Ladies and gentlemen, good day, and welcome to the Mankind Pharma Limited Q1 FY 2025 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star one zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Agarwal from Mankind Pharma Limited. Thank you, and over to you, sir.
Good evening, everyone. A very warm welcome to our Q1 FY 2025 earnings conference call. On the call today, we have Mr. Rajeev Juneja, Vice Chairman and Managing Director, Mr. Sheetal Arora, Chief Executive Officer and Whole-time Director, Mr. Arjun Juneja, Chief Operating Officer, Dr. Sanjay Koul, Chief Marketing Officer, Mr. Ashutosh Dhawan, Chief Financial Officer, and Mr. Prakash Agarwal, President, Strategy. I trust you had the opportunity to review the investor pack we shared earlier today. We will start with opening remarks and an overview of Q1 FY 2025 from Rajeev Juneja, followed by a detailed insight on the business performance from Mr. Sheetal Arora, and then Mr. Ashutosh Dhawan will be sharing the key financial performance, post which we will leave the forum open for Q&A. I'd like to remind you that some statements made during today's call will be forward-looking.
For a detailed disclaimer, please refer to the investor presentation and press release available on our website. Now, I would like to invite Rajeev, sir, to share his comments.
Thank you, Abhishek, and good evening, everyone, and a very warm welcome to our Q1 25 earnings call. It's so great to reconnect just a week after our discussion about the acquisition of 100% stake in BSV Limited. Over the past three decades, our bottom-up strategy has enabled us to grow our reach from smaller towns to major cities, establishing a strong distribution network. By understanding market trends, we gradually ventured into OTC business, where our brands such as Manforce, Prega News are market leaders. This success prompted us to further expand into consumer wellness with products like AcneStar, HealthOK, Gas-O-Fast, which are also in a dominating position in the market. Our emphasis on consumer healthcare has elevated Mankind Pharma brand and established the company as a well-recognized household name.
While we entered the chronic segment in 2004, we introduced our specialty business for diabetes, cardiology, urology, neurology, and respiratory 4-5 years ago to further expand and strengthen our chronic portfolio. Additionally, we acquired Panacea Biotec's transplant and oncology portfolio, and have also partnered with leading MNCs for in-licensing of niche and complex products like Symbicort, now Inclisiran, Vonoprazan, Neptaz, etc. This move has bolstered our presence in high entry barrier segment and chronic therapies. Now, our acquisition of Bharat Serums will enable us to foray into the super specialty products, where entry barriers are very high and having complex and difficult to replicate products with less or low competition. Moving ahead, the key highlights for the quarterly performance.
During the quarter, we witnessed a steady revenue growth of 12% year-on-year, with EBITDA margin of 25.2%, adjusted for one-time cost and PAT margins of 19%. This quarter, we have generated a cash from our operations of INR 546 crore, with a cash flow from operations to EBITDA ratio of approximately 80%. As on June 30, 2024, we have a healthy net cash position of INR 3,747 crore. In terms of secondary sales, we continue to maintain our outperformance to IPM. I'm happy to highlight that now we are the second largest pharma company in terms of sales volume. This quarter, our volume growth was 1.9% versus 0.4% of IPM volume growth, indicating a strong outperformance to IPM.
Further, our chronic share has also increased by 120 basis points year-on-year to 37%. Our strategic collaborations have bolstered our market presence. For instance, we have launched Inclisiran, a patented injectable in-licensed from Novartis, with very high efficacy used for lowering hyperlipidemia. Mostly prescribed by super specialty doctors or KOL doctors, this product is priced above INR 1 lakh per injection and is positioned as one of the most premium products across our portfolio. Additionally, we've also in-licensed Vonoprazan from Takeda, used for acid-related disorders, including GERD. Our consumer healthcare business has shown recovery with sequential growth of 32%, driven by expansion in modern trade, enabling our key brands to maintain their leading position within their respective categories. Further, as part of our stockist consolidation, this is very important initiative.
In our consumer healthcare business, we have reduced the number of stockists by more than 60% from 6,500. Now, 1,900 stockists, as it is required for any OTC company to work, are contributing over 85% of our sales in consumer side. This will help us channelize our efforts, enhance productivity. As highlighted in the past, we are consistently delivering a high team EBITDA margins in this business. Revenue from exports are up by 62% year-on-year, driven by increase in our base business, supported by curated new launches. Being an innovative pharmaceutical company, our endeavor is to constantly innovate and develop differentiated products to cater to the unmet needs of the patients. To conclude, I extend my heartfelt gratitude to all of our stakeholders, and now I would like to re-invite Sheetal to provide more details on our business performance.
Good evening, everyone. Our domestic business revenue increased to INR 2,634 crore, up by 10% year-on-year, excluding OTC, in quarter one, financial year 2025. This growth was driven by an increase in volume and healthy growth in the chronic segment. According to IQVIA, we witnessed a steady secondary sales growth of 10.5% compared to 8.7% IPM growth, this representing an outperformance of 1.2 times. As you all know, we have been a volume-focused company. Our strong volume growth during the quarter led to an increase in our market share to 6.1%, up to 26 year-on-year. We are now the second-largest pharma company by volume in IPM, with 23 brand families, each having a revenue of INR 100 crore plus in May, June 2024.
In our chronic segment, we have registered a healthy growth of 15%, surpassing the IPM chronic growth by 1.3 times. Our anti-diabetic and cardiac therapies contributed significantly to this growth, with both segments registering robust growth rates of 21% and 15% respectively. This has resulted in an increase in market share to 5.1% for cardiac and 4.4% for anti-diabetic. In quarter one, financial year 25, we launched Symbicort range Turbuhaler, a world-renowned inhaler with higher efficacy. To further enhance and strengthen our respiratory portfolio, we have witnessed significant growth in its revenue. This aligns with our strategy to expand our presence in high-end, complex, and specialty products. Additionally, the acquisition of BSV strengthen our gynecology portfolio, catering to the entire women's health value chain.
BSV has one of the most comprehensive fertility drug portfolio globally, with a presence in 12 out of top 15 molecules. Together, we'll be ranked the number 1 pharmaceutical company with the highest market share in the gynecology segment. In quarter 1, financial year 2025, our Dydrogesterone portfolio has also registered a significant growth of 18% year-on-year, resulting in a market share improvement of 82 basis points to 22%. We aspire to be the most preferred choice for all gynecology-related trans- prescriptions. Moving ahead to our consumer healthcare business, during the quarter, we achieved a revenue of INR 206 crore, up by 32% quarter-on-quarter, as all our digital and other initiatives have largely been implemented. Despite increased competition, our targeted marketing campaign led to sustained leadership positioning of our key brands in their respective categories.
Our strategic new launch in the previous quarter, including OvaNews, which helps detect the most fertile period of conceiving, has growth potential similar to the Prega News. During the quarter, our export revenue increased by 62% year-on-year, propelled by an increase in our base business and new launches in the past 12-18 months. Our commitment to providing quality products to every citizen of the country has been recognized by the Quality Circle Forum of India, which awarded our API site in Behror, Rajasthan, with two gold awards. Additionally, our second manufacturing site received one gold and one silver award for CII Institute of Quality . We remain committed to fostering a healthier Bharat by innovating in the market and distinguishing ourselves from our competitors. I will now hand over to Ashutosh Ji, who will provide further updates on our financial performance. Thank you very much.
Yes. Thanks, Sheetal Ji. Good evening, everyone. It's great to have everyone here for our quarter one FY 2025 earnings call. Today, I will be giving insight into our financial performance for quarter one, FY 2025. During the quarter, we witnessed a steady growth of 12.2% in our revenue from operations, which increased to INR 2,893 crore as compared to INR 2,579 crore in Q1 FY 2024. Our gross margins have increased to 71.9%, up by 3.7% year-on-year from 68.2% in Q1 FY 2024. This increase is primarily driven by two factors. Firstly, there is a benefit of 1.5% going from sales price increase.
Secondly, a favorable sales mix of 0.6%, primarily driven by growth in chronic segment, and the balance, 1.6%, is towards external mix on account of input cost savings as well as certain operational efficiencies. During the quarter, we witnessed a moderate EBITDA growth of 4% with an EBITDA of INR 686 crores as compared to INR 660 crores in Q1 FY2024. This EBITDA margin decline of 190 basis points to 23.7% is due to higher expense base in this quarter. This is due to one-time M&A related expenses and other nonrecurring costs. If we adjust the EBITDA with the nonrecurring expenses, our adjusted EBITDA is INR 728 crores, and the adjusted EBITDA margin is 25.2%, which is in line with our guidance of 25%-26%.
The R&D expenses during the quarter were at INR 48 crore, which is 1.7% of revenue, and they are within our guidance of 2%-2.5% of sales. In terms of depreciation and amortization expenses, they have increased to INR 108 crore in Q1 FY 2025, from INR 87 crore in Q1 last year, due to Udaipur plant getting operationalized in Q2 FY 2024, and the impact of capitalization of completed projects in the previous three quarters. The effective tax rate for Q1 FY 2025 is close to 19%, which is in line with our FY 2024 ETR of 19%. The profit after tax increased to INR 543 crore, up by 10% year-on-year basis, with diluted EPS of INR 13.4 per share of rupee one paid.
The cash EPS, which is EPS adjusted for non-cash items like depreciation and amortization, was at INR 16.1. As you may be aware that we are in the process of separation of the Consumer Healthcare business, and the transaction was approved by the board of directors in its last board meeting, and we expect the transaction to get consummated by Q2 of FY 2025. Accordingly, we are disclosing the profitability of our Consumer Healthcare business. The operating profit of Consumer Healthcare business is close to 20%, which is in line with our earlier guidance of high teens operating margin. Our initiatives have started yielding results for the Consumer Healthcare business, and the same can be observed from the sequential revenue growth of 32% reported in Q1 FY 2025.
However, on year-on-year basis, the growth is flat because of certain carve-out adjustments in the revenue due to subsidization in the current quarter. If you remove those adjustments, then year-on-year growth is mid-single digit. Our consistent efforts to enhance our operational efficiency has led to net cash position of INR 3,747 crore as on thirtieth June 2024. The sustained operating working capital days of 45 days, which is in line with the operating working capital as at thirtieth June 2023 on trailing twelve months basis. The return on capital employed, excluding cash, remains consistent at 34% level as of thirtieth June 2024, as well as as at 31st March 2024, on a trailing twelve months basis.
The return on equity ex-cash remains consistent at 29% level as of 30th June 2024, as well as at 31st March 2024, on a trailing twelve months basis. Our CapEx spend for Q1 FY 2025 was INR 125 crore, which is approximately 4% of the total revenue, which is in line with our guidance of 5% of revenue, and we expect it to be at the same level. Even in FY 2024, we had a CapEx spend at 3.8% of the sales. For the fiscal 2025, we are retaining our guidance of EBITDA margin to be in the range of 25%-26%. With this, we conclude our opening remarks, and now we can proceed to Q&A. Thank you. Over to you, Abhishek.
We can start with Q&A.
Thank you very much. We will now begin the Q&A session. If anyone wishes to ask a question, they may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headsets while they're asking a question. Without further ado, gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Chintan Sheth from Girik Capital. Please go ahead.
Hello, am I audible?
A bit loud. Speak a bit loud.
Sure. Thank you for the opportunity, and, congratulations on the... One question on, on the, you know, oh, EBITDA margin, which you disclosed, adjusted EBITDA margin at 25.2%. If even if I, you know, adjust that, our other OpEx line item seems to be a little higher, both on YY and QMQ basis. If you look at adjusting that non-recurring expenses, our EBITDA, sorry, other OpEx as a percentage of sales comes to around 24.8% versus previous quarter it was, it was around 21.8% and 21.4%, respectively, YY and QMQ. So if you can just point out anything which is which led to a slight sharper increase in other OpExes.
Because it kind of marked whatever gross margin benefits which we got during the quarter, you know?
No, no, you are absolutely right in your assessment that, the benefit of gross margin is getting absorbed by the, by the EBITDA drop. And in this quarter, as if we compare it to the previous quarter, the expenses are high because there is a spike in this quarter as we have launched four new divisions, and a certain degree of investment has gone into, into the same. So that's why there is a bulge in the expenses, which is getting reflected in this quarter expenses.
Okay. But do we see this recurring over this over the fiscal FY 2025, or how whether it will normalize over the course of of FY 2025 or within the coming quarters?
So this will normalize over the coming quarters. The good part is that in spite of opening up of these four new divisions-
Mm-hmm.
If you see the PCPM of the company, that has not dropped, that has increased by 30,000. So which is at INR 6.8 lakhs, which was INR 6.5 lakh earlier.
Right.
So, we expect it to normalize in the coming quarters.
Sure. And second question was on the BSV, if you... I know we clarified around that. I just had a question on the ROCE, which you spoke during our previous interaction of the BSV division at around 15%-16% in FY 2024. If you can just clarify one part, is that given the reported margins are at 23%, is this the reported ROCE profile or assisted ROCE profile, if it's at the 20% EBITDA margin, which the business at the core generated?
Thanks, Chintan, for your question. That one is on the adjusted EBITDA margin, 15%-18%. The way to look at it is that we are at 30%+ ROCE.
Right.
You have to look at it when we consolidate with this asset, you have to look at the consolidated ROCE, how it pans out. So it would be upwards of 20%. And both the assets, we are expecting margin expansion, and more so with BSV, since we believe that it is not fully penetrated, not fully optimized, so we see a lot of juice there.
Right.
So when we see EBITDA margin and cash flow operations improving, your ROCs are bound to improve by 100-200 basis points at the basic level.
Right. Right. And lastly, if I may, and I'll jump back in queue. On the BSV deal as well, the enterprise value of INR 13,630, if you can provide what is the net debt or net cash from BSV at the time of acquisition or FY 2024?
So it is a very neutralized position, so, we will come back to more details when the closing happens. So we've just signed the agreement.
Right.
The details will come out when the closing happens.
Okay, sir. Okay, I will jump back in queue, and all the very best.
Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Hi, good evening, and thanks for the opportunity. Just continuing on the BSV debt, I think FY 2023, that the finance expense for them was really high. So I think it would be good if you can provide some detail as to what is sitting on their balance sheet and how is the CapEx for the BSV for FY 2024?
So I'll give you some color on the fiscal 2024 numbers. So if you see, we have given a number of around 28% adjusted. If you see the slide where we had added Mankind plus BSV, so INR 488 odd crores, leading to 28% ± margins. So assuming 70%+ will be the cash flow conversion, you can do the math.
So-
Let me clarify, Kunal. Okay. So because it's basically from the transaction structure, because Advent has done it was the CCD structure which was there. So because of that, this interest is getting reflected, but as the transaction will get consummated, everything is going to get converted into it. So that was more of internal debt repayment to the parent. That's why this interest spike is getting reflected.
Sure. Sure. So that, that's, that will reverse from 3 kind of 2. Okay. Okay, got it.
Yeah.
I think that was mentioned, right? That the callable bonds, et cetera, what is there in the balance sheet at some point. Would that have-
Can you speak louder, please?
... That structure has it changed drastically in FY 2024, or whatever we see in FY 2023 is what kind of continued and, you know, we will change it once we acquire it completely?
Once we acquire, the whole structure is going to get converted into equity, and those equity will be acquired by us.
Okay. Okay, perfect.
It will be a plain, simple vanilla, yeah, buyout.
Sure, sure, sure. And, and one more question I had, you know, since we have seen good traction in, chronic therapies now, we are almost at par with the market, level penetration in terms of chronic, right? Market is at 38%, we are at 37. Would you be able to quantify the, you know, kind of EBITDA margin difference between our chronic business versus the acute business now?
Oh, no. So it's basically a mixed up, Kunal, We don't track EBITDA. We only track it at the particular level, but not at the EBITDA level, the acute versus chronic, because in some of the divisions, MR is promoting both the products, so it's difficult to do a segmentation at that level.
It's fair to assume that obviously the gross margins are much higher in chronic.
Correct. Correct. And what that difference would be in the gross margin between chronic and acute for me?
It has increased up to 15% now, yeah.
Despite we launching the DMF grade API, et cetera?
Yeah.
Sure. And on the DMF grade API, I think we had a plan to launch around 1,200 SKUs, and we had done some 325, maybe till last quarter. So where are we on that now?
Last quarter we have announced that we have done approx 150 DMF filings. This quarter we are close to 160.
Okay. Sir, in terms of SKUs, how would it move? Because there will be multiple SKUs, right?
We are not splitting by SKUs.
Sure, sure. And the last one, if I may, you know, we have done a lot of in-licensing deals, right, starting with Neptaz, et cetera. What would be the contribution of these in-license products for us, over the last twelve months? A rough number is fine, don't need exact.
See, the first one happened in 2020 to 2023, so the contribution has just started. The idea is to get the foot in the door of the specialty doctors. The sales are growing at 30%-40% or even more, but it is on a small base. But it gives a lot of synergy benefits of our core portfolio also, so you have to see that in entirety. But coming back to your question, on a small base, it is still growing at 30%-40% plus.
Okay, but it is fair to assume it will be single digit contribution as of now?
Not even a 1%.
Well, it is fairly less at the moment, and it will not be a correct reflection of that, because these in-licensing deals have been done at a different point of time. So they have not been for the whole year, so that the real basis can be drawn from or inference can be drawn from the same. So maybe after a year or so, it would be in a position, but at this stage it will not give the correct reflection of things.
So major reason of these in-license deals basically is what advantage to Mankind is, we get, I mean, intangible hike in reputation.
Mm-hmm.
of Mankind, one, and wherever we basically our endeavor were to really enter those high-end doctors, high-end hospitals, we get welcome over there, foot in the door.
Mm.
That's a major thing.
Mm-hmm.
That's the reason, I mean, And, we basically want to enter difficult to make or high entry barrier or in-license, where instead of 30, 40 competitors, we have 2, 3 competitors. So we just want to enter that market and attain some kind of a, I mean, position over there, because tomorrow, more, more products will come.
Mm-hmm.
It's like acclimatizing yourself, your field, for that kind of an environment.
Sure, sure. So that then you can cross-sell your existing portfolio, which is anyway high margin and can bring that synergies, right?
Yes.
Sure, sure. Thank you, sir, and all the best.
Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my question. Actually, sir, Ashutosh sir, on the gross margin, most of the factors that you mentioned, you know, sales mix can change, seemed very sticky. But, you know, obviously, I understand there is seasonality in the business. Adjusted for that, is it fair to assume that this level of gross margin is sustainable for Mankind?
That's a good question, Neha. So, we would say that 70% would be the, would be the fair assumption, to assume it around 70% level, because 1.6, which is, which is coming from the input cost savings, that's a timing difference, which could... It, it's, it's not in our control, to be honest.
Mm-hmm.
Because of the capacity utilization and all, so this time the margin is higher. But from the sustainability point of view, we are more confident or comfortable with 70% gross margin level.
So Neha, just to add, if you're doing some modeling purpose, you know, 70% is good, but at the same time, as one of the participants asked on the cost side, so we do expect costs to normalize. So you will see the cost-
Yes.
going down, and there's a corresponding effect on the EBITDA.
...No, no, that, that is understood. I was just trying to get clarification because the margins had improved so much, so I just wanted to get a sense there. My second question, you know, on the BSV deal, the 16% growth that we had mentioned, right? Adjusted for their acquisition and COVID, if you were to break that up between international business and domestic, what would be, you know, the growth, let's say, in the domestic business and international? Because I think the international growth that you've mentioned is in constant currency, but on a reported basis, what would that growth be?
Yeah. So we have given a growth of around 17%, that would be India, 16%-17%, and 25%+ is around 25% in constant currency is the growth for international business.
The reported is also in the same range?
Reported is actually a tad better.
Oh, it's a tad better. Okay.
Because of the TTK acquisition, it is a tad better.
No, no. So, the 17% - the 16% growth is excluding TTK, right?
It's actually 17% pro forma. So on that, there's about 9% volume, 6%-7% price, 1%-2%... 1% here and there. So new product is about 1%-2%. So it's, it's not 16, it's 17%. And, pro forma growth that we had given in the, presentation pack is 21%.
Okay. Okay, got it. Thank you so much.
Thank you. Ladies and gentlemen, before we take the next question, we would like to remind participants that you may press star and 1 to ask a question. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Sir, rather so first at the industry level, we are seeing this volume growth is remaining quite muted. Even FY 23, hardly 0%, even FY 24, 0.9%, or even FY 25 to be, like, 0.9%. So, this shift towards trade generics, you know, so will that sort of, you know, further reduce the overall industry growth for next, let's say, 3-4 years? If you could, you know, share some comment on this.
See, I mean, it's a mixture of things. One basically is that, seasonality also plays a role, because whatever unit growth comes, there is always a contribution of antibiotics or acute side of the business as well. Yes, you're right as well. I mean, some kind of a stress is there from generic kind of a players as well. It's a mixture of things.
Yeah, just to add-
There is one more issue which we need to take into account, that 6% contribution of Modern Trade is not being captured by IQVIA. That is why there is under-reflection of volume growth as per IQVIA is concerned.
No, no. So I, I meant to refer the prescription side of the overall market. So there, we see growth, you know, is getting much more moderated to, you know, the way it is. Like, it seems over the next 3-4 years, it could go down to 6% or so.
If you try, try to understand one more thing, that wherever prescription comes from the hospital, it is not being maybe tracked. And one more thing is there, that hospital side, patients are more than general practitioners. I mean, wherever you see, you go to a hospital, you find more patients. Otherwise, in normal clinics, when season comes, then you see good number of patients. That is also an impact.
Understood, sir. So can we, as far as the metro tier one share is concerned for Mankind, you know, despite good number of niche product being, you know, added, the chronic share being rising, the metro tier one share is remaining stable for last two, three years. So, just to, you know, understand if I'm missing maybe.
See, our metro and Class One share is around 53%.
Fifty-three percent.
53, 53%, yeah.
Yeah. So there is still scope for improvement. The good thing is that both metro town one, we are growing at much better pace as compared to IPM growth. So we are bridging the gap between IPM contribution of metro and Class One and Mankind.
Tushar, if you see last four years growth of metro, IPM is close to 10%-12%, but IPM growth is somewhere in the range of 11%-20% for metros, for Mankind metro.
How much is it for Mankind?
Presentation. For Mankind, it's in the range of 11%-20%. You can refer last quarter presentation, where we have highlighted that our metro share has increased from 51%-55% in last four years.
Okay. Thank you.
Products metro share.
Okay. Thank you. That is fine. Thank you.
Thank you. The next question is on the line of Sumit Joshi from SK Finance. Please go ahead.
Hello, sir, can you hear me?
Yes, Sumit. Hello. Okay.
Yes, we can hear you.
Yeah, yeah, yeah. Sir, I'm just asking a very high-level question. Maybe from a two to three years, where we want to grow our product strategy right after the acquisition. Is there, is there something in the picture which we are planning that you can give some guidance that will help me to understand better?
See, I mean, the big picture basically is what, look at the history of Mankind, five points were there always in our head. First was bottom-up approach, second was our OTC business, third was making Mankind brand a household brand. Next was chronic side. After that, we entered into super specialty, and then now super specialty. So it's like, I mean, completing the pyramid, coming to the high end of the pyramid, and ensuring that, we are in every side of the pharma market and, growing at the fastest pace. And hopefully, I mean, we will do fantastic, because going forward, as number of times these questions keep coming that, there is stress because of generic rate.
Because what we basically see generally, whenever you bring some product, or one product which basically comes out of patent, 40, 50, 100 competitors come immediately. And our intentions of taking this BSV is what? That we should be in complex business, we should be difficult to make products, we should be in high entry barrier products, where advantage is either you are alone, either you have some kind of a monopoly or one or two competitors, that's plus side. You can command the prices. We have more EBITDA margin. That basically is our hopes. Keeping those planning in mind, we have just acquired this company. And what we basically hope, we have said a number of times, this business will multiply in coming future.
Okay. Thank you.
We are very, very happy and confident that this is a fantastic buying of Mankind. I mean, nothing can be better than this one, because everything fits very, very well in Mankind. Look from any angle, every corner, whether the consumer side, I mean, Ossopan or Lactare , whether it's a patent product, Anti-D, high entry barrier, whether we look at this, Thymogam, again, 100% market share. From antibiotics, we have 98% share, or in this infertility, we have one or two competitors. It's an amazing, amazing kind of a... We feel, I mean, we've done a fantastic job by acquiring this. Absolutely confident and we're sure about this business.
Yeah. Thank you. Thank you so much, and wish you all all the best, and we are always a proud shareholder of Mankind. So, yeah, thank you. Thank you so much.
Thank you.
Thank you. Participants who wish to ask questions, please press star and one at this time. The next question is from the line of Nikunj Doshi from Bay Capital. Please go ahead.
Yeah, thank you for the opportunity. Just one question, are we expecting any more merger-related costs in the next quarters?
Yeah. So the transaction has started in a way, at the end of the last quarter. So we have, so there will be certain merger-related costs, which will be coming in Q2 as well.
So just to be clear, Nikunj, the cost that you are seeing in Q1 is related to the transaction that we saw in Q1.
Okay. Okay. So this, larger transaction what we are doing, that, that will, will be further,
That will be in Q2. Yeah.
Yeah. Oh, okay. Okay. Yeah. Thank you very much.
Yeah, and-
Thank you. The next question is a follow-up question from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for the opportunity again. Just on this, you know, the BSV growth split between India and international, I probably misunderstood it. Total growth is 16% adjusted for the acquisition, and then we are seeing India grew at 16% and international was better than 25%. So by I-
If you see the presentation, we have given a 21% CAGR growth. We are giving a split of India and international, which is India is 17%, and international is 25% dollar term growth.
Okay. 21% is not adjusted for TTK. TTK is more in the international bucket.
No, no, TTK is a domestic business.
Okay.
So what has happened is, while we are giving pro forma numbers, there is a volatility due to the COVID-related products and the TTK-related products. So we have neutralized that. If you see on a reported like-to-like basis, growth is actually 24%. But we wanted to give pro forma numbers for the right reflection for future. Does that help?
But, no, but the COVID would have also positively impacted, right, during the initial phase?
No, no, but then there are spikes, and there are peaks and valleys, right? So one year you will see a spike, then other year it will go down. So we have removed the volatility.
But in CAGR, you will only look at the first and the last year, right? The spike will not be-
Yeah, so 21 will be higher, right, because of the COVID year?
Correct. 2021 also there were lockdowns. So yeah, difficult to understand. Can you help us with a slightly larger, you know, longer term growth rate for the BSV?
So we have called out that the growth will be in the region of 15%-20%, is what we believe. It can be even better. I mean, this is our initial assessment. And we have also called out that we look at margins around 30%+, and to improve year-on-year.
If you look at the audited reported CAGR, that is 23%, and the adjusted is 21%, adjustment for the COVID.
Okay. Mm-hmm, mm-hmm. One question on the overall market. You know, in response to your previous, you know, answer, you said that 6% of the modern trade is not getting reflected in IQVIA. My question is, how fast that 6% is growing? And, you know, since it is not getting reflected, what are we missing, you know, from the IPM growth? And what is our exposure to that modern trade channel now? I think we had a good quarter, a couple of quarters back or something with... So are we, like, now, you know, under index, over index, or, you know, we are properly indexed with respect to that 6% of the market?
So, as per my understanding, 6% contribution comes in IPM from modern trade. That is having growth that there is no channel to give us the correct growth. But as per different sources, the growth comes to around 15%. So as per Mankind is concerned, our contribution from modern trade is around 4%.
4%. So still there is scope for us to kind of spend more, integrate more in that channel. Sure, sure. And, you know, one question on the Panacea acquisition that we had done, right? How is that, you know, now, it is some time that we have been with this business. How has that kind of grown? What we have seen in terms of, you know, the improvements in terms of, in terms of profitability, any synergies that we have seen, if you can, you know, provide some update there, it would be good.
So Panacea business is really, I mean, planned very, very well. On one side, again, super specialty business. When we acquired Panacea, the thoughts were same, absolutely same kind of thoughts. Transplant business, super specialty, difficult to enter, one, that is doing very good. Gliclazide, anti-diabetes, are more than 100 INR brand now. And, apart from this, Sitcom, is this patent product that we acquired. So all in all, Panacea business must be growing at a pace of 20-25% right now.
Thirty-three percent.
Thirty-three percent.
30%+. In terms of profitability also, even though Panacea has been fully submerged into all the divisions wherever there was synergies were there. But on a very broad basis, the EBITDA margin is also close to 30% coming out of that, the products of Panacea.
If you extrapolate Panacea by many times, this would be Bharat Serum, even better.
Yeah.
And we remember very well when Panacea was acquired, I mean, people were saying it's expensive, this and that, but we knew our business.
Okay. Sure, sure, sir. Thank you on that. And one for Ashutoshji. On the R&D expense, you know, it seems lower for this quarter, right? So do we expect to ramp up, or, do we see that, you know, R&D expense overall would be more or less flat for FY 2025 over FY 2024, randomly?
Yeah. So we would like to retain the guidance of close to 2%, because R&D is mainly driven from some of the project-related and the testing-related expenses. So there are some times some spikes here and there, but by and large, as a rule of thumb, expect it to be around 2% level.
So it should see similar growth as to our top line, more or less, in FY 25. Last year was 2.2%, I guess, so.
Yeah, so this time also it will be in, in that vicinity only.
Sure, sir. Sure. Thank you, and all the best.
Thank you. A reminder to the participants that you may press star and one to ask a question. The next question is from the line of Prashant Kothari from Pictet Asset Management. Please go ahead.
Hey, sir. Thank you for the opportunity to ask questions. The first question is on this BSV acquisition itself. In terms of funding for it, I understand you have not kind of properly finalized. But just looking at the overall numbers, it seems that if you were to apply that discipline of 2x net debt to EBITDA, if you were to just kind of wait until the FY 2026 end, then you would already be kind of in that limit, even if you don't dilute. So just wanting to understand how you're kind of thinking about need for equity dilution versus maybe waiting a bit so that it's not needed actually?
Yeah. So, the broad maths could be thought like this, that we are looking to fund this, as Rajeevji mentioned on the Friday call, that around INR 4,000 crore could be used, approximately for, from the internal accruals. So we are... From the remaining, the majority, would be a mix of debt and equity, and the majority would be debt. But, we believe, since, we've always been conservative company, there will be a requirement of equity, which could be the, in the region of about 30%.
Right. INR 4,000 crore internal accruals we'll have in the next two years, plus you have INR 3,500 crore of net cash.
So by around closing, we would be having that kind of cash. So we would be using that cash to pay upfront, that's one. The remaining that we are required to pay, which will be a mix of debt and equity, majority will be by debt. Given the cash flows that we have, we believe that we'll be able to take majority of it as debt. But since we want to have a, you know, a lighter balance sheet, we don't want to leverage significantly. And as per our guidance of debt to EBITDA of not exceeding 2x, we think that we would be looking at ±30% of equity risk, and that would be around closing.
Okay, okay. So the EBITDA you're looking for that calculation is of FY 2025 itself?
Can you repeat?
On a combined basis. The EBITDA that you're using for that calculating that two times-
On a conservative basis, we have calculated, so obviously a business could give a bit better returns, but these, these assumptions are based on conservative estimates of Mankind as well as BSV.
Understood. Understood. And so the second question was on market growth differential between the kind of metro Tier-1 versus the rest, more rural. What's the differential these days? Has it changed versus the past?
So, if we talk about, IPM versus Mankind, so Q on Q basis, quarter Q basis, rural has, as per IPM, has grown by 6.7%. Mankind is growing by 10.3%. And Town 1 is growing by 10.4%, as per IPM is concerned, and Mankind is growing by 12.7%. Metro and Town 1, in total, is growing by 9.3%, as per IPM is concerned, and Mankind is growing by 10.6%.
So rural, as per IPM, is growing the slowest. Why is that happening? And is it just recent or that has been the trend in last few quarters also?
So FY 2024 as well, rural has shown a growth of 5.9%. So this quarter has been better as per FY 2024 is concerned.
Yeah, but, it is growing slower versus the overall market. So just trying to understand what is happening there, in terms of the overall pharma sales. Not for you, but for the industry.
Okay. So rural markets usually—the growth you see whenever season, there's a seasonal impact, because rural market is all about acute segment rather than chronic. So last year, the acute season came very late in the month of October only. That is why we had muted performance of acute segment overall in the year, and it impacted the rural growth.
Prashant, if I can add, so if you see the number of doctors who are available, the number of chronic diseases which are growing faster than the market and acute, is happening more so in the metro and Tier-1 cities. So the growth share in metros and Tier-1 is higher versus rural.
Okay. Which is what I was trying to kind of think of, whether it is that the companies are not making enough efforts, or is it just about the doctor population, wherever they grow, the market grows? How should I kind of-
Again, Prashant, India is a land of many cities, towns. Rural is like rural, and then, above rural, it would be again segmented into three sub-buckets. So what... The first bucket is Metro and Town 1. The second bucket is Town 1 and Town 2, which is Tier 1 and Tier 2 cities. And then there's a third bucket above rural, which is Town 2 to Town 4. So this is split again, you know, into four big buckets, and rural is a part of it. So Metro and Tier 1 is totally where everybody is really focused on. And I think we, as Rajeevji mentioned, we have always gone bottoms up. So we started with actually not rural, but, Town 2 to Town 4, and then we have picked to Tier 1 cities and now Metro and, Tier 1. So it is bottom-up for us.
And to add to Prakash's point, because of the lifestyle changes, the chronic diseases are more prevalent. And because of the hygiene, people in rural area, people are more aware about hygiene, cleanliness, right? So that's why acute is growing less, and people are-- That is you've seen the growth of chronic more, even in more, even in IPM also.
Interesting. Sir, just the last question: Of our growth, how much is pricing?
Sorry?
How much growth because of?
Pricing is 5.8%. Our volume growth is 1.9%. And growth because of price increase is 5.8%, and growth because of new products is 2.7%.
Fantastic. Thank you very much, sir.
Thank you. The next question is from the line of Gagan Thareja from ASK Investment Managers . Please go ahead.
Yeah, good evening. Sir, I have one question, pertaining to, you know, the split of the acquired asset value of BSV into fixed tangible assets, intangibles and goodwill. If you could give a broad, rough split, that would be very helpful.
So, yeah, Gagan, so this is an extensive exercise which will be carried out at the time of closing and after closing. But just to give you a sense, since it's a high entry barrier and a niche asset, the majority of the allocation will be towards the intangible side. Close to around 60%-70% would be the portion which may get allocated towards the intangibles.
So when you say intangibles, I mean, because, you know, intangibles would include patents, trademarks, plus goodwill, like, I'm presuming that is how it is. So, you know, from, from the perspective of depreciation and amortization, it's, it's going to be, trademarks and, and patents, you know, which will be amortized. Goodwill will not figure there. So I'm just trying to understand that, step further down.
Correct. So goodwill will not be getting amortized, but intangibles in terms of technical know-how, trade, brands which are coming with this, and plus some other intangibles will also come, customer relationship, et cetera. So all those things will be getting amortized over a period. So how much will that period be, and the exact quantum of that intangible, that is subject to expert valuation. But from the broad indicative point of view, it will be closer to 60% odd, the intangibles, and the balance would be towards the goodwill. But this number may get highly likely to get changed once the proper PPE exercise is carried out by the experts.
Right. Rajeev sir, you, I think in, in, in your interview to Business Standard have indicated that BSV sales could touch INR 5,000 crore sort of mark in the next three to four years. You know, it would... You know, to, to whatever degree possible, would you be able to explain, you know, how you think you can bring this about? What, what could be the broad contours of the strategy, here?
Sometimes, I mean, journalists are also very, very enthusiastic. They, they basically add some kind of flavor. I mean, the expectations are very, very high from this company. I said basically even 4, 5 years, maybe I mean even down 3, 4 years. Understand the point, in some of the categories, there is no competition. Just example, and is one product which, in India, approximately 5%-7% ladies who want to be mother are Rh negative, right? And that is approximately 90 lakh to 1.2 crore. But how many injections are being sold right now? 9 lakh. So right now, the coverage, penetration is only 10%. If we increase the penetration to 20%, the market can grow double to 30% more.
It's a matter of just propagating it, a matter of just making sure that people have this kind of a knowledge. Just an example. And they have a patent on this product till 2028. And also, I mean, in a number of countries, other countries as well, same is the situation. So this company comes with very high entry value products, one. The second basically is what? Just look around yourself, which particular segment is growing fastest? Infertility. You go in bigger towns, smaller towns, every place, every gynecologist wants to open a fertility clinic. That is one area which is growing very, very fast because of urbanization, because of women empowerment, because of late marriages. A lot of reasons are there, right? So you see, from any angle, I mean, this company has all the plus side.
Scale wins are also its complexities are there, difficult to make products are there, patent products are there. So this way, we expect, I know this company can grow a lot. Very, very, very, very optimistic about that.
So thanks. That's all from my side. I'll get back in with you. Thank you.
Thank you. The next question is a follow-up question from the line of Chintan Sheth from Girik Capital. Please go ahead.
Yes, sir. Thank you for the opportunity once again. On the export side, if you look at the growth has been pretty as well on a high base, do you see the run rate of the current quarter can sustain? Or do you see as quarter progresses, we will see some softness, at least the rate of growth can taper a bit low going forward? How do you see the exports panning out?
See, because of the low base last year quarter, so growth is high, staying high in this quarter. But as always maintained in the commentary, that Mankind business will mostly focus in domestic. Almost 90% plus business will be of domestic only.
Mm-hmm, mm-hmm. Okay, but at a 15, mid-teen growth, which we gave, that is what, we should work with.
No, I think that the growth will continue. For in export side, the growth quarter-on-quarter will continue, as what has been guided so far.
Okay. And, one clarification you mentioned on the deal, 30% equity is, is, on the, on the deal side, the 30% figure is mentioned sometimes in the previous commentary.
Can you repeat your question?
On the BSV deal side, you mentioned something around 30% figure for the equity part, the fresh equity part. Is that correct understanding?
No, somebody had asked the question around, how would the funding look like? Because everything is subject to closing. So I was-
Right.
You know, we, we have received many calls and emails from analysts trying to understand for modeling purpose...
Right.
how to think about it of the asset. We are just little bit, you know, modeling ourselves.
Right.
That around INR 4,000 crore, approximately INR 4,000 crore would be funded through internal accruals. That is the cash that we would have in the books-
Right
... by the time the closing happens.
Right.
Okay, the remaining would be a mix of debt and equity.
Okay. Of debt, it will be 30%.
Majority will be debt, and the remaining, which we believe could be done with around 30%.
Okay.
Again, this could be changed subject to closing, but this is our initial assessment.
Right, right, right. Okay, cool. Got it, got it. Thank you, thank you, and on the benefits.
Okay, thank you.
That was the last question for the day. I now hand the conference over to the management for closing comments.
Thank you, and please, feel free to write to us for any further clarification or information. Have a nice day.
On behalf of Mankind Pharma, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.