6 crore as against INR 26 crore in the last financial year. South Africa business around INR 16.5 crore as against INR 43 crore in last financial year in Q3. That's the Q3 breakup overall is there.
Sir, how much you did for Southeast Asia? I missed that number in promotional market.
Southeast Asia is around INR 15 crore. Last year was also INR 15 crore, so more or less same numbers.
Okay, INR 10.3 crore was Middle East, sir?
Latin America. Latin America is INR 10.3 crore , and last year was also close to INR 10 crore , so maybe around 3% growth is there.
Okay, sir. Sir, are you seeing some recovery in the CIS space now, sir?
Yeah, business is good currently. The COVID situation is in control there, and business has again started reviving there. In order to control inventory, we have not done much of shipment in Q3. I think Q4 shipments are going to be normal because average business is almost around INR 167 crore last year we did. Two months practically, the inventories are controlled there, and hopefully, the fourth quarter will be again a normal quarter.
Okay, sir.
Mr. Sharma, sir, sorry to interrupt. May I please request you to rejoin the question queue for your follow-up?
Thank you.
Thank you. The next question is from the line of Krati Rathi from Perpetuity Investment . Please go ahead.
Hi. Thanks for taking my question. Can you share what is the net cash number as of December quarter?
Overall, I think cash holding as of now is almost around INR 850 crore.
Okay. My second question is that in our domestic business, Zerodol brand, which includes Zerodol P, SP , is a pretty significant size. How is the growth in FY 2021, and how are we seeing that brand in the next two, three years?
Actually, we don't give brand-wise number. I have broadly given you the number of pain management. We have done almost around INR 266 crore of pain management business as against INR 229 crore. In Q3, we have grown by almost around 16% on pain management. Pain management continue to do well, and hopefully next year also it will have almost around 20% kind of growth in pain. Pain will continue to be significantly driving the overall.
Okay, sir. Thanks for answering my questions.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Thank you. Good morning, everyone. Most of my questions are answered, just a couple of them. One is, what's the margins outlook for next two to five quarters as we go forward?
Currently we've done lot of exceptional business, so margin levels are high. Overall, we say 25% to 26% kind of EBITDA margins are maintainable kind of thing next year also.
Okay. Second is on this China Plus One strategy or as a trend. Sir, are you seeing this on the ground or this is a bit more in terms of sentiments, et cetera, but not on the ground? Second to that is, do you expect Chinese companies to have to fight back at some point in time, drop prices? Some real anecdotes or some insights from you would be great.
I think that's happening at marketplace. People are definitely looking at to broaden their overall supply chain, to add some kind of more, so that their business doesn't get disturbed. Currently we are not there in U.S., and therefore that advantage to us has not come to a great extent. In Europe, anyway, we were doing business. Part of our business is distributed across geographies, except zero business in U.S. It's basically Latin, we have business, we have business in Africa. We have started doing good business in China of API, and Chinese business of ours will have practically significant growth in next two, three years or so. Current year, I think we did almost up to Q3 around INR 25 crore. It may become almost around INR 100 crore in next two years or so. That's the kind of prospect also there in China.
Overall it's a broad business we have in Africa, that's not happening, in CIS, that's not happening to that extent, in Latin. Right now we have no business. We have not got that kind of advantage of that. Yes, for industry, that's happening.
Okay, great. Thank you very much, sir.
Thank you. The next question is from the line of Dheeresh Pathak from Goldman Sachs. Please go ahead.
Thank you, sir. What was the MEIS reduction this quarter?
Overall, around INR 12 crore last year we got. On increased higher business, it could have been more. From second quarter itself, because government is not disbursing the MEIS in current year. Till now, they have not started, even though it was there for up to certain period. We have not made provision in books. We will make whatever MEIS which we'll actually receive, that will be provided, because lot of uncertainties are there. DGFT has yet not opened their window to file the application.
In this Q3, there is no MEIS income recorded, and in Q2 of this year there was INR 12 crore. Is that correct?
Q2 also, we have not provided for in books.
Q2 also there was nothing. Okay.
This quarter impact is almost around INR 12 crore.
What is the base quarter last year?
Yeah, compared to this. Last year, it was almost around INR 12 crore.
Okay. sir, reduction in the margin?
We can get certain MEIS once the government opens because Q2 also there are some MEIS due. That, as and when it will come, we will recognize as income, because right now they have not even opened the window.
Okay. Sir, just to understand the reduction in gross margin sequentially from Q2 FY 2021 to Q3, one is the mix, which is the higher tender business. The other is, you said, some higher raw material and freight prices. It is not to do with MEIS. It is those two effects, right?
MEIS was also there as a part because INR 12 crore is not there. Let's say we were holding certain intermediates of sartans at higher prices because prices has come down, whereas the market prices are corrected. Those higher rate inputs are consumed in this quarter. That's why the overall margin levels are low. Certain products like, say, normal product like paracetamol, from 350 level, it has almost gone to around 600, 550-600 level. That's the pricing currently prevailing. Certain intermediates because of, again, winters in China, certain disturbances are there because certain chlorination compounds and all that, which they produce less in this and more go for the pesticide industry rather than for your intermediates for pharma. Those disturbances are there and maybe, let's say, you have to get those intermediate by air and additional cost and all.
Some disturbances are there at market. Even paracetamol disturbance is also because of China, because certain TNCB production is disturbed. It's a quarter's impact. Even in the end Q4 also, it will start getting normal.
On that PLI scheme, which was also related to the paracetamol intermediate, I think you had applied for some. I don't know whether you applied for that or not. Can you just give me an update on the PLI scheme if you applied for anything on it?
We have made two applications for sartans only. For one, they've asked your plant is already under construction, and one we have applied for our Gujarat plant, Ranu plant. There are two application made, and they are only for sartans. We have not made any application for para or others. That's not our line of business.
Understood. Sir, when you're saying raw material cost would be 31%, so gross margin guidance of 59%, so that is much higher. That is based on the backward integration that you're doing, and what is the contribution side, gross margin guidance?
Basically, what will happen that your domestic business where we have higher margins, branded business where we have higher margins, those all business will start becoming normalized in the next year.
We get some higher margins, and some cost will also move up. Taking everything into account, it's a broad number, and I think our budgeting exercise is currently going on. Maybe fourth quarter, we will give you the exact guidance for everything. In terms of growth outlook, in terms of margins and everything.
Okay, sir. Thank you.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Thanks for the call, ma'am. Sir, just wanted to have a sense on the Noble Explochem side .
You are not audible, Surya.
Okay. Is it audible, sir?
Yeah, now it is better. Yeah.
Sir, about the Noble Explochem , the capacity additions what we are planning. Whether it will be a kind of a phase by phase, multiple unit kind of a construction that we will be taking?
Mr. Jain has already explained. This land parcel what we got because of this NCLT order, we will be using for manufacturing intermediates. Correct?
Correct.
Currently, our environmental applications are in the stage of being processed. It will take certain time. Any investment in this facility will happen in the latter half of the next financial year.
Okay.
We will be initially using that land parcel only for manufacturing intermediates.
Yes.
Subject to necessary environmental clearances. Yeah.
Okay. That would be multiple unit kind of a setup?
Yeah. Every API intermediate facility, it will be all multiple unit type.
Okay. Fine.
For example, in Ratlam, we have about 25 plus API manufacturing blocks. We call it manufacturing blocks.
Okay. Fine. My second question was, sir, just can you provide some update on the PLI scheme?
Mr. Jain has already said we have made application for two products.
So far there is no outcome of that. Maybe by end of this month, something will come.
Okay.
Yeah.
Yeah. Thank you.
Yeah. Thank you, Surya.
Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Over to you all.
Thank you all for participating, and I think that overall COVID situation being in control, things on domestic and branded markets will again start reviving. Hopefully, I think as COVID situation get normalized, our inspection should happen, and that will further open up our future years business. Thank you.
Thank you. On behalf of DAM Capital Advisors, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.