Good day, ladies and gentlemen, and a very warm welcome to the Alkem Laboratories Q1 FY22 earnings conference call hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal. Thank you, and over to you, Tushar. Thanks, Ali. Welcome to Q1 FY 2022 earnings call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director, Mr. Rajesh Dubey, Chief Financial Officer, Mr. Amit Ghare, President, International Business, Mr. Yogesh Kaushal, President, Chronic Division, and Mr. Gagan Borana from the Investor Relations. Over to you, Gagan, for the opening remarks. Thank you, Tushar. Good evening, everyone, and thank you for joining us today for our Q1 FY 2022 earnings call. Earlier during the day, we have released our financial results and investor presentation, and the same are also posted on our website. We hope you had a chance to look at it. To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem. Before I proceed with this call, I would like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well. I would also like to add that today's discussion may include forward-looking statements, and the same must be viewed in conjunction with the risks that our business faces. After the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me. With this, I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter gone by and strategy going forward. Over to you, sir. Thank you, Gagan. Good evening, everyone. Without further delay, I'll get into it. We have had a strong start to the financial year, with total operating revenues growing by 37.1% year-on-year, EBITDA margin coming in at 21.7%, and net profits after tax growing by about 11% to INR 468 crores. During the quarter, we also generated healthy cash flows, which has helped us further strengthen our balance sheet. Now we have a net cash position of INR 980 crores as on June 2021. Talking about our India business, it registered a growth of 65.3% year-on-year during the quarter, which was majorly driven by strong volume-led growth in acute therapy. Even adjusting for the low base of last year, the company delivered a robust growth over Q1 FY 2020 base, which was more of a normal quarter for the company. Moving to international business, our U.S. business reported a sequential growth of 11.2% year-on-year, and a decline of 9.3% in the quarter. During the quarter, we filed two ANDAs with the U.S. FDA and received five approvals. Apart from the U.S., the international markets delivered a strong year-on-year growth of 56.4%. Tracking our progress in the biosimilar segment, I'm happy to share with you that last month we have received market authorization for two more products for India market. We will soon be launching these two products, taking the total of three product launches in India from Enzene platform. We have also signed a few important licensing and supply agreements in the biotech space worth INR 100 crores. They are based on milestones going forward with global pharmaceutical companies to monetize our product pipeline globally. In terms of regulatory status of our manufacturing facilities, St. Louis facility was inspected in June 2021. Post the inspection, we received two observations. We have already replied to the US FDA with a corrective and preventive action plan to resolve these observations. Apart from St. Louis, all other five manufacturing facilities supplying to the U.S. markets have an EIR as on date. Our new manufacturing facility at Indore is awaiting pre-approval inspection by US FDA. Very recently, we had a remote and virtual US FDA inspection of our bioequivalence center at Taloja, which we successfully closed without any observation. With this, I would like to open the floor for Q&A. Thank you very much. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to as a question please press star then one on touch-tone phone. If you wish to remove yourself from the question queue you may press star and two. Participant are are requested to use hand while asking question.Ladies and gentlemen we will leave for the moment while the question assemble. The first question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yeah, hi. Thanks for the opportunity and congrats on good numbers. Just on the sales growth outlook, especially for India business, given that that's a very high growth, how do you see the rest of the year panning out for you? Sandeep, you can go ahead. Yes. See, the first two months certainly were supported by COVID and all that stuff. It was a very healthy growth. Now, industry is settling to around 11%-12%. We expect that the balance nine months, by end of the year, we should be in our high teens. That's what is our projection by March. Okay. You mentioned COVID there. Apart from vitamins, which is indirect COVID use, did you have any other COVID products? No. We don't have any antiviral or anything to do with COVID, except for multivitamins, A to Z. It's all core portfolio, right? It's all core portfolio. Okay. Two quick ones for Mr. Rajesh Dubey. One is on the gross margins. It seemed a little low despite a strong growth. Are there any one-offs, if you can explain that? Secondly, on the free cash flow and net cash flow for the quarter. Thank you. Prakash, I will take your first question, that is gross margin. Yes, gross margin in this quarter is having one-off, and that one-off is we have extended our provision related to near expiry. If you recollect, in Q4 of last year, we revised our policy for taking provision for near expiry from six months to 12 months. That was one quarter where we took a sizable near expiry provision. When we are taking provision, we conclude or we estimate we'll not be able to sell this product at normal price. Possibilities are there, it may get realized also. Right now, we expect we are not going to sell. Some of the inventory, if all due as per our policy within 12 months sales life period, and that also is considered. I think definitely we see this as a one-off, because going forward then again, it will come in our normal cycle of 12 months. At this time, actually NRV provision and the near expiry, if we put both this together, so definitely it is impacting our margin by 1.5%. Okay. Yeah. I think that is the major reason behind it. Free cash flow and cash flow from operation. We have free cash flow of INR 981 crore as of 30th of June. In this quarter, we generated more than INR 450 crores free cash. By year-end, if you want some guidelines, we'll be crossing 1,000. 450 crores is after all the CapEx and working capital, INR 450 crores? Yeah. Okay. Perfect, sir. Thank you. I will join back in. Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein Research. Please go ahead. Yeah, thank you. in India, I presume other than the VMS portfolio, your anti-infectives portfolio, azithromycin, ofloxacin, et cetera, would also have seen the benefit because of wave two. Is it possible to strip out the growth from those kind of products and tell us what's the true underlying growth of your base portfolio, ex-COVID? Other than COVID, in fact, didn't really impacted our core portfolio. other than multivitamins and all, yes, there was impact on anti-infectives. the anti-infective also grew because this time the lockdown was not for patient and doctors. The patient flow was almost normal. that's the reason, because of base effect also, we got a high growth, and because of patient flow also it was a good growth. of course, in the coming quarter, we should be coming back to, as I said, in a normal growth trajectory, we projected around high teens and all. Got it. Yes, we are. In terms of your critical care portfolio, how is the recovery looking like in that part of the portfolio? If you're asking my portfolio which is for critical disease management, then we are mainly into hospitals, okay, and which are injectables. Our critical care portfolio is largely major antibiotics like meropenem and all. Other than that, we don't have any cardiovascular portfolio, which is used in critical care management. As hospitals are opening up, COVID, there were very high uses of high-end antibacterial, so there was some traction we have seen in injectables. In the coming time, as elective surgeries opens up, we see a similar trend. Understood. Thank you. One on U.S. I think a couple of calls earlier you had guided for about 15%-16% growth for the next two-three years, driven largely by new launches. We are seeing the growth kind of cooling off a little bit, though QOQ still looks healthy. Do you still stick to that guidance? Any color on why the YOY growth wasn't as you would have expected? Yeah. Mr. Ghare, can you please take that? Sure. Thank you. Yeah, I agree with you. The broad guidance still remains broadly what we had given. Year-over-year quarter growth, of course, there has been a de-growth. A couple of reasons obviously affected. One was obviously we had a strong quarter last year, mainly because of some of forward buying done by our customers. A bit of stockpiling and panic buying as well affected that. That's one of the reasons. The other reason has been some loss of market share and obviously price deflation, which has sort of depressed this particular quarter compared to 12 months ago. Our broad guidance remains similar and we are looking to grow at both numbers. Got it. Thank you so much. Thank you. The next question is from the line of Abdulkader Puranwala from Anand Rathi. Please go ahead. Hi. Thank you for the opportunity and congratulations on good set of numbers. would it be possible for you to provide some color on how the growth in India would be within acute and chronic and the trade generic segment? I think broadly we kind of not give every break up, but I can tell you that acute group outperformed our growth overall in spite of a high base and chronic and trade generic both grew very substantial, above 50% both of them. Understood, sir. Yeah. Yeah. Thank you. My second question is on the U.S. business. Recently we got approval for DUEXIS. Any color on that? I understand the product size is not very huge, but since you own exclusivity and we are maintaining our guidance, would DUEXIS and a similar EP opportunity play an important role in maintaining our guidance for the U.S., do you think? I think I will let Mr. Ghare come on that. Mr. Ghare, over to you. Yeah, thank you, sir. Yes, we have launched a generic DUEXIS, famotidine ibuprofen, and obviously we will look at acquiring as much market share as we can. Please remember this launch is at risk. We are still litigating in the appeals circuit. Beyond that, I would not like to comment anything further at this time. Sure. Thank you. Thank you. The next question is from the line of Nimish Mehta from ResearchDelta Advisors. Please go ahead. Yeah, thanks for the opportunity. My question is again, related to the U.S. market. Can you tell us, we are likely to launch this product, which is dabigatran, at the end of this calendar. If you can let us know as to whether we will be having 180 exclusivity on that and will it be a meaningful product for us? Mr. Ghare, please. Yes, we will launch this product. I'm not sure whether the launch is December or has been pushed back by six months because of pediatrics exclusivity, so I don't want to comment. Certainly we'll be the first to launch the product in the market. We will have a 180-day exclusivity. The first launch and the 180-day exclusivity will be shared amongst all the first filers. In terms of whether the product will be significant for us or not, I would not like to give any specific guidance on any particular product in any case launch a few months away. We will obviously try our best to get commensurate market share. Understood. Given that we have two high value launches, that is generic enzalutamide and DUEXIS as you just mentioned, which I would assume that will be very high margin even with competition. Would you not think that, the lower gross margin guidance that we had given last quarter needs to be revised upwards? Any thoughts on that? That will be helpful. Sorry. Go ahead, sir. The question is for you rightly. Both products are for U.S., so go ahead, sir. Okay. Sorry for that, Pulkit. Thank you. Look, the overall guidance given by CFO, obviously, he will explain, but generally the new product always comes with a better margin profile. When we look at our overall product mix, we obviously factor that. Certainly the new products will come at a higher margin. I guess that's all that I can answer on this question. Yeah. If the CFO can tell me about the lower gross margin, will that still be maintained or do you think it will improve? That will help me. Yeah, I think our guidelines is not on low side. Our guidelines, it was 60%-61%. Of course, we are not factoring product to product. It's a basket gross margin guideline. There are so many factors which affects margin and particularly gross margin. We strongly believe what gross margin we have given, we are going to work towards that. In this situation, even this gross margin, we might feel little bit pressure kind of situation because of API prices increasing. All blamed put together, we feel we be there what guidelines we have given of 60%-61%. Is this okay? Yeah. This helps me. yeah, obviously, if you can also comment on EBITDA margin, that will be even more helpful. EBITDA margin, our guidelines, it was from 19%-20% for this year, because our endeavor was to improve by 100 basis- Correct last year. We remain with our guidelines. Looking to better quarter one, we believe 50 to 100 basis points we try to improve on that. How much, sorry? How much will you try to improve? I'm sorry. 50 to 100 basis points we try to improve. 50-100 basis. Okay, understood. Just to clarify, last year's guidance was 19 and a half. I mean, last call, we guided for 19 and a half to 20%, so this 50 basis point improvement is over the guidance and not the- Oh, okay. Understood. Yeah, that helps. Thank you. Okay. Thank you. Thank you. The next question is from the line of Neha Manpuria from JPMorgan. Please go ahead. Yeah, thank you for taking my question. First, on the trade generic business, how has this business momentum been over the last few quarters? We did see some pickup during the pandemic. Has the growth rate for that business slowed? A related question, we are seeing more players enter the trade generic segment. Does that make it difficult for us to continue to grow this business at double digits that we've been seeing over the last few years? Yeah. I'll take this question. To answer you, trade generic continues to grow at very healthy pace, and the growth is not slowing down. This question specifically of large players entering trade generics, I think it was expected because this is kind of growing very unseenly for the last few quarters. You said, will this double-digit growth continue? The answer is emphatically yes. Because keep in mind, we don't only grow in double digits. We grow in very high double digits. Achieving double digits and maintaining that over the next few years, we don't see it as a challenge at all. What would drive this growth, Sandeep, despite the competition in the outlet? Sorry? What would drive this double-digit growth, the strong double-digit growth that you're guiding to, despite the competition that you will see? Sure. I think a lot of people underestimate trade generics business, and that's also a franchisee and a brand business actually. It might seem like an oxymoron, but it's not. The relationship which we enjoy with the trade generic trade channels is something which can't be replicated overnight. It takes many years. Where we have reached in 20 years didn't happen overnight. All the best people have come in, but they will also take their time, ma'am, and we got to kind of appreciate that this is a tough business actually. Understood. In your opening remarks, Sandeep, you mentioned certain licensing deals worth INR 100 crores- Right With global pharma. If you could give some color on that, I didn't really catch the context of that bit. </edited_transcript Tell you that, yes. Enzene subsidiary has outlicensed this. One of them is a mAb, it's with a European company, and that out licensing value is $10 million based on milestone and up to launch. they have also outlicensed one recombinant peptide to a company in South Korea. That's around worth $2.5 million. therefore, both of them put together, I said that it's close to 100 crores. that's again based on milestones. I think, yeah, big on out licensing, and I personally see a bright future for biosimilars as we go forward. Understood. Okay, got it. Thank you so much. Thank you. Thank you. The next question is from the line of Harneet Ahmad from Spark Capital Advisors. Please go ahead. Hi. Thanks for the opportunity. On biosimilars, will you be able to share what percentage of our R&D spends today is for biosimilars? On the licensing of the mAb product that you have done to a European partner, what stage of development is that product, and could you give some timelines around development and launch for this product? Sorry. I got your first question. Second question, maybe I'll ask you to repeat, but I'll quickly answer you. We spend close to 12 to 14% of our R&D on biotech historically. What is your second question, sir? This product that you've licensed to Terramax. Yeah What stage of development is that product? Is it in clinical trials already? Yeah. In India, we have got approval. In India it's going to get launched. Yeah, this is for Europe and some other countries. That, we are going to enter clinical stage very soon for Europe. Phase I will initiate in couple of months. Early stage. The market formation or patent expiries for this product would be. I mean, if you launch- What timelines? That's still four years away. Fou to five years away. Okay. Yeah. Okay. My second question is on the PCPM for domestic business. How much lower is the PCPM for the chronic segment in our domestic business? Do we expect this to catch up with the achieved segment PCPM for us? Yogesh, you can take that. We have some very evolved business, and then the evolving business. For the evolved business, we have a productivity range of around INR 8 lakhs-INR 10 lakhs. From the evolving business, our productivity range is around INR 3.5 lakhs-INR 4 lakhs. The new businesses, our productivity range is between INR 1.5 lakhs-INR 2 lakhs. Have I answered you? Yeah. Yes. Got it. The evolved business when you talk about, you're probably referring to your psychiatry segment and. No, anti-infective segment. Okay. Within chronics segment, the chronic therapies would be PCPM and be significantly lower versus the company level PCPM? Yeah. Since we are almost 80%-85% antibiotics, anti-infective. There our PCPM is in a range of around 8-10, and chronic is evolving where we are in a range of around INR 3.5 lakhs-INR 4 lakhs. Okay, understood. Thank you. That's all from my side. Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead. Good evening, and thanks for taking my questions. My first question is on the vitamins portfolio. This business is growing at a very fast clip. Now it has actually grown double, almost two extra market. Now we are number two in India. I'm just wondering what the sustainability of this business from here on? See, COVID certainly has an extraordinary surge on such multivitamins and particularly those which are drink-based preparations. This three-month section, certainly you can't see in a regular time, but they are our core product, they are our focus product, so they will sustain, they will outbeat the industry group, that is for sure, but certainly not the COVID surge. These are our core focus products, and we should outperform the market group. Right. would it be fair to assume that maybe a quarter or two down the line, there could be some pressure on this portfolio as because of a high base? Yeah. You can expect the first quarter next year, you can expect some pressure on these portfolios. Sure. The second question is on Apriso that you launched in this quarter. Would it be fair to assume that you're working on other mesalamine products also? Are there any sort of launch timeline that you would like to share with us? Yeah. Honestly, we don't like to talk about our pipeline. Any assumptions I think would not be correct. Also would like to add that these mesalamine combinations, we all know, are pretty tough. Even if we are working on it, I don't think so we'll be in any position to tell you when or where that, if at all, it happens. Nothing right there we want to comment. Sure. Just one more question, if I can. Can you share how the API prices are behaving now, whether it's going up or stabilized now, and how is it impacting gross margins? Mr. Dubey, please. API prices started going up from March end, and till mid of May, actually, we witnessed major spurt in selected API prices. After that it started softening, and it has not come back to normalcy. I think major it has come within range. Slowly we expect it is going to be normalized. Now trend is not upward. Either it is softening or stable. Sir, is it yet to impact our numbers or has it already impacted in this quarter? In this quarter, some little bit impact it has come, but since, as I said, prices started showing upward trend from April and May. we procure material, then formulation has happened, and now once sale is going to happen, then it will hit to our financials. June sale, to a certain extent, and very normal or very minimal kind of impact it has gone. in quarter two, we'll be having rest of the impact of API price increase. I think, yes, it has impacted, but it is manageable and we are comfortable on gross margin, what guidelines we have provided. Okay, got it. Thank you and all the best. Thank you. The next question is from the line of Sriraam Rathi from ICICI Securities. Please go ahead. Yeah, thanks for the opportunity. Actually, just one question from my side. The staff cost looks very high this quarter. Was there any one-offs in this quarter and or any specific increases happened? Staff cost specifically? Yeah. Staff cost, we have a few one-offs in this quarter. One is, in fact, it's on account of gratuity and leave encashment liability provisioning. This has happened because we revised basic of our employees. Traditionally, it was 37% of the CTC, but due to increase expected, so we decided to up to certain extent. From 37%, we increased to 42. That one-off, it has come in this quarter, and that is not going to remain going forward. Second, staff cost, it looks on higher side because we had a very good quarter on our revenue. We paid the incentive. If you are comparing with last year's quarter one, definitely incentive, percentage-wise and achievement-wise also, it was very much compromised. This quarter, since we had surplus, so incentive, percentage it has increased as well as quantum also it has increased. Putting these two together, it gives a major answer to your question of increased employee cost. Okay. Going forward, how should we look at this figure? Because earlier we were around 400 crores kind of figure. Will it be like 450 or 500? Generally, what should be the range? Definitely it will be optimized by, say, another INR 40-45 crore, what we have now. If I take out, suppose INR 50 crore out of this, then it will be somewhere in the range of INR 480-475. Okay, got it. Other expenses would be normal right now, in this quarter also, like this is a normal trend, basically. Other expenses, it looks normal. Let me just tell you, still our marketing expenses, it is normalized to the tune of 80%-85% only. We should expect 10%-15% in our marketing expense, I need to say. Other expense includes everything. Out of that marketing expense, as far as still 85% normalization has happened, we can expect another 5%-10% going forward. Okay, sure. Got it. Thank you, sir. Thank you. Thank you. The next question is from the line of Saion Mukherjee from Nomura Capital. Please go ahead. Saion Mukherjee from Nomura Capital, your line is unmuted. Please go ahead. Yeah. Sorry, can you hear me? Yeah. Yes, we can. Yeah. Okay. Just you mentioned about employee cost. There is some adjustment on inventory. Is it possible to quantify how much are these two elements in this quarter? Yeah. Employee cost, Saion, I'm sure you must have. I was able to explain why we are having one-time cost of that. We increased basic from 37%-42%, resulting into increase in gratuity liability and even cashment liability. It is not cash payout, it is provision. If I put both these together, around INR 28-29 crore additional provision we had to pay. Okay. On the inventory provision that you took this quarter, sir, on. Inventory provision and additional NRV provision, because NRV, it goes along with your sales. If I put both these together, around INR 35-40 crores. In fact, INR 38 crores, it was additional, which we can term as one-off kind of. Okay. Thanks. Sandeep, on the biosimilars front, there seems to be some progress made. what is the kind of investments we have made so far? You mentioned almost 12% to 15% of R&D goes in there. what kind of annual expenses we incur? if you can talk about the capabilities that you put in place, the people that you have got, the team that you have put in place, just to give us a sense, what makes you feel good about the business in terms of you being able to execute your strategy here. Sure. No, thank you, sir. Totally, we have invested INR 650 crores in biotech. This includes R&D and CapEx and total expenditure so far. Roughly, we spent close to INR 100 CR on biotech, including now manufacturing and everything. That's the total expenditure on biotech. Your question on what is the capability for the front end. Mainly biotech are for, let's say, some indications of onco and some of them also in bone health, in osteo segment. I think on the onco segment, yes, we have some catch-up to do there. On the bone health side, I think we are very strong. We have good connects with orthopedics, and so we'll do well there. Keep in mind that this is a business which is meant to be not just for Alkem. We have out-licensed some drugs to Lupin, we have out-licensed to Zydus, and even globally, we are out-licensing. we should not rely only on our strength to do justice with biotech. just keep that in mind, Saion. We will tie up with the best, irrespective of whether it's Alkem or not. We'll get the best partners and we will be executing this. In India, Alkem has strong partners, so Alkem is the right choice. globally, we'll go with people who can do justice with it. Actually, Sandeep, I was also looking at the product development capabilities, R&D. If you can give some color on that. Honestly, Saion Mukherjee, I don't know how much color I can give on that because honestly, and only with time it will tell how good or bad it is. What I can tell you why I think I'm confident about it is people have done extensive due diligence, and only after that you can out-license things. We have gone through those rounds. I hear good things about them from our partners and they are putting their money where their mouth is. We have our licensing deal already in a very early stage of a company. Second thing, the employees who work on this in this business, in Enzene Biosciences, a lot of the senior management has come from U.S. They have worked in companies like Amgen and BMS and all. I think we've got great people there. Yes, few things only time will tell, Saion Mukherjee. As an entrepreneur, I'm always positive, but that's my job. I think you all be cautious and just watch us. That will answer us honestly. </edited_transcript Okay. Do you plan to list this separately or do some funding here? Yes. I think we are discussing, Saion. That's a very interesting topic idea. We do mull over it, but we also are in a situation where we think if we raise or list so early, we might lose a lot on valuation because we are at very early stage. I do think that biosimilar or biotech is a huge opportunity. It might need a lot of capital as we get ambitious in the next few years. Those options are certainly on the table, Saion, I must say that. Okay. Just one clarification, Sandeep. This INR 100 crore you said, over what period you have invested in biotech? This is based on milestones, and some of it would be back-ended. What I mean is on completion of phase I, phase III, and on launch. A large part of it is back-ended, but I think it's up to launch, Saion. You could assume in the next four years. Okay. No, Sandeep, actually, you mentioned 650 crore of CapEx, and then you mentioned something about 100 crore additional- CapEx both Saion INR 650 crore. Okay. That's the total investments we have made there. Yeah. Not just CapEx. Okay. Yeah. Okay. Thank you, Sandeep. Thank you, sir. Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets (India) Private Limited. Please go ahead. Hi. Thank you for the opportunity. My question is coming back to operating costs, a few clarifications. On the API prices increase, you said after May, it's now cooling down, and you haven't seen anything incremental in recent months, right? Can you clarify any observation on the API price in recent weeks? Yeah, Damayanti. Yeah, right. I said same thing. Actually, API prices, mainly in the month of so it has now stopped after mid of May, and it has now come back to the normalcy. To an extent, closer to earlier one. We feel till now. Okay. Coming to marketing costs in India, you said we are now at 80%-85%, and then as business picks up, we will see further change there. That's your marketing cost, right? True. Actually, in fact, I just wanted to indicate you our marketing activities, it has not come to normalcy. When I see my marketing cost. We strongly believe still on cost front, we can have additional cost to the tune of 5%-10% or 8% going forward once it becomes normal. I think Mr. Yogesh Kaushal is also here, and he will be in better position to give exact feel on marketing activity, how much it got normalized. If I go by what our CFO said, initial first quarter, because of May lockdown, there were certain restrictions on marketing. In the second and third quarter, we see the marketing cost opening up. We should come back to our usual marketing investment in the second quarter onwards. Okay, sir. That's helpful. Just a final comment on your observation on recent cost on the freight and logistics side, because some of your competitors have mentioned a certain increase in there. What are your observation on this freight and logistic part? Yes. Actually, we witness higher selling and distribution cost, which is mainly logistic cost. If I have to bifurcate between domestic and international, domestic, obviously, it has to be on higher side because of our enhanced sale. That is justified. Even for our international logistic, actually rates, it has increased. That also resulted in higher selling and distribution cost in this quarter. That increasing rate is significantly high. It was a substantial amount which has gone in our P&L of this quarter. Okay, sir. That was for Q1. What are recent observations, like what are updates on this logistics cost? Has it cooled down bit or it's at similar level compared to last? Not substantial. Still normalization has to happen. If I'm overseas logistic cost. For domestic, I think it will go in proportion to your revenue. When I see on absolute amount term, it indicates higher debit it has gone. You see ratio of our revenue. Domestic, I don't think any abnormality it has happened, but for international rate, it has gone up. It has come down a little bit, but not very significant. Still we are waiting for normalization. That's helpful. Sir, my final question is on your general observation on the pricing erosion environment in the U.S. Can you please comment on that? Mr. Ghare, please. The pricing deflation has been strong in the past 15 months since the beginning of COVID. Obviously, the products which are launched, the newer products, undergo a higher deflation. I think overall on our portfolio basis, our deflation was still in single digits, but on higher side, higher single-digit numbers. We are still in single digit. Are we seeing any, I'll say, intensifying pressure in last few months, or it is broadly in that single-digit range for us? Well, let me just say that the pressure has been there since the last months. Not that it wasn't there before, that increase that I talked about from the 3%-4% levels to 8%-10% levels has been there for last 12 months. It hasn't increased, but unfortunately, it hasn't decreased as well. Okay, sir. Thank you for your answers. That's helpful. Thank you. The next question is from the line of Yash Tanna from ithought PMS. Please go ahead. Yeah. Hi, team. Congratulations on a good set of numbers. Am I audible? Yes, very well. Yeah. I have two questions. The first one is, so on a medium-term basis, let's say like five or six years down the line, can we double down on our current revenues, which is around 8,800 crores right now? Can we go around 17.5-18,000 crores organically? I don't want any very specific numbers, but as a long-term shareholder, if you could just give some broad guidance if that growth is achievable. If yes, what would be the drivers for this growth? Yeah, if you're talking about doubling in six years, I think my math is not very good, but that's maybe 12%-13%. If that's the case, we would. We normally don't like to give forward numbers, so That's all right. Some broad guidance. What would be the drivers for that growth, if you could just? Yeah, the drivers for this growth, Alkem would be obviously domestic business, which is a large part of our business. Chronic business, please don't forget, we have hardly scratched the surface. U.S. business, we are still in not very large. We are still in small molecules, oral solids. There we can come into really complex generics and biosimilars four, five years down the line. That would help. Six years doubling is not massive, so that's okay. Sure, sir. my second question is, so what is that durable competitive edge which has led to consistent market share growth for Alkem across all therapies over years? are we taking any new initiatives now to maintain or enhance this competitive edge that we have over the years? That's a comprehensive question. I think our competitive edge is luck. No, I'm just joking. Sorry. We've got huge brands. We are a very entrepreneurial company where everyone is a quick decision-maker. We have a culture. I think culture differentiates you. That's the very kind of answer I'd like to give. The management is very focused. The promoters like to this. We are passionate entrepreneurs. We got good set of people. I think that's why I said it's a matter of luck. We got great people. We don't hesitate to invest. There was a time, if you remember, EBITDA margins were close to 14% during the IPO. That's because we were investing. We take a long-term call on business, and we invest, and we wait, and we do all the right things. Sure. Thank you. Thank you. The next question is from the line of Bhaskar Bukalsaria from JT Investments. Please go ahead. Thanks for taking my question. Couple of questions. One on the margin profile from a medium-term perspective. Now, as we can see that your chronic portfolio is shaping up quite well. would structurally your margin range, which has been, let's say between 21, 24%, 21% over the three-year period, likely to inch up because of the scale benefit? Yes, I think it will inch up, but don't ask me how much. It'll certainly inch up for sure. Any very broad directional guidance would you like to give without giving very specific numbers? Directional guidance, I've always given 50, 100 basis point every year we'll try to inch up. Hopefully, we maintain that stance. Okay. Sure. Would your gross margins in the chronic portfolio be higher than your acute portfolio? Yes. Margin, yeah. Yes, for sure. Okay. Sure. That's the question from my side. That's all. Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yeah. Thanks for the opportunity again. Just on the MRs. In the last two, three years, we had an addition of about 2,000 people. What is the current MR run rate and what is the current MR productivity and tying up with the margins? If you are largely done with MR additions with 10, 12% growth, is there a possibility of what the earlier participant also asked, 50 to 100 basis points? That is a culmination of that? Yeah. That's also one of the culminating factors for sure, because the addition of MRs have more or less been done. I think on specific numbers, Yogesh Kaushal, you could answer them with your duties. As a group, we should be around 10,000 plus, around 11,000 MRs. Yes, other than the respiratory division which we have launched, we are almost done with our addition of MRs. Nevertheless, as our MD also said, Sandeep, that we are not closed to any future opportunities. As of now, on a close run, we are not seeing any expansion, but we are open to opportunities. Okay. MR productivity, where we are in the Come again. Sorry, I didn't get you. What is our run rate on MR productivity? Yeah, I told you just some time back that our evolved business, we are in a range of around 8-10 lakhs. In the evolving, we are somewhere between 3.5-4. Just a couple of years launch business, we are in the range of around 1.5-2 lakhs. Ballpark will be around five. Around five to five and a half overall as an organization. Perfect. Secondly, on use of cash. Now from an upcoming quarters and seen in the last few quarters also, there is a very strong free cash flow generation that is happening. I think in the last call, there was a mention that we are evaluating M&A. After a long time we said that. Are we looking at aggressively anything on the table, and what is the current thought on this? Prakash. I think, yes, I think accumulation of cash will happen, and that's a good thing. I don't recollect whether we said we are open to M&A acquisitions unless I have amnesia. I'm not sure. I don't think so. I think as we go forward, Prakash, I understand that cash accumulation will happen in the next few years. I think once we cross, let's say some numbers and it becomes a problem, we could discuss that time. We are not changing anything right now, Prakash, in terms of our dividend policy or anything like that, Prakash. Okay, you're saying you're not too keen on M&A. Is that what you- No, we are not too keen on M&A, Prakash. Okay. Natural and organic build-out is what you prefer, Vasudev. Yes. Okay, great. Lastly, on tax rates. We are seeing one domestic company raising tax rate guidance. How do we feel like, given our plans which are still in Sikkim and all these. How long we have these tax breaks and how long we could be under 14%-15% kind of tax rates? See, Prakash, for this year, our guidelines is 13%-15% of tax rate. I think that is going to remain. For next year, definitely it is going to add up by another 100 basis point. Next year you can take 14%-16% kind of. If I understand your question correctly, you ask me how long we are going to have- Yes, sir. Sikkim benefit. As you know, Sikkim benefit ends in 2026, 2027. 26, 27. Okay. 26, 27. as in your mind, we have a facility in SEZ also. That also is having tax advantage. there was MAT credit also. Yeah. Huge MAT credit. Yeah. This SEZ, even though for five y ears it is 100%, but next 10 years, 50% advantage is there also. Yes, as Managing Director said, we have used MAT credit. Even though our tax rate is going above MAT rate. Our cash flow on account of taxation, it will be under control. Yes, definitely debit will start coming to P&L. Cash outflow, it will not be there beyond 21%. Okay. Perfect. You want anything specific? No, this is very elaborate. Thank you so much. Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead. Thanks for taking the question. Sir, on the other expenses, this has been obviously one very volatile and unpredictable element for the last four or five quarters. I mean, in the past, it's been in early twenties, mid-twenties as a percentage of sales for us. I think in the conversation that you had over the quarter, if one is understanding right, we've been suggesting that there is not much structural change which has happened in this cost item. Is it fair to expect that at some point in time, we start going back to early twenties percentage of sales for the other expenses? There are some changes which have happened in the overall business which sort of make us will be optimized significantly on that? There are so many factors if you are asking other expenses. Other expenses is combination of so many expenditure. It's marketing expense, it's manufacturing expense and corporate overhead and whatever is not covered under employee cost and COGS. Mainly it is coming under other expenses. It is very difficult to give exact prediction, but generally our other expense is in the range of 18%-20%. Definitely operating leverage is one important component in that. As just now we discussed, for example, employee-related cost, when their productivity improves, definitely our revenue is going to go up, whereas cost is not going to go up in that proportion. That advantage is there. Same thing applies in other expenses also. If I have to take our manufacturing cost into consideration. Marketing also, similar thing applies. I think our other expenses, broadly, it is in the range of 18%-20% when it gets normalized. Okay. Thank you. Between the quarters, we have some seasonality. If you check across the quarters, there would be this variation of 18% and 22% because there is a seasonality part also in our portfolio. No, I got it. Thanks. Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead. Hi. Just one question on your chronic therapy strategy. one read through, if you look at commentary across companies is everybody wants to grow in chronic therapy and the market leaders in chronic therapy obviously would want to keep the market share and keep the leadership. as a company which is now building presence, how is your strategy differentiated? Is it in terms of prescribers or geography focus or portfolio focus? What is it that Alkem brings to the table in such a highly competitive and a highly concentrated market? In a generic branded business, very difficult to say that you can build a differentiation. Yes, our focus is very clear. We are known for building large brands. This legacy we carry, and that's how we are looking at our chronic portfolio also. We are looking at brand size of 100, 200 crore size in the coming time. We have already chosen some of the key therapies like cardiology and diabetology, which constitute around 52% of chronics. There we'll be investing heavy and we'll look at building productivity and future expansions also. At the same time, we are reasonably good at CNS, so we will continue to consolidate. Some of the business like urology and all, we will have a reasonable expectation, not very high. This is how we are working on our various portfolios and various therapies. In terms of customer base, this is where we will be working little aggressively because we don't have such a large prescriber base. Our endeavor would be to see that we expand our prescriber base across therapies. Before setting obviously the right hierarchy positions because of your leadership in aggressive categories, wouldn't it be easier for you to bring the therapy down to the primary care level and leverage your leadership rather than trying to establish yourself as a specialist? It will always remain. You have to make a choice between two, whether you want to go through a primary physician or you want to go through a specialist. I think we have chosen to go through a specialist route, and we will continue to sustain that. It's a tougher journey, but a more sustainable one once we arrive there. Got it. Thank you so much. Thank you. As there are no further questions in queue, I now hand the conference over to the management for their closing comments. Thank you everyone for attending this call. If any of your queries remain unanswered, please feel free to get in touch with me. Thank you. Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services Limited, that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines.