Ladies and gentlemen, good day, and welcome to the Sun Pharmaceutical Industries Limited Q1 FY 'twenty one Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. I now hand the conference over to Mr. Nimesh Desai. Thank you, and over to you, sir.
Thank you. Good evening, and a warm welcome to our first quarter FY 'twenty one earnings call. I'm Nimesh from the Sun Pharma Investor Relations team. We hope you've received the Q1 financials and the press release that was sent out earlier in the day. These are also available on our website.
We have with us Mr. Dilip Shanghvi, Managing Director Mr. Abhay Gandhi, CEO of North America Mr. C. S.
Muralidharan, CFO and Mr. Kirti Gaurav Benorkar, Head of India Business. Today, the team will discuss the formal highlights, update on strategies and respond to any questions that you may have. As is usual, for ease of discussion, we'll look at consolidated financials. Just as a reminder, this call is being recorded and a replay will be available for the next few days.
The call transcript will also be put up on the website shortly. The discussion today might include certain forward looking statements, and this must be viewed in conjunction with the risks that our business faces. You are requested to ask two questions in the initial round. If you have more questions, you are requested to rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today.
I will now hand over the call to Mr. Pangir. Thank you, Ramesh. Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the quarter FY 'twenty one. I hope you and your family are happy help Let me discuss some of the key highlights.
Consolidated sales for the quarter were at INR 7,467. This is in line with our Q4 call, wherein we had indicated some softness going forward. The Q1 performance shows we've done well and have not lost market share in any of the key products or key specialty products in The U. S. Or in any other market.
Our timely risk mitigation initiatives ensured smooth operations of our manufacturing network, thereby maintaining continuous supplies of APIs and formulations for our customers and patients. Also for the Q1 last year, we had the one time contribution from special business in The U. S. And hence the numbers are not comparable to that extent. Let me now update you for our global specialty business.
We witnessed the impact of the lockdown on our U. S. Specialty business, which we view as temporary. For Q1, our global specialty revenues were approximately US78 dollars across all markets, while specialty R and D accounted for about 39% of total R and D spend for the quarter. We have recently received regulatory approval for Japan for ILUMYA and launch preparations have been initiated.
This launch in Japan will be a step for Sun Pharma in expanding business. We've also recently entered an exclusive licensing agreement with Ikma Pharmaceuticals for commercialization in Middle East And North Africa region. Abhay will give you more details on the specialty business later. We've commenced clinical trial in India for two products, which we are repurposing for COVID-nineteen. These trials are progressing quite well.
As a matter of fact, because of the current large number of patients across the country, the enrollment is much faster than originally planned. And hopefully, we should be able to announce the result of these two studies in possibly after two quarters. We continue to focus on employee protection, keeping workplace COVID free, while at the same time engaging with doctors in a safe and consistent way, ensuring and also ensuring supply of continuity of our products across markets. I will now hand over the call to Mr. Mowgli for discussion of Q1 financial performance.
Thank you, Mr. Shambi. Good evening, and welcome to all of you. Our Q1 financials are already received. As usual, we will look at key consolidated financials.
Q1 sales are at INR7467 crores, down by 9.6% over Q1 last year. Material cost as a percentage of sales was 26.4%, lower than Q1 last year due to product mix. Staff cost was at 23.6% of sales, higher than Q1 last year, mainly due to lower sales base and increase in feedstock in India and U. S. There was no rationalization of manpower across the organization due to the COVID-nineteen pandemic.
Other expenditure was at 28% of sales, slower than Q1 last year, mainly due to reduced marketing, selling and traveling expenses across markets. EBITDA for Q1 was at INR1725 crores with EBITDA margin at 23.1%. This quarter, Taro had a provision of about US419 million dollars related to the settlement with DOJ in The U. S. Plus an additional provision of about US60 million for the related ongoing multi jurisdiction civil antitrust matters totaling to US479 million dollars or about INR3633 crores.
Adjusted for this one time exceptional charge as well as the minority interest on it of INR832 crores, the adjusted net profit for Q1 FY 'twenty one was INR $11.46 crores with adjusted EPS of INR 4.78. Including the above exceptional charge, the company reported a net loss of INR $16.56 crores. Let me now discuss the key movements versus Q4 of last year. Our consolidated sales are down by 8% Q on Q, mainly due to sequential decline in Taro sales as well as The U. Specialty sales.
Material costs at 26.4% of sales are lower than Q4 on account of efficiencies in management of inventories, including the provisions for the slower non moving. Stock costs are 23.6% of sales or higher than Q4, mainly due to lower sales pace, merit increase and increase in field staff in India. Other expenses are 28% of sales are lower than Q4 due to decreased marketing, selling and traveling expenses across markets. We had a ForEx gain of INR79 crores for Q1 against ForEx loss of INR143 crores in Q4. Reported EBITDA for Q1 was at INR1723 crores, higher by 37% compared to Q4 last year.
Adjusted net profit for Q1 was at INR $11.46 crores, higher than Q4 adjusted net profit by about 73%. During the quarter, the company had reduced its debt position by the extent of $200,000,000 as compared to the March ended 2020. Let me now briefly discuss performance. Taro posted Q1 FY 'twenty one sales of $117,600,000 down 27% over Q1 last year. Excluding the one time charge of 478,900,000.0 Net profit was US29 million dollars compared to US66.2 million dollars in Q1 FY20.
Taro reported net loss for Q1 was US434.9 million ARO reported settlement and loss contingencies of $478,900,000 which reflects the one time settlement charge of $418,900,000 related to the global resolution of the Department of Justice investigations into The U. S. Generic pharmaceutical industry. An additional provision of US60 million dollars has been taken for the related ongoing multi jurisdiction civil antitrust matters. The ultimate outcome of the antitrust matters cannot be predicted with certainty.
I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India business.
Good evening, everyone. Thank you, Murli. Let me take you through the performance of our India business. For Q1, sales of branded formulation in India were 2,388 crores, a growth of 3.2% over Q1 last year, accounting for approximately 32% of total sales. Given the challenges of the lockdown across India, we have done well for Q1 and have retained our overall market share.
Our chronic business has shown good performance. We faced some challenges in the acute segment due to closure of doctors' clinics in the quarter. Also as expected, there were savings in branding and promotion and traveling due to the lockdown. While many doctors have started their clinic recently, the patient flow still remains low. For non COVID hospitals, OPDs are gradually starting.
We continue to engage with the doctors digitally for brand promotion and new launches. Our medical representatives have started field works barring in those areas that has been designated as a containment zone by respective government authorities. Our expansion of the field force in India is nearing completion, which will help us in the long term to enhance our geographical and doctor reach. For Q1, we launched 10 new products in the Indian market. Sun Pharma is the largest pharmaceutical company in India and holds approximately 8.2% market share in over INR 142,000 crore pharmaceutical market as per June 2020 AIOCD AVAXMAT report.
We also continue to remain the partner of choice for in licensing given our strong number one position in many therapy areas. I will now hand over call to Abhay.
Thank you, Kirti. I will briefly discuss the performance highlights of our U. Businesses. For Q1, our overall sales in The U. S.
Were at $282,000,000 accounting for approximately 29% of overall sales. Although we recorded a 33% decline year on year, the numbers are not strictly comparable as sales for Q1 last year included a onetime contribution from the specialty business in U. S. Let me now update you on developments in our specialty business. Our specialty revenues in U.
S. Have declined over Q4. This quarter reflects the full impact of the lockdown due to COVID-nineteen. Two of our specialty products, ILUMYA and LEVILAN, are clinic administered products, as the temporary closure of clinics has impacted these products. The decline is mainly driven by lower sales of LEVELONE as the entire treatment is undertaken in the Kymix setting.
ECO also witnessed some decline in sales compared to Q4. For most part of the quarter, dermatology and ophthalmology clinics were closed. However, the important thing to note is that we have not lost market share in any of our key specialty products. Prescription share is now near to pre COVID levels, and we also see a month on month sales improvement. We continue to rely on digital engagement with doctors and healthcare workers for promoting our products.
Patients in The U. S. Have also significantly expanded their digital connect with doctors. Let me now update you on our U. S.
Generics business. As we have all seen, Taro has recorded a decline in sales for Q1, leading to a de growth in our overall generic sales for the quarter. The U. S. Generics business continues to be competitive.
I will now hand over the call to Mr. Shanghvi. Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R and D initiatives. Our sales in emerging markets were million dollars for Q1, down by about 10% year on year and accounting for 18% of total sales.
Decline is driven by reduction in tender revenues of our South Africa business. Excluding this tender business, sales were flat compared to Q1 last year. Formulation sales in Rest of the World market, excluding U. S. And emerging market, were $136,000,000 in Q1 FY 'twenty one, down by about 18% over the same period last year.
This decrease was mainly driven by lower sales in Japan, coupled with some declining Taro Rest of the World sales. Rest of the World market accounted for approximately 14% of the Q1 revenue. We've done well in our API business with Q1 sales at INR554 crores, up by 20% over Q1 last year. We continue to invest in R and D for enhancing our specialty and differentiated generic pipeline. Consolidated R and D investments for Q1 is INR $4.21 crores, accounting for 5.6% of sales.
Our current generic pipeline for The U. S. Market includes 95 ANDAs and six ANDAs awaiting approval with the U. S. FDA.
Over the past few months, we have learned how to operate in COVID-nineteen while
I'm sorry to interrupt you, mister Sangvi, but your voice is breaking. We can't hear you very clearly.
Okay. Can you hear me now?
Is this better?
Yes. Much better. Please go ahead.
K. We continue to listen early for finishing specialty and different packaging pipeline. Consolidated R and D investments for Q1 is INR421 crores, accounting for 5.6% of sales. Our current generic pipeline for The U. S.
Market includes 95 ANDAs and six NDAs awaiting approval with the U. S. FDA. Over the past few months, we have learned how to operate well in the COVID-nineteen environment. This experience imparted more resilience to our business.
We continue to focus on supply chain and ensuring business continuity without compromising on safety of our employees. With this, I would like to leave the floor open for questions. Thank you.
Thank you very much. We will now begin the question and answer session. The first question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yes. Thanks for the opportunity. Good evening to all. My first question is regarding the other expenses. So I'm just trying to understand there's been a significant drop both Q on Q and Y o Y.
So you mentioned a large part of it is India or you mentioned marketing, selling and traveling expenses have been lower. So I'm trying
to understand it is largely India led or it is
a function of The U. S. Branded marketing initiative also, which has come down and it has an ability to come back again once it normalizes. So I did mention that the marketing sales in traveling has been across regions. Across regions.
Okay. So that all I already mentioned that one. Because if I see the stand alone, I see that India reduction is less. So I'm just trying to understand, is The U. S.
Bigger piece or India is a bigger piece? But at end of the day, you are seeing a delta which is material enough, which is driven by the factors what was explained. And both India and U. S. And other markets also contributed to this.
Okay. It is across the market is above the range.
Yes. Okay. Thank you. Fair enough. My second question this is Nimesh here.
To add to what Mr. Munley is saying, you also have to keep in mind that the entire India business is not reflected in our stand alone numbers. You know that part of the India business is also in one of the subsidiaries. So I think looking at consolidated number is much better rather than stand alone. Very much.
I understood that. And my second question is on the Specialty business, given the lockdown, sales have come down, R and D as a percentage has moved up. Just top management's thought process, is there a plan moving ahead to monetize part of it to reduce the burden? I mean we could clearly see the margin that has come up with reduction in cost. Is there a plan to monetize a part of our specialty asset going ahead, maybe two, three years out?
No. There's no plan to actually reduce the specialty business. The focus is on growing that business and also potentially looking at future synergistic addition. And that is something that we've clarified multiple times.
No, no, no. I think I have not asked it properly. I meant to create an SPV and sell a stake out of it so that
We have no need. No, we are generating enough cash so that we don't need to create a SPV to generate cash. Okay, perfect. Fair enough. Thank you so much.
I'll join in Thank
you. Next question is from the line of Tushar from Motilal Raswal.
Just on the India business side, just if you could share your experience in terms of launching product during the COVID phase, where I presume there is a lot of difficult connect with the doctors on one hand and at the same time there has been relatively reduced patient doctor connect. So how do you map the way the product launches that would have happened has converted to revenue?
Sure, sure. Yes. This is Kirti. As I said in we have launched 10 new products, including SKUs, almost close to 27 SKUs during this first quarter. And this has been a very different experience of launching product digitally to the doctors.
And also making it available into supply chain was also challenging. So what has happened in some of these new products, which are having a less competition and some unique features, they are doing well, and they are also available across the supply chains. So our experience is launching a new product digitally is challenging. And since the patient flow at the doctor is also limited, there is a best opportunity for the doctors to write a prescription for a new therapy or for a new molecule. But this is in a short term.
I think going forward in next quarter or following two to three quarter, it should pick up very fast. Only the advantage of digital launching is now the offer knows our brand very well because they have been exposed digitally during the launch of the product. So whenever we get opportunity, I think the sales will pick up very fast for new products.
So does it mean that structurally, the operating cost for launching products will be lower compared to the campaigns pre COVID we used to have?
Yes. The that's correct. For for the first quarter where we have launched new products, most of them were launched digitally. So the cost of launching the product digitally is lower than what we do in a normal case when we launch product to physically to the doctors.
Understood. That helps. And just secondly, on this specialty side prescription trend, so is it to do with the pent up demand? Or that is in addition to pent up demand, the overall recovery is very much visible.
Means you are talking on chronic side?
On the specialty portfolio for The U. S. Or the domestic.
In The U. S, okay. Maybe let Abhay answer that question.
But Kishore, I did not understand the question. So what is the pent up demand you are speaking with?
So you highlighted in the opening remarks about the prescription trend coming back to pre COVID levels. So out of that, how much would be, let's say, because if there is any pent up demand or this is more the new prescriptions is being done?
It's that it's patients who are not reaching out to doctors coming back to the clinic gradually and be regaining share to wherever pre COVID levels of prescription there. So that's what I was talking about. I hope that answers your question.
Yes, sure. Thanks. That helps.
Thank you. The next question is from the line of Neha Manpuria from JPMorgan. Please go ahead.
Thank you so much for taking my question. My first question is for the Specialty business. Now, Revlon, you said, obviously, it was probably the most impacted along with ILUMYA. Are you seeing by when do you expect near normalization of trends in terms of patient footfall? In your view, would this take a couple of quarters?
And secondly, on ILUMYA itself, within in your interaction with the doctors, what is the biggest selling point for ILDEMIA versus the other IL-twenty three? We understand that IL-twenty three will gain share, but what is the biggest selling point for the doctor prescribing ILDEMIA versus the other IL-twenty three therapy drug, sorry.
Neha, if you have two questions, let me respond to them sequentially. For me to be able to forecast when things will normalize is really something I will not be able to do. Because if I see in The U. S. Context, I think just a couple of days ago, the debt toll in the country had crossed 150,000.
And even today, we are seeing close to anywhere from 90,000 to 100,000 new detections every single day. In the past week or so, four important states have sort of once again reinforced their lockdowns, Florida, Texas, a little bit of Arizona, California. So these are major markets. So these were one of the few markets we were forced to open up. But after seeing the price increases, they are going back to a lockdown kind of a situation.
So while in some states, the situation is improving, in some states, it has actually regressed. So when things will normalize, very difficult to say. Month on month, whether it is ILUMYA or LEVELLA, I'm seeing an increase. But when it will reach pre COVID levels is a tough question to ask. And I really wouldn't have an answer to that.
On your second question, I think we have said this on different calls as well. Think the three major points we are talking One is, of course, on the efficacy of ILUMYA. The second is on the safety. And the third is on the durability of results.
And these three messages do resonate with doctors. And they are also able to see the product leading up to their expectation on these three fronts. And therefore, the face of COVID as well, many doctors even ask their patients to continue not come back for ILUMYA and just stay where you are because they knew that the results and the patient clearance of skin was sustained. And when the patient is then able to come back to the doctor, I think the prescriptions of ILUMYA has resumed.
So is the durability of results, would that allow us to probably regain share faster than our peers?
We hope to, but also do remember that other words, it's a medical benefit product and others are pharmacy benefit product. We're just working on one aspect of a product attribute alone will not help us to regain share. We have to work on multiple fronts and make it a cohesive working unit to ensure that we improve our market share and gain faster than others, and that's always the objective.
Understood. Just to follow-up on the R and D spend on specialty. That has stepped up quite a bit quarter on quarter, even though our total R and D has come off. As we look at our R and D pipeline for specialty, how should we look at the specialty R and D spend through the rest of the year? Is this level enough for us to take our program through?
Or should it increase further?
So I mean, first of all, I think in today's situation, one of the biggest casualty has been the clinical trials because since the clinics were not operating, doctors were not putting patients on trial medication. So we really don't know when the normal operations of the clinical studies will start. Now my sense is that our continued investment on ILUMYA as well as additional indication for odansone plus the recently licensed product for from Spark, for which also the Phase II studies will start shortly. So the overall spend, if the clinical studies get into the normal rhythm, that spend will go up a little bit.
Understood. Thank you so much, sir.
Thank you. The next question is from the line of Sameer Mehsivala from Morgan Stanley. Please go ahead.
Thanks and good evening, everyone. So what's the update on Halol remediation?
So we continue to update the agency about
whatever
remediation that we've done. And in my understanding, almost all the remediation would have been done or are likely to be done shortly. But agency hasn't yet come out with any clearly defined guideline on how to audit a facility, which is currently on an OAI status. So they are working on it is what I understand. But till the time there is clarity, we really don't know how the agency will look at it.
Hopefully, they will come with a way by which, like what they are saying for regular product and for pre approval inspections and regular audits, it can be based on the best audit. We will find a way to complete this also based on the best audit, but difficult to respond at this point.
Okay, great. Thanks. Aben, this is for a derma portfolio, both for the specialty as well as for generic in The U. S. Now whatever sales is being lost right now or the prescription, so do you see this going forward?
Is it gone? Or do
you think this then comes back in some measure? The situation is gradually evolving, Sameer. So we had around 35%, forty % of the on premix opening in about last month. Doesn't necessarily mean that all of them were willing to meet your reps and have normal kind of visits. But electives were also pushed into the background.
So they were doing what was sort of important and electives were still being put into the background. And you're right, that did impact both the specialty as well as the generic part of the down portfolio. There is improvement seen literally on a week to week basis, but it's not so rapid that I can say that things will normalize in the next couple of weeks or in the quarter. So it's a gradual process. And as I was mentioning to Neha earlier on the call, some states are actually going back on their reopening plans and going back into a shutdown mode.
So it's an evolving situation here in The U. S.
Okay. And just one final one from my side on Taro settlement on DoJ. Sir, given that the underlying sales was about $500,000,000 that was cited, was it a bit of a pervasive practice in the company during that time period? And second is how do you think about the ongoing 44 state, attorney general case on the same price fixing?
Yes. No, I think, Samir, I think that's where we have a challenge because Taro being a public company beyond whatever that Taro has shared, I don't think we can share any further information. But at the same point of time, I think there is a structured process for all these DOJ settlement, so we have to remain in compliance with those settlements.
The next question is from the line of Nithya Bias from Bernstein Research.
My first question was on the India market. Are any of the savings related to this from either more efficient marketing or more efficient selling now to the doctors using digital tools, etcetera? Are any of these savings likely to outlast COVID? As in as we see normalcy come back, do you see any of the savings being sustained?
What I think is some of these savings would continue in second quarter. And then quarter three and four, if things are normalized, then some of these savings would reduce substantially when things will start coming to normalize, maybe in third or fourth quarter.
Okay. So you do not see anything any fundamental changes in the way you do business in India? So all the expenses that used to happen before are likely to come back once the market is in there?
Yes. So what we hope is once things are normalized and all these expenses will come back, there will be some savings here and there, but that will not be very substantial.
Got it. Thank you. My second question was, again, a related question on the DoJ Probe Enterprise System. So beyond Sauro, I think some have also been named in sort of briefly. So again, a question around what is the progress currently and what can we expect going forward?
So I think as we explained, the settlement is only for Taro and it does not include Sun. The products for Sun as well as Taro are also distinct and very different. So as on today, I think there is no progress that we can report beyond whatever that we have shared.
Okay. Thank you.
Thank you. The next question is from the line of Anubhav Adderwal from Credit Suisse. Please go ahead.
Yeah. Thank you. Good evening. One question I have particularly for the India business. I just wanted to understand that if we look at the mix of marketing in terms of digital channels versus digital interaction, if you can just provide us with us indication, May versus July, what percentage will be digital I'm just looking for a trend.
I'm just not getting the exact number. Just looking that as things started opening up, patients started visiting doctors, etcetera, how digital marketing has started phasing out? So May versus July every time.
Mean, Amit, I think I will just start from April, like the lockdown started in March end. So you can say like April, almost there were no calls to the doctor. Mean, there is no physical call to the doctors in the month of April. In the month of May, at least the first quarter also, there were no physical call to the doctors. But from the second half of the May, at least in a green zone area, when they were defined at that point of time, we started working in the field.
And in the June, I think most of our field force now are working in the field, except in a containment zone or wherever there are restrictions. So if you see the transition, April was almost like, I would say, % digital, where the medical reps or managers are calling the doctors. May is like 20% to 30% of the calls, which are like a physical call. And when you come to June, then things have improved a lot. So in June, you will see like almost close to 50% of the calls, which we can go and wait to the doctors for a short period of time.
This is how the progression is happening. And July is still we see some improvement, but not to the extent what
I was expecting. We have a
lot of challenges in terms of local lockdown.
So physical infection right now in July is still sub eighty percent?
Yeah. Yeah. It's slightly better than June, but and the number of patients visiting to the doctors are very limited. Still there is a big challenge and fear psychosis in the mind of patients.
That's helpful. Second question, I just wanted clarity that personnel costs for us on a consolidated basis has gone up by INR100 crores sequentially. So is it have the recruiting more guys? I mean that would have been difficult. So is it just what could extend this INR100 crores increase?
So Anubhav, this is Murali. The increase is attributable to a number of factors, increase in the field force in India and U. S, some component of exchange rate impact and actual valuation impact. So these are certain components and drivers for this change. So this India fees will increase was already planned, it's just that people the new decisions are not taken because of the same 10 increase that you talked about, which has just started flowing in.
Correct. Okay, sure. Thank you.
Thank you. The next question is from the line of Damyand DeKerai from HSBC. Please go ahead.
Good evening. Thank you for the opportunity. My question is regarding The U. S. Generic business.
So if we see some further delay in Halol regulation, how do you see your U. S. Generic pass evolving in next two to three years? And what is the pricing environment right now for your portfolio?
So when I look at the opportunity that is available with current products and some of the products which we have launched or are launching in the next few months, I'm pretty confident that it there is still scope for us to do better in the overall sun generic part of the business. And I think that's what the team is working towards. Pricing situation, I have consistently maintained, is not improving from an industry perspective, and we continue to face a challenging environment.
Okay. So challenging means most of your peers have mentioned about mid- to high single digit kind of pricing erosion to continue. So are you witnessing the same level of erosion?
Very product specific. So in an aggregate sense, maybe I would probably would like to go along with the same kind of a number. But when I see some products, I mean, sometimes the drop can be so severe, it just moves the earth under you. But at an aggregate level, yes, maybe you can take that kind of a number.
Sure. My second question is regarding Epsorica. So you had plans to move your patient from Epsorica to Epsorica LED formulation. So how has been progress there?
Very gradual. And I think the COVID situation is the primary contributing reason to that. So the shift is very gradual. So in the absence of proper promotion to the doctors, the loyal customers of the product stay with what they know, and that's the Absorica brand. So some shift is happening, but not as fast as we would like clearly.
Okay. So any year end target, like what percentage of patients you would like to move after seeing a disruption of COVID?
That would be a difficult question for me to answer, ma'am, because it's something which is a strategic question, and I would not like to answer that.
Sure. Thank you.
Thank you. The next question is from the line of Vishal Manchanda from Nirmal Bank.
Could you share a tax rate guidance for the year?
We have always maintained that tax rates sort of looked at an annual level. And last year, FY 'twenty, our ETR was about 16.4%, and we have guided already last year that gradually we'll inch up. So we'll maintain that position.
So will this merger have any implications, Sun Pharma Global, Legacy, Video or No. No. And just one more. One of the executive orders that Donald Trump has passed talks about passing on the rebates to customers. The pharmacy benefit managers should basically pass on the rebates.
So does this have any favorable or unfavorable implications on your specialty, especially legal fees?
So the fine print of the order and how exactly it will get implemented is still unknown. The whole industry and the associations are trying to work through it and trying to understand more. So as of now, it's very difficult to respond to that.
Okay. Thank you. That's all from
me. You. The next question is from the line of Krish Mehta from Iram Holdings. Please go ahead.
Yes. Hi. I had one two questions. The first one is about if you could share the net debt position for the consolidated and stand alone statements, and I'm guessing this will be ex TARO?
The net debt position on the ex Taro is about $850,000,000 on thirtieth June.
Okay. And the other question I had was if you could share
No, I stand corrected. I stand corrected. The net debt position as of thirtieth June for extra was $451,000,000 okay? Okay, dollars $451,000,000.
And I had another question about the working capital. If you could share the accounts receivable, payable and inventory numbers for this quarter consolidated?
Accounts receivable, payable for this quarter?
We will let you know separately. Okay.
Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Hi. Thank you for taking my question. Just the first one is on the gross margins. Seems to have come up quite well. And when we look at Taro, clearly Taro has declined.
So I'm just trying to see what has happened in the rest of the business from a gross margin perspective?
Overall, we have also still read out that there has been efficiencies in management of operations coupled with we have also managed our overall inventory management more efficiently. That includes the slow and non moving related management of inventories. So these are some of the factors that help us to improve the overall margins. Got it. So, Malishar, is
this sustainable? You think or when the mix kind of comes back to a normalized mix, this will be sustainable or not?
I think that's the follow-up. It's very difficult to answer. We to wait for the mix or what's going to happen. Okay, got it.
My second question is on the API business. It's grown 20% Y o Y. Anything in terms of and the press release talks about using it more for capital, but is there any trends that you're seeing from third party sales on the API business?
Seem to have lost the line for Mr. Sungri.
Can you repeat the question?
Yes. My question was on
the API business. It has grown 20% Y o Y. And the press release talks about using it more for capital purposes. But I'm just trying to understand, from a trends to third party sales, is that something that you are observing in terms of qualitative color?
No. We have been maintaining a robust position on APA business consistently. The philosophy is, of course, to leverage the vertical integration capability the company has, which helps us to speed to market. That's why we are saying that we will try and enhance more and more captive. At the same time, we are also focusing on whatever available on the third party sales and we have consistently performed on the APA in the third party sales also.
Got it. And last one is on the APA localization efforts by the government. Is there any update or are you looking at any specific drugs in that list for you to kind of localize?
Yes. I think there were quite a few products in that list other than antibiotics that we are considering because we already are in that business. So we are evaluating all options, but the idea would be to use this as a way to become fully integrated in India.
Got it. Thank you and all the best. Thank you.
Thank you. We have Mr. Swanghi Vijay connected. We take the next question from the line of Surya Patra from PhillipCapital. Please go ahead.
Yes. Thanks for giving me the opportunity, sir. Two questions. One on the
two product repurposing for COVID
that you have mentioned. So how are you thinking whether just thinking for the domestic market or you are thinking as a kind of a global initiative for through this. Any purposes on that? And in terms of opportunity, how big and what that you are thinking about it? So if you can say something on that front.
So of course, we are currently doing the study in India. And these studies are being done with the view to meet the Indian regulatory requirement. All different countries have different regulatory requirements. Plus we also have to keep in perspective that we only have IP for AQCH and not for Nephromostat. So I think depending on what the opportunity and what kind of clinical outcome benefit we will get, we have to then decide about launching the product outside of the country.
Okay. My second question is about the specialty business. See, I believe in the previous quarter commentary, you had mentioned that most probably this year, FY 'twenty one is likely to see a kind of decline in terms of specialty spend, largely, I believe, on the promotional side that you are mentioning. So whether any progress that we have seen on that front? That is one.
And secondly, relating to the specialty only, see, we have seen a sequential, mean, quarter on quarter run rate has come down by almost like $70,000,000
because of
the COVID factor. And there is also sequential decline in the branded business of ROW emerging market as well as India. So despite that, there is a kind of a sequential improvement in the gross margin thing that is visible. So whether it is coming from the sequential correction in the raw materials and hence that would be sustainable?
No, I think it's a complicated question. Sabai, maybe you respond to the gross margin. Because I think you're mixing up multiple things.
Yes. Two questions I have asked in fact.
So I think if we look at the reduction in the marketing spend, some of this is planned and some of this is as a response to the COVID because we couldn't spend the money, people couldn't travel, we couldn't visit doctors, so all of those things. And as Kirti says, I mean, as even Abhay says, I think once post COVID and when things become normal, we will evaluate which kind of expenses don't produce any meaningful additional benefit, and we may relook at those expenses. Otherwise, most of the other expenses will continue to be normal.
Now So in fact, I was trying to understand about the specialty spend. So I was believing that you had indicated this year possibly we'll see a slightly lower kind of specialty spend compared to FY 'twenty. On that front, whether is there any difference change in the thought process?
No, there is no change
in the thought process. Think Then it was mentioned on the last call also that one of the reasons why the spend may be a little lower than last year is because we have optimized the DTC spend on ILUMYA. Now if you keep that apart, the rest of the spend is more or less what we have planned for. Now I'm sure both for Kirti in India and for me in The U. S, going ahead, the total money that we spend may not change.
But having said that, within that, marketing mix of the promotional mix may change depending on what works with customers and what is required to be done in a COVID or a post COVID environment.
Okay. Okay. And on the gross margin front, if you can get me, sir, can if you can. Despite the branded business coming down and there is a sequential decline in the specialty revenue, still there is a gross margin improvement, it is purely because of the saving in the or declining raw material prices or something else?
I think I have the same question I responded. What I did share is that efficiency in manufacturing operations coupled with management of inventories more efficiently, which includes the management of slow and non moving inventory related matters. That's these are the contributors for the improvement in material cost consumption. Yes, Murali, what I
can add is also product mix for India business.
Okay. Yes. Thank you, sir.
Wish you all the best. Yes.
Thank you. The next question is from the line of Bharat Ali from Equiris. Please go ahead. Mr. Bharatari from Equities, may go ahead with your question.
There seems to be no response from the line of Mr. Bharatari. We'll move to the next question. The next question is from the line of Gaurav Hinduja from GEPL Capital. So
firstly, I want to know that in The U. S. Business, we are seeing some sort of pricing erosion, as mentioned, on the generic. So from a long term perspective, do you see any changes to our product mix sort of increasing on the branded portfolio to augur well for the margins? So that's my first question.
Okay. So if you sorry,
I thought you were doing both questions together. But let me answer your first question since you paused there. I think Qi in the generic business will have a wide product basket. And if you see the number of new product filings that we have, and we have been giving this on our earlier calls as well, I think we have a robust pipeline of products to be able to cater. And then, of course, the other thing we should do as part of running the business is if there are products which we feel that the pricing is so low that it actually is not worthwhile doing it, then we continually look at products and try and see whether we need to continue or prune them from the basket and keep them dormant.
Okay. So are we likely to see the current product mix sort of normalizing for the next couple of quarters going to the gross margins and the EBITDA margin target come up? How long So I did not understand what you mean by product mix normalizing. I didn't understand what you mean by You mentioned that the gross margins have come up a little bit because of the product mix, I think, in the earlier question. So are we likely to see this on a recurring basis for the next couple of quarters?
Or is this only due to the COVID led disruptions? So in generics, pricing is something that you can be sure of today. And if there is a new RFP or a ROFR, things can change. So to look at what the pricing for a particular product with a particular customer is today and to then give a forecast of how it can look a year down the line becomes a very challenging task because it can change pretty quickly. Okay.
Thank you.
Thank you. The next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead.
Yes. Thanks for the opportunity. Sir, you mentioned that the cost reduction in marketing expenses across the group. So can you let us know whether the specialty business has been increasing the losses compared to the last quarter? I think that's the financial aspect or it will decrease the loss?
I'm sorry, I'm not sure who you asked the question or what was the question because your voice broke up for me at least
very
Is this better? Is it audible? Yes, much better. Much better. Thank
The question is for you, Avishan. It's basically I'm trying to understand the profitability of specialty business. I mean directionally whether it is higher or lower sequentially given that there has been reduction in other expense, marketing expenses even for that business? So we are in the investment phase. So there is no profitability as such.
Having said that, at the beginning of the last quarter itself when we were entering into the COVID phase, and we mentioned this on the call also last time, we took very conscious decisions to cut down on what we thought was non business critical expenses, these non business critical hiring. So that has led to a conscious reduction of costs for the current quarter. And depending how the situation evolves, we will either continue to maintain a tight control over the expenses that we have or we might sort of loosen the purse strings and start investing if the situation comes back to normal. So it's a watch and respond situation rather than take a decision now and regret later. Yes, understood.
I'm sorry, I actually misused the word profitable, but I just wanted to know whether the loss would have increased or decreased. If you can let me know, that would be great vis a vis the last Q4 of FY twenty I haven't looked at that really, Modi, I don't know. Do you have a sense? But when the drop in the turnover, I think we have said this, because I have not done that analysis personally. And I think business by business anyway on a call, would not share the details anyway.
Okay. The other thing I just wanted to know, the API costs, it has we have seen we have been seeing that it is increasing for almost a lot of products. And there is a sense that it will the higher cost will continue.
So in view of that, how do
you see our input material cost changing? And any view on the API cost also would be very helpful. No, I don't think we can look at the API cost as a whole. In some of the products, there is a clear increase. In some products, we also see reduction.
So maybe a slight overall increase. Difficult to kind of take a longer term view because multiple dimensions. Understood. So as of now, from whatever API pricing we are at today and if assuming it remains the same, we won't see much impact on our margin. Is that a fair understanding?
No. I think what we don't factor is that we have different countries and different businesses. So what is relevant for India business, maybe India business because it's price controlled and so many other variables. There is a direct correlation with cost and that may go up because of the multiple products which have gone up in terms of cost in China. Now at the same point of time, in some other businesses, the impact of cost is not so high.
So difficult to give a very defined answer. Okay. Okay. Thank you very much.
Thank you. The next question is from the line of Anubhav Sahu from MC Research. Please go ahead.
Thanks for the opportunity. A couple of questions. One, sir, for the India business, could you please segregate what was the growth of chronic portfolio versus acute portfolio? And how much of India sales is on chronic space now? Did we gain market share in last quarter?
Yes. I think broadly, if you
look at the IMS data or even for that matter, AISCD, AVAC data, 50% of our portfolio is a chronic portfolio. And rest will be like a semi chronic and acute. And I just missed your second question. What was it?
Yes, sir. If we have so sorry, my first question was on the segregation of growth. I mean, in this quarter, what was the growth of chronic portfolio in India versus acute portfolio?
Sure, sure. So like when I'm saying chronic portfolio, means like a cardiovascular and CNS type of therapy areas has grown by 10%. And semichronic has grown negatively. And some of the others like acute has even degrowed by minus 20%, twenty two %. So the chronic business looks like a normal business.
It still continued to grow what it was pre COVID period.
Okay. And sir, firstly, the chronic portfolio, did we gain market share or did we maintain market share? What was the situation?
So I can give you overall picture for India business, and you can look at this from two perspectives, the way you can look at the data. So if you can look at the IMS data for this quarter, quarter one, April, May, June, then you will see that Sun Pharma as a whole business, we have gained 0.5% market share. But at the same time, if you look at, let's say, IOCD data, then our market share is 0.1% gain. But more importantly is the markets are not growing. Or markets are showing negative growth in the first quarter, both in AirWax as well as IMS.
Against that, we have shown a 3% growth. So I think we are going in a right direction to gain a market share.
Got it, sir. And I have a question for Sangita. So I wanted your thoughts on recent executive orders by U. S. President Of Pharma sector.
I know it's early days and time frame is awaited, but the way debate is shifted to the overhaul of price negotiation process, any early comments on that? I mean what how should we position for things the way things are changing? Will it lead to a potentially increasing pricing pressure for, say, our specialty portfolio? Or do you think there is a case for a better market experience?
No, I hope we have clarity because it is necessary for us to get it for making investment decisions, but I don't think there is clarity. Now my own sense is that if I simply look at stock prices of all the large pharma companies, there is no major impact post that executive order. So I don't think that people are expecting any significant impact. But I think it's good to have clarity as Abhay says, we are looking at details and understanding the fine prints. And we are not even sure whether this will be challenged or we will all of the changes we've made, whether they are able visit the residential authorities.
So all of those things, we think we'll analyze and come back with some kind of greater clarity.
Got it, sir. So final one is on specialty business. Do we see a situation of breakeven next fiscal at the EBITDA level? Or do we have any target in mind for the breakeven?
No, I think we should not
look at specialty business alone. We should look at product by product. And I think we will start breaking even on some of the products from next year.
Okay. That's helpful. Thank you so much. Thank you.
Thank you. We'll be able to take one last question. We take the last question from the line of Anubhav Adarwal from Credit Suisse. Please go ahead.
Yes. Thank you. I just had one question. I just wanted to understand, get a general understanding of this price litigation case in The U. S.
Just in terms of if I look at the parties who are involved, one is Department of Justice, second is State and third is the commercial insurance. And my question was more from the commercial insurance perspective. When we look at they are roughly about more than 50% of the market, most of the cases investigation we have seen so far are from the state attorney general and department of affairs separately investigating. In your experience, how does commercial insurance do in these cases? Will it generally do they go with the judgment or whatever besides the state, but only in the cases or they have separate cases?
What's the process like in general? I think, Anubhav, the biggest challenge in all of this is that very few of this actually go into litigation and final judgment. Most of them get settled out of court. So I think ultimately, it will be a function of how that negotiation will go and what gets settled. And I'm not responding to your specific query.
I'm giving you a general comment. Very few cases like, let's say, a sum up for sale litigation that we had for waivers payment. It went all the way to litigation and we got a favorable judgment. But like that, very few companies actually go up to the end. So generally, it gets settled.
So difficult And how that gets settled is all over. Difficult to predict. I just have one query on that. When we look at Xanax Taro, with some of the drugs where we had case against state of Toronto General. So when we look at the commercial insurance cases there and for Cimaxdal, pardon me, I have not looked at that in real detail, but have this been litigated by multiple commercial insurance companies over there?
No, I think there is a litigation ongoing by large number of companies. But ultimately, will depend on the strength of the litigation, the size of the business and all of these issues and the evidence they have or the burden they ultimately, there is a certain amount of burden of proof. It's difficult to because all plaintiffs and what you call litigants would have different all companies also will have a different strength of their case. I appreciate. Thank you for that, Isma.
Thank you.
You very much. We'll take that as the last question. I would now like to hand the conference back to Mr. Nimish Desai for closing comments.
So thank you, everybody, for joining this call. If you have any questions that have remained unanswered, we'll send them across, and we'll get them answered. Thank you, and have a good
Thank you very much. On behalf of Sun Pharmaceutical Industries Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.