Ladies and gentlemen, good day and welcome to the conference call to discuss Marksans Pharma Q4 FY2025 earnings con call hosted by Elara Securities India Pvt. Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Dr. Bino Pattiparampil from Elara Securities India Pvt. Ltd. Thank you, and over to you, sir.
Hi, thank you, Navia. Very good evening to all of you. This is Dr. Bino Pattiparampil welcoming all of you on behalf of Elara Securities to the Marksans Pharma Q4 and FY25 earnings conference call. We have today with us Marksans Pharma Founder Chairman and Managing Director, and Mr. Jitendra Sharma, Chief Financial Officer of Marksans Pharma. Before I hand over the call to the management, please note that certain statements made by the management may be forward-looking in today's call. These reflect management's best judgment and analysis. The actual results may differ materially from current expectations based on a number of factors that affect the business. We will begin the call with opening comments from the management, and we will have a question-and-answer session following that. I hand over the call to Mark. Over to you, sir.
Thank you, Bino. Welcome, everyone, and thank you for joining us for our Q4 FY2025 earnings conference call. We sincerely appreciate your interest and continued support for the company. I'm pleased to report yet another year of robust performance, achieving an all-time high in both revenue and profit. Our operating revenue and PAT increased by approximately 21% year-on-year. We witnessed a positive growth momentum across all our regions, with the U.S. market being a significant growth driver, experiencing a 35% increase in revenue year-on-year. Our OTC segment reached a record high revenue and crossed the INR 2,000 crore mark, a testament to our focus and execution in expanding our OTC product pipeline. During the year, favorable market conditions and growth driven by market share gains and new product launches in the U.S. fueled our success. However, the fourth quarter witnessed a slower cough and cold season for the RX products.
Price erosion was stable. In Q4, our U.K. and Australia and rest of the world markets achieved their highest quarterly revenue of the year. The freight costs in the quarter were stable. We witnessed high freight costs in the first two quarters, however, costs stabilized in the latter half of the year. Our strategic initiatives are shaping up, with continued focus on achieving a product pipeline, and during the year, we managed to commercialize 58 SKUs and have about 79 more products in the pipeline. In the U.K. region, we received approval for around 12 products, and we have already filed 18 additional products out there. Our capacity expansion initiatives are advancing, and we anticipate the operating leverage benefits to materialize in the next financial year. Looking forward, we are optimistic about the outlook.
Our track record of consistent growth serves as a solid foundation, and we are confident that our strategic initiatives will continue to drive momentum. As a part of our commitment and enhancing shareholder value, I'm pleased to announce that the board has recommended a dividend of INR 0.8 per equity share, representing 80% of the face value per share. With this, I would like to turn it over to Jitendra for an update on the financials.
Thank you, sir. In Q4 of FY2025, our operating revenue stood at INR 708.5 crore, an increase of 26.5% year-on-year, compared to INR 560 crore in the same quarter last year. Revenue from the U.S. and North America markets stood at INR 328.6 crore, an increase of 34.1% on a year-on-year basis, driven by new product launches and increased market share. U.K. and EU formulation business grew by 17.7% year-on-year to INR 274.1 crore. Australia and New Zealand market recorded revenue of INR 76.5 crore, up by 20.9% year-on-year. The rest of the world recorded revenue of INR 29.3 crore in Q4 of FY2025, an increase of 55% year-on-year. Gross profit was at INR 383.2 crore, up 32.1% year-on-year. Gross margin expanded by 228 basis points, from 51.8% to 54.1% in Q4 of FY2025. This was driven by better product mix and low raw material prices.
We recorded EBITDA of INR 125.8 crore in Q4 of FY 2025, an increase of 14.7% year-on-year. The EBITDA margin for the quarter stood at 17.8%, a decrease of 183 basis points from last year's same quarter. The decline in margin is due to an increase in employee expenses and an increase in R&D expenses in Q4 of FY 2024. Profit after tax was at INR 90.7 crore, compared to INR 77.6 crore in Q4 of FY 2024, an increase of 16.9% year-on-year. EPS for the quarter was INR 2. Now, talking about FY 2025 financial performance. In FY 2025, our operating revenue stood at INR 2,623 crore, an increase of 20.5% compared to INR 2,177 crore in the same period last year. The U.S. and North America market recorded revenue of INR 1,237 crore, up by 34.7% on a year-on-year basis, and contributing 47% to our total revenue.
U.K. and EU market grew by 9.2% year-on-year to INR 1,030 crore, contributing 39.3% to the revenue. Australia and New Zealand market recorded revenue of INR 253 crore, an increase of 15.5% on a year-on-year basis. The rest of world market recorded revenue of INR 104 crore. Contribution from these two markets stood at 9.6% and 4% respectively. The gross profit was at INR 1,479 crore, up 29.8% year-on-year. Gross margin increased by 407 basis points to 56.4% in FY 2025. EBITDA for the period was at INR 529 crore, an increase of 15.3% year-on-year. EBITDA margin stood at 20.2% compared to 21.1% in FY 2024. The decline is primarily due to an increase in employee expenses due to the headcount additions at the QUAD facility in Goa, an increase in freight cost in the initial quarters of the year, and also due to increasing the R&D expenses.
Profit after tax was at INR 383 crore compared to INR 315 crore in FY 2024, a growth of 21.5%. EPS for FY 2025 was INR 8.4 compared to INR 6.9 in FY 2024. In FY 2025, cash generated from operation came in at INR 207 crore. The CapEx during the period was INR 173 crore, which is in line with our plan to scale up the QUAD facility in Goa. We spent INR 57.9 crore in R&D in FY 2025, which amounts to 2.2% of the consolidated revenue. We continue to remain debt-free, and the cash balance stood at INR 704 crore as of 31st March 2025. Additionally, India Ratings and Research has upgraded the company's long-term debt to AA- from AA+, with a stable outlook, and affirmed short-term debt at A1+, enhancing our financial credibility. With this, I would like to open the floor for questions and answers. Thank you very much.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Endmath Marha from Unify Capital. Please go ahead.
Thanks for the opportunity, sir. My first question is on the Teva facility. In the last call, you had mentioned that utilization was up 20%. It would be helpful if you can explain what is the current utilization or rather utilization for Q4, and how do you see that trending in FY2026? A parallel question to that is, there has been hiring for that facility in the last few quarters. Do you see the peak hiring is behind us, or even in the next year, employee cost should inch up further on quarterly basis?
Yeah. With regards to the hiring, obviously, we need to hire staff for the growth as and when the facility has to produce more. That said and done, we are very close to the peak in terms of hiring. There may be marginal hiring requirements, but that will be extremely small compared to the quantum of hiring that we've done in the last quarter by itself. With this hiring, we do believe our scale-up would basically meet with at least 50%-60% of our capacity growth that we have targeted historically. Today, not in the last quarter, not in the fourth quarter, but in the first quarter, we are trending around at INR 400 crore, which is pretty much half of what we had spoken of, INR 800 crore coming out of that plant.
Got it. With this trend and other facilities at higher utilization in the next two years, is it fair to assume we reach close to INR 3,500 top line, going by your commentary before?
Yeah. We still believe we are on par of hitting those objectives. Yes.
Got it. In Q4, we had a very high R&D cost. Obviously, it's a part of the business, but could you give some guidance? What was the nature of the same? Was it because of the increased filing? How do you see the R&D cost normalizing on a full-year basis in future, either in percentage of revenue or absolute terms, whichever way the company looks at it?
I think from an R&D point of view, taking the whole year's spending makes more sense than a quarter-wise spending because it depends on when the filings happen, when the product buy-to-lence cost comes into play, and everything of that stuff. It is difficult to equate a third-quarter justification or balance. The whole year, I think we will be range-bound at what we are seeing. I think Jitendra will throw some more color on that R&D spend.
Last year, we have spent 2.21% of our revenue on R&D expenses. In Q4, if I compare the Q3 R&D spend with Q4, in Q3, our R&D spend was INR 11.71 crore. In Q4, it increased to INR 23.47 crore. There was an increase of almost INR 12 crore in Q4. We have done a lot of filings, both in the U.S. and in the U.K., during Q4. Moving on, we do expect the R&D expenditure to remain between 1.9%-2% on a year-on-year basis. Got it. Just one more question before I join back in the queue. How do you see the impact of U.S. tariffs on your business? Obviously, everything is premature in nature, but some insights from your side, qualitatively and your view, will be very helpful.
Also in that context, in anticipation of tariffs or otherwise, are we seeing any pre-buying in Quarter One?
No. Not exactly. There's no pre-buying in Quarter One. The U.S. tariff is a universal question. Honestly, I don't think anyone has the right answer for that. We are optimistic that India's proposal of trade balance or the zero tariff recommendation would fly. Even if there is a nominal, even if there is a tariff implemented, it would probably be very nominal in nature. Our Indian delegates are there in the U.S. as we speak. That said and done, it's anyone's guess as to how the tariffs will outplay. My personal view is I don't see a major impact on the tariffs because the U.S. is taking more of a softening stand over time, not taking a hard stand on how they started the tariff play. Then again, that's only my opinion.
I do believe that if the tariffs are disproportionate in any nature, it will be passed down to customers and clients, and accordingly, it will be then passed down to the consumer or customers thereafter. I think that clarity has come from all the retailers that if the tariffs continue, then price increase would be avoidable, basically. Basically, the retailers have already spoken out and said that the prices would go up for consumers.
Sure. This was helpful. I'll join back in the queue. Thank you so much.
Thank you. Next question is from the line of Gautam Gosar from Monarch AIF. Please go ahead.
Hi sir. Thank you for the opportunity. Also, my question is on the Teva facility. Basically, I wanted to know how much volume did you do from the Teva facility last quarter in Q4?
The last quarter of Q4, we did not do the volumes as expected. We were somewhere around 200-odd million tablets, 200 million units being generated. This year, these first few months, we are trending around 350 million tablets. Our objective is to cross the 450-500, come close to 500 million in the first half, and then look at 800, 600, and 700 million thereafter.
Okay. Got it. We have a capacity of around 8 million units in the facility. Can you highlight the peak utilization levels where we can reach, and how much time will it take to ramp up this further?
We do expect to hit 50% of those volumes, hopefully within the next six months. Ramping up to hit 8 billion units would probably be towards the latter half of the year or maybe early next year. We do plan to come very at least utilize 50% of those volumes within the next six months.
Okay. Sir, what is the capacity utilization for the ex-Teva business?
I didn't get it. Could you repeat that question again?
For the other facilities except Teva, like the Goa and the U.S.-U.K. facility, what is the capacity utilization for the combined business?
The other facilities are running at around 65%.
Okay. Just to follow up, sir, I think with the existing capacity ramping up further on the Teva facility as well, we will be majorly exhausted in the next two years on the current capacity. Do we have any plans to further add any capacity by deblocking it, or any plans do you have if you could highlight on that?
Yeah. I mean, it's a good question. Looking at our growth plans, we would have to obviously add facilities maybe after two years. Definitely, we are always on the lookout because in pharma, you've got to investigate to see returns after two years, right? Technically, we are always on the lookout for facility expansion. In any new facility that comes our way, we will definitely try to explore those possibilities. Today, we don't have anything on the hand, or we don't have anything concrete to discuss on that. We would have to explore new capacities maybe two years down the line.
Okay. Got it. So we don't have any expansion plans in our existing capacity?
In our existing facility, it is nominal CapEx now. Yes, from INR 450 million-INR 500 million to from INR 5 billion-INR 8 billion, we may need to expand a bit to line balance everything. I do believe CapEx will continue. Nominal CapEx will continue for the next couple of years for us to de-bottleneck whatever we believe is needed to achieve optimum capacity in the plant. That is very normal. It will be nominal in nature compared to the size of revenue being generated. I think one should expect that there will be some CapEx, but not to the tune of what we have done in this last financial year.
Got it, sir. My last question is on our working capital gain. There's grown up significantly, which is leading to the low operating cash generation for us. If you can allude some reasons for the change and what can be the sustainable working capital gains for us?
I'm sorry, you're not audible. I just could not get the question. Could you repeat that again?
Am I audible now?
Yeah, yeah.
Yeah. My question is on working capital. The working capital gains have gone up for us, which is leading to the low operating cash generation. If you could allude some reasons for the change, what can be the sustainable working capital gains for us?
Okay.
Hi, Jitendra here. See, our current working capital cycle is 127 days. There is a slight increase as compared to last year. Our inventory levels have gone up. Right now, we are in the process of building up inventory because a lot of new launches have taken place during last year, specifically in the U.S. We need to ensure that we should have at least three to four months of inventory at any given point of time. We are building it up right now. In terms of the optimum cycle, definitely our revenues are increasing. In absolute terms, we will see increase in inventory and receivable levels in absolute terms. In terms of number of days, I think it should be very much at the level at which we are at present.
Okay. So it will continue to remain around 125 days now?
It will definitely be in this range. Definitely, yes.
Okay. Thank you.
If you see our overall levels, our receivable levels are just under 75 days. Inventory, by nature of business, is service-oriented. Definitely, we do not see inventory levels coming down. Broadly, though we are trying to optimize, it will remain within this range of 125-135 days.
Okay. Got it. Thank you. All the best.
Thanks.
Thank you. We take the next question from the line of Bino Pathiparampil from Elara Securities. Please go ahead.
Hi, good evening, again. Mark, we had this target of INR 3,000 crore revenue in FY2026. Are we on track for that?
Yeah. Very much below because we have done 2,600. So we are very optimistic that we are very much on track for the INR 3,000 crore.
Right. That will entail about 17% growth in FY2026. It's still early, but if I just peek ahead into 2027, 2028, etc., do you think this 17% sort of growth rate is sustainable, or do you think the size becoming bigger could gradually bring down the growth rate?
No, I think that is very doable. We would like to improve over the 17%, obviously. We are optimistic that the market dynamics will stabilize. The geopolitical issues will probably settle down. I think on a conservative basis, 17% is definitely doable.
Got it. Just pushing you a bit on the tariff front, worst case if some tariffs indeed come to apply, say 10% or 15%, whatever it is, how would you be positioned competitively against your key competitor, which I guess is Perrigo? I mean, will Perrigo have a lot of U.S.-based plans, and will they be much better positioned in such a scenario?
Obviously, tariffs coming into effect is going to affect U.S. production also because the U.S. is very dependent on all raw material imports. There are no raw material manufacturers within the U.S. Definitely, all raw materials coming into the U.S., the tariffs will have an impact on that. Cost will go up even whether you produce it in the U.S. or any part of the world. With regards to if it is a nominal tariff, I think the impact is less. If it is an abnormal tariff, then that will be passed on to the consumers and into the retailers, and the retailers will pass that onwards. I do not believe it will go down that road. I am quite optimistic that tariffs will be very nominal or not existing moving forward.
It's losing a bit of steam because of various, so I do believe that eventually, if tariffs are disproportionately high, then it will be passed on. That said, U.S. manufacturing is also not going to—the cost of U.S. manufacturing, manufacturers are not insulated or isolated with tariffs. Their costs will go up because raw material costs will go up. Overall, the difference may not be all that great that one would think that, "Oh, well, if you are a U.S. manufacturer, your cost will be very low." No, that's not the case because your cost will go up because of the raw material imports. That, I think, reality is seeping into the U.S. market myself. Tariff is never good news, but it is what it is.
It's the nature of the beast today, and we just have to tame it or handle it when it comes our way.
Got it. This year, we have seen a compression in EBITDA margin because of all the extra costs related to your new facility, etc. As operating levels set in, do you see a decent improvement in EBITDA margin next year?
There are two things, Neil. One is if you are comparing our last quarter, our last quarter has always been lower historically if you go through the last couple of years because of.
Sorry. We can talk from the full year perspective. From 2024, financially, at 21%, it has come down to about 20%.
Yeah. That is very nominal. I think we will basically be at par, or we will be able to maintain the EBITDA, if not improve the EBITDA. We are quite optimistic and bullish on those grounds on the EBITDA front of it. The last quarter, obviously, our last quarter is not the right way to evaluate anything because last quarter, the product mix changes by itself. We come off the cold season, and we go into the rain season. There is a bit of a product mix change also, which has an impact on the gross contribution by itself. Yes, there is the timing in terms of the timing may not be right because we added more people to enhance more capacity and volumes from our new plant.
I do believe we will maintain our EBITDA, our historic EBITDA that we have done, but improve on that.
Got it. Finally, one last chart or two, Jitendra. Could you put a number to the CapEx expected in FY2026, all-inclusive maintenance, de-bottlenecking, etc., all put together?
Last year, of course, we did CapEx of INR 173 crore. I think this year also, the CapEx, we will continue to incur. It will be lower than last year, but I think we should be somewhere between, say, $8 million-$10 million overall.
Got it. Thank you. I'll turn back to you.
Thanks.
Thank you. We take the next question from the line of Dhvij Patel from Finterest Capital. Please go ahead.
Hello. Am I audible, sir?
Yes, you are.
Yes, sir. Good evening. Sir, my first question would be on the Teva facility. Just wanted to understand what kind of revenues have we seen from Teva facility in this financial year? I guess we have just seen for six months, if I'm not wrong.
Yeah. This year, I mean, like I mentioned, we are trending at, right now, we are trending at INR 40-odd crore, about INR 35-40-odd crore. We are looking at somewhere around between INR 400-odd crore, between INR 400-500-odd crore. This is a trend as of today.
INR 400-500 crore is what we are seeing for this financial year?
Yeah. For this financial year, based on the current trend, obviously, it will improve.
Currently.
This is what we are, but if you look at, let's say, April and May, like May, for example, we are trending at between INR 400 crore-INR 500 crore.
Got it. Sir, as far as I remember when we had a conversation, this facility was somewhere going to generate around INR 1,000 crore of revenues for us once it reaches a peak capacity. Is this plan delayed because we were anticipating around INR 500 crore for this financial year, the last one which has just gone by?
Yeah. The last one, that approval, site variations, everything took a bit longer than expected. Not so much on the CapEx. The CapEx, obviously, we have invested. The CapEx, as you can see, we have invested around INR 250,000,000-odd of CapEx. From a capacity standpoint, we are good to hit those objectives of INR 5,000,000,000-odd. We are trending towards, like I mentioned, between INR 4,000,000,000 and INR 5,000,000,000. I do believe we will be hitting on a trend basis minimum, that objective will be achieved. When we talk of doubling it, that is where some more CapEx and de-bottlenecking will go on. Hopefully, in the latter part of the year, we will be moving probably more towards INR 6,000,000,000-INR 7,000,000,000-odd in terms of the trending part of it, not the actual revenue, but the trending part of it. Now, it is a test by itself.
It cannot be a short and overnighted achieve those objectives because it is all about plant approvals. It's all about product approvals. There are some things which are not within our control, although CapEx is within our control, but approvals and product switches are not within our control. You may have a quarter delay here and there. We are pretty much on target where spending is concerned, where objectives are achieved. I do believe this plant will hit INR 1,000 crore eventually.
Got your point. Just the question that I actually asked was how much revenue have we seen for this financial year, 2024, 2025, from the Teva facility?
We did around INR 325 crore.
Okay. Got it. Sir, the final question would be on the new products which will lead to high margin products. Can you please elaborate what are we doing there now? What is the update on that?
We are launching products literally every quarter, and every quarter, we are launching products. We do believe we will see at least 50-odd products in different segments, in different therapeutic segments, whether it might be cold, whether it might be digestive, whether it might be pain, and some in prescription also. We do believe we'll be launching very close to about 70-odd products between now and, let's say, September.
Got it. Got it. So your growth and the slide of FY 2025 and beyond looks a bit conservative. I think we can change that someday in the future.
Yeah. It is what it is. We would like to give a number that we believe is very much doable. Even taking into consideration the geopolitical situations that exist all over surrounding us, we are still bullish and optimistic in expecting that we will hit our objectives.
Absolutely, sir. That's it from my side. All the best, and thank you so much for taking my call. Thank you.
Thank you.
Thank you. Next question is from the line of Mythili Balakrishnan from Alchemy Capital Management Private Limited. Please go ahead.
Hi. I just wanted to understand a little bit about any feedback that we have seen in the U.S. You mentioned that it's nothing much in the U.S. per se. What about the fresh water? Is some part of this growth because of customers talking up?
Sorry, I didn't get your question. Could you repeat it? It's not very audible.
Sure. I wanted to understand somewhat about this feedback from the U.S.. You mentioned that there is nothing much which has happened in April. Could you sort of indicate whether anything was happening during this particular March quarter?
Are you saying that?
In terms of customers wanting to stock up ahead of the tariffs?
I don't think that is a scenario, not in pharmaceutical. See, when there's uncertainty, people will wait and watch, right? I don't think you could stock up beyond a certain level. Most of the retailers don't keep a lot of inventory by itself. They are not equipped to stock up or hold inventory because they handle probably 10,000-20,000 different items. Technically, there has been no stock up in April, in March. There has been some slowdown because of pricing situations and whether prices will change in the distribution channel. If nothing else, I mean, there were talks of recession and everything. A lot of uncertainty was evolving around the U.S. market, whether it is the bond yields, whether it's a recession, and it all started off with tariffs.
It was all very new in March. It started in February, but it was all very new in February and March. Literally, nobody knew what was going on. Everyone was waiting for a better tomorrow or a better outcome. Uncertainty is never good for business. I think now, in April, you saw things being paused. You saw some positive things coming out and some damage control being done by the administration. You obviously saw bilateral government discussions happening. The Indian government is really working hard towards achieving a trade-neutral proposal. Technically, I'm optimistic that they will succeed. We are hoping, obviously, for things to stabilize and only improve moving on.
Got it. Was April more normal, or was April also a bit?
I think April was also a bit more like March per se. Things are getting better. The second end of April, you could see things getting better because the pause came, the tariff pause came into effect in April and then.
Got it. Also, to understand on the tariff side, right, these are largely fixed-price contracts that the contracts have been done for a period of three, four years. I just wanted to get a sense from you of how will the tariffs sort of get passed on to the customers? Will we be expected to bear a part of it, or do you think we can sometimes there is no alternate, right, but to raise the price? I just wanted to get your sense on that.
Eventually, obviously, our outlook because tariff is more like a force majeure, right? It is not within your control. It is a government doing. The contracts do not cover anything of those nature. I think the retailers do anticipate that if tariffs do come into play. Today, there is no tariff. As a matter of fact, India has got a great advantage compared to the rest of the world, including for products being manufactured in the U.S.. Today, India enjoys the benefit of being more competitive because U.S. manufacturers are still having the brunt of bearing raw material tariffs, which are coming out from China, which most of the raw materials do come out of China. It is a fact that tariffs do not, I mean, India, while it is beneficial, if tomorrow tariffs do come into play, it will be passed on.
If it is extremely negligible and insignificant, we may not bother burdening anything. Probably try to get the cost of goods down to nullify it. Most likely, if it is % or anything above 10%, we will definitely work on passing it down. We'll still be competitive compared to domestic manufacturing in the U.S. because they will also have the brunt of raw material tariffs.
Got it. This would be a force majeure event in any case.
Yeah. This is a force majeure. The retailers have already made public, I mean, other consumables which are not exempted are undergoing tariffs, are being implemented, and retailers have already made public statements stating that prices are going to go up because the inventory has been depleted. The non-tariff stock inventory has been depleted, and the new stock will come with tariffs. For that, it is not possible for the retailer to absorb anything. They are going to pass it down to the consumer.
Got it. Just a question on the U.S. growth. When we look at it, it is much higher than what the U.S. market seems to be growing at. We have grown like 34% on a year-on-year basis. Just wanted to get a sense of how are we sort of getting this share? Are there any specific new retailers we have added? If you could sort of explain it a little bit. Also, this growth that we have seen in terms of the rest of the world, is there any particular geography that is driving it?
With regards to the U.S., obviously, for size of the U.S. market, the base is extremely small. When you grow, the percentage looks big because the base is small. The market size is huge. Literally, the percentage gives you a different picture altogether. We are taking market share both from product as well as from new retail outlets that we are getting into. It is a mixed basket of everything: existing products, new products, as well as new clients. Again, our base is extremely small. We are optimistic of that growth and continued growth for the next couple of years where the U.S. is concerned. The rest of the world, obviously, their market sizes are smaller. U.K. market size is extremely small, but we are doing fantastically well. We have a very aggressive growth plan for the U.K. market also.
We do plan to grow. Those numbers will start unfolding in a couple of years. You will see amazing growth coming from our U.K. subsidy too. For newer markets, obviously, we are targeting the European market, which for us is still a new market, basically. We are focusing more on those markets now than ever before. We are hoping that we can get in there. Last but not the least, hopefully, someday we'll get into the Indian market also.
That's all from my side. Thank you and all the best.
Thank you. Next question is from the line of Nitin Agarwal from Dam Capital. Please go ahead.
Hi, Max. Thanks for taking my question. Not only U.S. business. What kind of, based upon the current order book, what kind of revenue scale-up visibility do you have for the next couple of years?
Our order book stands at somewhere around $220 million-odd. It is growing, Nitin. Obviously, tariff has been a bit of a damper, right, because people are waiting and watching before they actually—so I think, like I mentioned earlier, uncertainty is never great for the growth part of it. We are optimistic that we would basically look at a $300 million order book status within the next two years. We are targeting a minimum of $300 million.
When you say $300 million order book, what does it translate into a typically analyzed revenue? By when you start realizing those kind of revenues, for example, when you say you have a $220 million order book right now, what does that really mean from a revenue booking perspective?
I mean, obviously, that's a good question because an order book, when you get a contract, it takes about six to eight months to start executing that contract because of the art of process and everything of that stuff, right? Technically, a substantial amount of this $200 million, I mean, nearly around, I would say, 20 to, sorry, 30 to somewhere around $30 million-$35 million will basically be, we will start shipments only in the month of September. The balance $20 million will probably happen in the month of February or March. Technically, it takes about a good six to eight months to start commercializing and shipments of these orders. You are not going to see from day one $30 million being done, right? It's a trending pattern.
Right. But in a typical situation, if you were to just look at, for example, the $220 million revenue, by what time would you be able to translate this to annualized revenues for you?
If you look at today's order book status, $220 million will do next year.
In F-26?
Yeah. If my order book goes higher, then we'll obviously be in a much better position to cross that. Whatever contracts I get towards the latter half of the year, that commercialization will probably, because all these contracts, retailers always one year, they always talk of the next year. They no longer talk of this year. If I'm getting contracts of this year, it is not for this year commercialization because they always talk of, they are always one year ahead in terms of planning.
Right. In terms of the newer order wins that you've been negotiating or talking to clients around, is this more on probably more products with existing clients, or is it more of more clients with the current portfolio?
There have been a few new clients, but basically, it is more products with existing clients and newer products that we are coming, which we are planning to launch also.
Okay. For our SKU for the business still, everything we mentioned in the press release that INR 2,000-odd crores of our revenues of the INR 2,600 crores is OTC. This skew towards OTC for the business will continue as it is despite us filing some more ANDAs, which that means we're doing?
It may grow, Nitin, honestly, because we are very strong in OTC. Like I've always said, it may grow, and you may see OTC adding maybe 85%.
Got it. Got it. Got it. That's helpful. Secondly, Nitin, for this year, I think you've had some amount of under-leveraging of the Teva plant cost, I presume, which has led to this SG&A cost being a little over, actually higher than what has been in the past. In your assessment, by when do we start to leverage those costs, start to become more in line with the company average? When you start leveraging the Teva plant better, does it happen this year, or does it take another year?
No, it will happen this year. I think in the second half of this year, we should be able to, so our utilization levels definitely will increase. We will see operating leverage benefits from this year itself, most likely, but from the second half of this year onwards.
Once we start getting operating leverage benefits on this newer facility, what kind of sustainable EBITDA margins can the business go back to?
Yeah. I think definitely we can do 21%-22% EBITDA margin once this kind of operating leverage gets in.
Okay. Okay. Thank you so much.
Thanks.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant. We take the next question from the line of Viraj Mahadevia from MoneyGro India. Please go ahead.
Hi, Mark and Jitendra. Congratulations on the table result. Most of my questions have been answered. Quick two questions. One, you commented in your presentation that part of the EBITDA margin impact was on account of freight costs. How are you seeing freight costs currently in the April and May period? Are you seeing it moderating and likely to be lower for the next couple of months?
Yeah. It has moderated already. Definitely, last quarter was a relatively softer quarter in terms of the freight costs. Yes, the first two quarters of FY2025, we did pay a very high amount of freight costs. If I see freight costs as a percentage to sales, in FY2025, it was around 5% as compared to 4% in FY2024. We ended up paying more in FY2025 as a whole. Yes, now it has stabilized, and I think it will come back to 4% in FY2026.
Understood. My next question is regarding a follow-on to Nitin's question, which is the $220 million order book marks that you mentioned. Can we read that as $50 million or $60 million by FY2026 over and above the base of INR 2,600 crore that is already being delivered? The incremental balance of $160 million spilling into FY2027 in addition to whatever else you win between now and then. Is that the right way to think about it?
Yeah. When we talk about the execution, like I mentioned, it will start somewhere in September. Obviously, then we talk about trending because you will not, within five months or six months, actually do the entire $50 million because that $50 million is for the full year, right?
Understood.
It will translate into a proper revenue only next year if you want to look at it from an absolute 12-month revenue point of view. Today, what contracts we actually are talking about in this year, basically, they talk of next year. Maybe some days happen. If you look at pain, normally happens in April. Digestive happens in latter part. Cold happens maybe in September of 2025 or 2026. It just depends on the product portfolios and the contracts that you actually get. It shows, obviously, the strength of the business model, the continuity, and the growth part of it. When we talk of hitting objectives of INR 3,000-odd crore, obviously, we talk about the U.S. growth, but we also have U.K. and other subsidiaries that are growing. U.S. will still continue to be our growth driver to hit those objectives.
When we talk of beyond INR 3,000 crore, we again anticipate these additional contracts to fuel us to that level.
Understood. Last question is, can you comment a little bit about your cash balances and the intended use for making acquisitions? Have you made any progress there? Are there any advanced conversations going on?
Yeah. So the cash balance is what is stated out there. Obviously, we have increased dividends to a level which is all-time high for us. At the end of the day, we were in dialogue with some companies, M&A, and we are still. Those basically fizzled out in the last 10 days. They fizzled out in Europe. We continue to pursue European acquisitions. I mean, we have given mandates, and each of those acquisitions are EUR 30 million-EUR 40 million potential. I mean, if they do come our way, then we need that corpus with us to execute it and to fund that. We also need CapEx of around INR 100 crore-INR 100 crore for our plant.
Taking into consideration all these transactions that we have on our plate, you are looking at a good INR 300 crore, I mean, minimum INR 400-odd crore being kept aside only for that. The rest is all fueling our working capital and our growth, our aggressive growth strategies that are there to fuel. I mean, we do not borrow. We basically are debt-free. Working capital will definitely go up based on this aggressive growth strategy that we have in place.
Understood. Thank you. All the best.
Thank you.
Thank you. Next question is from the line of Bharat Shah from Ask Investment Managers. Please go ahead.
Yeah. Hi. Since your apologies, because I could join only after 30 minutes of the call. Apologies if I'm repeating any question. Trump, for example, a couple of days back, seemed to have direct instructions to Walmart saying that they can't pass on or complain about increased cost, and they must absorb. Walmart is an important customer, and clearly, this kind of items for them to bear the entire burden given Walmart's relatively low-cost, low-pricing model, how that is kind of possible. I'm confused whether you understand the impracticality of the situation, what is going on. On one end, the tariff being imposed and all the time vacillating situation on that, plus to expect that the parties concerned will bear the burden. Clearly, unrealistic expectation, but that is what it is. It is on the record. That is what is stated.
How do you read about all this? I mean, it leaves me totally confused as to what is going on.
The president will do what he believes he has to do to calm situations down or to show the strength of whatever his is. It is hard. I do not think it is possible to control costs if tariffs are in play. Costs will go up. Some of the tariffs, Barat, is literally double the cost of the product. It depends on which country you are importing it. If the cost of a fruit is $1, the tariff itself is $1. There is no way for tailors to absorb it. They will have to. The manufacturers or the suppliers are not going to absorb it. They are going to pass it down. Even for clothing and everything, they are going to pass it down. The question is for the retailers. They want to absorb it. It is their call.
It is most unlikely that anyone will absorb it, and they will pass it down to the customer one way or the other. They may not very blatantly mention, "Oh, well, this is for tariff." They will slowly keep increasing their price and absorbing. I mean, this is what has happened during COVID also, right? All the prices of finished products went up. They did not mention, "Well, it's COVID, and that's why we're increasing prices." They slowly increased their prices, and ultimately, their prices are much higher than what it was historically because all costs have gone up due to COVID. Technically, I do see retailers increasing prices. There is no way they can absorb anything of that stuff. Trump may want certain things, and he may pressurize certain things, and it is within his purview to do that.
I don't think it is possible to stop it. Unless the tariffs are removed or it's very nominal, then definitely retailers may say, "4%-5% here and there, we can manage it." Otherwise, there is no way that retailers will be able to absorb it. Eventually, it will go down to the customer, and the customer will bear the brunt. We are seeing if you go to a retailer, you are seeing the cost much higher than what it was, even for essentials. I don't think that's going to stop the retailer from doing what they have to do.
Essentially, Mark, what you are saying is there are four parties involved: Government of America, which is seeking to impose tariffs; retailer like Walmart; manufacturers and distributors like you; and the poor helpless final buyer of the product. You are basically saying that if the U.S. government doesn't relent, then no part of the burden will be borne by either the distributor or retailer like Walmart or producer like Marksans. The poor helpless customers will be holding the baby in his hands entirely. Is that what we are? Is that practically how do you think it will work out?
It is a reality.
I mean, it is a reality.
It is a reality. It is a reality that everyone is aware that the end burden will be the customer itself. That realization is not happening with the current administration because they believe their objective is to get production out here in the U.S. and get everything made in the U.S.. It is a fact that if tariffs do continue—see, I mean, to be fair, they have exempted a lot of tariffs, or they paused a lot of tariffs because it was having a direct impact on the cost of product. Even for computers, they paused tariffs from China because the computer costs are going up. Cars now, costs are going up because all the spare parts are going up. Technically, the car manufacturers have already increased their prices. Literally, it is like 30%-40% more expensive to buy a car today.
If car manufacturers or dealers are increasing prices, I do not see why Walmart and Walmart will not increase prices. They come into play. Obviously, tariffs are relatively very new. It started only in the month of February, towards March, you could say, technically. Again, in April, it was paused, and then again, it has come back to some extent or revisited some extent. There is a bit of chaos and uncertainty happening out there. At the end of the day, there is inventory in the system, which once it gets depleted, the retailers will have to bear the brunt. I am seeing the clothing industry, whether from India or wherever, they have very clearly told the retailers that they cannot absorb it, and they are going to pass it down to the retailers. Guess what the retailers are going to do?
The retailers are going to pass it down to the customer.
Just one last bit. How much of what we supply to America would you describe as essential that they can't do without? How much of it is somewhat dispensable category where cost becomes an area of concern that people may dispense with the consumption itself altogether?
We do not supply any patented drugs or any products that you could term as life-saving unless there is a COVID happening and people start taking pain. They need something for fever or pain or something of that stuff. We do not have any patented items, basically, to fall in that category that people have to use it and do not have a choice. That said, when I talk of essentials, I am talking more on the grocery part of it, right? People have to buy vegetables, poultry, or meat and everything of that stuff. Those costs are going up. People will definitely need to spend on that first and then later on on medicine. Technically, all said and done, that is why there are rumors or speculation or doubts whether you actually go into recession because of this issue.
I think the government will eventually back off from tariffs. The intent was good, but the execution was not very great. The intent was to have a little trade arrangement, but the execution was horrible. Eventually, they will back off, I do believe. They know it is not sustainable.
Sure. No, I'm aware. Your rotation business is the dominant one in the U.S. It's somewhat reverse in the U.K. Given the pill-popping culture in America and excessive predisposition towards consuming medicines and drugs for any and everything, and given lack of easy access to doctors for most of the things that people have, I think America has become what it has become, a pill-popping kind of a society, recklessly, I would say, to the detriment of—to the benefit of businesses of your kind. Within what you supply, given the habits and behavior of the society in America, you don't suspect that, really speaking, what you supply can just be dispensed with by the customers. In other words, will prices begin to bite and they say, "Okay, to hell with it and not to buy some of the medicines." You see that as a possibility?
Assuming all this comes to pass.
I hope not, number one. Number two is, obviously, if the country goes into recession, then it's new, unchartered territories for all of us. I don't foresee that happening.
Sure. Sure. Therefore, you believe this 25% odd growth, which is what I had spoken to Jitendra last time, and I had learned—I do not know what you said in this call—but 25-odd % growth for U.S., U.K., and other territories put together for the next three to four years, those plans are intact, and those seem to be on track, right?
For the U.S., yes. I can talk for the U.S. For the company by itself, we are giving a year-on-year growth of anything about 17.5%-18% year-on-year growth as a corporate. The U.S. market, our base being very small, I do believe it is doable.
Twenty-five percent plus for U.S. and Marksans in entirety, it's about 80-odd percent, three- to four-year kind of a top-line growth.
Yeah. For the next three years, I would like to restrict to three years.
Three years.
Yeah. I mean, we are optimistic. Obviously, we've not given a three-year projection, but we are aiming for that.
Taking into account all the drama that is going on.
It just depends on how you define drama, right? Nobody wants a worse drama. I mean, there are force majeures which are beyond your control. If tomorrow war breaks out, it's pretty much saying that it's free fall for everyone. We are still very optimistic based on the current situation.
Okay. Fantastic. All the best. You have a really interesting spectacle to deal with. So good luck to you.
It's the nature of the beast. We overcome it, so.
All right. Thank you. Thank you, Jitendra.
Thank you, Bharat.
Thank you.
Thank you. Ladies and gentlemen, in the interest of time, that was the last question. I would now like to hand the conference over to the management for closing comments.
I'd like to thank everyone for spending their valuable time and continuing their interest in our company. I wish you all the best, and have a great day and be safe. Cheers.