Ladies and gentlemen, good day, and welcome to Marksans Pharma 3Q FY 2024 conference call hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Binoy Pathiparampil from Elara Securities Private Limited. Thank you, and over to you, sir.
Hi. Thank you, Alisha. Very good afternoon to all of you. This is Dr. Binoy Pathiparampil from Elara Securities. I welcome you all to the quarter three FY 2024 earnings conference call of Marksans Pharma. Today, we have with us on the call, Mark Saldanha, founder and Managing Director, and Jitendra Sharma, Chief Financial Officer. I hand over the call to the management for opening remarks. After that, we will have a Q&A session. Over to you, Mark and Jitendra.
Thank you, Dr. Binoy. Welcome, everyone, and thank you for joining us in our Q3 and nine-month FY 2024 earnings conference call. We appreciate your continuous interest and support for the company. I'm delighted to announce yet another robust quarter, reflecting our dedication to consistently deliver superior performance and create value for all our stakeholders. Our revenue expanded by 22% year-on-year, primarily driven by the market share expansion and new product launches. We saw consistent improvements in margin profile with an EBITDA margin of 22.7% in Q3, led by operating leverage, consistent cost optimization initiatives, and a reduction in raw material cost. Our net operating cash flow for nine months stood at INR 169 crore, driven by an improved EBITDA margin and better collection. Moving on to operational environment.
During the quarter, we saw improved volume growth across all our key markets, especially from the US. A moderate price erosion of our Rx products were observed. A reduction in a few key raw materials prices continued compared to the last year, thereby improving our gross margin. However, we experienced a surge in freight expenses due to recent Red Sea disruptions. We are taking initiatives to ensure that our supply chain remains intact and on track. Talking about our strategic initiatives, the infrastructure expansion from our newly acquired Goa plant is in progress and going at a good pace. We basically had broken this into two phases.
Phase one was to try to achieve over 3.6 billion units per annum, and we believe by next month, March, we'll be trending towards that objective. Obviously, phase two, we anticipate towards the middle or end of next financial year, where we will be targeting over 6 billion tablets per annum. We expect to scale capacity from our new facility to cater to the incremental opportunities we see in different geographies. Building on our momentum and in continuation to our last conference call discussion, we have initiated the filing of our first DMF, and we plan to file a second DMF within this quarter, which is a step towards backward integration as we continue to strengthen our pipeline.
Looking ahead, our priorities remain focused on driving sustainable growth, maintaining balance sheet discipline, and pursuing strategic opportunities that align with our long-term vision. With this, I'd like to turn it over to Jitendra, who will update you on the financial, and then we can start our Q&A.
Thank you, sir. For Q3 of FY 2024, our operating revenue was at INR 586 crores, an increase of 22% compared to INR 479 crores in the same quarter last year. The U.S. and North America was at 257 crores, representing an 18% increase year-on-year. U.K. and E.U. formulation markets grew by 34% year-on-year to INR 251 crores on account of new launches and incremental market share. Australia and New Zealand combination market recorded revenue of 48.6 crores, and the rest of the world recorded sales of INR 29.1 crores in Q3 of FY 2024. Gross profit was at INR 313 crores, up 30.45% year-on-year.
Gross margin increased by 336 basis points, from 50.1% to 53.5% in Q3 of FY 2024. EBITDA for the quarter was at INR 133 crore, an increase of 73.6% year-on-year, and an increase of 16.8% on quarter-on-quarter basis. EBITDA margin for the quarter was at 22.7%. Improvements in margin is majorly led by reduction in raw material prices compared to last year, operating leverage and cost optimization initiatives. Profit after tax was at INR 83 crore, an increase of 33.2% year-on-year, and a decrease of 1.1% on a quarter-on-quarter basis. A decrease in quarter-on-quarter profit is primarily due to decrease in other income, which has led to other provision of MTM loss in foreign exchange.
The EPS for the quarter was at INR 1.84. Talking about 9-month financial performance. For the 9 months of FY 2024, our operating revenue was at INR 1,678 crore, an increase of 18.4% compared with INR 1,366 crore in the same period last year. The U.S. and North America was at INR 673 crore, representing 15.8% increase year-on-year basis. U.K. and E.U. formulation market grew by 26.5% year-on-year to INR 710 crore. Australia and New Zealand formulation market recorded revenue of INR 155 crore, an increase of 6.4%. The rest of the world recorded sales of INR 78.5 crore in the 9 months of FY 2024.
The gross profit for the period was INR 849 crores, up 23.3% year-on-year. Gross margin increased by 209 basis points, from 50.4% to 52.5% in nine months of FY 2024. EBITDA for the period was at INR 348.9 crores, an increase of 51.9% year-on-year. EBITDA margin stood at 21.6%. Profit after tax was at INR 237.3 crores, compared to INR 182.6 crores in nine months of FY 2023, a growth of 29.9%. Growth is attributed to improved EBITDA. However, there is an increase in tax rate in UK from 19% last year to 25% in the current year. EPS for the nine months was at INR 5.2.
In nine months of FY 2024, the net cash from operations is at INR 169 crores, and the free cash flow is at INR 8.4 crores. The CapEx incurred during the period was INR 160.6 crores. The investment is in line with our plan for scaling up acquired manufacturing unit from Teva Pharma in Goa, which will drive our future growth. We spent INR 29.4 crore in R&D, which amounts to 1.8% of the sales. We continue to remain debt-free and had a total of INR 688 crores of cash as of 31 December 2023. With this, I would like to open the floor to questions and answers. Thank you very much.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their headset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Viraj from Monarch Networth Capital. Please go ahead.
Hi, Mark, Jitendra. Congratulations. Fantastic outcome for the quarter. I had a question regarding the FDA facility status of the Goa plant based on the last observation, and also whether all investments in the Teva plant are now complete.
So obviously, based on our last observation, which is we already have our EIR status on. We received the EIR report on that, so that audit was closed. And with regards to the CapEx for Teva, we have not completed the full CapEx yet, and it will just spill over to next financial year, the CapEx.
Okay. My second question is, it looks like you'll do INR 2,200 odd crores of top line for FY 2024. Can you guide us towards what is likely to be the targeted top line for FY 2025 during ramp up to ramp up of Teva plant?
I would like to give a slightly longer outlook than just 12 months. But obviously, our first target was to cross INR 2,000 crore, which you rightly said, we are trending way above that target of INR 2,000 crore. We have set out a target to come very close to the next... Our next target is INR 3,000 crore within the next two years. So we are working towards trying to achieve that objective.
Right. Okay. All the very best. Congratulations.
Thank you very much.
Thank you. Our next question is from the line of Akshay from Green Portfolio. Please go ahead. Hello, Akshay sir. The line from Akshay sir has been disconnected. Our next question is from the line of Harshit Sharma from MNP Investments. Please go ahead.
Hi, thank you for taking my questions, and, congratulations on a good set of results for the quarter, sir. My question is, you know, what is the likely utilization of net cash, and how much is expected to be spent for R&D and CapEx in the coming years?
So, I think our R&D will trend slightly, we will probably touch two and probably cross slightly over two. In CapEx, obviously, like I mentioned, we have to complete the CapEx of what we spoke of INR 200 odd crores, for the Teva plant, and we have not yet infused that part of the CapEx to complete, you know, our projects.
... We have achieved our first objective, and by March, like I said, we should be able to achieve nearly very close to 300 million tablets, which is, with the run rate of that is nearly 3.6 billion tablets per annum. So that is our first - that was our first target that we had set out when we acquired the plant, and we started infusing the CapEx for that plant. So we still have a fair amount of CapEx to be done in our plant to get it to the second phase. With regards to your first question,
The utilization of cash. So, we definitely are looking at expanding our presence geographically. We are looking at, you know, spreading our business in E.U. So we have earmarked some amount for that. And definitely the CapEx will continue in the next year also. So far as manufacturing facility is concerned, we do plan to have some CapEx in our U.S. and U.K. facilities also. So broadly, the amount will be utilized in growth-related avenues in coming years.
Sure, that helps. My, my other question is on the top line, specific to the US region. Just wanted to understand the drivers of double-digit increase in sales from the US region. So if you could just help us with that. Thanks.
Yeah, sorry, you, you wanted to know about the U.S. sales?
So I just wanted to understand the drivers behind the double-digit increase seen from the US region in terms of sales. So yeah.
Well, it's, it's obviously some new product launches. It is, getting more, bigger market share, penetrating into the market. You know, getting some new clients on board. So, so our product portfolio, besides expanding our product portfolio, we are also getting traction on, onto our, our core strength of products, which historically are maturing and growing and getting, bigger market share in, in some retailers. So that's, that's our growth driver in the US. I mean, the, our US market is huge. This is just the tip of the iceberg. So, I think, double digits on a low base, is, is the least we could do.
Thank you, sir. I'll get back in the queue for more questions.
Thank you. Our next question is from the line of Tarun Agrawal from Old Bridge Capital Management. Please go ahead.
Hi, good evening. Am I audible?
Yeah, you're audible.
Hi, good evening, guys. Congrats on an extremely strong set of numbers. Just a couple of questions. One, you know, the gross margin levels that we're seeing in Q3, in your view, are they sustainable, or there are some one-off advantages that you have right now? Second, you know, if I look at the nine months that have gone by, Europe on a constant currency basis has done exceedingly well. So is there anything specific that's working in your favor in UK or, you know, it's just a function of market dynamics?
Well, in UK, in UK, basically, it's a product portfolio, product mix, and new product launches which are driving growth or TAM of PCM there. It's a mature market for us, so obviously with new product launches, it's relatively easier for us to get market share and market penetration into various accounts. In the gross numbers, I do believe, we sustainability is a huge possibility. I do believe, there is no one-off, so I do believe, we should be able to maintain that gross margin part of it.
Okay. Sorry to bring it up again, but, I mean, what is the CapEx number that we are looking at, FY 2021 and FY 2025?
Tarun, this is Jitendra here. We have invested INR 160 crores already in the first nine months, and I think by the end of March, we should be crossing INR 200 crores in terms of CapEx. This includes the Teva acquisition costs also. We are doing a lot of CapEx in our other manufacturing facilities also. I think, over a period of two years, current year and next year, our overall CapEx will be between INR 250 crores and INR 300 crores.
You mean FY 24 and FY 25 together, correct?
Yes.
Okay. Thank you.
Thank you.
Thank you. Our next question is from the line of Nitin Agrawal from DAM Capital. Please go ahead.
Hi, thanks for taking the question. I might just sort of going back to the same earlier question around what has really worked for us in Europe this year. Is it largely new product launches or just increased market shares or... I mean, something if you have almost like a 30% CAGR growth or 30% YY growth in Europe, in UK, this quarter, this year, and how do you see you know we growing from this base in the UK going forward?
So I see our growth being quite robust, Nitin. It will continue being robust in UK for the next couple of years. Again, sheer strength of our product pipeline and product launches that have been client planned. We've been filing them for quite some time, so we've been investing on all the filings, everything of that sort. So obviously, you know, product launches are happening on a quarter-to-quarter basis, and we are able to penetrate. But it's also the product mix, which is basically also giving that growth in terms of that specific market. And products that were not able to penetrate into certain accounts, we've actually broken into those accounts.
So it's a bit of that, you know, over time, you, you mature to the level where your service, defines your capabilities and, and, you know, you get, better traction into, certain accounts with a larger product portfolio than historically what you were holding. So it's a combination of both, which has seen us, gain that, gain that, market share, as well as, the revenue generation and the, and the percentage of growth. I do believe in the, in the coming years also, we should be able to grow at a very healthy pace, double digits in, UK, because of, again, our, sheer strength of product pipeline.
And Mark, on the product pipeline aspect, I mean, the products that you're launching now, if you can qualitatively give us a sense on, I mean, what is the qualitatively? I mean, are these more profitable products, more complex products? Any nature, difference in the nature of products that you're looking to file or launch, in the coming years versus what you've done in the past?
Yeah, I mean, these products are a little niche products, high-value products, great bottom lines. They are not, they will not be driving the top line, but as a basket collectively, the top line will basically grow. We have also. We are planning nearly 34 product new filings in the next two years in UK itself. And these are all products where you would see amazing bottom lines being generated. So you will see, while the cycle, the life cycle of every product is limited, while you may see a price erosion on A product, you will see gains on a B product or on a new product that has just got approved, based on.
We have to foresee that, and hence we have gone into, you know, into molecules, which is more focused on bottom line than top line. But as a basket, I do believe the top line will grow because of the sheer number of products approvals that we are expecting next year and the year after that.
Mark, if you could just remind us, what is the OTC versus prescription split in UK and in the US right now?
So in U.K., our split is around 60/40. So, 60 is OTC and 40 is Rx. And our U.S. is about 75/25.
Okay. And in the U.S., I mean, so earlier you were very strong in pain and cold and cough. Are there any segments where, you know, we're looking to incrementally add a meaningful to our portfolio on the OTC side in the U.S.?
Recently, it is basically digestives that we are focusing a lot on. So pain, we are quite exhaustively covering the pain, so we are launching a few products in the pain too. But our product portfolio expansion is happening more on digestive and cough and cold and allergy. So these are the three segments we are still focusing on. And finally, obviously, we are working on the prescription front, which is on a slightly different trajectory. But overall, as you can see, the ratio, we are more tilted towards OTC versus prescription.
And in this OTC market for therapy that you're targeting on a going-forward basis, I mean, how much more space you have to cover from, for in terms of reaching your target addressable market?
I think we've got a long way for that. So the market size is huge, and you know, I think we are just at the top of the iceberg for us, and so we are working towards you know, taking larger market share. And we are getting there. We very confidently are getting there.
I'm going to do a last one, Mark. On the prescription side in the U.S., I mean, if you can give us some sense on if there have been any meaningful changes in competitive dynamics in that market. I mean, some of the pricing pressure, which we've seen in the prescription side, has eased out. I mean, how has the dynamics, competitive dynamics, been on the OTC side of the business, in the U.S., in particular?
It's quite, it's quite a matured product pipeline, so technically it does not go through that volatility that you see in the Rx front, where obviously Rx is highly volatile based on demand and supply situation. The OTC is more contract-driven for a longer gestation and longer period of time. So we don't, we don't experience that. That said and done, we are not immune to it, but we don't experience that type of volatility in the OTC at least.
In terms of competitive dynamics, have you seen?
No, we've not seen any changes out there.
Okay. Thank you so much.
Thank you. Our next question is from the line of Vipin Aggarwal from KCN Capital. Please go ahead.
Congratulations on a great set of numbers, sir. I wanted to understand, how was the price erosion for Q3, and how is the current market scenario shaping?
... So price erosion, like I mentioned, in our starting our discussion, we have seen some price erosion in the Rx front of it. And that's sheer, like I said, the dynamics from the nature of the beast, where demand and supply situation arises. So we have seen the Rx having price erosion. But overall, there has been a bit of stability on the overall basket. So the dynamics is still very healthy, and obviously, we are expecting US to be our growth driver in the coming couple of years.
Okay. I also wanted to understand what would be the incremental revenue potential from the acquired Teva Pharma unit in FY 25 and FY 26, maybe?
So FY 2025 will be obviously much larger, because FY 2024, three-quarters of the year, I mean, pretty much the year is nearly come to an end, and we have still to get, we are still to hit our objectives. So I think, you know, we would, we would see a decent amount of revenue come in in FY 2025. I think we are, we are looking at very close to INR 600-odd crores of revenue, additional revenue coming in from that facility.
Okay. Thank you, sir. I'll join back in the queue.
Thank you.
Thank you. The next question is from the line of Binoy Pathiparampil from Elara Securities (India) Private Limited. Please go ahead, sir.
Hi. Thanks for taking my question. Couple of them. Mark, Australia growth is a little muted this quarter, what's happening there?
Yeah, it is muted, and it's just the timing of approvals and, you know, market dynamics out there. So we do plan to be on track in the next financial year. But this year has been a bit subdued, where again, it's just been... You know, it's just coming out of COVID, and you have a distribution channel which is pretty much flooded. So it's just something that started at the season in comparison to the historic seasons were not as elusive. So that's why they are pretty much flat or subdued, as you would say. But I believe they'll be back in growth.
It is a very small market, so, you know, growing is relatively always going to be, you know, in single digits, where Australian market is concerned.
Okay. And, coming to EBITDA margins, we have seen a huge expansion, which, a lot of that, I believe, has come from operational leverage as well. You know, now that, the Teva plant is also started and other plants also have ramped up, is the operating leverage kind of, reaching its maximum, or do we have further room to expand margins out of your operating leverage?
So operating leverage, obviously, like, like you said, that Teva Teva is not even started to break even per se onto, onto that. So once we start in next financial year with the revenue, there's a very visible revenue generation will happen from the Teva plant, and I think operating leverage will get better. Again, you know, so I do believe as, as and when the plant reaches an X amount of production or output, you will see that operating leverage kicking in much better than what, what we've seen historically. But for the rest of the plants that we have, I think we are seeing a good amount of operating leverage kick in out there.
Understood. And finally, Jitendra, we have seen a pop in depreciation and amortization charges over the last two quarters. Is it primarily because of the Teva plant, and is this the new base, or do you think it will further go up?
Yes, it will be a new base now. So we have started depreciating Teva plant also, so that has resulted in incremental depreciation charge. We have also taken one new, like, you know, warehouse on lease in the U.S. So there also some additional depreciation charge is coming. So I think this INR 22 crore will become a kind of benchmark for coming quarters also, being the bonds will remain.
Understood. Thank you. Thank you.
Thank you. Our next question is from the line of Manoj Mathew from ANZ Business. Please go ahead.
Hello. Mark, congratulations. Jitendra, congratulations. The freight rates have gone up, understood. This is also the time when rates are negotiated with your customers for the next year, I mean, your end customer. Am I right? Question number one. Question number two, I think, as per your previous comments, you said that, the fourth quarter of this year will be the best, will be the maximum results of this year in the Teva plant. So we can expect that better turnover in the fourth, fourth quarter. Can you also correct me if I heard that you have taken a new store, I mean, cold store space in U.S. You've added a new cold store space in U.S. recently. Is that correct?
Yes, that's correct.
Okay. So the first question, can you answer the first question? That means the freight rates and product, this is outright case of negotiating new contracts with your end customers. That will be helpful.
Yeah. So basically, contracts obviously no one predicts, no one predicted this freight to go up overnight. And some of these contracts that are being negotiated, they don't happen on a calendar year in the month of January. Some of them have you know concluded in December, November, some are happening in February. And the impact is not yet seen because this freight disruption is happening. It's quite you know fluid to put it the right way. So people anticipate that this will go off. People anticipate that it will come down. So none of...
Nobody is giving a lot of weightage to it, and obviously, we are not seeing the freight prices going up to historic highs that we saw, you know, maybe a year back. So it has gone up. It has probably doubled than what it had come down. It had come down way below historic lows, so it has gone up from that angle. But we do anticipate that it will get better. It's not probably going to get worse. Even the Maersk Line CEO was on the news on CNN, and he himself said that the prices are not gonna go up. And,
Okay.
- he, he'd be surprised that if he's, he could maintain those prices and if they even start to bring down. So again, once a bit of normalcy comes in, and even if it does not come in, I think this new routing that has just started will... If it is successful, it will be slightly higher, but it will not be, we won't see those heights. Hopefully, we won't see those heights that were historic what industry witnessed.
Okay. Mark, the next question is, from Teva plant, can we expect INR 1,000 crore turnover for FY 2025?
You are saying INR 1,000 crore turnover?
Yeah, from the Teva plant alone.
Yeah, that will probably, we'll probably see it in 26-27 thousand crores. But, we would, like I said, I think, we are aiming for, 600 odd crores, next year, in next financial year. But thousand, so we, we have two phases that we are, like I mentioned, we are, we are talking of, you know, we-- I think in March we'll be hitting, an all-time high, but that's not, a great achievement compared to what historically Teva was doing. But in terms of numbers, it shows that we are moving in a forward direction, and we are getting closer to objectives. So for us to hit our 1,000 crores, obviously, we need to be doing 6+ billion tablets, maybe 6 or 7 billion tablets, you know, per annum.
We are still a year and a half away from that.
Okay. Mark, another question to you is, are we still suppliers for Teva? Are we going to continue to supply to Teva in FY 25, or do we end it with FY 24?
I think we won't be continuing moving forward in FY 2025.
Mm-hmm.
But again, our contract basically expires, I think in April of 2024.
Oh, okay. So, Mark-
We have no plan. Right now, we have not shown any plan. Although they are looking for an extension, but we are not inclined to accept that extension because we have our own objectives to achieve.
Okay, okay. And you said you're going into CapEx in your other plants also. So, will that CapEx enhance more productivity or is it renewal of CapEx to maintain the bits?
Well, we always put CapEx, one is to maintain the CGMP, the plant status, but we also put CapEx for optimization to get better output out. To meet our growing demands in each of the countries, we need to invest money to, like I said, to automize and to basically get a bit more efficient performance from the line to hit our objectives out there. So, this CapEx into every plant is gonna be an ongoing basis.
Okay.
But today our maximum CapEx is being counted towards Teva to hit INR 600 million plus.
Okay.
8 billion tablets in the...
Okay, so you've added a new cold store in U.S. recently?
Yeah, in a warehouse, basically.
Warehouse.
Okay.
Okay. Okay. Thank you. Thank you, Mark. Thank you.
Thank you.
Congratulations again.
Thank you.
Thank you. The next question is from the line of Hiten, from Kairos Capital. Please go ahead.
Congratulations on the great set of numbers and the consistency which I'm seeing from the last two years, which we are continuing our quarter prices. I had a couple of questions. Some of them have already answered earlier. Just for the couple of clarity, on the Red Sea cost perspective, as you mentioned, that it has, in some of the companies, it has already been covered. But just to understand the impact on the margin perspective, will it be a kind of a 50 or 100 basis points impact on the margin or even less than that?
It will be very less than that. It's very less than that. And it's not covered in any contracts because this is something which is war related or something which is beyond everyone's control. So, I mean, it is there today, it may not be there tomorrow. So I think, but we don't anticipate the impact like what we historically saw maybe a year back or two years back. We don't anticipate that.
Great. Great, great. And on the cash margin, where we got some impact due to Forex, I think that was one of the kind for that specific quarter, or it can spill over to one or two more quarters?
No, that is one-off only. It won't spill over to... Yeah, it is difficult to comment. It is foreign exchange, at the end of the day, it may keep doing, but, we don't think it will be... It is, this is one-off kind of number.
Great. Great, great. Thank you, sir, for the clarifications and all the best for the future quarters and great results ahead.
Thank you.
Just one thing, as an investor, I would like to mention that if possible, we would like to attend the plant visit for the Goa plant when it's ready.
Okay. Will do.
Sure. Thank you.
Thank you. Our next question is on the line of Akshay from Green Portfolio. Please go ahead.
Yeah, good evening. So my question was related to new product launches and whether they were in the pain management segment or any other segments?
They are in all the segments that some of them are in. I mean, mainly in digestive, mainly in cold, very few in pain, some in prescription, and you know, in antidepressant categories. So, it's a wide portfolio. It's a large portfolio.
Okay. Thank you.
Thank you. Our next question is on the line of Viraj from Monarch India. Please go ahead.
Hi, Mark. Viraj here again.
Yes.
You had mentioned about a year ago regarding free cash flow allocation. I think one-third you had a board policy, one-third to be allocated between dividends and buyback. I mean, assuming you haven't done a buyback or you may not do a buyback, can we at least see a higher dividend this year?
Right. Again, we have to take a call whether there may be a buyback or a dividend, or it will be split into this. But like I said, 25% of our free cash flow will be divided into dividend. It may be fully dividend, it may be three-fourths dividend, 25% buyback, or maybe a 100% dividend or, so we, we have to just take a call on that.
Okay. Any update on your new acquisition and where you are on that going forward?
Well, it's still in progress and we are still in dialogue, but nothing concrete, so we would not want to mention anything much today because we still are far away from pen to paper.
Okay. All right. All the best.
Thank you.
Thank you. Our next question is from the line of Shanmug, an individual investor. Please go ahead.
Yeah, sir. I'm adding in?
Yes, sir.
Yes, you're audible.
So, thanks for the opportunity. I have a couple of questions. So first, just on EBITDA, I clearly understood from the earlier questions. Can you even split that with the improvement from raw material and operating levels?
I could not get you. It is, it is all jarring.
Your, your voice is not clear. Hello, Am I audible?
Yes, you're audible.
Yeah, I will repeat my question, sir. It's regarding EBITDA, EBITDA question.
Yes.
There's an improvement, good improvement from 21% to 23%.
Yeah.
Can you split that into, you know, how much come from raw material reduction and how much from operating leverage?
The substantial part of it has come from the, the raw material side of it.
Okay.
So, I can say almost two-thirds is coming from the raw material side of it, and the balance is coming from the operating leverage.
Oh, great. So I hope the raw material question is going also will have an impact positively considering this, you know, 5+ increment. Am I right, sir?
Sorry, can't understand anything out there. So we can, we can get bits and pieces, but we can't understand the question.
Okay, sir. I hope that raw material reduction will continue in the coming quarters.
We all hope so, and we always continue for better pricing. We all always seeking for better pricing, and it is looking much more stable. There may be a possibility, but it's too early to say that.
Oh, thank you for that. And finally, if you look at the consistency for the past two, three years, final quarter will be volume one. The revenue will be a flat, more or less. So, not considering you have a plan, do you see growth in this final quarter in this year, sir?
Yeah, well, we are growing. So I think the numbers speak for ourselves. So we are growing and we'll continue to grow.... So we look at it from a long-term outlook, more than on a daily basis.
Okay. So this plant has been commenced or yet to commence, or will commence in this quarter?
No, no, it has commenced, but the growth of volume, the volume growth has yet to translate. And we'll probably see March being the first month where we'll hit, we'll come close to hitting our first phase of objectives, and then obviously we have to keep pushing towards reaching our main objectives.
So since it's a, you know, a new plant, do we see any impact on schedules, sir? Having maybe some,
These have all been factored in a performance presently, so I don't see that much of a difference.
Thank you. Sir, last, to touch upon that one question on other income. I understand that there is an entry regarding the products, one entry. Do we see any reversal in going forward, or it's one time, it's permanent?
See, we believe this is, this should be a one-time kind of situation here.
One time, is it going to reverse, sir, or it's a permanent entry?
It depends on the foreign exchange levels, which will be there now as on thirty-first March. So, difficult to comment. But, but I don't see any incremental mark-to-market, let's see what happens as on thirty-first March. So it will get revalued again as on thirty-first March.
Right.
So we will come to you at that time only, what is the situation. But then, in Q3, the MTM loss should be a one-off kind of thing.
How is it? Q3.
We don't see that kind of volatility in foreign exchange. See, the GBP, basically, it has come from the GBP side, wherein between September to December, GBP fluctuated between INR 101 to INR 106. Now it has become bit stabilized between INR 104 and INR 105. So we don't see any you know more volatility here. But anyway, it will depend on the levels which are there at March 31.
Well, sir. Thank you, sir. Thank you for your time.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask question. Our next question is from the line of Kannan, an individual investor. Please go ahead.
Yeah. Good afternoon, Mark. Congratulations on a good set of numbers. This question has been answered probably, but I want a slightly different perspective on this. But my understanding on the Teva facility was a total of INR 200 crore will be spent on this, which includes the up-front payment, acquisition costs, and the upgradation to basically double the capacity from $8 billion-$15 billion. Now, out of this 200 crore, INR 160 crore has been spent. So am I right in saying that we need to spend additional INR 40 crore to reach that capacity of double?
No. So, I'll just like to clarify that point. So INR 160 crores has been spent for globally, for all our plants. It's not spent on Teva plant. So, so I think our Teva acquisition plant, for the Teva, we must have spent around 80, 85-90 crores.
Right.
So, we still have some amount of CapEx to be spent out there, number one. Number two, I don't think I've ever mentioned 15 billion tablets, because that's not possible from a-
Overall.
Overall, okay. But, from a single plant, from Teva plant, it's not going to happen 16 billion.
Yeah.
8 billion tablets is what we are targeting from the Teva plant. And, today, like I mentioned in the opening, statement, that we should be, trending at, from, from March, we should be trending on a first phase to hit, to trending at, 3.6 billion. And hopefully, next financial year, we will get closer to the 8 billion, target.
Cool.
By the end of next year.
Thanks. Thanks for the clarification, Mark. Just a follow-up on this. The products coming out of this Teva facility, will this command a similar level of premium and margins compared to our existing facility? Are these approved for sale in U.S. or no?
Yes, it will, because it's, again, from, it's. We supply all through regulated markets, so it will, it will have the same premium draft. But it's important to understand that you will see a better... It's not about, obviously, growing numbers is very critical because with numbers, you'll have operating leverage kicking in.
Right.
Basically, we are working hard towards trying to hit those objectives as fast as possible.
Right. So thanks, I appreciate that clarification. And one last question, can you give some color regarding our overall margins in, on, on our distribution in U.S. compared to the U.K.?
U.K. is a much more matured market in terms of, you know, we've been in the U.K. market since 2008. So the operating leverage, amount of product portfolio is huge. The operating leverage is already there. Market penetration is there. For us, the U.S. market is relatively very new. We've been there, I mean, actively from 2017, although we acquired the company towards the mid and late of 2015. But we've actively been promoting our products only from 2017, so it's not even five years. So we've got a long way to go, and as and when our revenue keeps rising, the operating leverage will kick in, and profitability will be much better and visible during during the coming years.
As you can see, this year is better than the previous year, and next year will be better than this year.
Okay. Right. Thanks. Thanks a lot.
Thank you.
Thank you. Our next question is from the line of Nirali Shah from Ashika Stock Broking. Please go ahead.
Hi, thank you for the opportunity. Most of my questions have been answered, but just a quick question on we were venturing into complex molecules like Advil Dual Action. So if you can give some color on that, how are we progressing on that? Or do we expect a meaningful contribution or maybe some color on the margins? So what kind of expectations can we have from these complex molecules?
So dual action is only one of the many molecules that we filed, and we are still expecting many more approvals to come in on similar grounds, which are more complex in terms of extended release or bilayered or MUPS technology type of molecules. So we do see those giving cumulatively, it will be much better when all the products come in. From a dual action, we have not seen any price erosion per se, but but we are we are working towards getting contracts and growing these molecules. So it's too early. We've just been not even a year with this molecule in the market right now.
Understood. One more question. In last year, we had our effective tax rate of around 21%, and this year, I guess we are looking at around 20%-26%. Going forward, do we expect it to be in the same range, 25%-26%?
Yes, it will remain at 25%, because the tax rates in U.K. has gone up from 19%-25%. So now, I think going forward, our effective tax rate should be in the range of 24%-25%.
Understood. Thank you.
Thanks.
Thank you. Our next question is from the line of Rohan from Bridge Capital. Please go ahead.
Yeah. Thanks for the opportunity and congrats for, on a good set of numbers. My question is on Teva. You said that next year we are targeting around INR 600 crore of revenue. Is that incremental revenue on our growth or is that, you know, that we are supplying from some other sources, and we would get that Teva capacity?
Yeah, so this will be mainly incremental. It may not be fully incremental, but mainly incremental growth that will come in from there. Because obviously, it'll cater to a larger product basket and various geographies. So I would assume it will be mainly incremental growth coming from there.
In terms of utilizing that capacity, our capacity would come up till March, April, but a lot of your contracts are signed, you know, end of the year to next year. So, you know, can we expect, you know, the ramp up immediately as the capacity is operational, or we'll have to wait for some time and sign contracts and really see the utilization in, say, calendar year 2025?
Again, a very good question, but we will, we will basically. See, we can't take contracts without having that capacity in hand. So when we are taking contracts, right now we are taking contracts what you can see a visibility of 8.6 billion units coming in. So when we, when we scale it up to 8 billion, I mean, 600 million or 8 billion, trending towards 8 billion units, we have to obviously expand and get contracts in place, support that. But there will be some spillover in terms of optimization. That's why we are not saying that we will do INR 1,000 crore, 900, 800 crore or INR 1,000 crore next year. We, we do believe in the, the following year we will be hitting those objectives.
Got it. So the contracts you already signed, you've assumed this capacity to come up and based on that, you sign contracts. So you already have that capacity, which is understandable.
Yeah, that's understandable. That, that's accurate. And basically, we only take contracts what we can deliver. We don't, we-
Thank you and all the best.
Thank you very much.
Thank you. Ladies and gentlemen, I remind that to all participants, you may press Star and One to ask question. There are no further questions from the participants, and now I hand the conference over to management for the closing comments.
I'd like to thank all of you all for participating in this call. Have a great evening and be safe. Thank you very much.
Thank you very much.
Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.