Q2 20/21

Nov 9, 2020

Quarterly report

Ladies and gentlemen, good day and welcome to the Q2 FY twenty twenty one Earnings Conference Call of Itza Laboratories Limited hosted by Ram Capital Advisors Limited. As a reminder, all participants' lines will be in a 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. Nathan Azarwal from Damp Capital Advisors. Thank you, and over to you, Mr. Azarwal. Thanks, Margaret. Good morning, everyone, and a very warm welcome to Collab's Q2 FY 'twenty one Earnings Call hosted by Giant Capital. On the call today, we have Mr. Iqbal Labs and Mr. Harish Kharmad, Corporate Counsel. I will hand over the call to Mr. Jain to make some opening comments and we will open the floor for questions thereafter. Please go ahead, sir. Thanks, Nitin. Good morning to all participants and thanks for taking out time and joining us for Q2's Iqan App's conference call I mean call today. Today's call and discussions and answers given may include some forward looking statements based on our current business expectations that must be viewed in conjunction with that our business cases. Our actual financial performance may differ from what is projected or perceived. You may use your own judgment on the information given during the call call. I would like to inform you that company's business and financial performance in Q2 FY twenty twenty one has been strong in spite of testing time on account of global COVID pandemic. We have used our internal integrated business capabilities in furthering our global drug formulations and API business. The business and margin growth in Q2 FY twenty twenty one is largely driven by domestic formulation business had very good revival in Q2. Overall business growth was 6%, excluding business from NT Memorial where we had significant debacle in this particular quarter. The division had a significant decline. The anti malarial business division had a significant decline in business in FY Q2. On base of 95 crores, the base is now reduced to almost around INR 59 crores. So decline of almost around INR 36 crores was observed in the Q2 and anti malarial business. The payment cardiac business that constitutes more than 70% of the domestic business of the company. In Q2, the payment segment had almost around 10% growth and from the base of last year's base of INR $2.51 crores, the business went to almost around INR $2.76 crores in Q2 of current financial year. And in Cardiovascular also we had 6% growth from a base last year's base of INR 91 crores, business became almost around INR 97 crores. And all other businesses also are revising except the Cuff and Cold where we are still seeing some kind of decline. Anti bacterials we are seeing some kind of decline, but all other businesses are their decline was much higher in our newer segments like derma or your Ophthalmology in first quarter of the current financial year. Second quarter, there has been a significant decrease. There are only marginal decline declines are there in this business in second quarter. And we see that all these business will turn to positive growth in the coming quarters. So domestic had a very good revival in the second quarter except your anti malarial divisions where the business decline was on account of the seasonality and all. And also that segment as a PBI as a segment where the business decline is also continuing. Higher currency realizations on exports almost around 5% has also helped the company in overall growth. Overall reduced traveling costs and marketing costs has also helped in overall having higher business margins in the continuing for the first quarter and second quarter. Higher business growth in API are continuing and institutional business in Q2, we had a very good performance also similar to that we had in Q1. These are slides were somewhat offset by that we have not made any provision for the MAIS benefit in Q2. Normally in a quarter that benefit would have been almost around INR 12 crores to INR 13 crores. But in view of uncertainties and no budget provisions in view of that, no provision has been made. So almost around INR 12 crores to INR 13 crores worth of that earnings are not available in this quarter. Export freight continues to remain very high in current financial year. We almost paid almost around 61% higher freight in current year. And that trend has continued. Of course, the percentage higher percentages will come down to around 30%. But overall, the freight continues to be high. Having given the basic presentation, all numbers are there in front of you. So I would request now for a question Thank you. The first question is from the line of Rahul Jain from Credit Suisse. Please go ahead. Thanks for the opportunity. Sir, congratulations on a good set of numbers. Just a couple of questions. You did mention about domestic business getting into the growth path now. So can we see for the next two quarters growth compared to the last year? And any focus areas in terms of therapy, which now we are focusing compared to the six months back? Secondly, sir, do we have any one offs like in quarter one we had some one offs or additional business coming from execute and government business we did on the domestic side. So in this quarter, anything with regards to some kind of business which probably could not be a repeat business. And lastly, for a margin front, our gross margin continue to be around 67%, sixty four point five %, but we have seen a sharp jump in operating margins for this quarter, probably due to the other expenses, operating leverage taken in. So do we see now the shift going in the next two quarters and the year ahead, what kind of sustainable operating margins are we talking about or where do we see the operating margins for next six months or next twelve to fifteen months? Thanks, Ralph. I think overall domestic business environment is very good except the 80,000,000 business and now antibacterial and to some extent cough and cold business, these are the businesses which are still having some kind of issues, but all other businesses are reviving very fast. The same segment is more than 50% of the cardiovascular continue to remain strong. And our other businesses which are upcoming businesses like derma, Europe, the year CMS kind of business, all are now in the growth. We have seen good growth in the month of October in double digits. And we expect that business in the second half will be significantly better than what we had in the first half of the current financial year. And it's possible to achieve almost around that 10% plus kind of growth in the overall in the second half of the current financial year, looking at the current business expectations and also the performance which we have seen in the month of October and all. As far as the businesses are concerned, I think overall, there is no one off kind of business in the current financial year, in the second quarter of the current financial year. So it's all a normal business what we had. So there are no one off assets in the top line. Except there was almost around earning of around INR 13 crores, INR 12 point 5 to INR 13 crores, which was received on account of some contracts relating to MNC company on supply, which subsequently got canceled because of the change in the circumstances. And since we had incurred a higher cost around that time, so there was a compensation of almost around INR 12 and INR 12.5 crores, which we have received in the second quarter of the current financial and that has been accounted as a part of the other operating costs other operating income. So that's the only exceptional I would say that is a one time. Other than that, we don't have any kind of one off in the neither on expense side or not on the income side. As far as gross margins are concerned, we had a business growth of almost around 7% in this quarter, overall numbers, stand alone numbers. As against that, our material cost has gone down by 1%. And your trend continue to be, let's say, your overall intermediate trend is now a little softer in there. And the overall your solvents and other things are at much lower prices now. And this trend is likely to continue because petroleum prices are continued to remain at a lower end in the cycle. And therefore, we see that more or less in spite of API business growing higher where the material cost is higher. Your gross margin levels has gone up. And also one of the another reason is that in this particular quarter, I would say that MT Materials has declined where we don't make that kind of gross margin. It's basically some of the products are also at a very, very low kind of margins are there. And that business has declined. But other businesses have grown where the margins are better. And therefore, overall gross margin levels are also good. As far as the generic businesses are concerned, so of course, we had some kind of decline in UK, but our European business has done much, much better. I think whatever decline we had almost around INR 40 crores on UK, that has been compensated by the increase, significant increase in the business from the other European countries. And there also the business margin profile overall margin profile has improved because our margins compared to UK is much higher in the other businesses. So in general, businesses wise, we did better and trends will continue to be good as far as these issues are concerned. So and as far as operating cost is concerned, the operating cost will continue to remain in control. Of course, with the revival of domestic, there'll be some kind of additional cost will be there, but the travel and other cost will continue to remain significantly down. And also your other marketing cost, there will be some increase in there, but will be there in the second half of the year, but will remain in not a very, very high level. So overall, the margin levels will remain good and whatever margins we have reported, they are sustainable kind of margins that we reported in second quarter. Thank you so much for this detailed reply, sir. Wish you all the best. Take care. Thank you. The next question is from the line of Amar Modya from Ultra Accurate Advisors. Please go ahead. Hi, sir. Thanks a lot for the opportunity. Firstly, sir, on the domestic business, if you can clarify, like I missed in between, I mean, what had led to the I mean, what has been recovered and what is still de growing and when it will recover, if you can give the split gain for that? And secondly, sir, in terms of the API run rate, I mean, do we expect this kind of API run rate and this kind of pricing to continue for at least next two quarters? So these are two questions from my side, sir. Thanks, Samaj. As far as the businesses are concerned, I would say that the pain segment is the laser business segment for us, which include rheumatoid arthritis and osteoarthritis. That business that business has become almost around INR $2.76 crores. And you will notice that the spin is now almost more than 50% of our overall business in second quarter. Correct. And Agri Lascoulard had almost around 6% growth from base of 91 crores. The business was around 97 crores. And there also recovery is very, very strong. The business recovery has been, let's say, in the first quarter, our neuropsychiatric business was declining. That has also come in the positive growth. Ophthalmology business was declining. That has come in positive growth. And the decline in derma business and euro business was almost around more than 20%, twenty five %. That decline has now become almost around 5%, six %. So overall and we see that this business will have a good growth in the third quarter in current year. The only businesses which are continue to show decline is number one. The older product portfolio, which we have almost around $80.90 crore kind of old product portfolio, where we are continuously seeing around 10% kind of decline. Enty bacterials are continuously declining and their decline percentage is around 12% or so. And your cough and cold is also having decline, which is around 10%, twelve % decline is there in cough and cold also and anti malarial. Anti malarial base has significantly eroded. And normally second quarter have almost around more than 50%, sixty % to 55% to 60% kind of anti malarial business. This year there was no incidence of malaria practically and practically that business has declined by almost around more than fifty percent, fifty five percent. So completely this is a role as far as anti malarial is concerned. And overall anti malarial now the business is becoming insignificant because overall as in when year end we will work out the final pie of the business. I think anti material will become almost around 4% of the business. So now that risk is completely gone. Normal second quarter, that's highest base and that base has already declined. So in future, even if anti materials something happens, it's hardly going to be insignificant because it's now the overall base of anti materials are very, very low. And therefore, we are saying that, yes, there is a good revival. Of course, that is subject to that if there is a second wave of infections and some lockdown, which are unlikely. If it happens, then business may again have some kind of issue. But otherwise, we are saying that, yes, the business growth is likely to be good in domestic in the second half of the current financial year. Okay. As far as the API is concerned, right now, we are not there in The U. S. Market. So there is a zero business in that kind of segment. And there is where the most of the stocking and higher pricings and all that things have happened. So as far as we are concerned with the business as usual because we don't have any supply to U. S. Currently. Okay. Correct. So the business growth is very continuing. Of course, as we have said earlier that we have capacity constraints continuously, we are working to do the debottlenecking. A lot of those kind of initiatives are currently also going on. So we are creating incremental capacities and with that, the business growth is continuing. We have already started work on our Devas project. Civil work has already started. All clearances are received. And so hopefully, I think in maybe around fourteen, fifteen months' time, we should plan should be ready and thereafter, validations and all may take around seventeen, eighteen months overall to be ready to do the commercial business from there. So that's the new thing. Otherwise, API run rate by and large will continue. Okay. So API run rate. Sir, if I may ask one more. Sir, antibacterial and cough and cold would be how much contribution to the domestic business? Antibacterial was almost around 5%. Cough and Cold is around 4% of the business. Okay. Thank you, sir. Thank you. The next question is from the line of Abdul Kuranwala from Anindraksi. Please go ahead. Hi, sir. Thank you for the opportunity. Sir, my first question is again from the API side. So could you is it possible for you to provide the current utilization at our plant? And how confident would we need to for this downgrade to continue for next year as well based on the current capacity? As I said that some kind of 10%, fifteen % capacity we are continuously creating by debottlenecking. So that will continue. The capacity utilization are currently very high. And absolute number giving is very difficult because some product may have eight, ten steps, some product may have just two, three steps. So volume and all differ. The pricing and everything are different depending on what kind of starting material prices and all of that. But I would say that planned utilizations are almost around 90% currently. And some kind of incremental capacity creation is in pipeline, which is happening now, right, our existing plant at Raflam and Nagal. So that will continue, I think. And overall, we are projecting that the business growth in API in the second half will remain around 18% to 20% kind of business. Sure, sir. And so my next question would be on any update on from the USDA side with regards to a reinspection or any submissions what the new clarification you would have seen from us? We are continuously engaging with the FDA and this is still the time if anything reached the facility, I would not like to comment. So I would say that status quo is continuing. Awesome. Thank you for answering your questions. Thank you. The next question is from the line of Surya Patra from Philip Capital. Please go ahead. Yes. Thanks for the thank you for taking your questions, sir. So basically first question is on the existing business front. So is the Global Film has raised their budget for the block of the current three year, almost like 25% more after the earlier period in terms of securing the product. The already means whatever product that they have been procuring whether it is anti million or whatever all those segments. So there they have raised. So have you started seeing any benefits that's going into your supply, sir? I think overall we have given positions of around INR 200 crores to INR $2.25 crores for the current financial year. When you look at the number in the first two quarters, we already done more than INR 170 crores. Exactly. That is why I'm asking. The run rates are very strong. Okay. That trend will continue. So hopefully business growth is on institution front is going to be very good. And generally said for the general export also like this quarter, a margin and kind of sequentially sell decline of course having a kind of robust quarter last year in the first quarter. So this is just a kind of sequential kind of issue that we are seeing and YY 2017%, eighteen % kind of growth that we are seeing. This is a normalized YY growth and should continue or this is a quarter which is seeing some kind of moderation and possibly you can pick up subsequently or your sense on the export front, sir? So I have guided for API business growth of around 18% to 20% in the second half of the current year. That's why the domestic business I have talked about that the growth could be around 10% kind of. No. Then the formulation export I'm talking about, sir. Formulation export, there will be some kind of better business will continue because institutional business is continuously doing very well. Then we are other than UK business is going good and UK will recover. In the second half, we will see a significant business increase in UK. So even then this business growth is going to be good. Okay. UK was seeing some kind of modulation or any future or any challenge during this quarter? Yes. We had some kind of issues with distributors. Some already outstanding for that. So account was not regular. So it used the supply. Now the account has become perfectly in order and we have started accepting the orders and all. So the PK business, in our last financial year, Q2 was almost around INR 53, INR 50 4 crores. That has come down to around INR 12 crores in this quarter. So almost around more than INR 40 crores reduction is there in that. But that is almost around similar kind of from other than EU business, which was INR 48 crores last year in second quarter. That has become almost around INR 83 crores. So significant increase of almost around 70% has happened in the other EU business. So more or less now even in third quarter, UK will do well, Europe will continue to do well. Austria, New Zealand, Canada, these businesses are continuously doing very well. So we will see a good growth in the generic business also. Before integration expense, whether it is through the PLI scheme, any update on that or the kind of what is the level of now if you are providing the quarterly data point, let's say, what percentage of your formulation is currently integrated? So in the what is the level incrementally what is the kind of thought process that you are now having for your case and dedicated side that is the novel exlocating that you are required. So something on this side so which will ultimately achieve a kind of better integration for your overall business. So your thought on that? As far as backward integrations on Infinitiar side is concerned, we have put up one project at our Aurangabad site, and that's a continuous process kind of plan. The deliveries of machines and all which were expected in the month of April or May, That got significantly delayed because of COVID. Large number of people from suppliers got COVID infections and whole schedule got upset. I think one part of the system is already received and installed and put to use. The second part of the system is now under installation. So probably that will become operational. So full automations will happen by December now, which we're earlier expecting that at first quarter end that could have been happening. So that's one intermediate for one of our certain products that will be produced through this kind of integration, backward integration. It continues operating plant, not a batch processing kind of plant. One of its kind that technology is new. All manufacturers are producing that intermediate through the batch process kind of thing and we have produced and fixing plant. And if this experiment succeeds and everything goes well, we will further increase the capacity of in house production. So dependence on China on intermediate fleet then significantly come down. So that's one update on that thing. That's why Mobile Explo came in concern. Yes, because of your again pandemic and the travel restrictions and other things, we could not do much on that side. But now we are working on the projects and internal team is working. Hopefully, maybe in next three, four months, we will be applying for environmental clearance and all the environmental impact studies and others will be initiated. So anything happening on ground after that, it may take around six, eight months time. So no CapEx would happen in current financial year. Next financial year, yes, we have lined up almost around three, four intermediates to be integrated at particular sites after the receipt of your environmental clearance. So that will take still some more time. As far as PIM scheme is concerned, we are ready with submissions for the two products on synthetic organic or foreign chemistry product, not the fermentation product. So we are not participating as far as fermentations are concerned. But your other API side, the chemistry side, we are putting up the application for two products. So that's updated. Thank you. I would request Mr. Padra to rejoin the queue for follow-up questions. The next question is from the line of Puneal Dhaneshya from MK Global. Please go ahead. Thank you for taking my question. So as you alluded that the most of the CapEx will be in FY 'twenty two. So that could include both mobile XLM and Devas or will we be doing some CapEx for Devas in the FY 'twenty one and then some good deals will go to FY 'twenty two? As I already cleared that Devasti already started construction. So that's going on. So next six months, the old fuel structures will be ready and installations will start from there at the year end or maybe early part of the next financial year. And Noble will take some more time. Yes. And some more capacity part maybe around 100 crores is happening at the slant side, one API side, one department and another. So that will become operational by March. Yes. Okay. And then what would be the CapEx that we'll be doing for Devas and Mobile Expo? Devas, overall, we'll have almost around $2.50 crores. We are mobile. We have yet to work out numbers, so we'll not be able to give you anything. And, Devas will be around $2.50 crores. Okay. And the second question is on this continuous manufacturing that we've been talking from last year. So how much as it provides us in terms of the manufacturing cost to let's say that manufacturing and then do you see that batch could eventually lead to a lot of market share gain in certain product? Continuous manufacturing concern, your operating efficiencies are better. Your CapEx is high because it's continuously control, control kind of plants, everything is automated. And your reaction outputs are better. Your reaction coefficients are far better. So I will not be able to talk much right now till the time we put up the plants and start seeing the benefits. But yes, the piloting and all indicates a significant reduction in the cost. The significant would be 15%, twenty % or even higher? Right now, I will not give numbers. That's the case. Okay. Thank you. Thank you. The next question is from the line of Srikash Agarwal from Axis Capital. Please go ahead. Yes. Thanks for the opportunity. If you could elaborate what really went wrong in UK, you said there is the business drop from 50 plus close to 12 crores. And what you have why you're expecting it to recover as the issues result? Yes, Prakash, if you see first half of the current financial year, there is a substantial reduction in The UK business. Last year, first half, we did about INR 94 crores versus that this year we have done about INR 33 crores. So there is a INR 60 crores reduction in The UK generic business, whereas European business last year, first half was 75 crore versus that this year, first half we have done 178 crore. So there is a substantial improvement in the EU business, almost 170 crore. I understood that. I wanted to know in UK what is the cost of I will tell you. UK, now the account of the distributor is in control. It is online actually, so there is no delay and all. So we have started accepting order. You will see a good growth in The UK business in the second half compared to same period last year. So Europe will continue to grow, UK will also grow in the second half compared to same period last year. So I understand growth will come back. I'm trying to understand the reason of the decline and I said, no, because there was a lot of receivable from the distributor. His account was not up to mark. That is why we stopped accepting order. Okay. So now the account has come up to level whatever we are expecting. Now we are again started receiving order and manufacturing is happening. Okay. Yes. That is the only reason, nothing else. So now how will it be revised? No, no. I said that orders are already there. We have started manufacturing, so you will see uptake in the shipment in the third quarter as well as in the fourth quarter. Okay. And for the years to come because we have this business built on a good platform now. Yes. Plus, parallelly, we will be starting our own distribution as we explained last quarter and that work is also happening parallelly. Yes, yes. Okay, understood. Fair enough. Secondly, on any commentary on the certain opportunity in the API, you did mention that growth of 15%, twenty %, but how is the pricing competitiveness, market share in the There has been not much variance with pricing compared to first quarter and second quarter. And we continue to have good order position in Losartan, where we are one of the biggest exporter from the country and we believe that the thing will continue going forward. The pricing market share both are not issues? I mean, so far it is not an issue. Okay, perfect. And lastly on the CapEx, you did mention $2.50 for Dewaat, but what are the expectations for second half and next year on an overall company basis? Including our routine maintenance CapEx, this year it will be about INR 200 crores, Prakash. Next year it may increase around INR 300 crores, because most of the CapEx for Deva would happen in the next financial year. Understood. Fair enough. Great. Thanks and all the rest. Thanks, yes. Thank you. The next question is from the line of Mukesh Shah from Otillo Local Asset Management. Please go ahead. Thanks for the opportunity. So just one question from my side, you mentioned that the margins of about 28% that you made in this quarter is sustainable. I just wanted to understand, is that understanding correct for the second half of this year and going forward with the next year, should we build in similar margin structure or should we build a higher margin structure? How should one think about that? See, more or less whatever second quarter margin is there, more or less that margin will going to continue in the third and fourth quarter of the current financial year. Based on the presumption that the domestic branded business will improve as we move month after month, It is what we are seeing. Sure. And so we, accordingly, we should always look at margin expansion on a Y o Y basis. So would say to again, the next year we can build it on twenty years or twenty years? No, no, no, no, no, no. Mukesh, please understand in the first quarter the margin what we had, it is impossible to repeat because of that additional business and all. So let us focus on second, third, fourth quarter, whatever margin we are doing that will continue. But first quarter margin, if you consider in the overall year, it is very difficult to replicate that kind of a margin. I understand. My only question was that if you are at 28% margin, should 22% and FY 2223% should be above 28%, closer to that range, right? Yes, that is correct, right. Yes, that is a combination between 2527% it will fluctuate. That will still be a very significant jump than what our historical margins were at 19% to 20% you will be at Okay. So 28%. During 2014, our margins were as good as what we are doing now. Yes. Yes. Then our U. S. Business was ongoing. Sure, sir. Okay. Thank you, sir. Thank you. The next question is from the line of Abhishek Shabnam from Jefferies. Please go ahead. Yes. Thank you for taking my questions. I've got two questions on Cartan. First is on the landscape. Do you see any competition on horizon? Any of your competitors doing CapEx? Any new player trying to install capacity? So just what are you seeing on the market? That's the first one. And second is on the intermediate. So you said that you are basically bringing in one intermediate. I just wanted to check if that is OPBL. How many such intermediates do you plan to bring in? And when that process is done, will you become the lowest for producer? Thank you. Okay. Mr. Jain has said this intermediate fees for sartan business. I won't name the intermediate. But as far as the sartan businesses are concerned, so whatever guidance we have given, whatever guidance our marketing team has given to us, we are progressing as per that guidance. And as you know, maybe aware, the AK business is now highly regulated. So it is not so easy for any consumer to change source from one to another. So they have to go through lot of processes and all. But as far as we are concerned, whatever projections we have given, whatever our expectation is there, so certain businesses are progressing as per that. But do you see any so I'm sure you're doing some landscaping in terms of your competition, people who have gone out of market, etcetera. Do you see any of them coming back? In any case, Abhishek, we are not a big player in Valsartan. The people who went out are mostly for Valsartan API. There whatever business I am doing today is first on whatever I was doing earlier. As far as Valsartan is concerned, there has been no disturbances and whatever growth projection we have given to the market, we are moving as per that. Right, sir. And just on intermediates, without naming the intermediates, would after you've done this entire backward integration exercise, would this make you the lowest cost producer for certain? Yes, Abhishek, I would say something like this. To remain competitive, we need to do all this. I won't say anything further than this. So whatever it is, whatever we are projecting and whatever we are doing, if it is successful, that will give us further competitive advantage with various other players when it comes to certain business. All right. Thank you. Thanks, Abhishek. Thank you. The next question is from the line of Naresh Suthan from SBI Life Insurance. Please go ahead. Yes, sir. First, one clarity on the margin guidance, which is just provided. So, second half, you are expecting to continue around second quarter level like 28% margin. And then next year and after that, you are expecting a range of 25% to 37%. Is that right? Yes, that is next year I said that correct. But if you see historically the second quarter second half margin is lower than the first half margin always. Because second quarter business into domestic is always highest If you see our quarter wise domestic business pie. But this year because of this COVID situation, hardly any malaria business. So going forward, our third and fourth quarter will be definitely better than the second quarter domestic business. That is based on that the projection what I gave you. My question is more about the It will be in the range of 25% to 27% going forward. So, sir, we largely like we had around 20% margins and because of this pandemic we had some cost savings and also benefits in gross margin. So this shift of from 20% to 25% to 27% is 5%, six % shift. Is it higher because of the cost savings in marketing spend or is it higher by because of the gross margin benefit you are seeing? What is the major benefit? Because of the gross margin benefit, there is a 150 basis points improvement in the gross margin. So that is only 150. Yes, 100 to 150 basis points, right. Another four fifty because of other expense, right? That is correct, right. So that is mainly because the allied marketing activities which we are doing It is operation cost, but having said this, we also incurred additional manpower cost which was COVID allowance. So there we have spent about 20 crores plus. Okay. And the other thing which is not there in this quarter is about 12 to 13 crore MEIS benefit on the export formulation business, which we used to get every quarter. So this quarter because of the government, they are moving out of MEISK and there is no budget provision for paying that. So we are not provided for that. Otherwise, this quarter it would it also have been another 100 basis point improvement in the market. Understood. What I'm saying, sir, this quarter also has a little lesser marketing activity. So as a marketing activity In the first quarter, there is a additional expenditure when it comes to marketing activities. So it will get normalized expenditure when it comes to marketing activities. So it will get normalized over maybe two to three quarters going forward unless there is another something COVID peak and other things. Okay. One more question if I may. Sir, of the India marketing expenses, how much is expense related to conferences which you do for doctors, if you are able to share with me? I think Okay. Thanks. Thank you. The next question is from the line of Nikhil Upadhyay from Securities Investment Managers. Please go ahead. Yeah. Hi. Good afternoon, sir. Thank you for the opportunity. One clarification, the 20 crores on employee cost, is this booked in this quarter, the COVID allowance or It was in the first quarter. First quarter. Most of that was in first quarter. Okay. Secondly, sir, on this continuous processing and batch processing, I'm, this question could be quite naled. But just to understand now, if we go in for a continuous kind of a manufacturing, does it create that facility becomes specific for a product or the product facility remains in the production process? Mostly it is product specific. So in case There will be lot of synergy in the operation manpower, yield, time cycle, everything there will be improvement if it works the way we are expecting it because whatever R and D we have done, it is working in that R and D scale, which is something a new concept. So it will take time to understand how it will progress in the commercial scale. Okay. Now where I'm coming from is because in case in future the pricing or the market dynamics for that product go bad, does this create a risk that we because the line would be product specific, does it create a risk of impairment of or any of that sort or is it like that? No, no, no, not necessarily. So there could be some balancing improvement and that way you can work. Okay. And lastly, if you can just help me understand on the subsidiary performance and how are you looking at that going forward? As far as subsidiaries are concerned, Onyx Scientific is doing well. And Onex has contributed about 10 crores profit to stand alone, whereas major in the first half, as the major losses that is contributing is by Pisca Labs where U. S, where it will continue for another maybe three, four quarters because the products are under development then filing will happen, then registration will come. So that pain we have to continue for another three, four quarters. What is the loss? All subsidiaries, there is some marginal loss in Ramdio Chemical also because this is a plant which was hardly hit because of this COVID pandemic. So there was manpower shortages, so there were so many other logistic issues. But the plant is now again coming back to normalcy. Whereas all other subsidiaries are mostly registration holding companies other than Bayshore, which is a pharmaceutical distribution company in The U. S. So there they have done about $75.76 crore business. Marginal losses there because of depreciation of their product portfolio goodwill. Otherwise, business to business, there is a small profit they have made. Okay. Thanks, sir. Thanks a lot. Yes, yes. Thank you. The next question is from the line of Sameer Baiduwala from Morgan Stanley. Please go ahead. Thank you and good afternoon everyone. Hi, Sameer. Good afternoon. Yes. Yes. Sir, you said there was no one off HCQS etcetera in 2Q. But just for my information, I mean, did you sell any HCQS at all and if you have some much percent? No, no. Whatever regular ad secrets business we are having, formulation in India, in ROW market, APS L in India and the rest of the world, except U. S, that is continuing Sameer. There is no issue. Okay, got it. And can you quantify that if that's possible? No, whatever regular business, there is nothing COVID related HC trace business in this particular quarter. They are all for rheumatology whatever use is there in the market. Okay, fair enough. So second question is, I know many people have asked on US FDA and they're not coming, but sir, through informal channels, is there anything that you are hearing? I mean, when would inspectors begin inspection? I mean, are they waiting for vaccination? Or what really is No, no, no idea, Sameer. As far as we are concerned, our facilities are concerned, it is data quo. So unless all these things will improve, I don't think any inspection would happen so soon. Okay. Fair enough. I'm just wondering, given that now so many plants are ready there and there's so much of backlog. So even when they do begin, how do they choose where to go? And then can it be even after they begin, can it be away for a long tunnel before they come to you, for example? No idea, Sameer. Really no idea. But our guidance ex U. S, whatever we have been guiding market, that will continue. As and when U. S. Will come as and when it will be plus on to whatever we are talking. Fair enough, sir. And sir, last question is on the India business. Any take I mean, are the doctor, consulting doctor clinics are all more or less operational and the patients would fall in a clinic in that sense? Is it all normalized or do you think we are still falling? A lot of improvement is there. So October was better than September, largely better. Whereas there are few areas like nursing homes, surgeries where there is still lot of issues. Pediatric is another therapy where there is parents are not taking their children to doctor and all. Those things are continuing. Otherwise, we are seeing good growth, doctor practicing as well as patient footfall, except hospital related business. Okay. Got it, sir. Thank you. Thank you. The next question is from the line of Sapna Jowal from Dollop Capital. Please go ahead. Hi, sir. Thank you for taking the questions. So you also acquired ResMed Specialty sometime back. How is that contributing to the business now? And what capabilities does it bring to the business or is it considering that? Thank you. Sapna, we have not bought anything in Reconance. It's probably not concerned with Reconance activation, Sapna. Okay. Sorry about that. Thanks. Yes, yes. Thank you. The next question is from the line of Amal Moria from Alfa Accurate Advisors. Please go ahead. Hi, sir. Thanks a lot for the opportunity again. Sir, one clarification. Like if I see the API export business, like the run rate was around 300,000,000, INR 3 10 million and INR $3.23 crores kind of. And when we are guiding for 18% kind of a growth in second half, so are we talking that the run rate of this API will come down? Because if I do the math that it will be around INR $2.77 crores and INR $2.50 crores for the Yes, yes. What guidance we are giving, the 17%, eighteen % growth is this service last year second half and this year second half. See, if you consider the run rate, first quarter as we already said was very exceptional. That kind of API business we cannot even dream of doing. Correct. Correct, yes. But your second quarter was also higher at three twenty three regions. Capacities perspectives, we have capacity and further debottlenecking can actually increase capacity further by about 10%. Then do you see in FY '20 '20 '2 going by your full capacity and then debottlenecking, it can add back to the growth? But new capacity will take further time. FY 2022, plant will be theoretically ready, then validation, scale up, registration, approval, it takes lot of time. So till all these activities are completed, we have to depend on the plan only, whatever little bit CapEx we are doing and debottlenecking we are doing. No, no, I'm okay. As Mr. Dain said, yes, there are so many possibilities, number of cycles, prices are also different from one product to another. There is $20 product also, there is $200 product also. All those things come into play and you have a flexibility. Understood. Basically, at your full capacity, I'm talking about the current capacity, not the new capacity, including debottlenecking, do you think the plant can do about roughly INR 1,000 crores kind of a INR 1,000, INR 12 hundred crores kind of a revenue? That's what basically you are suggesting. What we are guiding is going forward, the HPA business in this second half, there will be improvement of 15%, eighteen % and thereafter our guidance is normal 12% to 13 growth. Understood. So my second question is in terms of the EBITDA margin, If I look at last year fourth quarter as well as year before fourth quarter, typically, fourth quarter margins are lower compared to third quarter end of company average. What is the typical reason for this? It is mainly because of the domestic branded business. So if 100 is my business, in fourth quarter I do about eighty, ninety out of that. Whereas the 80 gets transferred to other three quarters, this is the main reason. Okay. So that basically pushed down your margins to some extent in the fourth quarter. But despite that Our portfolio, the January period is healthiest for the people, not to us. Oh, I see. Understood. But despite then, you are suggesting that this year, second half margins, you will maintain a second quarter. This is despite the fourth quarter typically is a slightly low margin business. So what mean In spite of that, the second year business itself is lower, so we will be growing over that. Gotcha. Like in the last year, the fourth quarter, in terms of the revenue base, margins were low because it is not healthy for you, but revenue was not that bad. Yes, I know that. Last year also, fourth quarter, we have grown 10%, twelve % when it comes to domestic branded business. Correct. This year also, we will grow compared to what we have done last year. Correct. Total margins, again, last year fourth quarter were lower, generally speaking. So I think from that perspective. I gave a guidance of 25% to 28% quarter on quarter it will vary. Understood. Understood. Okay, sir. Thank you, sir. Thank you. The next question is from the line of Rahul Sharma from Canby Stock Loping. Please go ahead. Yes. Good morning, sir. I just wanted to get some sense of the performance of various regions in the export market for the first half, generics and branded. I have already given Rahul EU including UK. So last year, first half, it was 169 crores versus that it is $2.11 crores this year. Australia and New Zealand from 60 has become 89 crores and Canada has become 56 from 30 crores. So these are the major continent when it comes to generic business. And institutional, it is there already in our press release. What is 56 crores in which region, sir? Canada. Last year it was 30 crores. And 169 crore in EU, right? No, no. EU is 178 crore and UK is 33 crore. Okay. What about Russia, sir? Russia First started with a growth of 11%, ninety two % was last year, this year it is 102 Any other traction, any other generic market, sir? Generic market we covered now, the territory, it is EU plus Australia, New Zealand, Canada and South Africa, these are the markets. Okay. What sort of growth you're focusing for the current year in your branded and generic formulation business? Yes. Rahul, the company as a whole, going forward, we are confident we will grow anywhere between 10% to 12% top line growth. So similar number more or less the domestic branded business, which is comparison to YYY. Generic, we are confident it will grow by about 15%, sixteen %, generic business and there will be good growth when it comes to institutional business. Okay. And branded, sir? Branded, our guidance is about 10%, eleven % growth for whole of the year. Part on quarter, there will be a lot of pluses and minuses depending on shipments and all. Okay. And FY 2022, can we see a spike in institutional business? Is there a possibility? Rahul, our institutional business is only anti malarial. So all depends on season and so many other things. But now we have a range of product. The other two registrations what we got, AL Dispersive and Injectable also, we see a lot of traction and orders coming in. But you just can't see a very big growth and miracle in that kind of a business. Any outlay on R and D, is it increasing or any thoughts on that? No. As we said in our earlier phone calls, our more focus is now ex U. S. Development cycle. Europe and all other generic market, institutional business and other things branded ROW market business. So R and D for time being will be in the range of around 3% to 4%. But when we are back into U. S, those expenses will improve thereafter. Okay. Thank you. I'll join. Thank you. There was one last question, which is from the line of Yes. Sir, can you please repeat the outlook for UK and Russia and the numbers also? Karolita, we said the branded business ROW market, all of the year it will grow around 10%, eleven %. That is what is the guidance. And in the branded ROW business, the quarter on quarter there will be always variance because of the shipment and other reasons. So this is the guidance. So quarter wise, it's very difficult to see this quarter we have done so much, next quarter we will do so much. Year on year guidance we can give when it comes to promotional branded business of ROW market. Generic business, yes, we will continue to grow quarter on quarter. That is what the guidance we have given. Okay. And, U. K. Will see higher growth? Because in the first half of the current year, there was hardly any business from U. K. Last year it was a Rs. 54 crore sorry, Rs. 94 crore first half business UK. This year it is only Rs. 33 crore. So moving forward, there will be good growth compared to these two quarters as we progress further. Okay. Yes. Fine. And do you see more growth coming from formulations or APIs? The API, our guidance is there about 18%. Domestic formulation, we should see a growth of anywhere between 10% to 12%. ROW, I said, around 10%. And generic, there will be about 15% growth. So overall formulation business growth will be around 12%, thirteen % and the APA growth will be about 18%. This is YOY growth, third and fourth quarter. Yes. Yeah. Yeah. Thank you, sir. All the best. Thank you, ladies and gentlemen. That was the last question for today. I now hand the conference over to the management for closing comments. Thank you, everybody. We are completely committed to improving our systems on regular basis so that we are back in U. S. Business. The management commitment to that is 100%. It's only and hopefully we should be back as and when the inspections and other things happen. Thank you so much. Thank you. On behalf of Dant Capital Advisors, Unifin, that concludes this conference. Thank you for joining us and you may now disconnect your lines.