Ladies and gentlemen, good day, and welcome to the Natco Pharma Limited Q2 FY 2024 earnings conference call, hosted by Batlivala & Karani Securities India Private Limited. As a reminder, all participants 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 and three on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Bhat from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.
Yeah, thank you. Good morning, everyone, and welcome to Natco Pharma Q2 FY 2024 earnings conference call, hosted by Batlivala & Karani Securities. From Natco Pharma management, we have with us Mr. Rajeev Nannapaneni, Director and Chief Executive Officer, and Rajesh Chebiyam, Executive Vice President, Crop Health Sciences. We'll request Rajesh to give a brief opening remark about Natco's Q results before we open the floor for Q&A session. Over to you, Rajesh.
Thank you, Rohit, and good morning, and welcome everyone to Natco's conference call. During this call, we may be making some forward-looking statements or statements about future events, and anything said on this call which reflects our outlook for the future must be reviewed in conjunction with the risks that the company faces. I'd like to state that the material of the call, except for the participant question, is the property of Natco and cannot be recorded or rebroadcast without Natco's express written permission. So I'll begin with results highlight and then, an interactive Q&A session. We have uploaded the financials on our website as well. So hopefully, you guys have seen it.
To summarize, Natco has recorded consolidated total revenue of INR 1,060.6 crores for the second quarter of FY 2024, that ended on September 30th, 2023, as against INR 452.6 crores for the same period last year, reflecting a growth of 31.4%. Net profit for the period on a consolidated basis was INR 369 crores, as against INR 56.8 crores same period last year, showing a significant growth of over sixfold increase from the prior period. Company business was strong during the quarter due to growth in formulation exports and also increased sales in our domestic agro business. The rest of the business is stable. Specific segmental revenue split has been also shared. I will not go into the details. We'll open up the floor for Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking the question. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. We'll wait for a moment while the question queue assembles.
How is it going?
The first question is from the line of Saumil Shah from Paras Investments. Please go ahead.
Sir, congratulations on a good set of numbers. So wanted to know the impact of eight observations on our Kutch plant, on our revenue for the current quarter, and by when we can clear these observations, because it's almost one month now.
Yeah. The inspection happened in the month of October, as you're aware. So on November 8th, we have responded. You're given 15 working days to respond. So November 8th, we have answered the given our reply to the observations, with our rectification and our remediation plan based on the observation. Typically, what happens is, it takes about 90 days for them to make a classification of the observation. So I think, so 90 days starts from November eighth. So, that's on the FDA side. In terms of impact, I think the impact will be minimal, because I think the company has always done risk mitigation with their top products.
As you're aware, I think all our top revenue items or top six revenue items are, have an approval from our Vizag site, in addition to the Hyderabad site. Lenalidomide also, which is the biggest revenue item, is also having approval from both Vizag and Hyderabad. Except for two strengths, which are 2.5 mg and 20 mg, which is about 7% of the total lenalidomide. So even that also, we have done the batches from stability, product stability. So we believe if you do 90-day stability and procedure called CBE-30. That is also done and even that can be moved. So that was already on the way, so we're so which is also planned. Overall, I think our impact will be minimal.
And, so I think let's wait for the classification of the, what you call, of the inspection, and we'll make a decision. But as, just as when we plan every project, I think we always have a two-side strategy for all our top products.
Okay. So even if this—I mean, currently, since the observations are there, so the production has been moved to the other product?
No, the products were already being made in Vizag, most of the products. Some products have not been moved, but we already have approvals from Vizag. So it's a little bit of both. So some products we have approvals, but they're not moved. Some products we have approvals, we are making in Vizag.
Okay, okay. And, sir, in the previous call, you did mention to achieve, say, INR 1,000 crore-INR 1,100 crore profit for the current fiscal. So, but what would be the, I mean, for next financial year, how much can it grow?
I don't think there'll be much impact. I think I still stick to the same. I think that range we're able to achieve. I don't see a problem.
Okay, okay. The next financial year, can we grow 20%-25% of all this?
The next financial year, we, I think will all depend on how the pricing environment is. I think we'll give more color to it, I think, closer to the end of the year. But we, we are expecting that we should do well in the following year. I think that was, general broad strategy of the business. And, so I think, yeah. I think, we'll speak more in detail about the actual growth, I think, closer to the end of the year. But overall, I think, yeah, the, the impact will not... will be minimal.
Okay. So there were recently some news article that entered in the Revlimid testing space. So how much that can impact overall our business?
Aurobindo has entered into what? Oncology business? Revlimid, you say? Okay.
Yeah, Revlimid.
A lot of players in Revlimid. There's already, it's all factored in. I think our earnings projections are sound in the competition, so it's all factored in, my friend.
Okay. Okay.
Thank you.
Thank you so much.
Next caller, please.
Thank you very much. The next question is from the line of Yash Malhotra from JM Financial. Please go ahead.
Hi, sir. In your last quarter presentation, there was a key molecule in your pipeline called semaglutide. Can you throw some color on its progress?
Semaglutide, I mean, good question you asked. It was not filed in Natco, it was filed from a CMO side. Okay, first question. To answer your second question. The review is ongoing, and it's very early days at this time, so I can't give you any update at this time, and our partner here is Viatris.
Okay. What steps are we as a company undertaking in order to have a better FDA track record and so forth?
I think we have a good track record, and I think we have, you know, GMP is a constant improvement process, and, you know, when observations come, you need to, you know, take yourself to the next level and meet the regulator's expectations. I think we are engaged and we are cognizant of what is required, and I think we'll do what it takes to get it done.
Sure.
Thank you. Next caller, please.
Thank you very much. The next question is from the line of Marcel. Please go ahead.
Yeah, hello.
Yes.
First of all, like, we didn't find a PPT presentation for the two results, neither in your site nor in the officer business. So this is an explanation, this is PPT presentation?
Yeah. Usually, what we do is, within 24 hours after the board meeting, we upload, and we usually incorporate certain questions that come from the call as well, and we do it. So it'll be done within an hour or two after this call.
No, sir. Actually, because some of the 90% company, announce or like, upload the PPT prior to the phone call. So at least we can go through the PPT and can accordingly frame yourself, and avoidable copy can also be avoided because a lot of company can find the duplicate. So can you please ensure that-
Fine.
prior to this one, prior to the phone call, which is at least two hours before, like it was recorded.
No problem. I think we'll take your advice. Yeah. Thank you.
Like, some of the functions, like, yeah, if you oversee, like, yeah, like, key products, so like, how do you see the progress or like, how do you see the growth in the current quarter? If you can just lightly talk about three key products.
Which product particularly, sir? Can you get, can you tell me exactly which product? Key products, you're saying, in the company portfolio, you're saying?
So, like, so that I need to open your like a Q1 PPT.
I'll tell you which one are the important ones. I think you can run through them.
Yeah.
The most important one, obviously, lenalidomide is the biggest one. So, lenalidomide, I think, you know, we have already... We don't have much quantity left, but most of it is sold. Lenalidomide will take off again starting from March. So the, the December quarter will not be as strong as this quarter. And again, March, things will pick up. And, regarding other products, pomalidomide is doing very well. I think it's very stable. And we'll see how things are. We have very good market share. And overall, our ROW, business, Brazil, Canada, is doing extremely well. So we are happy where we are progressing. Our subsidiaries are doing almost, this quarter, gross sale of INR 136 crore. So, and, they're all profitable and we're doing well.
These are three major items that drive the earnings. Agro has done extremely well. I think it's a business that we had almost very little turnover, and now this quarter we did almost INR 50 crores-INR 100 crores for the past year. So all business segments are doing well in the core.
So, like, we expect that, like, our traditional performance during December Q will be different than the September, or it's like December?
It will be not as strong. I already answered the question, sir. What I said is it will not be as strong as September, because typically we don't have the agro season is not there because Kharif is over. Second thing is, we don't have much, you know, Revlimid sale is not there, so as much. So basically, it will be little weak, but I think things will pick up again from March quarter.
Okay. And the last question, that like, do you feel, like, like, do you see any, any, any new product launch during this, December or the March quarter?
You mean product launches, you're saying in the December, March quarter?
Any new product launch?
No, there are no big launches by the end of that. Not in the next few months, no.
Okay. Okay. Thank you.
Thanks. Please follow up.
Thank you so much. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Thanks. Rajeev, can you provide some sense on, you know, the growth outlook for the non-U.S. geographies for the next couple of years? I mean, what could be the drivers, you know, any particular geography which is looking particularly robust from a growth perspective?
In terms of Brazil and Canada are doing extremely well. I think, give me a minute. I'll just look for the numbers. So if you look at the last quarter specifically, I think Brazil has done INR 34 crore and Canada has done about INR 60 crore-INR 61 crore. So these two segments have done very well. And, so we expect that these businesses will grow another 25% a year. Because I think the foreign growth driver in the big business. Another growth driver has been the agro business. The business that we started off on was zero. So last year, I think we did about INR 40 crore, and I think this year we're doing about INR 150 crore. So a minimum of INR 200 crore. So I think these are the major drivers on the non-US business.
In terms of these geographies, you talked about Brazil, are there any major approvals which are possibly likely over the, you know, which can have a meaningful impact on these geographies from a revenue perspective over the next two to three years?
I think the business is steady, I think it's ramping up very well. We have some approvals which are pending in the next one to 1.5 years, which we are expecting. The next one to 1.5 years, we are expecting good approvals. I think the benefit of that, you'll see in the financial year, 2024, 2025. I think nothing before March 2024, that I can think of. Definitely in 2024-2025, we have some very good filings. We generally don't state the products because of the confidentiality nature of the business, strategy. So I think we have some good launches lined up in the 2024-2025.
Thanks. Last one, on the R&D front, any sense on any color on any large filings, big filings possible you've done this year or you will do in the second half of the year?
I mean, we are trying another two, three products. I think, we are trying a few other FTF. They're all in initial stage. Any of those filings will be happen on the financial year 2024-2025, something in the next four, five months.
Okay. Thank you.
Thank you so much. The next question is from the line of Sagar Tulshyan from Intuit Capital. Please go ahead.
Okay. So just wanted to ask, like, we have a good year-on-year growth. So specific region or drivers for it, and what-- So I don't want any guidance, but what's the possibility of the revenue or the problem that we have next year? So this year or, let's say in the next two years, will we be at least able to maintain this rate or what would it be as such? Second is, how dependent are we on Revlimid? Now, what is the total revenue that we get from it and good as drivers is?
I think, see, you know, Revlimid is important as every other company and every single other product. In terms of the growth the next couple of years, again, it's all exposed to the general, what do you call, price erosion. Optimistically, I think it should do well for the next couple of years, 2024, 2025, 2026. But, again, only time will tell, and how market formation happens. But, yes, our sense. Regarding, you know, our pipeline for Revlimid, I mean, you know, we have a lot of other big filings. I think we have spoken about them in the past. You know, I think semaglutide is one big filing that we have. I think, and another good product that we have, is olaparib.
So, I mean, and, you know, these are all products which are under review at this time. So, so we'll see how things go. And, I mean, our sole FTF pipeline is in public domain. I mean, we have bosentan, we have pazopanib, so we have, eribulin, so acalabrutinib. So I think these are all very good filings, and I think some of them are already approved and, some of them are under review. So I think we are very clear, where the growth is going to come from. And, and I think, we have real, we have lined up our core manufacturing, and we also have a backup strategy for all manufacturing. I think our strategy has always been to have two sites for all important products.
I think this has been ingrained in us for the last five to six years. So I think that, I think I feel secure about the filings, and at the same time, I also feel that there are a reasonable amount of upside in the future.
No, just can you just give me the percentage Revlimid contribution to that?
I didn't understand, my friend. Can you say that one more time? I'm sorry.
Yes. The revenue percentage that we generate from Revlimid sales.
Revenue percentage, generally, we don't give sale numbers, my friend. I think generally we don't for competitive reasons. But, you know, it is obviously it is impactful. I mean, I, I'm not gonna, say it has a reasonable impact, but yeah.
Okay. Got it. Thank you.
Thank you, sir. Thank you. Next topic. Next person, please.
Thank you. The next question, the next question is from the line of Kunal from Investment Management. Please go ahead.
Yeah, good morning, sir. My first question is on our GLP-1 portfolio. So, you talked a little bit on the Semaglutide, right? Just how will the impact of this will it happen in the next three years, or do you think it is like five years? And the more important question on this part is also, is this Liraglutide opportunity that is coming sooner, are they going to participate in this opportunity there?
I don't have a filing on Victoza. That's the easy answer. We don't have a practice, we don't have a participation. I don't even have a filing, so I think we're not participating in Victoza. Semaglutide, it's early days, my friend. I think the review is in early days, the patent situation is in early days. As you know, this is a very good product. It's extremely well, you're aware of that. So I think we're very excited about it whenever it actually happens. At this time, it will be very premature to give a timeline. I would refrain from doing that at this time. I think once things develop, I think we'll give you some time. So as of now, it's premature.
Sure. You missed the part on the Saxenda. On that, are we planning or have we filed?
Which product, I'm sorry?
Saxenda. Victoza, you said we are not doing liraglutide, but Saxenda.
I don't know this product, my friend. I was not aware. It's not something that's discussed. We only discuss Semaglutide. We have done both, Ozempic and Wegovy. I think that's what, that's what we have done.
Both are through, Viatris, relationship only?
Yeah, that's that we address is our product. That's correct.
In both the cases?
Yes, absolutely.
My second and final question is on Humira, sir. Is there any... becoming obsolete in the last few months back?
Humira is not... You said Humira, right? It's a monoclonal antibody.
Yes.
It's not in our line.
Okay, sure. Thank you.
Thank you. The next question is from the line of Chetan Doshi. Please go ahead.
Congratulations for the good set of numbers. My question is that the factory business, you said it is seasonal. So first half you have done almost INR 100 crore. The question is, how much it is contributing to net profits, and what are your targets for the next financial year, where we want to grow as far as this product line is concerned?
I think we have a very good pipeline. So I think this year it'll, we'll have some sale in the Rabi. So it is about 60/40 split. So I think 60% comes in Kharif, 40% comes in Rabi. So I think, that's where we are. This product, this pro-profit right now is on the lower side. Earlier, it was not profitable, now it's profitable. It's on lower side because we had a lot of high-cost inventory from the earlier years, which we couldn't sell for a long time, and finally, we're able to get rid of it as we speak. I think the costing has gotten much better now. I think there's a set of raw material suppliers. You'll see a very good, profit, done in the next year. I think that's what my expectation is.
In terms of growth, I think we'll probably settle between INR 150 crore-INR 200 crore in this financial year. On that, I think we are targeting that we should grow compounded by another 25% in the following year, based on the pipeline that we have.
Thank you.
Next caller, please.
Thank you. The next question is from the line of Ketan Athavale from RoboCapital. Please go ahead.
Thank you for the opportunity, sir. I just had one question: Is the current quarter every time I mention sustainable in the long run?
I've already answered the question. I'll repeat my answer one more time. I think the current quarter will be as... The next quarter will not be as strong as the current quarter, but will pick up starting from March again.
This was for the control level, yes?
I'm sorry for the-
Control level, yeah.
Yeah, the control level.
Okay, got it.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask questions. The next question is from the line of Ritesh Oswal from Oswal Industries. Please go ahead.
Hello. Congratulations. Please provide some colors on inorganic growth acquisition.
Inorganic growth. Good question. I mean, we're looking at opportunities all the time. So we are opening up subsidiaries in multiple countries. Our cash has improved dramatically now, and I think, as of December, I mean, the numbers are there on there, but I think we received a reasonable amount of receivable. So as of October 31st, we have almost INR 1,657 crores in cash or cash equivalents, and we have about INR 108 crores of foreign borrowing. So net cash level, I think we're almost at INR 1,550 crore. So I think our, cash flow has increased, and going forward by end of the year also, I think it will go up, reasonably well. So I think we have the cash. We're looking at opportunities.
I think, we're just trying to see what the right one is, but I think we are looking at.... As of now, I don't have any, you know, deployment plan, but yes, I think we're looking at different options.
in antibiotic sector?
I'm sorry.
In antibiotic sector?
No, no, not antibiotic. No, not antibiotic.
Okay. Okay, thank you.
Thank you.
Thank you. The next question is from the line of Jayesh Gandhi from Kotak Mahindra AMC. Please go ahead.
Hi, sir. I just wanted to know, obviously, you've mentioned that the September quarter is expected to be weak. The December quarter is expected to be weak compared to the September quarter, and you'll be expecting a recovery in March. How do you see these two post, reserve, which one going forward?
So could you say that I understood most of it. I didn't understand the last question. Can you say that one more time? The last question.
Yeah. So how do we look at the second half of the financial year, compared to what we've seen things, how we've seen things pan out for the course of the year?
I mean, I said December will be a little on the weaker side, and things will pick up March. I think we've given a guidance, you know, I've given a range guidance. But these are our expectations that we'll do more than INR 1,000 crore, between INR 1,000 crore-INR 1,200 crore of practice here.
Thank you, sir.
Exact numbers and all, I mean, I, you know, I don't have a crystal ball, my friend. I think I only, I can only make an estimate of how things are. But I think that's our expectation. Yeah.
Okay.
Okay.
Thank you. The next question is from the line of Saumil Shah from Paras Investments. Please go ahead.
Hi, thanks for allowing me a follow-up. Sir, as we know, there is a fixed percentage for Revlimid sales for each year that we can do. So can we know for next year, this percentage will be higher than the current year, or it will be similar to the current year?
It'll increase, my friend. It'll increase.
I think it increased to almost by end of the term, it increased to almost 1/3 of the total sales of Revlimid .
So next year we can go up to 1/3 ?
No, no, no. By end of the term, by end of the term, it will go to one.
Okay. When is the end of the term?
I think by the next, I think by March 26th, I think, January 26th, I think. I don't recall the exact year. So, yeah.
Okay.
2025 by end.
Okay. So, currently, can we know, I mean, how much of that, I mean, if it goes to one third, we are at single digit or how is it?
I generally don't give that information, my friend. We generally don't give. We're bound by confidentiality.
Okay. And can we know this is the second year for this product for us?
Yes.
Second year? Okay. Okay, that's it from my side. Yeah.
Thank you. The next question is from the line of Yash Malhotra from JM Financial. Please go ahead.
Hi, sir. If you could throw some light around, the volatility and litigations in the USA. As per my knowledge, you currently have another one in New Jersey filed yesterday.
Which particular product?
The same one, an antitrust case.
Actually, what he spoke, and I think, you know, we.
Correct.
We are defending our position, and I think we believe that the lawsuits are with the government.
Okay.
Thank you. The next question is from the line of Hussein from Carnelian Capital. Please go ahead.
Just wanted to understand, apart from CTPR, we have some other products in pipeline, in the agro group inside. Can you give some color on those products?
Generally, we don't give a pipeline until it is at a pretty sure, where we're very close to a marketing approval. But we have a very good pipeline. We're expecting at least two to three unique products in the next 12-18 months in the Atlas division.
And secondly, we were doing some relaunches of our product through our subsidiary, Dash. So, any progress on that front, if you can highlight on it?
Yes, sir, your question is that you've launched older products through Dash Pharmaceuticals, our own, wholly owned subsidiary. Is that the question?
Yes, yes, yes.
Yes, we have launched. Yes, we have launched some products. It's doing reasonably well, but still business that is losing money at this time because it's still in early stage. It's the only subsidiary that loses money. Otherwise, all the other subs make money. But it's a journey, so it'll take at least 1.5 to two years before it gets its own. We just acquired it. So, I think a lot of the pipeline that we have is, you know, older pipeline, so it's not as a profitable portfolio, but I think over a period of time, I think we should be able to introduce new products and newer launches, get it, into channel.
Lastly, on the domestic front, so on the Onco side, how is the business shaping up? Can you give some color on the overall domestic business?
I think domestic has been stable. I think you look at it, I think we have done well. If you look at our half year numbers, I think we've grown around 10%-12%. So I think it's stable. I think I'm happy where we're going. Unfortunately, only in a few cases have we not done an acquisition, which we are just talking on... evaluations. But yeah, but otherwise, the business has been stable.
Okay, got it. Thank you. That was my only question.
Okay. Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask questions. The next question is from the line of Marcel. Please go ahead.
Yeah, just going through the current investment, you know, portfolio about INR 300 crore. and hardly about INR 20 crore, INR 21 crore only invested in their, like, equity or this is the growth scheme of mutual fund. Remaining our, almost you can say, INR 284 crore, which is about 68%, which about 92.3% is invested in the bonds or deb entures, yielding hardly 8% return. You know that, like, our inflation is 11%+ . So, we, like, getting 8% is like nothing. So, if you also see that, for example, market, even the, Providence Fund or the government fund or the PFS, they are also, like, allowing, 50/50 percent investment in the, like, you can say, market, like, equity-oriented. So like,
No, let me answer your question. No, just our portfolio. I think let's understand what we have and what we don't have. See, what we have, India is most of it is invested in fixed deposits in banks and financial institutions. Our average yield is about, it depends on the tenure, but average yield is about 7.5%-7.75%. I think that's what the average yields for the Indian rupee deposits. But we also have cash in our offshore stuff, which is of giving a return of about 5%-5.5%, because dollar deposits only give you that much. So I think that's where the variation is coming from.
Can I assure you, I think this is probably the most conservative investments we have done, and we are not, you know, we are getting reasonable return for the cash that is there. I think that's-
No, no, no, actually, sir, the point is that only 7% in the growth oriented scheme predominantly in lower left. But we are, like, suggesting that if you can increase this threshold, say, from 7% to 40%-50%, like, the way, the way the market is now booming and the way this, like, India, like, it will be INR 7 trillion crore economy, yeah, electric economy. Investing equity is doing, like, business very carefully, 22%-25% per annum. So if you could, so if you could consider, like, you know, just allocating, like, bigger chunk for the equity, I think, I, I feel, as I say, increase, the shareholder value.
I understand. I understand your question. Now, I understand what you said. See, the thing is, our equity exposure is very low. I think our equity exposure is only 5%-6% of our total cash exposure. Laurus and all, because of the relationship, we bought them at the IPO. Those shares have been there for many years. I mean, our job is not to do equity stock market investment. Our job is to invest in pharmaceutical research and pharmaceutical manufacturing and pharmaceutical acquisition. I think that's always what the you know, the our mandate is. That's what we're looking at. If we don't have a great idea, we just put it in fixed deposit. I think that's what we actually do.
I agree with what you're saying, but again, I also disagree with you because the mandate is very clear that it has to be invested in our core business, not in equity.
Thank you. No, sir, I respect it. Let me just add something more here. Like, the mandate, the mandate here is only because then that, like, I'm not going to go into, like, you know, if we can go through the mutual fund growth scheme and so the liquid, suppose, for example, if you have any indicate to, to acquire something, then this, investment in mutual fund will take time maximum. So, like, there's no, like, issue that, like, there's, like, there's no barrier that, forever. No. So, like, because your point is that if you invest in equity growth scheme of mutual fund, you will get, different roles. There is booming, so you will get, like, our enemy will also be higher.
So if you could consider to invest in mutual fund route, wherein we, we will not be, you know, like, about the market, like, this, after down quickly, just like it is not working. So just be considered to hike the, to some more exposure in the mutual fund.
Yes, sir. I think we will consider what you said, and I think maybe we can consider an exposure. But as of now, I think, yeah, let me... We'll just have a review and then come back with some thoughts. Yeah. Thank you.
Thank you. Thank you. The next question is from the line of Hrishikesh Patole from Batlivala & Karani Securities. Please go ahead.
Hello. Hello, everyone.
Please go ahead.
Yes. So just last year, same quarter was pure Revlimid business without Prevenar and again, without the exclusivity stream, and we had reported margins in the range of around 20%. So is that, is that the right way to look at the business rate of Prevenar?
I mean, yes and no. I mean, it's a very complicated question what you're asking. When we have good revenue, we also spend more on R&D as well, right? So, I mean, when we have, you know, it's, I mean, I can't answer your question, honestly. I mean, it all depends on, we budget based on our surpluses, and we plan our R&D investment based on that. So, if you, and your R&D is, measured based on, you know, I measure, you know, keep on my R&D costs and what you can spend based on, you know, how the success is gonna be. So, honestly, I can't answer your question. I do not answer your question. Okay.
Just to, what, what was the R&D number for this year?
We don't give for quarter to quarter. Generally, like, last year, 8%-10% of our, 8%-10% of our revenue is spent on R&D. That's correct.
That would be the same thing going forward?
We are maintaining the same flow. Yes, correct.
Yeah, sure. That's it from me.
Okay.
Thank you.
Thanks a lot.
The next question is from the line of Ketan Athavale from RoboCapital. Please go ahead.
Thanks for the opportunity. I'm new to the company. So can you just explain how have we reached the margin percent year-on-year? And you said after, I mean, in Q4, we will pick up the margin again. So did the margin percentage going years?
I think we have spoken about it in the past. I think, I mean, short answer is that, yes, I think based on our product launches and based on the interpretation of the Hatch-Waxman, yes, I think that's we expect at least for the next next couple of years, based on the pipeline, I think we should be able to hold up, yes.
How, what has recent margin over last year QoQ?
I think we had some good launches. I think we had doing well. Our agro business is doing well. I think development also has done well. So I think all of them together has has improved our margins.
Okay, got it. And, this cyclically or, I mean, is this a seasonality, which margins will go down in Q3, or is this only for this year?
I mean, I can only—I can't talk about every year. I can only talk for this. I can only tell you what's happening in this quarter. I think the gentleman asked, what, how will your Q3 be compared with Q2? And I think, we've Q3 will not be as strong as Q2, but however, things will pick up from Q4. I think that's what we are saying. And we have said, and we have split the guidance for the year, and I think the number, I think we already said, that it will be between INR 1,000 crore-INR 1,200 crore plus back. I think that's what we have said, I think that's what we'll end up with for the year.
Okay. So can you give guidance for next two years also?
I don't want to give right now. I'll give you closer. I think I have... Let me see how the year goes, and I think closer to the end of this financial. I think we'll think about that.
Got it.
Okay.
Thank you. Before we take the next question, we would like to invite participants who are pressed star and want to ask questions. The next question is from the line of Nikhil from SIMPL. Please go ahead.
Yeah, hi. Good morning, and congrats for a good set of numbers. I hope I'm audible?
Yes, you are. Go ahead.
Yeah, two questions, Rajeev. One is on the domestic piece. Now, probably at the current run rate, we are back to where we were, three or four years back, when there was this price hit and everything went in and affected the domestic business. But in the interim, we had launched some more products, and we had launched into, I think, maybe if I'm not wrong, around 10-15 products we have launched. How do you see the domestic business growing organically from there? Like, would, would it be more driven by, more new launches, or do you think that the current launches or pipeline, which is there in the market, has been to scale up? That is one.
Second question, if you can, shed some light on, see, if you look at it, since the revenue has started coming in, our R&D expenses have increased significantly. I know this R&D investment will basically help us provide us a pipeline for future. But if you can just share, how should one understand this pipeline evolving? So is it like, are there a large number of opportunities which are like $1 billion or $500 million dollar kind of opportunities which we are targeting? Or are these opportunities where they would be needed for a clinical trial, those kind of opportunities? And once the revenue goes off, probably by FY 2025, 2026, would this R&D spend taper down significantly? Or how do you think about the investment in the R&D over the next two, three years?
Okay. The way this business works is whatever money you make. Let's start with the domestic. Domestic is doing reasonably well. I think organically, our expectation that will grow around 8%-10%, and if you're able to add an acquisition, then obviously there'll be a higher growth. Regarding R&D money, I mean, without spending money on R&D, you cannot build up pipeline. I think whatever the rich pipeline that we got is because of the money that we spent. And I think good amount of surplus we are generating, we're putting back in R&D, so that we can sustain for the future. And, I mean, our supplies are already in public domain. So I think, you know, by... So they have, you know, obviously, the timeline of when they'll actually happen, it all depends on the patent's output.
So answering your question, do we have a pipeline for 2026? Yes, of course, we have. I think we have a lot of products. They'll all come at different times, but, you know, we are excited about what we have. The question is, do you have more ideas like, you know, which are, which are highly valuable, which give very large amount of revenues? The answer is yes. I think, see, I tell you, it's a very simple business in a certain sense. I mean, in four or five of these in the next seven to eight years, I think you're set. You don't have to deliver many of those. I mean, you need to deliver three to four complex products. This business, more and more, I believe if the mix is right, at least three, four, six things right, you're probably covering 60% of your business.
I think, in those... you know, most of them will give you very low returns. Sometimes you might have shortages, and maybe you might. The only way this business works is only two ways. One is we do the complex subjects and deliver those. Two... a global strategy where you do an R&D and you do as many countries as possible. That's the only way you build a sustainable launch, otherwise it doesn't work.
Oh, Rajeev, one question.
Your question?
Yeah, partly, and what I'm trying to understand is the-
Yeah, go ahead.
Hello? Hello.
Yeah, yeah. Go ahead, man. Go ahead.
Yeah.
Go ahead, go ahead.
Last 15-20 years, we built a model around finding these kind of opportunities and going for it. But over longer term, as the complexity increases, say, more products or more launches going towards biosimilar or some kind of products, would you say that at some point as a company, we would have to move toward or we would have to change our business model or we would have to keep on in moving up the value chain? How do you see over a longer term? So probably five, next five years, this model can sustain, but over just... Yeah, please go ahead.
There are enough opportunities in the area that we're doing. We also do a lot of complex chemistry. We do a lot of complex oncology products. We do, you know, newer forms of, you know, new types of chemistries, which, which a lot of people are not doing. So in that sense, there is still a little bit of play available in the complex and mixed space. Regarding biotech, which is a separate question, it's a skill set we don't have internal testing, I'll be honest with you. We are trying to build it through, you know, small investments, opportunities. But again, it's a skill set I don't have. There are enough opportunities in the, you know, in the, in the setup that we have.
So I don't, I don't think there are, you know, you know, lack of opportunities based on the way you look at it. But however, saying that, you know, obviously, biotech is the future. I mean, it's just not monoclonal antibodies, okay? You have CAR-T therapies, you have gene therapy, there's a lot of things that are happening in the pharmaceutical business that you can participate in. And, these are the technologies of the future. I mean, you know, you need to be part of this. I agree with what you're saying. You know, how would you participate? I mean, that's the question that you, you might ask.
I think at this time, my personal view is that we don't have the skill set internally, but if somebody is doing it, maybe we can, you know, probably, you know, collaborate with them by investing or co-investing. I mean, for example, I would say, again, I'll give an example of one of our, friends. I mean, like, example, Laurus Labs has an investment, in an IIT Bombay startup, and they recently got approval for, a CAR-T, their CAR-T launch for, oncology products. So I mean, something like that. I mean, where you take a substantial minority stake, and you participate in the output. So there are different models, I mean, you can weigh them, or in an ideal world, you want to own a hundred percent of it and do it.
But, you know, again, you know, you have to weigh whether you can do or deliver or, or whether you want to do a collaborative approach. I mean, that's how you want to look at it. Okay?
Okay. As a percentage of our current investing-
Thank you so much. The next question is from the line of Robert Joseph.
Okay, fine. We can conclude the question. You can push that. Yeah, please.
The next question is from the line of Robert Joseph from BT Investor. Please go ahead.
Hello?
Hello. Can you hear me, sir?
Yes, sir. First of all, congratulations for the good set of numbers on your end of business, especially growth on the agrochemical business. Sir, actually, on last year, I have only one question. During your last AGM, sir, you were answering a return investor. During that time, he was asking about the, because our current lab was consulted to pass five to six years in the same space. So is there any action you are going to take regarding increasing of the market share of the lab? You told that time that you may consider issuing a bonus for the long term, sir, whether to reward them. So do you have any ideas still regarding this? If you want one of them.
As of now, no, my friend, I can't answer your question at this time. I look at different options. We've done a buyback, we have reduced equity by about two.
Okay, sir. Okay, sir. Thank you.
We have given a reasonable amount of dividend. I would like to say that our, you know, financial performance has been very strong. You know, as I also said, you know, we have a good amount of cash in our books, companies in pink health. So, beyond that, I can't answer your question. I mean, yeah. But I think, you know, you just have to, you know, articulate our position that this is what we're doing, and this is the pipeline, and this is how we're, you know, going forward. I think that's all I can do. Yeah.
Thank you. Thank you.
Thank you. The next question is from the line of Harish Swaminathan. Please go ahead.
Thank you. Mr. Rajeev, I really admire your devotion for this company, and I'm very proud to be a very long-term shareholder. Just two points, I wanted your view.
Yes.
One relates to buybacks and one relates to dividend.
Yes.
Now, the last buyback was on the market capital. So long-term shareholders didn't really benefit out of it, though the equity capital came home, so holding became more powerful. But that would have been much more beneficial for long-term shareholders because, A, you get the money, B, it is risky, and, C, it is very liquidable. So, considering that you earn 78% on your INR 1,600 crores, and considering that you might not need that entire amount for a potential acquisition, so in case you are considering any future buybacks, really, if you can limit it to just Q3 seasonality so that people who are not really believing the company can, of course, you know, pay the price. Now, the buyback I feel should be considered. Many progressive companies are doing that, including Infosys and recently MOIL Limited .
So it's like some are given, but, it helps us, number one. There is a time limit which is now over for you to consider the next buyback to give to your board of management. The second point is on dividend. Now, I understand that we want to, at some point, even out this seasonality thing, but you see now when we pay out dividend, we pay, much less dividend for Q2 and even less for Q3, and very high for Q1, because that's where your, your revenues come in. Now, one way would be, just my thought, is to, as a measure of establishing our intent towards removing the seasonality, to look at the dividend in a more equitable, equalized manner.
Because otherwise, what happens is today, many in the market think that nothing, positive focus is going to come for the next three months, so people trade in and out, plus, very long-term, shareholders like us, we bear the pain and we hope for a better tomorrow, but we have also bear this pain because of the seasonality thing. So these are my two points, and I once again want to regard my admiration for your ability and the way you have, you know, handled this entire piece. Hats off to you. Thank you very much.
Thank you, sir. Thanks for your kind thoughts. I will take both your suggestions under advisement. I think we should at all we consider, you know, a dividend payout, and/or a buyback. I will definitely, you know, weigh on your suggestion, and, we'll do what is right for the shareholders. Yeah.
Thank you. Thank you.
Thank you. The next question is from the line of Saumil Shah from Paras Investments. Please go ahead.
Sir, as you mentioned that Q3 won't be as strong as Q2, but if we compare it as, I mean, Q3 to Q3 of previous year, I mean, can we expect growth in that terms?
I don't want to answer that question, my friend. Let me just see how this quarter goes. Too early to answer that question. I think I can't answer that question. I'm sorry. Let me just see how the... See, because I'm right halfway into the quarter, so I don't know how the orders will be booked and, so I think... Give me a little bit. I can't answer your question. I'm sorry. I refrain from doing that. Because it's premature. Yeah.
Okay. One more suggestion as a previous participant, maybe in future, if we do a buyback, please do it through shareholder, I mean, so that shareholders could benefit, and not through the open market route.
Got it. Got it. I'll take that under advisement. Absolutely.
Because in the last five to six years, I think our market cap has been stagnant, so shareholders have not benefited. Yeah.
Yeah, absolutely. I'll, I'll take that under advice. Yeah.
Since we have so much of cash in hand, and if we don't have any opportunity, you know, for acquisitions, then please go back again.
Yes, sir. Yes, absolutely. Absolutely. I'll take that under advisement. Thank you.
Thank you.
Thank you. The next question is from the line of Ritesh Oswal from Opal Industries. Please go ahead.
Thanks for the opportunity. What's your view on carbohydrate chemistry? Are we entering in this space?
I'm sorry, what chemistry?
Carbohydrate chemistry. Are we entering in this?
I don't know. I don't know what that means. I'll just have an evaluation. I'm not in... I'm not a technical person, my friend, so I'm sorry you caught me off guard. But, I'll just check what this means. I don't know what it means.
Okay, I will send you an email.
Okay, fine. Thanks. I'll take the last question for today.
Yeah. Thank you. As there are no further questions from the participants, I now hand the conference over to the management for the closing comments.
Yes. Thank you. Thank you so much. Thanks for your comments and thanks for your questions, and I appreciate the suggestions given. We'll take that under advisement and then we make our next decisions. Yeah. Thank you everyone. Thank you. Good day. Thank you all. Have a good day. Appreciate it.
On behalf of Kotak Mahindra and Kotak Securities, thanks for this conference. Thank you for joining us, and you may now disconnect your lines.