VADODARA Jul 24, 2020 (Thomson StreetEvents) — Edited Transcript of Alembic Pharmaceuticals Ltd earnings conference call or presentation Wednesday, July 22, 2020 at 11:00:00am GMT

Aviva Life Insurance Company India Ltd. – Analyst

Nirmal Bang Securities Pvt. Ltd., Research Division – Research Analyst

Ladies and gentlemen, good day, and welcome to the Q1 FY ’21 Earnings Conference Call of Alembic Pharmaceuticals Limited. On the call today, we have with us Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director; Mr. R.K. Baheti, Director Finance and CFO; Mr. Mitanshu Shah, Head Finance; Mr. Jesal Shah, Head Strategy; and Mr. Ajay Kumar Desai, Senior VP, Finance.

(Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. R.K. Baheti. Thank you, and over to you, sir.

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [2]

Thank you. This is Raj Kumar Baheti. Good evening, everyone. Thank you all for joining the first quarter results conference call. I’m sure you would have received the results by now. So, however, let me briefly take you through the numbers for the quarter ended 30th of June 2020.

So last year, we had closed the year with a strong note, and we are continuing the same journey nicely. First quarter this year has also been a good beginning for us.

During the quarter, our total revenue grew 41% to INR 1,341 crores. EBITDA grew 108% to INR 416 crore. EBITDA is 31% of sales. Profit before tax went up by 131% to INR 368 crores, and profit after tax went up by 144% to INR 301 crore.

EPS for the quarter is INR 15.99 per share, this is for the quarter, versus INR 6.56 in the corresponding quarter last year. CapEx for the quarter is INR 142 crores. Cumulative CapEx for ongoing projects including under WIP and including preoperating, of course, is INR 1,511 crores.

Investments in our joint venture, JV, Aleor Dermaceutical is INR 702 crores. This is cumulative investment number. The gross borrowing at consolidated level is INR 1,439 crore, and this is down from about INR 1,700 crores last year — last March.

The company has INR 260 crores as cash in hand, so the net borrowing is about INR 1,179 crores.

Net debt equity is 0.33. I would like now Pranav to discuss with you the presentation on international business. Over to you, Pranav.

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [3]

Thank you, Mr. Baheti. As you know, it was a good quarter for the international business, and this was driven across all these segments. The first question on everyone’s mind is the sartans opportunity and what is happening in the market? So as I said in the last call, the sartans market seems to have stabilized. There have been new entrants, by and large, this is a basket of about 14-odd products in the market. We continue to hold shares in some products, some products is where there have been competitors.

What is interesting, though, is no one competitor is taking up so much major market share or is present across the sartans. So I think the market is quite stable. As regards to the U.S. outlook, it continues the same what I said last quarter, we stick by the INR 70 million plus/minus kind of a number. That’s what we’re consistently seeing as our base business.

As we go along, we’ll keep adding stacks on top of it. This quarter was an exceptional quarter for the Europe and ROW business as well. Because, as you know, the last 2 years has been a little slow. We had a lot of serialization issues. And this quarter, we managed to get a lot more throughput out of our plants and good supplies that grew well.

API business also had a very good quarter. Some of it was due to some of the China disruptions, where we could capture some API opportunities. However, we expect that growth in the API to continue in subsequent quarters as well.

R&D expense was INR 143 crores in the quarter, which is approximately 11% of sales. This was a little lower due to shutdowns. However, during the course of the year, it will go back up to where we’ve been.

We filed 8 ANDAs during the quarter. We also received 6 approvals in the quarter, and we cumulatively have 125 ANDA approvals.

We launched three products during the quarter in the U.S., and we will launch about 5 in the second quarter.

As I mentioned, coming to the financials, international formulations grew by 70% to INR 771 crores for the quarter. U.S. generics grew 73% to INR 596 crores for the quarter.

Having said that, Q1 last year was a relatively weaker quarter in the U.S. Ex U.S., also, we grew 62% to INR 175 crores for the quarter. This, as I mentioned, was due to the serialization issues in the past, and the API grew by 54% to INR 264 crores for the quarter.

I’ll hand over to Shaunak to give a brief on the domestic business.

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [4]

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Yes. Good afternoon, everyone. For Q1, the India business, the numbers have been circulated, we decree at a negative 6%. This was in line with IMS industry numbers as well as — so that was a negative investment. I think we saw severe challenges in the month — was received in April, May and parts of June due to the strict lockdowns throughout the country.

In terms of the impact on business, we saw a pickup in June. And if I were to take the first 20 days of July, we are seeing a pickup of the business. Despite all of this, I think at an overall portfolio level, there has been a drag in 2 specific areas. Those specific areas are the liquid formulation, which largely go into pediatric usages, whether it’s antibiotic and cough and cold, which are largely dependent areas for us.

We’ve seen a severe drag in (inaudible) those same drags are being reflected for the industry sick liquids, in IMS data.

Also, partly, there’s been some drag in the hormone part of the gynecology portfolio. Largely, we feel these are 2 well specific drags in the portfolio, driven more by market dynamics today in this period of COVID.

Other than that, I think the expenditures in Q1 were managed to ensure that profitability stays in line with budget. So we have taken those steps and in Q2, we expect to make sure that top line again starts to grow, we mentioned cost-cutting and management (inaudible) happened in H1.

I think 2, 3 other areas in Q1, there have been no special discounts and special trade schemes being given to the market to ensure pipeline billing. We have made sure that despite a lot of pressure from the trade as well as our competition resulting to putting these pressures in.

We spent the last 12 months, as previously communicated, to clean up trade discounts, trade practices and to ensure that we largely became (inaudible) driven focused company, and that should only drive ourselves. So we feel that it wasn’t right for us after 4 quarters of this to restart it. And we have resisted, and we will continue to resist on this.

In terms of the overall business impact of the restructuring the cost correction at interventions we took last year, we feel if I look at our mix of Q4 performance and parts of June and July that we’re seeing, I feel part the correction has happened and it is reflecting in our portfolio.

Going forward, we feel that the portfolio will outperform the represented market. And going forward, as long as — despite the grumpy drag on our liquids portfolio, which historically is a portfolio that always does well for us, and I think for many quarters going back, I think the portfolio has — liquids portfolio has always outperformed the market. If we see some tailwinds on that part of the portfolio, we see substantial acceleration to happen.

Thank you. I open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Vishal Biraia from Aviva Insurance.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. – Analyst [2]

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Congratulations on a great set of numbers. Sir, a few questions. So what couple of these overhead expenses there where you’ve seen a sharp decline, 13% quarter-on-quarter and 5% Y-o-Y. So what proportion of this is sustainable?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [3]

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So there are major two heads of expenses, which got reduced. One, as Shaunak mentioned, our field expenses, including the traveling, some promo expenses got reduced. That’s more because of this field people not able to travel frequently and freely to their customers, and accordingly the promo also got impacted a bit or I would say, deferred a bit.

And the second is our R&D expenses also were down, which are like club and a various sets of expenses, the total aggregate of R&D, given the bottom of the results. And that also was a little lower because of impact of lockdowns, et cetera, (inaudible) I would say, end of March, beginning of April. Other expenses are online.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. – Analyst [4]

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Okay. And just one question on the API. What led to the substantial growth in API, sir?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [5]

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API growth?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [6]

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API — as I mentioned, the API business has been doing well. We’ve been seeding samples. We saw some opportunities because of azithromycin that was one of the molecules that was used to treat COVID. So we have some interest in azithromycin. Whereas, the rest of it was just BDN opportunities that we had, that’s how we grew the API business.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. – Analyst [7]

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Okay. And this target we should continue for the rest of the year for API?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [8]

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I think, yes, API, we will continue, not at maybe such a high growth, but we will continue growing in subsequent quarters as well.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. – Analyst [9]

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And for the U.S. business, we had initially planned prior to the start of the year that we’ll be launching about 10 products. We’ve launched three products in 1Q. So are we on track to launch the (inaudible) in 2Q?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [10]

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So actually, U.S. we’ll launch more than 10. We’ll launch anywhere between 15 to 20 products in the U.S.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. – Analyst [11]

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That is for the year you are seeing?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [12]

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For the year, yes.

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Operator [13]

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The next question is from the line of Anmol G. from JM Financial.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [14]

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Congratulations for the great set of numbers. My first question is to Pranav. Pranav some of the industrial (technical difficulty)

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Operator [15]

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Mr. Anmol?

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [16]

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Yes?

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Operator [17]

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Sir, sorry to interrupt, but your voice is breaking up. Can you move to a better reception area, please?

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [18]

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Yes. Yes. Is this better?

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Operator [19]

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Yes, sir.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [20]

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Pranav, my question is related to some industry commentary, which has been emanating that sartan API pricing has been softening. Typically, this is a lead indicator for the formulations also. So are you seeing anything with respect to market vis-à-vis the last time you spoke on the call, which kind of makes our portfolio more vulnerable to any potential pricing shock in the next 2 to 3 quarters?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [21]

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So we look at it, I haven’t actually seen the API pricing because we’re not such a big API player. However, people are still looking for good API sources, and that’s one of the things that will be there with the disruptions coming in from China. So that’s one aspect of it.

Second aspect is, I think, yes, the competition has increased in the U.S. in sartans. However, it’s such a complex and such high volume products, there’s no one person who’s taking a very large share. So I don’t think it’s reflecting in — I think people are not, at least from what it seems, they’re not killing themselves over market share to go to the high levels as was prevalent in the past. So I expect it to be stable as of now.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [22]

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So a follow-up on that, sir. For example, last couple of quarters, our U.S. performance has really surprised on the upside. Do you think there is a greater case for incremental investments in the U.S., given how the overall market is shaping up? Any headline thoughts on that would be helpful.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [23]

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Yes. So I think the U.S. market, I’m seeing the competitive intensity come down a little bit. I still think it’s a very attractive market. There’s a lot of demand there. I believe I am still bullish about it, and we are continuing to invest in that market.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [24]

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And my second question is to Shaunak. Shaunak, I take your point that liquids we did have a fairly high amount of leverage from a portfolio perspective. But we also had offsets, by the way, of azithromycin, et cetera. So if you could just share some color in terms of how we got impacted during the quarter? And what the road to normalcy or a new normal is looking like? So for example, how was June like and how far are we from pre COVID levels? And therefore, are we still on a full-year basis in a position to take advantage of some of the initiatives that you took to take the domestic business to a structurally higher growth path?

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [25]

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Yes. So I’ll answer your question 2 ways. I think if I look at Q1, azithromycin, I don’t think we had a overall azithromycin benefit for Q1, if I take in terms of absolute growth numbers versus last financial year. So that’s one.

The second part, too, like I said — if I take it I am going to take the end of June and the first 20 days of July, keeping in mind that market has reached some amount of normalcy, we have seen with a good onset of monsoon, the pickup in Azithromycin solids only. Azithromycin liquids, as I mentioned, all liquid formulations are a drag at the moment. We have seen a substantial drag in the liquid part of azithromycin, though, going forward, we see a very strong uptake in Azithromycin oral solids.

So that’s from the India business. Now in terms of coming to impact on some of the interventions we’ve taken. My gut call is that we are seeing a lot of that benefit already flowing through to us, and it will start flowing more strongly in Q2. If I can look at the major drags in the portfolio, like I said, our liquids, and liquids is one segment where historically, we’ve always been able to outperform or perform in line with the markets, whether it’s antibiotic part of the liquids or it’s the cough and cold part of the liquids, we’ve always done well, and IMS has a true reflection of that.

I think in terms of normalcy, I feel despite and with the ongoing lockdowns that are happening, that will keep impacting the business, but not in a major way as long as these lockdowns aren’t for a long enough period. So that’s one part of it. Second part of it is growth customer behavior. I mean like I mentioned, we saw some parts of the portfolio, whether it’s the hormone part of the gynecology portfolio, which is linked to pregnancy or it’s a pediatric part of the portfolio. I think some of these patient populations are staying away from the clinics in — or how do I put it? From a — maintaining a more higher level of protection for those patient populations.

So I mean unless that dynamic changes back to normalcy, we don’t see it. I think, like I said, the GP side of the portfolio, we see some return to normalcy. And I think the balance part of the portfolio continues. So I think if I could just give an idea, though it’s too little and it’s too early, I think the IMS reflections for the month of June, which usually be part of precursor to the subsequent months, I think the industry grew at — I think it was a 5% market growth, whereas Alembic showed about a 8% market for the month. And we expect this trend to go forward as long as we don’t go back into any kind of major pan-India lockdown this or the next or the few coming months.

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Operator [26]

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The next question is from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [27]

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Congratulation on good numbers. So first question is on gross margins. So just wanted to clarify that it’s largely due to the lower India and higher API and ROW sales? Or the U.S. profitability on the gross margin side would also be a little lower than in the past few quarters?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [28]

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So no. Your first part of the observation is right, Prakash. The lower gross margin, I mean, lower as compared to the March number, is because of a higher proportion of API sales.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [29]

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Okay. And we have said that API will continue to be a higher growth element going forward?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [30]

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As a percentage of sales, I don’t know. I mean as a contributor to the sales percentage, I don’t know, whether it would be the same percent or it will go down a bit.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [31]

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Understood. Fair enough. And secondly, to — question to Pranav. So you mentioned about $70 million plus-minus, I’m just trying to understand with the comment that sartan being — sartan opportunity being largely stable and with 10 to 15 — or 15 to 20 launches, plus the azithromycin scale up, wouldn’t we go and do a step function of another $10 million, $20 million going forward by 3Q, 4Q, would not that be a correct assumption?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [32]

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So the $70 million is what I’ve said a few quarters back that I — what I anticipate. As per the new launches, yes, the whole point is, as you have more launches, you should see that going up. Azithromycin has not been a big launch for us. There’s a lot of incumbents in the market already that stabilized. So azithromycin, we didn’t even have all the strengths initially. So that’s not been such a big product for us.

But yes, overall, we should continue to grow on that. So let’s see how the launches go. I’m not committing anything because we don’t give a guidance. It depends how successful the new launches are.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [33]

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Okay. And lastly, on the presentation, we’ve talked about 10 derma products and 12 ophthalmic approvals. I just wanted to check how has been — what portions have been launched? And how has been the initial launches since these are the new category of product launches for us?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [34]

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So Let me just tell you how many have been launched, but ophthalmic has been very good. I think there’s a good market, of course, much smaller. But that’s done quite well. Derm, we’re starting off a little slowly. I think we’ve launched about 4, 5 products, and we’re gradually ramping that up. As you know, we never get in with being market share on day 1. So we’ll slowly see how the situation is. Derm is a little more competitive compared to the ophthalmic. Ophthalmic, we’ve picked up some good share in some products.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [35]

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Perfect. And last one, if I May? On the fundraise, so we — so the understanding is we did a fair amount of CapEx in the new facilities, all are heavily — or fairly invested now. So the next round of investments would be looking for the U.S. scale up into other categories where there are gaps? And if yes, which are those areas we are looking at?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [36]

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Yes. So I think one of the reasons for the scale up — for the funding is, I think we’ve demonstrated what we’ve done in the U.S., and I think we continue to remain bullish in the U.S. There’s a lot of opportunities. With the CapEx largely paid off through internal accruals. Now it’s a matter of next couple of years, we know where the growth is going to come from, right? But what do we do after that? So we have to start working on some longer gestation projects. These are not inherently more expensive, but just a little more risky in terms of a little longer lead times.

So we’re just building up a firepower for that and just getting lighter on our balance sheet, which would help us invest in these areas. We haven’t disclosed areas, but it’ll be a little more complex generic, still more 505(b)(2) kind of products.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [37]

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Okay. And biosimilars, if you may just clarify, sir?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [38]

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No, no, no. No biosimilars.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [39]

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Complex generics and 505(b)(2)?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [40]

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Yes. So going up the injectables route and some other specialty.

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Operator [41]

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The next question is from the line of Kunal Mehta from Vallum Capital.

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Kunal Mehta, [42]

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Sorry to harp back on the sartans question. So firstly, I would like to congratulate the management because our performance in sartans was because we had planned in increasing the API capacity, which I think nobody in the industry did at the time when we did and which was paid handsomely. So when I look at the IQVR numbers, around — sartans constitute to — sartans portfolio as a whole is around roughly 40% of our running 12-month sales and now we are now seeing more players coming in. So my question is to Pranav, given — I wanted to understand the worst-case given how much market share can we lose in these products? Because it’s spread across 13 products and as you — and they are fairly large volume. So could you give us a sense of how do you see the price versus market share equation going forward there?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [43]

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Okay. So I’ll be (inaudible) product-wise specifics. But if you look at — if you have IQVIA data, you just take a look at all the sartans. And inevitably, what you’ll find is, there’s about anywhere between 3 to 5 people who are dominant in all the sartans stalls, right? And you’ll see where Alembic even where — we where we aren’t. Number two, strategically and irrespective of sartans, our strategy is, we want to make more money for the company. So we don’t chase market share. We chase is where we can make more money. That’s a strategic direction to the U.S. team and Alembic does, so that’s second thing.

Third is, as I said, people are getting into sartans in various sorts. So not everyone is able to do all the products. So it’s very tough to say how it goes. Right now, we’re only on to market share. It’s our market share to lose, and it depends at which price. So far, I think, as I mentioned earlier also that the competitive intensity has come down. I think the market is well settled right now.

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Kunal Mehta, [44]

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So the key barrier here for anyone to build a share in a high — assuming in a high-volume product like valsartan or valsartan plus HCTZ, so would API be a — API quantity be a key barrier for somebody to take share from us or how?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [45]

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I think, again, with all business in the U.S., there’s various constraints, right? So it’s very tough to answer. It’s not particularly the sartans or anything. You’ve got API, you’ve got compliance at API, you’ve got formulation, you’ve got compliance with formulation, you’ve got your supply chain efficiency, everything, it’s a combination and not sartans is for every product, it’s the same.

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Kunal Mehta, [46]

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Sure, sure. The second question I have is on the longer-term filings. I mean you mentioned — sir, I’m sorry, product launches. So you mentioned that this year we would do more than 10-plus launches as compared to what we had guided earlier. And I’m sure next year, given the (inaudible) have been lined up and we — there are good opportunities, I’m sure you would repeat the same thing going forward. But once you have — once from FY ’22, second half, where you have most of the capacities coming on stream regarding the new investments in different doses forms, so I wanted to understand from FY ’23 onwards, how do you see the launch scenarios? I mean at least 20-plus launches every year given orals — or given it’s a combination of orals solids plus onco plus injectables plus ophthal?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [47]

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So, yes. So actually, we’ve always said that we will launch about 15 to 20 products every year. And we stick to that because a lot of the filings that we’re seeing is part of these new therapies, and that’s what I’m saying. So I think 15 to 20 launches per year is what we’re looking at for the next few years.

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Kunal Mehta, [48]

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And sir, just as a follow-up, can you just let us know the situation on (inaudible) batches from each of those plants where we are in terms of — I mean, any indication on that would be very helpful?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [49]

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(inaudible) will give an update on the plant. So F1 is a formulation plant, which is a current commercialized plant. F2 is a oncology’s plant, which is OSD and injectables. OSD has already got filed and audited twice. In injectables, the batches are ongoing. So I think we’ll file in 6 months or so. F3 is injectables, we’ve already filed 3 or 4 products. F4 is an extension of F1 or its OSD plant, where we’ll file the batches in the next 6 months.

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Kunal Mehta, [50]

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Sure. Sir, So any growth from — sir Jarod will be an extension — Jarod plant in F4 would be an extension of the original formulation plant, so that would be…

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [51]

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What I mean — it’s not an extension. What I mean is it’s a similar F1, it’s a separate site. And actually we already filed it. So it’s just a matter of triggering the audit.

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Operator [52]

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The next question is from the line of [Saucha Jain] from ANS Wealth.

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Unidentified Analyst, [53]

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Sir, I just wanted to know if you can provide some update regarding your bio center in Vadodara? Like, what kind of activities are happening? And what are your plans with respect to this?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [54]

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So it’s a — bio center is regular bio center what all pharma companies have. We conduct bioequivalent studies. So you compare the innovative product with a generic. It’s a 90 bed facility.

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Unidentified Analyst, [55]

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Okay. But we don’t have any plans of getting into biosimilars, right? Is what…

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [56]

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No, zero biosimilars. We have no biosimilars, and we’re not intending on getting into biosimilars.

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Unidentified Analyst, [57]

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Okay. Okay. Sir, my second question is while we’ve seen a good growth in API in this quarter, but if I look at the overall CAGR of last 4 years, you’ve been 6 months as compared to other U.S. and ex U.S. growth in generics. So if you could just throw some light as to what is our strategy with respect to API overall? And we are also looking at capacity expansion in API. So what kind of CapEx are we looking for next 1 year or 2 years?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [58]

——————————————————————————–

So API hasn’t been a focus area for us for the last 3, 4 years. We’ve been more focused on the formulations. Hence, we don’t supply all API to all over the world. For example, if it’s a new or innovative API that we’re going to use for a Para IV filing, we will not offer to a competitive unless competitor in the U.S. So that’s one aspect of it.

Number two, the API sales for us are a little lumpy, some years because we do some contract manufacturing for a multinational. And when that happens, it gets very lumpy. That’s one of the reasons. If you take ex of that, the business has grown pretty well. I would say, I don’t have the figure but must be at least 15% CAGR over the last 4 years. So it’s going well. The business is doing well.

——————————————————————————–

Operator [59]

——————————————————————————–

The next question is from the line of from [Ashish Panjwani] from AP Securities.

——————————————————————————–

Unidentified Analyst, [60]

——————————————————————————–

Congratulations on a great set of numbers. I got two questions. One, on the India growth. So my — what’s our estimate in terms of what would make us happy when we close out the current year in terms of what growth rates are we looking? That’s one. And second is, I have a question from Mr. Baheti to understand what is our CapEx plan for this year and next year?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [61]

——————————————————————————–

Yes. I think the India business, I think — I mean, it’s very hard for me to predict how COVID is going to play out. I think, like you know, I think there’s been — I mean, it would be only a guess. I think going forward, as long as we outgrow the market. And when I mean outgrow the market, I think, even in a negative market, if I can gain market share, I think we’ll be very happy if that happens. But like I said, I — it’s very hard to predict because if I see what’s happening today, there’s no pan-India clarity that I’m been getting because states are going to lockdowns on different periods, which is again affecting it. Bombay versus Indore versus Calcutta versus Patna, I think the dynamics are so different in terms of what’s happening, so it’s hard for me to really make a composite guess on that part. Yes, I mean, that’s it — I’d just be chancing our guess, on the Indian business.

But like I said, growing faster than market in all our represented portfolios is what the objective is this year.

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [62]

——————————————————————————–

Taking your next part of the question on investments. I think we are already on record saying that our maintenance CapEx is around INR 300-odd crores a year. We would also have about INR 350-odd crore as pre-op expenses across all of our facilities. That apart, I think, in next 1 year, 1.5 years, 2 years, we plan to spend about INR 600 crores, INR 700 crores based on expanding our injectable facility as well as our Jarod, the F4, the new OSD facility because we will have to put up additional manufacturing blocks or additional lines. And then we have some investments plan for API. So API — We were not — I mean there was an earlier question also, we were not able to make a lot of investments in API, partly because of our focus on formulation, partly also because our — the route or the environment for getting expansion in API facilities was pretty longest.

Now government is relaxing that. We are also getting some approvals for expansion, so we’ll spend some money on API.

——————————————————————————–

Operator [63]

——————————————————————————–

Next question is from the line of Damayanti Kerai from HSBC Securities.

——————————————————————————–

Damayanti Kerai, HSBC, Research Division – Analyst, Healthcare and Hospitals [64]

——————————————————————————–

Sir, can you split this pre-op expense between FY ’21 and ’23 in operating expenses and below EBITDA items, maybe year wise, that will be helpful?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [65]

——————————————————————————–

So this INR 350 crores, which I’m talking about is all operating expenses across all facilities, all new facilities.

——————————————————————————–

Damayanti Kerai, HSBC, Research Division – Analyst, Healthcare and Hospitals [66]

——————————————————————————–

Okay. And this is over next 2 years, right?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [67]

——————————————————————————–

This is per year.

——————————————————————————–

Damayanti Kerai, HSBC, Research Division – Analyst, Healthcare and Hospitals [68]

——————————————————————————–

Okay. Per year. Okay. And one question on — like other international business. So you mentioned we are done with realization in all. So should we be taking this quarter performance as the base going ahead?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [69]

——————————————————————————–

Yes. You can do that.

——————————————————————————–

Damayanti Kerai, HSBC, Research Division – Analyst, Healthcare and Hospitals [70]

——————————————————————————–

Okay. And my last question will be on the operating expense. So obviously, this quarter, we had some of cost savings, which is reflected in the numbers. But I think Baheti, if I mentioned, we should be seeing the normalization. So this INR 320 crore kind of expense in the quarter. Should it go back to INR 360 crore, INR 370 crore expense, which we had seen in the previous quarter? Or how should we look at the operating spend?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [71]

——————————————————————————–

So I mean, I think we are not in a commodity business. So giving this number for each line item is difficult. I’m just giving you an example of R&D. R&D costs can be high in a particular period and it can be lower in a next period. It depends on a variety of factors of how the programs move, how the clinicals are done and how we imported samples are received and booked. So — but more or less, I think the numbers would be — I mean, if you take the whole year, the numbers would be about INR 1,500 crores or so.

——————————————————————————–

Operator [72]

——————————————————————————–

The next question is from the line of Rahul Jain from Credence Wealth.

——————————————————————————–

Rahul Jain, [73]

——————————————————————————–

Congratulations on a wonderful set of numbers. Baheti, sir, I missed this figure of R&D. In the previous call Pranav has mentioned that compared to about INR 650 crores of R&D in FY ’20, this year, we were looking at around — that figure to be around INR 700 crores. And you’ve already mentioned that quarter 1, the figure was lower because of the lockdown. So how do we see this R&D expense for the full year?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [74]

——————————————————————————–

So we believe that we should be around INR 700 crore plus-minus for the whole year.

——————————————————————————–

Rahul Jain, [75]

——————————————————————————–

Sure. And sir, with regards to the Indian business, could you share some details about product launches, which we have done in, say, last 2, 3 quarters and how do we look at some of the major product launches in the next 1 or 2 years to come?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [76]

——————————————————————————–

Yes. So I think last 2, 3 quarters, I think, only 2, 3 big products we’ve launched is — I mean, last 2 quarters, I think — last quarter, there were no launches because keeping the lockdown in mind. I think prior to that, we are launching, along with the industry. So we’ve launched middle of April (inaudible) have been 2 big — 2 important launches. I think going forward, I think as and when any drug that was out patent and we’re expecting in the next 2 to 3 years, multiple DPP-4 inhibitors to be going on patent. I think we will launch on the (inaudible) planning for those products.

——————————————————————————–

Rahul Jain, [77]

——————————————————————————–

The next question is from the line of Sameer Deshpande from Fair Deal Investments.

——————————————————————————–

Sameer Deshpande, Fair Deal Investments Limited – Owner [78]

——————————————————————————–

Sir, congratulations for the excellent set of numbers. The growth in sales and profits has been excellent. We have invested in various plants, which are at the various stages of completion. And you have mentioned that they will be — over next 1 year or so, they will be completed. So actually, we have a debt of about INR 1,400-odd crores you mentioned and the net debt of INR 1,200 crores. So actually, what are the plans for the reduction of the debt?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [79]

——————————————————————————–

So in a normal course, our cash flow, you have repaid the debt over a period of time. But as I mentioned a moment back that we are also looking at some more CapExs. There’s also a plan to do a QIP to the company. The — just about an hour back, 1.5 hours back, we had an AGM where the resolutions were put to vote, we’re still expecting the resolution, but we don’t expect any problem in getting the resolutions passed.

Post that, I think the investment bankers and the counselors will do their work, and then we’ll decide the timelines. So the QIP also will be used to augment further capacity — I mean, further CapExs as well as for repayment of debt.

——————————————————————————–

Sameer Deshpande, Fair Deal Investments Limited – Owner [80]

——————————————————————————–

And the interest cost, what is — because we have working capital debt as well as the debt for the plants that is CapEx. So what is the breakup currently for the debt? And what’s the interest cost approximately?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [81]

——————————————————————————–

So the interest cost on working capital, you would see that is hitting by P&L. So whatever interest cost you see in is P&L is on working capital. And the rest of the interest is capitalized to the assets of CWIP.

——————————————————————————–

Sameer Deshpande, Fair Deal Investments Limited – Owner [82]

——————————————————————————–

And — so what is the rate of interest approximately on our debt currently?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [83]

——————————————————————————–

Interest rate, I mean, I think it varies from 8.5%, 9% on long-term debt to about 4%, which we are currently borrowing on short-term debt. It’s as low as 4%.

——————————————————————————–

Sameer Deshpande, Fair Deal Investments Limited – Owner [84]

——————————————————————————–

So we have all the rupee loans? We don’t have any ForEx loans?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [85]

——————————————————————————–

We have some ECB also. Out of that long term loans, we have some ECB also. Look at the balance sheet. Now look at March ’20 balance sheet, the annual report all the details are there.

——————————————————————————–

Operator [86]

——————————————————————————–

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

——————————————————————————–

Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division – Analyst [87]

——————————————————————————–

Yes, my first question pertains to India. With more than 1/3 of our portfolio being in specialty, don’t you see the growth coming ahead? Because in the chronic portfolios, during the lockdown, there has been some stocking, but now it is expected to revise.

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [88]

——————————————————————————–

Madam, first of all, our specialty is not now 1/3, it is actually 2/3 of the business for the domestic. Yes. So I mean, 60-plus or so. So I think plus Shaunak has said a couple of times in this call itself that we hope that we will outperform the market, we’ll outperform the RPM.

——————————————————————————–

Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division – Analyst [89]

——————————————————————————–

Okay. Second, my question pertains to API. How — what is the contribution that you expect from API for the full year?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [90]

——————————————————————————–

So API is typically 15-odd percent of our business. We continue — I mean, we expect it to stay in that range, plus-minus a couple of points.

——————————————————————————–

Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division – Analyst [91]

——————————————————————————–

Okay. And third, in terms of U.S. — the growth in U.S., how much is the contribution of azithromycin? Because there have been steep shortages for quite some time?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [92]

——————————————————————————–

No. We don’t give product-wise contribution. That’s something that we don’t disclose.

——————————————————————————–

Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division – Analyst [93]

——————————————————————————–

But would it be a major component?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [94]

——————————————————————————–

For the U.S. business, no. Because as I said earlier, someone asked, so we didn’t have all the strengths, and it’s already quite competitive. So we didn’t do much on azithromycin.

——————————————————————————–

Operator [95]

——————————————————————————–

The next question is from the line of Vishal Manchanda from Nirmal Bang.

——————————————————————————–

Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division – Research Analyst [96]

——————————————————————————–

In the U.S., has febuxostat commoditized or it is still a meaningful product for you?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [97]

——————————————————————————–

So after the last quarter, it was — I think there’s still only four people in the market. However, there’s — I think we’ve lost some challenge, someone has dropped prices or there’s been additional competition. So it’s already commoditized.

——————————————————————————–

Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division – Research Analyst [98]

——————————————————————————–

So we would have seen some impact in the current quarter or we would see it consequently?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [99]

——————————————————————————–

I think subsequently you’ll see it.

——————————————————————————–

Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division – Research Analyst [100]

——————————————————————————–

Okay. And on the API side, was there a lumpy element on account of cramp this quarter? (inaudible)

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [101]

——————————————————————————–

No. So there was no, 0 cramps revenue because actually, for the last 3, 4 quarters, there hasn’t been any (inaudible).

——————————————————————————–

Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division – Research Analyst [102]

——————————————————————————–

Sir. Any color that you can share in terms of any specific API that contributed to the bunch of growth or it was spread across API?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [103]

——————————————————————————–

Spread across APIs. We don’t give it. But as I said in my opening statement, azithromycin is one where we sold some API. We are one of the largest — we are the largest manufacturer of azithromycin in India. So that is one API that we did sell somehow.

——————————————————————————–

Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division – Research Analyst [104]

——————————————————————————–

Okay. And is there — so can we expect similar number to happen in that subsequent quarters? So — like this quarter, it was 20% of sales, so would that number sustain as a percentage of sales?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [105]

——————————————————————————–

The API will grow this year. As a total percentage of stale sales, I don’t want to give a breakup because it depends on the other parts. But API as a business will grow about 15% to 20% this year.

——————————————————————————–

Operator [106]

——————————————————————————–

The next question is from the line of Harish Kumar Gupta, an individual investor.

——————————————————————————–

Unidentified Participant, [107]

——————————————————————————–

I have one question, like what is the current capacity…

——————————————————————————–

Operator [108]

——————————————————————————–

Mr. Gupta, your line is on talk mode. Kindly go ahead with your question.

——————————————————————————–

Unidentified Participant, [109]

——————————————————————————–

Hello?

——————————————————————————–

Operator [110]

——————————————————————————–

Yes, sir, please go ahead with your question.

——————————————————————————–

Unidentified Participant, [111]

——————————————————————————–

Yes. What is the on an average capacity utilization right now?

——————————————————————————–

Unidentified Company Representative, [112]

——————————————————————————–

We don’t look at capacity utilization. See, for API plant, all of our plants are multipurpose plant. So for every product, capacity can be defined as separately. So we look at our business model. Capacity utilization is not a big issue for us.

——————————————————————————–

Operator [113]

——————————————————————————–

The next question is from the line of [AM Lodha] from Sumati Consultant.

——————————————————————————–

Unidentified Analyst, [114]

——————————————————————————–

Hello? Hello? Hello?

——————————————————————————–

Operator [115]

——————————————————————————–

Yes, sir. Please go ahead with your question.

——————————————————————————–

Unidentified Analyst, [116]

——————————————————————————–

Hello? Hello?

——————————————————————————–

Operator [117]

——————————————————————————–

As we are facing issues with the current participant, we move to the next question from the line of Vishal Biraia from Aviva Insurance.

——————————————————————————–

Vishal Biraia, Aviva Life Insurance Company India Ltd. – Analyst [118]

——————————————————————————–

Any plans to expand the sales force in the US and ROW markets in the near term?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [119]

——————————————————————————–

Yes. So first of all, in ROW markets, we don’t have a sales force. We work on a B2B model. So we work through partners. So we have no front-end team in the ROW markets. As regards to U.S., we have about 13-odd people in the U.S., and we will not be expanding that because it’s not a sales force per se. We sell to the distributors and the trade channels.

——————————————————————————–

Vishal Biraia, Aviva Life Insurance Company India Ltd. – Analyst [120]

——————————————————————————–

This structure should continue. This is (inaudible)

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [121]

——————————————————————————–

Yes.

——————————————————————————–

Operator [122]

——————————————————————————–

The next question is from the line of Saket Bansal, an individual investor.

——————————————————————————–

Unidentified Participant, [123]

——————————————————————————–

I want to understand about this U.S. growth, which is mainly led by volume, I guess, because as we see sartans price has been stabilized right now. So can you say we are gaining market share?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [124]

——————————————————————————–

It’s tough to answer that because it’s so complicated. We have 80 products in the market. So this — typically, we have price expansion as well as volume expansion. It’s a combination of both. So I can’t give you all…

——————————————————————————–

Unidentified Participant, [125]

——————————————————————————–

What percentage of the growth would be price and volume led? Can you…

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [126]

——————————————————————————–

We don’t discuss that.

——————————————————————————–

Unidentified Participant, [127]

——————————————————————————–

Okay. Sir, can you tell me in million dollar terms, sir, how much it was for you U.S.? Would it be, say, $70-odd million?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [128]

——————————————————————————–

Yes. It’s about $70 million. I think about $75 million or so, if I’m not mistaken.

——————————————————————————–

Unidentified Participant, [129]

——————————————————————————–

Okay. Sir, can you at least share the detail what would be the growth of new product line?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [130]

——————————————————————————–

The contribution of new product lines?

——————————————————————————–

Unidentified Participant, [131]

——————————————————————————–

Yes.

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [132]

——————————————————————————–

We don’t — again, we don’t disclose that because very tough to say what new products are launched. And typically, we’ll take a long time to build that market share (technical difficulty)

——————————————————————————–

Unidentified Participant, [133]

——————————————————————————–

Sir, we have invested a lot in injectables plants, can we give a view like what can be the revenue from injectables? What we are thinking about inflectable plants?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [134]

——————————————————————————–

So again, we don’t have a segment-wise breakup, we don’t give. But with all the CapEx, as I said in the last call that with the level that we are at $250-odd million, typically companies who’ve done this kind of an investment of our size have gone up. You should look at $400 million to $500 million kind of sales in another 3 years.

——————————————————————————–

Operator [135]

——————————————————————————–

The next question is from the line of Bharat (inaudible) from Equity Securities.

——————————————————————————–

Unidentified Analyst, [136]

——————————————————————————–

Congrats for the good set of numbers, sir. Sir, first one on the injectable portfolio. So we have been investing quite a lot on that front. So just wanted to get some sense on what sort of portfolio we are looking at? Is there any complex generic, which we are targeting at this point of time?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [137]

——————————————————————————–

So it’ll be a combination of products. We’ve just started filing the first few of our injectables. We’ll start with plain vanilla, and we’ll generally — and then we’ll gradually move up to even more complex products.

——————————————————————————–

Unidentified Analyst, [138]

——————————————————————————–

Right. Sir, we have filed only 3 products in injectables so far?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [139]

——————————————————————————–

From the (inaudible) we filed 4. I think there’s 1 ophthalmic and 3 injectables.

——————————————————————————–

Unidentified Analyst, [140]

——————————————————————————–

Right. And from onco injectable?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [141]

——————————————————————————–

We have not filed anything else yet.

——————————————————————————–

Unidentified Analyst, [142]

——————————————————————————–

And that will be happening after 6 months or so?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [143]

——————————————————————————–

6 months or so, yes.

——————————————————————————–

Unidentified Analyst, [144]

——————————————————————————–

Yes. Right. And on R&D front, you usually share that how much Aleor’s R&D you have capitalized for the quarter. So for this quarter, how much that would be?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [145]

——————————————————————————–

That would be around INR 25 crores.

——————————————————————————–

Unidentified Analyst, [146]

——————————————————————————–

INR 25 crores. And another one, sir, we have actually in the — historically, we have mentioned that gross margin should stable — should be stable at around 70% this is something which we mentioned in the earlier call. So how we look at gross margins now that the overall dynamics have changed? So how we are expecting gross margins to be going forward?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [147]

——————————————————————————–

So they have been on a higher side, and we continue — we expect it to continue at these levels.

——————————————————————————–

Unidentified Analyst, [148]

——————————————————————————–

Okay. And just, last one, sir, on that domestic side, have we taken any price increase at the onset of the year so far?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [149]

——————————————————————————–

So we take price whenever they are available to us, either for (inaudible) products and on expiry of 1 year from the last price side and on aluminium products every 1st of April or so.

——————————————————————————–

Unidentified Analyst, [150]

——————————————————————————–

Okay. So we would have taken for some portfolio, right?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [151]

——————————————————————————–

For the most. I mean unless there’s a different competitive environment, most products will take prices.

——————————————————————————–

Operator [152]

——————————————————————————–

The next question is from the line of Prakash Agarwal from Axis Capital.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [153]

——————————————————————————–

Just one clarification on the API and ex U.S. export formulation. So API, you said while the growth would be there, the rate could come off a bit despite azithromycin you meant? Or why would — so momentum would be lower?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [154]

——————————————————————————–

It’s very tough to predict how the business will grow. What I don’t know is it will grow. But I’m not going out on a limb to say how much whether it will be the same amount or not. But it’ll grow, it’s an interesting business — sorry?

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [155]

——————————————————————————–

The growth will be on this base is what I understand?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [156]

——————————————————————————–

I said earlier about 15%, 20%.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [157]

——————————————————————————–

Got it. And the ex U.S. business formulation, you mentioned that serialization issues are over…

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [158]

——————————————————————————–

Yes. So it’ll continue — yes, it’ll continue at the same levels.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [159]

——————————————————————————–

This base and grow from here on?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [160]

——————————————————————————–

Yes, exactly. Yes.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [161]

——————————————————————————–

Okay. And the last one on this — our deal with TG and Rhizen. So I understand we should start getting some milestone payment by end of this financial year as well as the bigger one in next financial year. And would this be large or these would be token? As I understand that the main company would require reinvestment of those money, or would that understanding be correct?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [162]

——————————————————————————–

So I’m responding in context of Rhizen. Rhizen would be receiving some heights from tenants from TG Therapeutics. And large token are relative words. I don’t use to make a comment on that. But yes, for a company of Rhizen size, it would be a good amount.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [163]

——————————————————————————–

Okay. And some would flow to us as well?

——————————————————————————–

Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [164]

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So some would flow to us as dividend because they have other partners also. Rhizen has other partners also. So I think — I mean, once we receive over and above what Rhizen needs for its funding for the — for its own projects, obviously, the balance will flow into us.

Just to clarify because probably, this was the first question on Rhizen, apart from milestones, you would also get royalty on sales as and when the sales start. And Rhizen also has the manufacturing rights, which should be exercised through (inaudible) manufacturing facilities.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [165]

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Okay. And that would be ’22, late ’22-’23 onwards, right?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [166]

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It depends on TG (inaudible) I mean I can’t predict on that. They’re getting approvals on all of that.

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Operator [167]

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The next question is from the line of from Cinderella from Centrum Broking.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [168]

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Yes. We can take a couple of questions and then I think there are still a few, I would request other participants to send us a mail because we would be running out of time, and we will respond to them individually. But we can take a couple of last questions. Sure.

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Unidentified Analyst, [169]

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Yes. Congratulations on great set of numbers. So to the team, I just want to understand any clarity on the future U.S. audits? Do we hear anything from the agency as we are operating through — and we have already filed few products, so what is the sense that we have right now?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [170]

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So it’s a good question. And we’ve been in touch with the agencies because we need these new facilities inspected. But let’s see, I think they’re still working it out as well. They haven’t taken any decision. I think, hopefully, in the next couple of months, they will revert how they hope to get the inspections done.

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Unidentified Analyst, [171]

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Okay. That’s helpful. And sir, coming to like we are setting a different tone altogether starting from this quarter as there is a base established in non-U. S. formulation markets. U.S. also you’re expecting a steady stage going ahead. And eventually, India will also come back. So are there any key milestones that you think the way we were seeing of a seaming business in the previous year-to-year where you’re seeing some changes?

And how should we look at it from a key milestone or a key strategy perspective going ahead? I heard all the discussions on the CapEx plans that we already have and that we have already discussed. So any comment from a broader perspective would be helpful?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [172]

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So it’s very tough to say there’s no milestones. We don’t have any milestones that we’ve said, we want to be a $1 billion company or a INR 5,000 crore company. Yes, I think the only thing I would look at if I was on the other side of the table is, how the respective businesses are doing? How is the compliance? How’s the U.S. shared? How’s the U.S. business? How’s ROW business? How’s India progressing? And just keep a tag on that.

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Operator [173]

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The next question is from the line of [Ayush Mittal] from Mittal Analytics.

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Unidentified Analyst, [174]

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Congratulations on a good performance yet again. Sir, just wanted to understand bit more on the outlook for the U.S. market. My question is more in reference to when we look at the performance of some other pharma companies also we are seeing many of them are doing well. We are also seeing lots of product shortages happening in the U.S. market and many of them for common products. So from this angle, just want to understand what you guys are seeing and what is the reason for this happening?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [175]

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So I think the product shortages is not something new. I think this has been there for a long time. Product shortages is something which creates a lot of opportunities in the market. And it’s done not new, and the market continues to remain interesting. It’s just a matter of being able to supply on time and being compliant with the regulatory bodies. So we’re pretty, as I said, I’m quite excited about the U.S. market. In spite of competition, it’s still a good market.

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Unidentified Analyst, [176]

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And is this more to do something with China factor like because of inferiorities or some of those issues? Or is it generally that this keeps happening because it was too competitive earlier or something like that?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [177]

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Yes. I think (inaudible) China, the reason disruptions happen is when you have multiple SKUs, multiple plants, sometimes you can’t supply it. And the demand is also quite dynamic. And it goes up and down, it’s also steady. That’s one reason. Number 2 is if someone enters or exits the market, that could cause some disruption. So something like that.

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Unidentified Analyst, [178]

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Okay. And sir, other question I have is, when I look at the margins that we have had and — like despite us having substantial investments into qualitative parts and maintaining all the compliances, our margins are pretty robust as compared to some of the peers. So I’ve been trying to understand, is it more to do with that because of the vertical integration that we have? And how much of backward integration into APIs we have for most of our product?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [179]

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So that’s a tough one. I don’t know how — I don’t know about the other companies, but we do have backward integration on a lot of the oral solid dosage. With the new forms that we’re doing, we are not as backward integrated. So portfolio in the market today is about, I would say, about 80% would be backward integration with our own API. But it’ll come down as we have more plan, make more injectable launches happening.

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Operator [180]

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Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. R.K. Baheti for closing comments.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited – Director of Finance, CFO & Executive Director [181]

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Yes. Thank you. My apologies, if there are still some questions in queue, I think we have to wind up at this time. Again, a request to all the investors whose queries have remained unanswered, they can send a mail to Ajay or to Mitanshu and they’ll respond very quickly.

Before concluding, I must thank all of you, each one of you for having shown interest in us and having participated in the call. I look forward to see you again in October 2020. And with this, I wish all of you to be safe and healthy. Good evening.