Q1 20/21

Aug 11, 2020

Quarterly report

Ladies and gentlemen, good day and welcome to Ipca Laboratories Limited Q1 FY twenty twenty one Earnings Conference Call hosted by IDFC Securities Limited. As a reminder, all participant lines will be in the listen only mode Please note that this conference is being recorded. I now hand the conference over to Mr. Nathan Agarwal from IDFC Securities. Thank you, and over to you, sir. Hi, thanks, Stephen. Good morning, everyone, and a very warm welcome to IPCallab's Q1 FY21 earnings call hosted by IDFC Sisirvi. On the call today, we have from IITA Jain, Joint Managing Director and Mr. Harish Shamat, Corporate Counsel. I hand over the call to the ITTA management team to make the opening comments and then we will open the floor for questions. Please go ahead, sir. Thank you, Nathan. Good morning. Thanks for taking your time and joining us for Q1 FY twenty twenty one Earnings Call. Today's call and discussions and answer given may include some forward looking statements based on the current business expectations that must be viewed in conjunction with the risk our business faces, our actual or future financial projections performance may differ from what is projected and perceived. You may use your own judgment on the information given during this call. We would like to inform you that company's business and financial performance for Q1 FY twenty twenty one has been strong in spite of testing time on account of global COVID pandemic. We have used our integrated business capabilities in furthering our global API and drug formulation business. The business and margins for margin growth in FY twenty twenty one is largely driven by the business opportunities due to COVID-nineteen on account of chloroquine and hydroxychloroquine API and formulations, higher currency realizations on exports, improved productivity and lower cost of operations, reduced traveling and marketing costs, spillover sales from previous quarter due to lockdown for promotional branded formulation business. These upsides were to some extent offset by COVID-nineteen led to the lower India branded formulation business growth due to the reduced patient footfall, additional attendance incentive payments made to the plant workmen and staff during the period, the figure was almost around INR 20 crores and increased freight cost. Having given the opening remarks, now I will request by expense to ask questions. Thank you very much. We will now begin the question and answer session. The first question is from the line of Rahul Jain from Credit Suisse Wealth. Please go ahead. Thanks for the opportunity and congratulations for a wonderful set of numbers, sir. Sir, with regards to our quarter one results, we understand Equinorochain has almost contributed about INR $2.50 crores in this quarter. So leaving aside one off businesses in quarter one, can we understand what is the sustainable business or how much business should go you could attribute to one offs in quarter one, which may not be again repeated? Overall hydroxychloroquine and chloroquine business related to COVID, what we have done in Q1 is almost around INR $2.59 crores on consolidated basis and that has also contributed a significant margins to the overall to the company. That is basically it's an incremental business over last financial year on these products on particularly on account of COVID. And so this is you can say that some of these businesses could be a one time business out of that. And there are no other exceptional other than the significant business what we have done on chloroquine and hydrocycline. This is all normal operations. Apart from that, this also includes whatever institutional business on chloroquine, but hydroxychloroquine what we have done in India. So it includes all promotional markets, generic markets, whatever additional API business what we have done on hydroxychloroquine and chloroquine. So it includes everything. It's basically incremental business over last financial year first quarter. So that is by and large an opportunity on account of COVID and that has helped us to continue this quarter. So with regards to the guidance in quarter the previous quarter, you had given a guidance of about 14% to 17% for top line and improvement in margins by about 150 bps. Yes. So with the quarter gone by, can we understand that we can improve our guidance for the full year or in both top line and margin path? It's said, COVID related business opportunities are significantly come down now. Let's say we are not seeing that kind of incremental business relating to that from your own cost maybe in the geographies except some API business are currently happening in some Latin American markets and all. So and most people bought the higher quantities in the first quarter itself. So they are still carrying the stock. So I don't foresee that there will be any kind of further additional businesses in these geographies. U. S. Has already withdrawn the emergency authorization as far as chloroquine and hydroxychloroquine are concerned. So and therefore, we don't see any kind of further business coming from there also. So the business of hydroxychloroquine now henceforth is likely to be more or less the normal business which we used to do earlier and that business opportunity may not be there to that extent. And almost around 50% of our business is India competition business. There currently there are challenges out there. In first quarter of the current financial year, of course, it has grown by around 8%, but that also includes the Brahmin business what we have done. And if we exclude them then I think overall India formulation business of that will be around 4% only, which also includes the higher hydroxy silicon business. So there are challenges on India formulation business. Of course, there is a recoveries are regrettable recoveries are happening each month is better than the one. But we are still to reach to the full potentials or maybe even to the that kind of level. Still we feel that patient footfall is very low. Certain therapies like your antibacterials and derma and ophthalmology and all, we are still seeing some kind of decline. We are also seeing that malaria season which normally happened from July to September, which is a peak period, we didn't find much of the malaria cases currently happening. And looking all that taking into account, our growth projections for the next quarter maybe it's around overall growth maybe around 10% and maybe in the next two quarters we may start growing by almost around 12% or so. So overall growth of the company for the whole of the year will be little higher than the projections we have given earlier of around 14% to 17%. It may touch 18%, nineteen % kind of growth is possible. But it all depends how the recoveries are because 50 of our business is domestic formulation business and how recoveries happen in Indian market that's very crucial for driving the product. Sure. But just on the margin part I have Mr. Jain, sorry to interrupt, but for any follow-up request to rejoin the queue, please. So this is just about that margin part, which was not being answered. So I just wanted to understand on the margin part. Very simple, sir, in the balance three quarters, I'm not asking we have been generally reporting around 20% margin for last four, five quarters, somewhere around 20%, twenty one % margin for last four, five quarters. Of course, 38% margins are not sustainable. But for the balance nine months, can we expect the margins to be around 20% to 21% on a normalized basis? We will continue to have some kind of margin improvement. The overall, let's say, cost pressures are down. Material cost pressures have come down significantly now. And overall operating costs are also in control. Of course, there will be now in the first quarter, we didn't pay any kind of field operating costs. There are 5,000, 6 thousand and 5 people who continue to travel and their daily allowances and their travel costs and all those costs was significantly lower in the first quarter. Of course, that cost is going to be there down the line. But since business is also at a reduced level, so even there will be some kind of reduction in the promotional cost would be there. But I don't think so there will be a significant amount of reduction in those kind of costs. But margin certainly is likely to be better than what we have earlier talked about. Thank you so much, sir. Thank you so much. Thanks, Tom. Thank you. The next question is from the line of Prakash Aggarwal from Axis Capital. Please go ahead. Yes, good morning. Just on the INR $2.59 crores that you mentioned, so this is across the which line items would it be, formulations, API, India formulations or the API domestic which has also increased many folds? It includes everything. In fact, what we have done is what hydroxychloroquine and chloroquine relating to export business. I have not taken chloroquine normal business of India. So hydroxychloroquine business last year and business in this so incremental figure is taken of all the businesses. And whatever chloroquine export related businesses additional done, so that is added to that. And mostly the India API business what you are looking for, That is also the significant increase figure what you are looking is also relating to chloroquine for U. S. Exports. Okay. And you have all baked into this INR $2.59 crores is what you are saying? Everything is included in INR $2.59 crores, yes. Generic market additional business on hydroxychloroquine, local API business on hydroxychloroquine additional business, export API business of hydroxychloroquine and also chloroquine for U. S. Exports, which we have sold to India for U. S. Exports. So put together everything is included in INR $2.59 crores. Okay, fair enough. And second question is on the gross margin side. It's a 900 basis points improvement. You clearly mentioned part of it currency, part of it is one off. Yeah. So if you could just help us understand what will be the normalized gross margin going ahead given that HCQS you are saying had higher gross margin, so we exclude that and assuming currency at 75? Let's say, overall, if you look at our last financial year, our material cost to sales ratio for the whole of financial year was almost around 33%. And a year prior to that, it was little lower because there was some kind of material cost increases were there. First quarter it was almost last year was around 35% and then started 33%, thirty two % that's the kind of overall material cost ratios were there. I we see that these ratios are going to be down in the next two, three quarters and it may be around 32 or 31.5 that's the kind of ratio is going to be there. So there will be improvement in overall gross margins in the current financial year. This would be led by what, sir? It's a lower material cost. Okay. Fair enough. Thank you. Thank you. The next question is from the line of Surya Pathra from Philip Capital. Please go ahead. Yes. Congrats for that great setup number. So just on that $2.59 crores, 1 small clarification this one, First is that, you said on the domestic business side, you also got impact of this COVID and the disruption and all that. So see, this is the incremental number obviously for the SCC supply, but the business impact what we have seen, can you quantify that? I already said that overall business growth, domestic was almost around overall business growth is around 8%. Correct. And of which 4% has come because of institutional business. And otherwise, overall business growth is around 4%. So if we take hydroxychloroquine out from that, then practically there will be around 2% kind of growth. No. Okay. I was trying to understand what is the revenue that you lost in the quarter because of the COVID impact? At the beginning of the year, we were looking for around 15%, sixteen % kind of downstream business growth and there was no projections for institutions. And above that, we have got 4% growth, so around 12% business is lost. Okay. And this is recoverable or how is it, sir? No, patients who are not treated, that business is lost once again. Okay. Fine. My first question, sir, on the if you can just these are like relatively long term orientation oriented questions. Like, see, you have already mentioned about filing few of products, DMX, PISCA and EVS. So what is the update on that? How many products that you have filed? How many that you are having in the pipeline to file? That is one. And secondly, on the case of manufacturing purposes, you have said earlier and you want to create a dedicated site at your required asset or required company site of Maharashtra. So what is the outer timeline during which you can achieve that KSM manufacturing for your strategic products? As far as KSMs are concerned, we have very integrated business of API and KSM production is in a lot of KSMs are being in out. Lot of starting materials we import from China. Correct. And some of the KSMs also we import from China for most of our larger products. The KSMs are produced in house only. Yeah. Okay. Some of like, say, product like Losartan, we have the BCFI is another material which is largely what's imported earlier from China. We will develop now certain indigenous suppliers for that. We are working on a continuous process plan. Yes. Currently under installations and hopefully by September that plant will start operating. Mhmm. The DCFI, we will internalize and that will also give a substantial cost reduction because conversion ratios are likely to be far, far better and cost reductions are going to be much better. That will further enhance our profitability rate. And by and large, for all larger APIs, we are producing KSM ourselves. As far as your NACTO sites are concerned because of lockdown and other issues and COVID issues and all, we really not taken any kind of effective step on that. Our first priority is to set up a plant at Devas. Correct. We have already received now in the this period, last three months, the lockdown period, the environmental cleanse has already come. The end of the quarter. So we will be after this monsoon period of August, September, we started the construction there and built the API facility there. API capacity constraints are currently there and those we will be resolving through our divest facility. And thereafter, the priority will come on a lot of those kind of further scaling up on the KSNs and all for which we are really looking for more such continuous operations. And so the R and D and the piloting team are continuously working on that part. At least five, six products will be in the pipeline in time to come on that. Okay. About your filing, sir? For your filing, I think the two DMS work is done and we are awaiting inspection there. And once that happens, then probably these two DMFs will be but they are all very high value and small volume kind of products out there because they are Cisca doesn't have very large capacity. It's more of like a Krems kind of facility and they have this all these narcotics product also they have a license now. Scope or a scale up of that, sir? We are really not looking for much of API production in U. S. Currently. Okay. Fine, sir. Wish you all the best. Thank you. The next question is from the line of VP Rajesh from Banyan Capital. Please go ahead. Yes. Thanks for the opportunity. Sir, my first question is regarding your expenses below the gross profit. So last year, we had about 2,100 crores of expenses. Is there any guidance for that given the some of the items you called out in your introductory comments about higher employee expenses, etcetera? As far as this quarter is concerned, overall, let's say, your personal cost has gone up by around 18% largely it's because of around INR 20 crore additional we have spent on giving incentives to the particularly staff and workers of the plants, but it was very necessary to keep all the site operational. And around that time, lot of fear factor was there in the mind of people. So lot of activities we didn't need to avoid those kind of reduce those kind of fear. At the same time, announce the incentives so that people come and we are we should be because there was a huge amount of pressure from government. We needed to supply huge amount of tablets almost around 12 crore tablet we supplied to the central and state government within a period of forty five days. Plus we had to get out the domestic ROW all those kind of and increased production of hydroxychloroquine and chloroquine was required around that time. So that's an additional cost which we incurred. Otherwise in this particular quarter there was some reductions in the marketing cost because promotion cost was low and also there was a your travel cost is low. So these two cost has come down. Overall cost and on manufacturing side, our operating cost has just gone up by 2% except that we are on manufacturing and other expenses. Whereas on marketing side, there is a reduction in the overall cost. But I don't foresee any kind of marketing cost reductions are not likely to be that much. There will be some reduction because there will be still be at your restricted levels and all will continue to be there and more digital activities are likely to be there from the senior management of marketing and sales, they're traveling and others and also all of those kind of the knowledge sharing and those kind of activity which keeps on happening. So those cost is likely to be lower, but field operations are now continuing. In the first quarter, we have saved cost on that almost around 5,000 medical reps and their managers' traveling cost and their daily allowances and all that is was not there practically. Varabas, very small part of that was there because a lot of those period the people were not operating, they were so those costs were lower and promotional cost was also lower. Going forward, these costs will also increase now. Right. So what will be the cost once you take all these increases? What is the expectation of the cost for the next two, three quarters basically? Let's say HR cost, if you look at it, will be likely to grow around 8% to 10%. It's not going to grow to that extent. And on other expenditure side, your plant operating cost may have around 5%, six % kind of growth. And on marketing side, there will be some cost reduction and some increases. So maybe around some 5%, six % kind of overall cost rise would be there compared to last year with because freight cost is also is high and still it is high. So those costs are going to continue in the time to come. Okay. So overall, we see that cost will be at a lower side, yes. Understood, sir. And you earlier said the cost of material will be around 32% or was it or did you say some other number? I'm sorry, I didn't catch that properly. Yes. Overall numbers is going to be because there is a the tendency of the material prices going up significantly last financial year which has come down. Right. And what is the number you said for the remaining three quarters? It's going to be around 32% or lower? Yes. Okay. Thank you so much. Thank you. Thank you. The next question is from the line of Tarangar Gharwal from Old Bridge Capital. Please go ahead. Hello, sir. Good morning. I have two questions. One, what were your capacity utilizations for Q1 FY twenty twenty one across all facilities? And the second question is, when I look at the overall revenue, it's almost up by another 500 crores. Out of which you said almost about $2.60 crores on account of HCQS and maybe another 40 crores in the domestic formulations business. So of the balance 200 crores, where did it come from and how much of it is sustainable going forward? I would say that your generic businesses, your API exports, your promotional market businesses, all those businesses plus institutional businesses have done well. So all those numbers has come from these kind of the businesses what we have seen in the first quarter of the current year. So would it be fair to therefore presume that this is a sustainable sort of market from where these revenues came in? What we had talked about earlier that we have projected, I think, your institutional business growth of around that business around to be almost around more than 200 crores. So that is perfectly achievable. The number of first quarter is seen that we have done significant. In second quarter, number is likely to be good. So overall, we are we expect that business will be good. As far as the promotional market business is concerned overall for the whole of the year, we have projected a 15% kind of growth also taken into account those kind of spillover shipments which we had in the first quarter of the current year. So that business growth is also good. API business growth is overall for the whole of the year is also likely to be in the region of around 20% kind of thing. So overall business growth is expected to be good for our current financial year. Sure. And so utilizations in Q1? Utilization is a relative term. So I would say that as far as we have produced higher amount of hydroxychloroquine and chloroquine from our those facilities some of the other APIs which we're producing some of those shipments or some of those capacities got impacted because of additional production of those certain other plants. So those products could not be produced. But otherwise, I would say that API capacity is almost at full capacity we are currently running. As far as your domestic plants are concerned for the formulations, maybe it's around 75% kind of running. And on generic formulations, on my particularly at all plant, which is applying to the for most of the generic market, their capacity utilization may be around 75% or so. Sure. Thank you, sir. All the best. Thank you. The next question is from the line of Cyntraila Carvalho from Centrum Broking. Please go ahead. Thanks for the opportunity and congratulations on great setup, Nava. So you mentioned about the continuous manufacturing and that leading to cost reduction going ahead. If I have understood correctly, if you could give us a little more, you said that you are adding four to five more products on a continuous manufacturing basis. So if we look at over two to three years time frame, how should this benefit us overall? And looking forward, do you think that industry would also shift to these kind of things and overall cost could come down? Is this a possibility? We are an integrated payer, so we continuously keep on working on the key starting materials. And normally, we like to produce key starting material either ourselves or give the technology to the smaller people and get it manufactured under our control. That has been our business philosophy. Currently, I said that one product we already set up a plant which is likely to be operational in them, is under installation currently and which is likely to be operational by September or so. So a quarter thereafter, we will start seeing some kind of advantage. Other products are working and other products are in R and D. And as far as piloting is concerned, we have yet to order the certain plants on that. So as and when these are placed R and D and other piloting work and everything is over, then we will also be going forward for more kind of those kind of automation plants. As far as the industry is concerned, it's very difficult to say that which company has what kind of strategy and all. And we are also not tracking which company is also producing from what technologies and other. So except looking at patents and all that kind of thing. So it's very difficult to know that what is their manufacturing practices and all those are there in terms of but I would say that very few plants are there in India, which are on continuous process as far as API and intermediates are concerned. On chemical industries, yes, it happens, but not much on API side in India. Okay. And so would that continue our benefit on the gross margin side as and when this comes in our base as you're saying? So that should help us on the gross margin side. That's a clear understanding? Yes. That happens because your reaction efficiency goes up. Okay. And sir The cost also goes down because number of people employed is also in handling and all everything get reduced because it's a continuous operating plants where person sitting in your control rooms, he manages all the kind of operations. Okay. And sir, on the export institutional side of business, if you could help us understand, apart from Epicurus and Clodoquine, what else is driving it? Finite, most of our institutional business is relating to malaria because we are not there in either in AIDS or TB or those kind of products are there. So it's only the anti malarial products and that's what is currently driving that kind of business on institutional side here. So the seasonality you can say? It's all different countries, different seasons are there. So by and large it's more or less throughout the year that kind of business happens. Okay. Thank you. I have more questions. Thank you. The next question is from the line of Charulata Gauthani from Dalaland Brocha. Please go ahead. Yes. So first, congrats for the amazing results. My question pertains to the increase in the scale up in institutional business. You mentioned that it is particularly malaria. So do you expect it to sustain going forward at the same level? We have in last few years, we have added on ARTEMeter Lumafintine dispersible tablets, we have injectable. So, injectable now plant is running at full capacities and all. So that is also helping us in overall business. As far as the global front supply chains are concerned, we are now a very strong supplier now and taking the again the more market share therein. And that is helping us in overall our institution because we are a backward integrated company as far as all these anti malarial products are concerned because we are leaders in anti malarial. So that's our strength area and that is helping us in the overall institutional business. Okay. And second, the scale up of the generics business and export, do you see that continuing at the same level? Generic business, let's say earlier we used to have U. S. Business. Right now it's not there. We wish to be there on that market and once that start happening then business will further grow. In Europe, we are now penetrating in more number of markets, but it's all through the distributors in those markets. We are not having any kind of setup. First, we are now really looking for having a setup in U. K. To start with. And I think that operations may start happening somewhere maybe on third quarter or little that kind of period. A lot of activities are currently happening. And we have already got lot of approval, so we will be commercializing that. So that's the journey which will be there. And European generic business currently generic business are being done in Europe, Australia, New Zealand, South Africa, Canada. So these are market and most market we have good growth currently. So can you give me the recap? Sorry to interrupt, but for any follow-up request to rejoin the queue, please. The next question is from the line of Surjeet Pal from Prabhutasli Ladder. Please go ahead. Yes. Hello. Good morning, sir. Good morning. Yes. Sir, I have two questions. One question is that in your Insti business, you earlier gave some kind of very good guidance. And given the kind of growth we are seeing this quarter, is it mainly again from HCQS and CQ or some normal business crop tops? There are no hydroxychloroquinechloroquine business in institutional business. Right. It's zero. So this kind of growth will happen in every quarter or do you think that this is just one or two quarters and after that it will be normalized? In institutional business, you can't say that same kind of number will get repeated. Sometimes there are country tenders comes at different level, different intervals and all. In this quarter, maybe one or two country tenders were there. They may not be there in third quarter. Maybe there are some in fourth quarter. So some fluctuations keeps on happening there. But overall, I have guided that in current year our institutional business is going to be more than INR 200 crores. INR 2 hundred crores and it will be growing at 20% in FY twenty twenty two also as a result? FY 2022 is difficult to say now, but yes, we have other products in the pipeline for pre qualifications and all. So this business will have some growth in FY 2022 also. But we don't see that this business is going to go to INR 400 crores and all because it's only anti malarial kind of business which is there and it's a forward integration of our API basket and we are really not looking for institutional business to be there in those kind of other kind of products like TB and AS and all. Of course, we are filing the products on hormones and other. And for pre qualification, one product is always pre qualified, another product is filed. We are waiting for pre qualification. The more such products will come in time to come. So and largely these products again goes in institutional business. So bottom line you are saying is that 200 crores plus you are guiding for this year and mainly it is driven this year by injectables and next year could be by dispersible tablets. Yes, yes. So next year's guidelines will give in next financial year. Okay. Astrid, second question is that regarding your European business, which you are saying again saying European generic, generic business is mainly driven by HCQS also. But if you can recall that last year, your major growth count from API as well as generic mainly from start ups in European market, as well as you have now two partners in UK. I believe there are some issues from the partner side. Can you show some light on these two aspects please? Partner side, we don't have two partners. We have only one partner there and we will be starting our own also there as far as UK is concerned. And partner was facing some kind of delays on payments to us and therefore we have put some break till the time again the account come in order. So there will be some kind of your lower business maybe in the it is also there in the first quarter current year and second quarter there will be some lower business. But now things are again normal and the business will start back on normal level. And Sartan? Hello, Sartan business is our concern. Yes, it's an important part of our businesses and we are continuously doing well. We are producing Losartan, Losartan. These are the two major products we have and we are continuously we will be further increasing our capacities on those kind of products in time to come. Thanks. I have few more. Yes. Thank you. The next question is from the line of Sudhir Kedia from Principal Mutual Fund. Please go ahead. Yes. Good morning, sir. I have one question regarding your raw material. So in the current quarter, your raw material costs have gone up by only 6%. So could you give us some idea in terms of how is the volume and price breakup of the 6%? Let's say the incremental business relating to COVID has come at a very high margin. So when you work out the ratios and all, yes, that number may not be you will not be able to because of higher top line, this that will appear to be on a lower side. I have guided that overall our material cost in the whole of last financial year was around 30% to 33%. More or less there will be some reduction in the next three quarters on by around 1% or so, but because of overall soft prices and out there, but these numbers are likely to be in that region only. What I was trying to understand that including your COVID related sale, the overall sales have gone up by $4.50 crores. Yes. While at the same point of time, the raw material cost has gone up by only 25 crores. So, we must may have seen a significant reduction in raw material prices or it's something else. I'm just trying to understand that part. And how much of this raw material decrease, if any, is sustainable in nature or this is one off in your view? That's what I have replied that in coming quarters, the material cost ratio, which used to be 33% or so, so there could be a reduction of one percent, one point five percent in that. But that's the overall likelihood to be there as far as material cost is concerned. This quarter because we have a significant higher promotional business where the margin levels are higher and also though other businesses where the margins were high exchange, Yes. And exchange gains were also there because we have used the materials which were imported earlier maybe at around 69, 70 level and realizations were almost around 76 level or so. So the higher exchange realizations has also helped in that. So when top line is higher and your the conjunctions are at materials which are with a lower cost, so that is helping overall lower cost of material cost. But in future, it's likely to be on a level which was there earlier, little less than that. Sure. Sir, one more question. When I the total increase in sales about $4.50 crores and if I reduce the COVID related sales, which is about 300 crores including the domestic part, So the rest of the sales have gone up by INR 150 crores. And at the same time, you have also mentioned that you have lost a significant part of the sales because not enough prescription has been given and similarly the infection rate related with malaria and all is lower. Just to understand that It all depends on your product mix profile. There are products where there are high material costs, there are products where lower material costs. In this particular quarter, businesses are happened where the margins are high. Yes, that I understand. I was just trying to understand this 150 crores, how much of sales you would have lost in due to COVID because in our normal business? That's what I was trying to understand. Yes, sir. This $1.50 crores should have been how much? Domestic business growth. Our domestic business growth, if you look at last five, six years, has been around 13% to 15% kind of ranges there. And we have been always growing around the last seven, eight years by almost around 1.5 times the overall market growth. So and current quarter is only around the if you exclude the all the additional business on hydroxychloroquine and also Gorman business in first quarter, our domestic business growth net will be around 2% only after excluding the additional business of hydroxychloroquine and also institutional business. So, on that domestic business, you have lost almost around 12% kind of growth. Sure. Thank you. The next question is from the line of Kunal Damesha from Systematics. Please go ahead. Thank you for taking my questions. So first question is on the API CLI scheme, but I think now the more details are out and we are also planning to do CapEx on increasing our PSN production. So is it possible for us to participate in the scheme and bring our export as well as the domestic consumption in under one plant? I mean, how do you think about that scheme and what are some of the molecules which is looking at right? Because I think patents are also there. So are we looking to participate in this scheme? The second question I'll ask. We are certainly looking at to participate in this kind of scheme which we will do. But as far as this scheme is concerned, the incentive what government has announced is purely only on the domestic sales, not on export sales. And also for the all other larger incentive parts are there on fermentations, not on the other products. Each company wise annual incentive could be around INR 2 crores or so for each part strength, something like that which government has said. So incentive is not going to be that great. But yes, in spite of that, it's the Government of India program and we also have those kind of products in our pipeline and all. So we will be applying for under PLI scheme, PLI scheme for certain products, but it all depends that in given certain metrics on price and also on the what kind of volume you want to produce and all that certain so on that, they will be deciding which company they want to award that. The incentive, I would say, is not as the it's not because of incentive that we will be going for PLI because we want to produce those kind of products and also at a competitive cost to take a larger market share in India and international market. Those will be the considerations to go for it. Incentive will never be a considerations to go for a kind of investment. Okay. And then is it possible for us to bring the manufacturing for the export as well as domestic consumption under one rule or we have to follow different processes for let's say export markets which are more regulated like Europe or US and then domestic. The processes would be different or, you know, and then NC compliance costs, etcetera, could be different, or we can just bring, our export volume and domestic under one roof. Although we will only get incentive on the domestic consumption. At a particular plant, you can it's all your what kind of capacities you are set up for which plant. Under that plant, if there are certain kind of you can expand there, then on those plants, you can put those kind of products which government has announced. So like say, we have plants which is they have upcoming plant at Devas and we have plant which is there in Gujarat. So some of these products we will take it up there. So it's not that except Devas which we are planning as a new site, the other site is an existing site. And as far as the pharma industry is concerned, your one group, Christian, I didn't understand because we have large number of plants. Some plants are producing a different kind of doses from some producing tablets, some producing injectables, some producing your oral. So all these plants are different and at a different, different site. Then we have API plants. So in Myraplam itself we have around 22 API plants and then we have other plants like Indore. So these plants are going to stay. So how do I didn't understand that. What do you mean by bringing under one roof? Yeah. So so the question is, let's say you get a machinery to produce Valsartan, but let's say Valsartan manufacturing process that you want to follow for The US or Europe could be different from, what you could do in India, for the domestic consumption. It doesn't go that way what you are talking about. When you do a regulatory filing, there are different kind of processes. And if a customer has approved you from a particular process, then you are to supply him continue to supply till the time he ships on different processes. So each customer's specifications are different. Each year suppose and you continue to keep on improving the processes. So you have filed process one, process two, process three. So some customer may be on process three and some customer is old customer, he doesn't want to willing to ship. He may be on process one also. So API industry is highly, highly regulated. In the time he takes the regulatory approval for Process one to shifting to Process three, he cannot ship. He will continue to buy the material from Process one. So that the kind of harmonization is not possible till the time either you lose that customer, okay. If you don't want to supply of Process One, then you will lose that customer. So it all depends on economics and other things. And secondly on the So sorry to interrupt, but I don't know any follow-up request to the region, the queue please. The next question is from the line of Nikhil Upadhyay from Securities Investment. Please go ahead. Yes. Hi, good morning and congratulation on good set of numbers. Sir, one bookkeeping question. So earlier for our regulated plants, which were under import alert, we were making so they were having a negative impact on the P and L. So if I'm correct, that was around $70.80 crores, right, year? So now with the SGQS production, which we have done, so probably they would have that contribution would also be there in the EBITDA margins of this quarter or so and if you can just help me with what is the utilization now? Let's say there are two plants which are still there on formulation side. One is our SZ Indore plant and another plant is at Peperia. These are two formulation plants which are largely dedicated to us and there the capacity utilization is at the lower level. Let's say Peperia plant utilization is further lower. There we have produced some kind of adhesive chloroquine for other markets also. But as far as the SCZ Indoor plant is concerned, we have not produced anything for years from that plant. And their capacity utilization is on lower side and we continue to have some kind of losses on these two plants. Okay. And secondly, sir, on the margin side, if I just want to understand, because if you see last year, whole year, we had that $50.60 crores of one off cost, which included the ForEx and the impairment charges, which we had taken in the last quarter, which itself was around 1%, one point five % of impact on the overall cost margin. Secondly, on the gross margin also you mentioned that we are getting a benefit of around 100 basis points because of the lower RM cost, which we are seeing which should flow us for the next two, three quarters. Which means for the full year the margin improvement and overall other expenses as the number which you have mentioned, it's all under in around single digit as compared to the sales growth of 17%, eighteen %. So, if we just add do a back of envelope calculation that itself adds two fifty, three hundred basis points to the EBITDA margin. Am I missing something here or You have to also see the quarter to quarter. So what we have added, the first quarter numbers are exceptional. For the next quarter I'm just taking on so if we leave the first quarter, just the next three quarters because first quarter was abnormal quarter. And whatever number we have to see, we have to adjust and then see those numbers. Yes, yes, yes. So just on the next three quarters, based on the guidelines which you have given and based on the one off cost which was there, if you just add back those numbers that itself means that for the full year, even on a normal basis, you would have like two hundred, two fifty basis points of margin improvement. Look, I'm just trying to understand, am I missing something or is it like the cost escalation could be much higher or? Cost escalations are I have already guided on cost escalation that overall manufacturing costs are not going to go up that much. Your HR cost is going to be going by around 8% to 10% kind of cost, which is there currently in the system. And overall cost pressures are not going to be that much. But yes, if you look at your domestic market, in first quarter almost around the field staff practically were at home. So those traveling and those costs was lower. In the next quarter, those kind of costs are again going to be there. And also the promotional cost, of course, that may not be at that level. But yes, at a lower level, the cost will be there. So those savings are not going to be that much. Okay. Just one thing, sir, on Craig. Just one small thing. Sorry, sir, but due to time constraint, we have other participants already. So we'll have to take them. Thank you. The next question is from the line of Naresh Soodar from SBI Life. Please go ahead. Yes, sir. Thank you for taking my question. So my question is around this guidance again for revenue. Sir, if we exclude the benefits of LCQS for the full year, if you can give guidance as of this opportunity for FY 2021 for revenue? We have given the guidelines for the next three quarters that overall growth is going to be around 10% to 12% in next three quarters, which includes the SQS also. But SQS now is more or less a normalized business. There is nothing to exclude further because whatever additional business was to be done that has been done in the first quarter. And I also said that the European and other customers have bought an additional materials and they are already having. So in a subsequent quarter there could be some kind of lower shipment also compared to last year of hydroxychloroquine. As far as India is concerned, yes, hydroxychloroquine business is more or less 10% to 12% additional compared to last financial year. So it's in month to month basis. So it's not a very big number as such on hydroxychloroquine currently. So whatever opportunities are there, that was there in first quarter and we are not seeing any kind of significant rise in that number in the next quarter. So what we have projected for next three quarters is around 10% to 12% kind of growth and it's also depend on how India revival happens, Indian market revival happens. So a lot depends on that also. That's the one kind of risk factor which we have. Because almost around 50% of that business come from overall business come from India business. Okay. And sir, one question on API side. We have been seeing the peers talking about the API side, they're talking about getting benefited from the increased activity in terms of shift from China to India or any other place. So many places have announced CapEx and they are benefiting out of that. So can you share some outlook for two, three years how you are looking at the business and the CapEx over there, particularly from this trend of shifting from China to India and your revenue trajectory, which I think used to be 10%, twelve % kind of growth, which can be in mid teens kind of growth in this sector? So API business growth is good. Currently also, we are talking of almost around 20% kind of growth on API business. So that business is going to be good in the current year. But I also said that we have currently a lot of capacity constrained and which we need to resolve in order to take up this business forward. We are continuously doing debottlenecking of capacity, which is adding the capacities and allowing us to do the higher business. In first quarter, lot of API business, other drugs were suffered because certain additional productions we had to take out from existing plants on the KSMs and also for the additional production of hydroxychloroquine. So those businesses also we will try to recover. So overall API businesses are going to be around 20% kind of growth in all of these. So, Sumeyal, so more of a longer term to ask because of the increased inquiries, are you seeing more effects over the next two, three years or? We are already in a process of setting up new plans. We will take care of that. Okay. Thanks. Thank you. The next question is from the line of Sameer Baysiwalla from Morgan Stanley. Please go ahead. Thank you so much, sir, and congrats. It was great numbers. So just on the quarter, how was the pricing for your products for branded and APIs? Was there material change quarter on quarter? No, there is not much of change except I think the Russian ruble has little dilute compared to the earlier numbers. So that realizations are on lower side. Other than that, the pricing part has not changed much on other products. Okay, great. And sir, for this $2.59 crores COVID sales, if I reverse engineer, it looks like this must have come at 80% or so gross margins and that then slows down to PBT level. Would that be a fair assessment? Yes, yes, that assessment is fair, yes. Okay. And then final question, how much was the spillover of sales from 4Q to 1Q? It was almost around INR 26 crores or so. Okay. Not that much. Okay, great. Thank you so much. Thank you. The next question is from the line of Anubhav Sahoo from M. C. Research. Please go ahead. Hi. A couple of questions. First regarding CapEx, now since you have got the environmental clearance for the divest facility, could you specify timeline for commissioning? I think we will start constructions maybe in the month of October or so. We are in process of finalizing the contracts and other. And overall, the Devas project will be almost around INR $2.50 crores. If we had further capacity, it can go to around INR 300 crores. And overall timeline would be around fifteen months on that. Implementation period will be around fifteen months. Okay. So that will be ready, yes. Okay. And so one clarification, you mentioned 75% capacity utilization. So this is for the foundation part, right? Yes. And does it exclude all the one off items which we did there for this quarter? Capacity utilization there is no one off. No, I mean the additional production which we did for hydroxychloroquine and those kind of things. That's only additional cost was INR 20 crores what we have paid as a one time incentive to the staff and workers of the plants, most of the plants, all plants. So that's a one off cost additional cost. Not to be selling the capacity will be there. Capacity, yes. Not substantial. The 20 crores have been not a very big. This you are asking on the Capacity, yes, for the normal business, yes. So for the formulation business, what is the normal or the average capacity utilization which we have right now? Formulation capacity utilization, let's say two plants capacity utilization which are there for exports are very, very low. One is the Pipparia plant and one other is Pippa Pur plant and these plants still continue to have some kind of losses are there. These plants are by and large built for The U. S. And once U. S. Start and some generic business we have started taking from these businesses, but still capacity relations are low. Other plants are relating toward by and large for the domestic formulation business and all those kind of international businesses of Europe, Canada, Australia, New Zealand, South Africa and all those markets. There the capacity utilization is around 75%, yes. Okay, okay. And that goes well for the Sikkim plant also? I think that is mainly for the domestic foundation? Yes, Sikkim plant, yes, also for domestic foundation, yes. Okay, okay. That's all for my side. Thanks, Suresh. Thank you. The next question is from the line of Cyntra Laccarvalo from Cyntra Broking. Please go ahead. Yes. Thanks for the follow-up, sir. So, sir, one question I wanted to understand from a product expansion perspective. So what are the key products which we would be looking forward to expand our basket domestically and in export business? The second question is on the Krebs side of fermentation based facility. What PLI benefits that we should expect? And the third is on The U. S. Benefit U. S. Any discussion, any understanding from the FDA agency? Thank you. As far as the Krebs are concerned, we are not there in all those kind of products which are antibacterial and which is very large investment and we are not a very strong player as far as antibacterials are concerned. So we are really not looking for those kind of opportunity. But there are certain products out of that PLI schemes on fermentations which we have done the backward integration, forward integration is still pending. So we are looking for whether we can go for and participate in that kind of scheme for one particular product on fermentation. So that is there in the plan. And other than that, as all the steroid kind of products are there where we don't have much of currently neither we have those technologies or to forward integrate those products. So right now we are not looking for participation on that on PLI scheme. Sir, on the U. S. FDA side anything and on the future product basket expansion? As far as U. S. FDA is concerned, we have done most of our remedial actions and we have already informed to FDA and it all now depend on them when they will be coming. They don't say to us that when they will be coming. And in the COVID period probably they are not traveling, so only after some things get normalized the travel may happen. So it's very difficult to give any kind of timeline on that. That. So basically we've not heard anything from them? No, we have regular meetings with them and we are discussing, but we have not heard so far anything on that. Okay. And sir, future product basket expansion in domestic and in export related areas? We don't add too many products. In a year, we made around we have it on one product or so in every division. So sometimes we add in two years one product because we don't want too many baggages in the system. We want whatever product we take, we take seriously and we do brand building. So our kind of size, we have very, very less amount of product. So we don't our business philosophy is to not to add too many products in because in a division you have three, four power brands and some kind of supporting brands. So you can't have more than that. So we don't add too many products. As far as API is concerned, yes, we have good number of APIs in our product basket. But right now, since we have capacity concerns, so those products are not being taken up for further exploitation. So once the further capacities are added at Devas and all, we will further commercialize more number of APIs. Okay. Thank you. Thank you. We take the last question from the line of S. Mukherjee from Nomura. Please go ahead. Yes, thanks for taking my question. So on API side, I just wanted to check on Deva's expansion. I think that's critical for future growth. How large is the capacity and how much it adds to your current capacity? Just if you can give that context? We will be spending almost around close to INR 300 crores on that plant and that will add almost around production capacity of around maybe 300 tons of overall API. So that's the overall number going to be there. And how does it compare to your current, sir, in terms of tonnage that you're currently doing with 100% utilization? Maybe around 20% kind of capacities will add. Do you think this is enough or you need to add more capacity going forward given the strength that you see in the API business? We will be adding more capacities in time to come, but still not crystallized, so I will not be able to talk on that yet. Okay. So will it be fair to assume that since the capacities are full, the growth can be a bit subdued in the near term and then when this capacity comes on stream, you said fifteen months, maybe in couple of years ago it would accelerate. Would that be a fair assessment of the API business? No, we continuously do debottleneckings. So that is so we are right now except one or two products where we are losing business, We could have doubled the business but since capacities are not there. But incremental businesses are coming from those kind of the depots making which is coming at a much lower operating cost and also much lower CapEx. Okay. And sir, you talked about this continuous plant and for API and intermediate. I mean, this is for a specific product that you're looking at Or there are more than one product for which you want to put this? We are working on almost on five to six products. One product we are already in the process of installations that plant is under installation. Balance is at R and D and piloting stage. So as and when these products start coming in, but we are working on five, six products to make them a continuous process, yes. Okay. And so just one last We are intermediates, not API. Okay. Intermediate. Sorry. Sir, one last question, sir, if we can really help get a split of the API business. So when you look at the export plus domestic, the overall API pie, how much is Sartan? How much is like chloroquine, hydroxychloroquine? Any kind of breakup that you can because you focus on a very few segments. So just if you can help us understand that profile of the API business currently? Largely, let's say the major part of business comes from cardiovascular, anti malarial pain. These are the three main segments that we have. Okay. Yes. So major businesses come from these segments because we have been strong players on beta blockers and now we have added the strength on Sartans and all that kind of things. We also have lot of these diuretic products. So cardiovascular is a major basket we have. On anti malarial practically everything we produce. So good basket is there on anti malarial. On PN side, we produce hydroxychloroquine, alloprenol, metadolax, Cherashofructidase. So those kind of products are there. So these three segments would be more than 75%, eighty %, would that be a fair assessment? Yes. And cardiac segment is the biggest one out of of there. Okay. Thank you. Thank you. I now hand the conference over to the management for closing comments. Thank you, everybody, for participating. And as far as The U. S. Is concerned, our continuous commitment is there to resolve all the issues and then come out of it and then again start our U. S. Business because that's very, very important for us. And in our overall business scheme, where we want to be a very strong player on products, what we have, U. S. Is important to us and we are definitely working on that on continuous basis. Thank you so much. Thank you. Ladies and gentlemen, on behalf of IDFC Securities, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.