Good day, ladies and gentlemen, and a very warm welcome to the Alkem Laboratories Q1 FY23 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 then zero on your touchtone phone. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services. Thank you, and over to you, Tushar. Yeah. Thanks, Adil. Welcome to 1Q FY 2023 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 Amit from Investor Relations. Over to you, Amit, for opening remarks. Thank you, Tushar. Good evening, everyone, and thank you for joining us today for Alkem Laboratories Q1 FY 2023 earnings call. Earlier during the day, we have released our financial results and investor presentation, and the same are also posted on our website. Hope you have 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, Sandeep. Thank you, Amit. Good evening to all of you, and thank you for joining us today for our quarter one FY 2023 earnings call. I will briefly take you through the key operational and financial highlights of the quarter. Total operating revenues for the quarter declined by 5.7% year-on-year. EBITDA margin coming in at 7.9% and net- profits after tax at INR 128 crore. We continue to maintain strong net cash position of INR 950 crore. Talking about our India business, which declined 6.7% year-on-year during the quarter, this was due to huge base effect of last year. Adjusted for COVID- base impact, the company has delivered reasonably good performance in domestic sales, led by contribution from new product introductions and price improvements. Our CAGR over the last three years is 13.4% for Domestic business. We continue to outperform in the domestic market, and as per secondary sales data by IQVIA, the company sales remain flat year-on-year compared to a decline of 1.8% for the Indian pharma market. This outperformance is driven by a leadership position in acute therapy areas like anti-infectives and gastrointestinal. Our Chronic business continues to significantly outperform the market and has been gaining market share and rankings. Our growth rate in derma and antidiabetic during the quarter is significantly higher than the market. We have gained four ranks in antidiabetic and one rank in derma therapy. Now coming to our International business. U.S. business reported a sequential growth of 2.7% with year-on-year decline of 7.9%. The performance in U.S. market continues to be impacted by a higher price erosion. During the quarter, we filed three ANDAs with the U.S. FDA and received four approvals, including one tentative approval. Apart from U.S., our other international markets delivered a year-on-year growth of 9.6% with good order and performance from the Australian market. Coming to our progress in the biosimilar segment, we have launched three products in domestic market last year, and we are seeing very encouraging response on these products. We expect to add a few more products to our basket in the financial year, which makes our biosimilars franchise very promising in the domestic market. We have also signed deals in the CDMO space with couple of international companies and few Indian players. In coming years, our biosimilar franchise will be one of the future growth engine for Alkem. Coming to regulatory inspection conducted by U.S. FDA during the quarter. St. Louis facility was inspected in June 2022, and post the inspection we received three observations. We have already replied to the U.S. FDA with corrective and preventive plan to resolve these observations. Apart from St. Louis, our Indore facility was also inspected by FDA. This was a pre-approval inspection, and we received one observations after the inspection, which we have also replied. Our Sellozia Biocurin Center was inspected by U.S. FDA in April, and the inspection was successfully closed without any observations. All other manufacturing facilities supplying to the U.S. market have an EIR as on date. To conclude, we have started the year with market-beating performance in domestic markets as per IQVIA, and we continue to outperform the market in our domestic franchisee. Our margin for the quarter was impacted by headwinds from spike in material costs, higher marketing expense and distribution expense and the price erosion in U.S. We would continue to drive operation efficiency through productivity improvements and various streams of cost optimization that we are running in the company. Thank you very much. With this, I would like to open the floor for question and answer. Thank you. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead. Hi. Thank you for taking my question. First one on the U.S., how many products are you planning to launch in the U.S. for FY 2023? Any meaningful product we should be aware of for FY 2023-2024? We are expecting to launch about between eight to 10 products, probably 10, during the fiscal year. Meaningful, you know, we don't want to take a shot right now, in terms of answering that question. There are some shared exclusivities that we have already launched, and we are looking forward to a few others as well. Time will tell how successful we are in those. Sure. Second question is on the other expenses. What is driving the other expenses on sequential basis? I think it's up about INR 100 crore. See, you're asking from sequential quarter? Yeah, sequential basis. Yes. Generally our other expense is around 23% to 24%, and this time it is higher, and in fact it is close to 29%. What is driving it? You know, mainly it is on account of some additional marketing expenditure, some additional traveling expenditure because of normalization. Sales and distribution expense also it was on the higher side, particularly for our export freight. Then, we have some Forex loss which also has gone in here. Can you quantify the, you know, maybe the kind of one-offs like Forex loss and maybe higher freight expenses which might not, you know, recur for the coming quarters? Around INR 50 crore this Forex loss all put together, conversion and all, I think that we can term as one-off. On expense front, somewhere around INR 20 crores- INR 25 crores is the kind of additional in this quarter. Sure. If I may just squeeze in one more. This is, you know, for the India business. In terms of return on capital, how does trade generics fare against the branded generic piece? We have a decent ROC on trade generics and obviously. Branded is better. Yeah. Anything specific? I mean, we can't give a number, but branded generic at scale is better. Yes. in ROC versus generic. What proportion of trade generics revenue would be like in-source versus outsource, if you can share that? A lot of them is outsourced, what we do, yeah. Okay. Majority is outsourced. Yes, that's true. Yeah. Thanks. Thanks. Thank you. Before we take the next question, we would like to remind participants that to ask a question, please press star and one on your phone. The next question is from Kunal Randeria from Edelweiss. Please go ahead. Yeah. Good afternoon, and thanks for giving me the opportunity. Sandeep, you did mention that you are investing in biosimilars, and that's going to be one of your growth engines going forward. Maybe just a couple of questions around that, you know. If you can share the kind of product that you're targeting, has the investments started and hitting the P&L already? When do you expect to have, let's say, maybe, you know, a portfolio of six to eight products starting to contribute meaningfully? Yeah. Hi. Your question is the expense hitting the P&L? No, no. Yeah, Sandeep. Actually, there are two or three questions around that. Yeah, one of it was this. I'll take one by one. I think Mr. Dubey is in a better position. Yes, we have already completely expensed out R&D from the very beginning, so it's hitting our P&L, obviously, and it's hitting it for the last many years, not for the first time. Yes, revenues have just started, as I mentioned, you know, very recently. As I mentioned in my opening commentary, we have launched three products. Now, when you say meaningful, I think meaningful is very subjective. But if your question is like when we'll have six products, I think by end of the year we'll have six products in India. You know, for it to really contribute, it's gonna take three to four years. Sure. In three to four y ears, maybe we can expect, what, 5. 6%- 5. 7% of your top line or something coming from biosimilars. Well, let me do my math. 5.7% will be how much? You know, it'll be INR 500 crore. Yeah, maybe one or two years in there. Till we don't launch something in regulated markets, we're not sure whether it can go that high. 2026 is something I think we'll see an inflection if we manage to do things well. It's possible. Sure. Sure. In this quarter, well obviously, you know, you were impacted at a high base of last year. But, you know, considering that 7% year-on-year decline in India revenues, would it be fair to assume that all your verticals declined and your branded acute, branded chronic or even your trade gen declined or did one or two really, you know, actually grow over last year? Chronic business clearly had a very healthy double-digit growth. Mr. Yogesh Kaushal, you could take this question. Yeah. It's not all verticals. Yes, our acute by and large was flat, but I would say that with high base, even a flat was a reasonably good performance. Generic, yes, because of demand, there is little, you know, muted growth in generic or negative growth. Chronic sustained a growth of 20% net plus. You know, all three verticals have different growth levels. Overall, we could just manage slightly negative as we started our opening remarks. Sure. If I can just squeeze in one more on trade generics. Sandeep, you know, a lot of your peers have now started to enter into this space. I'm just wondering, if you can sort of maintain the tempo of your business going ahead and what would give you the confidence that you can do it with, you know, with so many bit players entering? That's a good question. See, we are one of the leaders, not just in terms of sales, but we are the pioneers. We started very early. The relationship we enjoy with the stockist fraternity is kind of unparalleled. You know, it's I think trade generics is also kind of a misnomer because they are brands actually. It's not sold through the doctor's prescription, but they do have a very good brand recall with a lot of customers and stockists and retailers. We enjoy that. A lot of big companies are welcome. But this is a business which is very different from what prescription business is. I think they'll have their own learning curve. We have a very strong equity, and I think we'll outperform. We are very confident about it. Got it. Thank you very much, and all the best. Thank you, sir. Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead. Yeah, thanks for taking my question. Sir, can you take us through the, you know, how the gross margin is shaping up? You know, we have a low gross margin this quarter. If you can give some more color, any specific, you know, raw material that you're facing pressure and how are the, you know, the raw material prices trending and therefore, how should we think about gross margins going forward? Yeah. Saion, Rajesh here. We can see our gross margin from 60%, coming down to 57.5%. Basically, yes, you rightly mentioned also material cost, it has impacted. Impact of material cost is around 2.5%. Obviously, expensive API raw material we purchased, and it's consumed in this period. That is one of the reason. Second, you ask how raw material prices now is behaving. Yes, it has started softening. Still I think, it has not come back to its original position. It is in between kind of. Definitely going forward, we'll start getting benefit of this raw material cost. Of course, it is going to soften going forward. Second, as we discussed, in U.S., price depletion, that is another reason, and that also impacted us somewhere close to 2%. But that is offset by favorable mix. We got better business mix, so that has taken care. That's the reason 2.5% difference we have. Just to add to that, you wanted some specific, like cephalosporins have been most impacted. Yes. With price rise, and we are the number one company there, Saion, as you know. Therefore we were kind of impacted by that. Cephalosporin continues to be one of the most impacted raw materials. Okay. This is due to the PNG prices and how are they trending? They're trending very high. It's historically, I think lifetime high, I think, in my memory, $40. Is it possible to quantify, like, you know, how much of, you know, the impact is? I'm just wondering, this raw material, which is used to make these cephalosporins, how much in terms of INR crore, if you can give and, you know, where we are versus where we were last year. We don't have it right now, Saion, but Amit will get back. He will, he can share with anybody he wants. Okay. Any guidance you can give on gross margin going forward? I think we have already guided our gross margin to 59%, and we remain with that for year. 59% for the full year? Yes. Okay. What about EBITDA margins that you had talked about, 18% in the previous call? This quarter it has been very low. Also if you can give some color on other expenses. Again, it's on a very high side. How should we think about that as well? Yeah. Saion, I think last time we spoke about, yes, you're right about 18% EBITDA, but there are kind of two things which are a little bit, you know, new this quarter, which we have to see how it goes. One is we have about close to INR 50, INR 48 crore to be precise, of currency impact, which we were not very sure last time. This is out of the blue slightly. And then, U.S. price erosion is also slightly more than what we were anticipating. Looks like it, we could be 100 to 150 basis points lesser than 18% what we thought we will be doing. And Mr. Dubey, do second part after answering me. Yeah. Other expenses, I think I've already covered that. In other expenses, particularly this quarter, there are few expenditure, where we point it has happened, mainly marketing expense. Then as I said, traveling expense is on higher side. In selling and distribution, mainly trade expenses is on higher side, and Forex loss is one-off, which managing director just now mentioned of somewhere close to INR 48 crore. Of course, 28.9% other expenses is abnormally on high side. Traditionally, we have other expenses in the range of 23%-24%, and by year-end we'll be somewhere closer to that. Time? So- Yeah. 2023, 2024 by end of the year, you're saying? Okay. Yeah, yeah. Okay. Okay, thanks, and I'll join back the queue. Thank you. Thank you. The next question is from the line of Yash Tanna from ithought Financial Consulting LLP. Please go ahead. Hi, good evening, Aman Aloke. Yes, sir, we can hear you. Yeah. Sir, I went through your annual report, and I was just looking at this one line item called sale of services in the revenue. That has increased from about INR 7 crore in FY 2020 to INR 17 crore in FY 2021, and it's around INR 58 crore in FY 2022. What is it exactly pertaining to and how do you- What did you say sale of possession? Can you please repeat? We didn't get it. I was seeing at this line item, Sale of Services in revenue. That has gone up from INR 7 crores in FY 2020 to INR 58 crores in FY 2022. annual report. Yeah. Is it CDMO? That is CDMO. That is contract, services maybe for bio. Okay. Yeah. That has scaled up pretty well. I was just curious to know, could we see like a INR 100 crore-INR 200 crore kind of a line item going forward? Since it has scaled up pretty. It's still a very small portion of our revenue, but scaled up pretty well. Right. What you want to hear, sir, I mean, yes, we want to ramp it up, but we don't, really don't know, I mean, whether it can be done in the next one or two years. Okay. Got it. Just, I cannot see how the business ramps up. Sure. Yeah, and the other question has been answered, so thank you. Thank you. Next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead. Yeah, thank you for the opportunity. I just had the one question on trade generics. Is there any update at all or any more visibility you have on the trade margin caps that the government keeps talking about time and again? Sorry, what exactly is your question? Is there any update? Have you heard anything new from the government on trade margin caps? Any plans of implementing it? Any timeline? Anything you might have picked up in recent times? No, we have picked up everything which everyone picks up from the media. We still can't get back. We don't know. Does that concern you? Is that a real threat? How do you think about it? I think, see, it does not concern us too much. Of course, it would be a disruption because those rules would apply to everyone, so nobody will get any advantage or disadvantage. We being leaders in it, will continue to grow and we will continue to grow market share. I think the new players would be severely more impacted. It doesn't worry me too much. Anyway, we don't worry about things not in our hands. We have a large portion of prescription business, maybe we have a rub off there as well. I think we are fine. Got it. Thank you so much, and all the best. Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead. Thank you for taking my question. Sandeep, if I were to look at your cost numbers in the quarter, there has been an increase in employee cost and in your SG&A, even adjusting for all the one-offs. I think what you, sir, mentioned is because of sales and promotion. Now, you know, if I were to look at the data that is available for Alkem, our margins have been in the 15%-17% range. We've been trying to sort of improve it to 18%+ for some time now. Do you think given the competitive scenario in India and the investment that the business requires, incrementally it's getting difficult for us to improve margins? What gives you confidence, you know, in the margin guidance that we are, you know, giving for 18%+ next year? I think, see, this year is an anomaly. You know, this year, of course, we'll not hit that. But going forward, we will because we understand the cost structure, what we need to take care of, and we are looking at the expenses very carefully. On international business side, we also have, you know, very clear understanding of where we need to cut costs, and that's gonna take some time. Next year we think we could implement it. Also, please, you know, understand that chronic business continues to grow very well. Operating leverage will really kick in. We have seen the growth we have in anti-diabetes and things like that. Ultimately, you know, the compounding, the operating leverage of chronic will help domestic business get far more profitable because productivity is very less in chronic. Now you are seeing growth in the last few months, very well. We think we can address this in the long term for sure. Sandeep, just to follow up on that. You know, based on the investment that we have on our sales force currently, do you think that's enough, you know, to meet the growth that we have forecasted for the next, let's say, one or two years? Or do you see the need for additional investment, you know, in our field force? Similarly in the sales and promotion costs. I know some amount of it is linked to the sales momentum, but, do you see a need for incremental investment in the India business, you know, as we go ahead? No, I think this quarter itself we have added 300 people compared to last year. I think we have I will not say that we have reached saturation, but, we have added 3,000 people in the last three years, if I'm correct. I think we have already kind of maxed out. We don't really want to add too many people because we also realize that if we can grow only by just adding people, that's kind of something not to be proud of. I don't see. To answer you very, like, clearly, I don't see that we need to add too many people in the next two to three years to outperform the market. We have been ahead of the curve. We have been aggressive, and I think now is the time to make them productive and kind of scale the business without adding too many people. Similarly, in SG&A, I think it will not grow in line with sales. It will grow much lesser than sales. I think very confident that profit will go up. Understood. From a two-year perspective, we should see margins, you know, improve to the 20% levels that we've spoken of in the past? See, whether 20% or 19% is, I think, something I'll refrain from, but certainly, let's say you will see it's like above what we guided last time of 18%. It should be more than that, for sure. This year is anomaly kind of for a lot of reasons. Understood. Thank you so much. Thank you. Thank you. The next question is from the line of Subramanian K. from Alpha Invesco. Please go ahead. Hi, sir. Thanks for the opportunity. Sir, you have mentioned about two deals of CDMO. Can you make us understand for which therapy segment and what are the products you are focusing? Yeah. You know, these are a lot of things confidential, so I'll not disclose any geographies or, you know, any company name. These are for clinical trials, so they are in early stage, you know, for clinical trial supply. They could be in the chronic space and, you know, what therapy areas and all that stuff is for. It could be onco, it could be osteo. Yeah. Okay. What kind of competition is there in that, like, in the Indian space for this CDMO? Like, you might have spent a lot for this for marketing, how long can we expect to market it? No, we have spent nothing on marketing, sir. This is not a marketing game. It's a service industry. You don't require a lot of marketing in CDMO, sir. Okay, sir. My other question is on this dermatology. For this quarter, we had a solid double-digit growth. Moving forward, what is the strategy to take like scale up the revenue in dermatology? Because I could see the ranking is kind of not as same as in the other segments. Do you have any particular strategy in dermatology? Yes, we do. One is that we are consolidating our current brands. Yeah. There are, like, antifungals, antihistamines. These are something which we are at a very nascent stage, so a lot needs to be done there. Plus, we are also looking at, you know, strengthening our cosmetics portfolio there, particularly face creams and all, our sunscreen lotions. These are some very high volume and high use products. We are still very small there. Some of the therapies where we are reasonably, we have a good presence, and some, particularly in cosmetology, you know, we were not so big and there we are exploring. I think these two put together, we see a, you know, reasonably good growth in next two to three years' time. Beyond that, you know, we'll look at some of the maps which are being used in dermatology, which we just shortlisted. We'll see how do we progress there. Currently, for next two to three years, we are very clear, and there are a lot of innovations which can be done in dermatology. We'll, we should be working on those directions as well. Okay, sir. Thank you so much. Thank you. The next question is from the line of Sumit Gupta from Motilal Oswal. Please go ahead. Yeah. Hi, thank you for the opportunity. My question is on the U.S. business. First question is the U.S. sales has been stable despite price erosion. Any specific reason to highlight on this aspect? Second question is U.S. sales growth, what is the growth in the constant currency basis? The first question is, no, we have de-grown compared to last year-over-year. We have not grown, and we are not steady. Sequentially, yes, we have grown. The price erosion has been one of the factors which negatively affected. Volume has been steady, and of course, new products contributed positively, but they could not offset the loss in price essentially. What was your second question? I'm sorry. Okay, sir. Sales growth in the constant currency basis? This is all constant. What I reported was in dollar terms. In rupee terms. Okay. Obviously, you've seen what the results announced are. Okay, okay. Sir, the stable part I was, like, looking at the sequential only. That's it. Oh, you were looking at sequential. Okay. Sequential, constant currency basis, we are probably flat. Okay, sir. Sir, overall investment in biosimilar, which is expected in FY 2023-2024? 2023, 2024. Next year. Okay. It's within the 6%, right? Overall, so. Yeah, overall R&D, including biosimilars and small molecules, is 6%. Yeah. You want to know. What do you want to know, sir? Sir, regarding to, like, the overall investment in the biosimilars business. How, what kind of investment can we see in the numbers also, in the value terms? Yeah. Specifically, we can't, I mean, I'm not sure they can answer, but I can tell you that biosimilars investments will be going up compared to this year. Overall, we'll manage. In the guidance we have given of 6% R&D of revenue, we'll not be spending more than that. Okay, sir. Thank you. Thank you, Sumit. Thank you. Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead. Yeah, thanks for the follow-up. On the U.S., you know, you I think had talked about possible growth this year over last year. With the situation now, do you still think you can deliver growth in the U.S. this year? Yes, Saion. We've just done one quarter. We have three more quarters. Right now the overall guidance for the year that we have, we had given, at least for now, we are sticking to it. Obviously we are looking forward to delivering that as well. Amit, is it more dependent on, of course, on new product, right? When will we see that momentum of growth from next quarter onwards, or it will be more sort of second half? No, it'll have to be a combination of everything, Sayan, to be honest. We are not gonna deliver growth if there is a 20% price deflation, as you very well will understand. To that extent, if we have to achieve our overall growth, it'll have to come from all the three phases, a normal sort of a price deflation, unit growth and of course from new products. Right. What was the level of price erosion this quarter? How does that compare to last quarter? This quarter was 20% in dollar terms. Last quarter, I think it was around, you know, 14%, if I remember. I'm not very sure of the last quarter number, but this quarter it was 20%. Amit, 20% is a very high number. You're talking about year-on-year 20% decline in prices. Yes. I'm talking year-over-year 20% price decline for our portfolio. No, not net of new products. Price decline. Pure price decline on legacy business, on existing business. Yes. Yes, we did suffer, Saion, a huge price deflation this quarter. Is that very product specific or is it, spread across your portfolio? Because this number is, looks very high. This is across portfolio, obviously. It is not product specific. Okay. How do you think sequentially the pricing momentum should be in your view, based on what you're seeing at this point in the market? Right. Like I said, we were expecting that the price deflation will reduce. Sequentially 14%-20%, you know, over those two quarters. It's gone the other way around than what we had expected. Now, obviously we will hope and expect that, you know, it doesn't go beyond this number and in fact start coming to normal number. Mm-hmm. Okay. You know, a general question on margin. You know, you were talking about margins sort of moving higher, in due course. The question is that what is that dependent on, in the sense that do you have leverage in your India business, or is this going to depend more on, let's say, the U.S. business stabilizing and, you know, growth coming there? You know, if you compare, the margin for the India business, let's say pre-COVID till now, how is that comparison? Okay. Saion, increase in margin is dependent on both. One is domestic leverage, obviously, as we mentioned during the previous question. Even on international business we have identified some, you know, cost rationalization, which could be pretty meaningful, but we are still evaluating that, so we can't really kind of give you ready guidance on that. We understand that, you know, everybody is restructuring their portfolio. We also know what kind of, you know, portfolio we could restructure in international business, and that could lead to some cost optimization in terms of some, you know, a lot to do with manufacturing plant cost optimization as well linked with that. We have got some levers there. Now, they will take like a year to implement because, you know, to do those stuff it's not that easy. We have those levers, and we are fully committed to increasing margins, not just as a lip service. We feel very confident that if you forget this year and you take, like, a three-year horizon, we would be increasing our margins. On the second question as to the pre-COVID margins compared to now on the domestic side, I think you asked? Yeah. As far as pre-COVID margin is concerned, more or less normalization is coming. This quarter was exception because some of the expenditure, it is pre-COVID. I think going forward it will get normalized. That's the reason why I said, our other expense, it is going to remain between 23.5%-24%. Because our major expenditure, that is on marketing, it lies over there. As well as we start getting some kind of softness in material cost also. Right. Just, you know, Sandeep, if I can, you know, based on the, you know, as, you know, the comment you made about cost initiatives on the international business. Even if you're looking at 18% margin, let's say, when things stabilize, typically the India business margins would be in mid- to high 20s%, right? Which implies that your, the international business margins, you know, would still be very low or is obviously now very low. Where, how should we think about the, you know, steady state margin for the international business? I think, see, international, the price erosion which you are seeing is obviously like very high this quarter. I think it also a lot of depends on how the U.S. market kind of responds in the future. If this kind of erosion remains, then obviously the, you know, even whether it has margins will be under question. I'll refrain from really saying that. Let's see how the U.S. market functions. Otherwise, you know, any kind of guess on what profit margin it'll have might be a, you know, just a guess. Okay. This quarter was really tough, so let's see how it sustains. Got it. Thanks and all the best. Thank you. Thank you. The next question is from the line of Aditya Khemka from Incred Portfolio Managers. Please go ahead. Yeah, thanks for the opportunity. Good evening, everyone. Sandeep, sir, from a marketing and sales-driven organization to manufacturing and now CDMO and biosimilars, the journey in the last four, five years for Alkem has been quite revolutionary in that sense. Can you talk us through so these two businesses, which is your India business, which is more branding, selling, marketing, and then the second part of your business, which is manufacturing, contract research, contract development, capital intensity being high. Which direction is Alkem tilting to and why are we diversifying away from our core competency of marketing, branding and selling? Right. Great. Aditya, so first of all, let me start with the latter part. We are not tilting or diversifying, but we are not letting go of our core. I would put the question to you. Do you think we are letting go of our core? Do you see a domestic sales slack? I would say no. No, that's not what I meant. Yeah. No, what I meant is we have not let go of our core, Aditya, point number one. Sure. Because we understand that is our core and it's critical. That remains. The organization cannot at all think of letting go of, you know, taking our eye off the ball on domestic market. Now, see CDMO is something which we discussed, but we are still very small, and we have not put any large CapEx or any marketing or anything of that sort. That is kind of something which is getting built up, but I would not say that the whole company is geared towards that. Now, Aditya, you understand obviously that the world including India is changing. Biotech and biosimilars will be an important part, so you have to ultimately take part in that. Biosimilars again is very, is gonna be core of what we are doing the next few years. Yeah. Similarly, you know, you can't win those markets like biosimilars play without manufacturing of biotech. We have not been like too aggressive on that, Aditya. Like, we have not like put like hundreds like we have just put INR 200 crore on the plant of biotech, and we are like measuring it. We are not going whole hog. If I can say we are, you know, measuring the depth of water with one leg at a time, not with both legs. Just to reiterate, we're not going off our core at all, Aditya. Sure, sure. No, that's not what I meant. I just wanted to understand the diversification perspective, which is well answered by you. Thank you. Even diversification, Aditya, is also growth opportunities. I mean, diversification for diversification, I'm not a believer of that. But it's also a matter of growth. Sure. Sure. You see that U.S. market is challenging with small molecules. We need to find other things like biosimilars and we are a very simple company compared to a lot of other companies. A lot of other companies are doing injectables, inhalation, everything else. But we are not. We are just doing oral solids, and now we are saying we are doing, you know, biosimilars. I would say one of the most focused companies now. Fair enough, Sandeep. I joined the call a little late. Did you talk about what kind of price increases on a weighted average basis have we taken so far? How much of the older price inventory was sold in 1Q, and how much of the newer price inventory has been sold in 1Q? That should be great. Yeah. As you know, for scheduled product, we had opportunity to go with 10.773%. That's wholesale pricing that released this time. I think in most of the cases we have gone for it. You rightly mentioned actually impact of that it has not come fully in this quarter because we had some extra inventory of earlier manufactured or earlier batches. Once it is consumed and then we are going to have, and obviously in quarter two, we are going to have entire benefit of price increase. As far as non-schedule is concerned, wherever depending on our competitors' price and all these things subject to that, but wherever opportunity is there, we have taken increase there as well. Right. Right, Rajesh. Thank you for that. On the raw material side, as we understand from what we are noticing in some of the commodity prices, it seems that there is a bit of cool off. You know, Brent has come down, and other commodity prices have also seemed to be cooling off. How much of high-priced inventory? One, do you agree with the assessment that spot raw material prices from China, et cetera, are lower than what they were, let's say, three months back? And if that assessment is correct, how much of the older higher-priced inventory do we have of raw material? And when do we start seeing the reflection of the newer, relatively lower-priced inventory getting consumed in the P&L? Yeah, you are very right. Actually, prices of API started softening. As far as high priced raw material consumption is concerned, I think more or less substantial part we have consumed. We'll start getting a little bit softened raw material price consumption going forward. If I have to quantify to certain extent, I think somewhere close to 80%-85% of expensive API is already contracted so far. One question for Amit. Amit, one of your largest competitors in the U.S. market spoke about product rationalization, letting go of loss-making products and reducing the product offering to the customers because those products are just not generating profits. You said 20% price erosion on a portfolio level, whereas in the India business you have been able to take price increases. I'm sure raw material costs for both the businesses have gone up alike. In that context, how is the Alkem portfolio going to survive, given that the companies that I'm talking about are in multiples of the size of your business in the U.S., and yet they are facing the problem of cash flow in that geography and rationalizing portfolio. How do you look at the outlook of your portfolio in the U.S., and how do you sort of differentiate yourself versus those larger players? Differentiation, I won't be able to answer, Aditya. The generic business commodity market, of course, we have our USPs and our strategies, but at the end of the day, you know, if a competitor has the same product, there's very little differentiation per se. Going back to the original question, we do this exercise always. If there are products within our portfolio which we think are not generating return or investment or margin for that matter, we certainly discontinue or look at reducing them. In many cases, when you know, like we just discussed, if there is a 20% price deflation, there will be some products which will start getting into the negative area, and we will let go of those businesses. Really sometimes we get forced out of the market also. Of course, we can keep that business by making losses, but that's not our philosophy. We don't do that. We simply get out of those products. We do it actively. Okay. Sometimes we are forced out as well. That's a fair point. I mean, if we're not making money, why do the business? In that context then, in terms of capacity, would you need additional capacity for your small molecule business in the U.S. for the coming three years? No. I think sometime back we had very clearly guided that we have built the capacity for the next five to seven years, and now with the very little growth happening on the volume terms, we think that five to seven year still remains the same despite two years hence. One last question. I think maybe Sandeep can answer. We are seeing a lot of merger and acquisition activity. I know you get this question every con call. In terms of deploying capital, you know, you have options. You have an option of putting up a plant or capacity for biosimilar CDMO, U.S. generics, and you have the other option of buying some brands. I know the pricing may not be, you know, as per what one would ideally want, but at least there is a positive ROI on that business at a certain stage. Have you reassessed your threshold of considering an acquisition in the Indian market, or would you stick with your original parameters of what you consider as value of buying Indian brands and investing in India? Yeah. Aditya, I think we'll stick to it. You know, but let me kind of build on that a little bit because I know from where you're coming from. You mentioned domestic business, international, CDMO, et cetera. We don't have any CapEx plan for any of them, which is like significant in the next two to three years. There's no question of choice among the three of it. Obviously Mm-hmm. You know, first thing is that. Second, see, we continue to grow our domestic business organically, which I think is a good thing. We continue to outperform. I don't think we have changed our stance on acquiring something. That doesn't mean that we never evaluate opportunities. We do look at them, but we kind of, when we hear those valuations from bankers, we kind of stay out. We're still looking at few things. If it makes sense, we'll buy, but if it does not make sense, we'll never do it for vanity. We don't want to do that. We wanna be good in the long term. No, I really like discipline in the organization. That has been one of your highlights, and I really appreciate you sticking with it. Thank you, sir. Thanks, thanks a lot, guys. Thank you for your answers. Thank you. Before we take the next question, we would like to request participants to limit their questions to one per participant. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead. Yeah. Hi, good evening. My question is on the profitability of the domestic business from a slightly longer term horizon. I'm not looking for answers, numbers here. I very well understand that there could be some gross margin reversal in the near term because of raw material prices cooling. If I look at the OpEx below gross profit, I can vouch with an enough resource of more than 10,000 now. If I remember correctly from previous con calls, 20%-25% is a churn that the company used to indicate. With that kind of a churn, is it possible to increase the PCPM structuring from where the company is today? I am also aware that chronic is something that stacks the map with the PCPM, but at the same time there will be some churn that's happening on the acute side. I'm not too confident or too sure whether the PCPM can improve from where the levels it currently are. Add on top of this, the biosimilars buildup that needs to be done for the next three to four years. Aren't you looking at some sort of a peak OpEx to sales ratio, or a similar OpEx to sales ratio going forward in the coming three to four years? I'll answer your first question. You have two questions actually. You ask about increasing productivity, and then you ask about the OpEx on current 10,000 field force and then how do we address that, correct? Number one is PCP, obviously, when we intend to grow at around 10-11% on a productivity of around INR 6 lakhs. Which means we are improving our productivity on acute front. Yes, our chronic productivity is at a mid-level, it's around INR 3.5 lakhs-INR 3.7 lakhs, where we take little aggressive growth of around 23%-24%. Our acute therapy continue to outperform the market and thereby increasing the productivity. We intend to grow chronic by at least 2x-2.5x of market, and therefore, you know, outperforming not only the market but increasing the productivity more than what market increases. That is what is our approach. Over a period of time, productivity is bound to increase if we sustain our growth levels. Yeah. Because we are not increasing manpower much now. We have done almost 1,000 every year for the last five years. As our MD also spoke just now that, you know, we don't intend to do much on expansion front except for a few this year. What we need is more consolidation and building productivity. I believe last time we answered the same, that one of our growth levers would be increasing the productivity. Sir, with a field force of 10,000 and more, your top performing MRs would be prized assets for many other companies. Wouldn't the need to retain them, which would involve that you have to raise salaries of MRs. If you don't retain the top performing ones, the PCP hit that you take because the new ones will take some time to ramp up. Why I am asking this question is, this question is more relevant for Alkem in my view, it's because of the MR base that you operate at versus unlike other companies which are at half or 70% of MR base that the company is at. That remains challenge across industry, not specific to Alkem. Retaining team will always be issue, and we have our inherent, you know, that bonding with team and we have various HR initiatives where, you know, team bonding and retaining the team, and we are certified as best place to work for last three years. We keep on continuing to see that, you know, our attrition level remains lower than the industry, and thereby retaining people. We are known in industry to be one of the best paymaster in terms of incentives, and we are very highly incentive-driven company, and that helps us retaining people. One is providing the right culture and environment, and second is how do we reward them to the best of the incentive structure in the industry. That too help us to retain people. Yes, nevertheless, this still remains a challenge of retaining people, and we are aware about this. Yeah, very clearly PCP will increase. I don't know why you doubt that. It has to. Yeah. The second question. What is your second question, sir? It's something. You asked someone R&D biosimilars. Can you repeat your question? No, I think this answers. I mean, that was just a add-on question. The PCP is what my focus was, and I think this helps. Yeah. Thank you. The next question is from the line of Srikanth from Asian Markets Securities. Please go ahead. Hi. Good evening. Thanks for the opportunity. My question is on domestic trade generic industry. If you can talk about how big trade generic industry is, what has been your market share movement for last four, five years? Because last couple of years we have done very good business. If you can comment on the market share and little bit on the futuristic, how we should look at the trade generic industry growth rate in India. Yeah. A lot of questions there. I'll try to answer them. Thanks. Market share on trade generics, we cannot really say that because, you know, there's no data like you have for prescription business. But I can tell you that we are either number one or number two in trade generics. That's point number one. We are very close number one, maybe a number one. You know, the trade generics is really growing now much. It's outperforming the market to a large extent. It's also mentioned in some of the questions we had earlier, that lot of other companies are now entering this. I think you have got tailwinds. This industry will outperform the, you know, normal pharma industry. Okay. Anything on the market share movement? No, market share movement I think has only increased because as I said, we are close number one, if not a number one. There is no secondary data, no validated like third party data. I think whatever market share I tell you might be not very accurate. One small bookend, bookkeeping question is on if you can provide the acute, chronic and trade generic contribution during the quarter? Yeah. Yogesh, why don't you go? Our acute is 84% and chronic is 16% to the domestic business. The prescription business. The prescription business, yeah. Okay. Trade generic, any number? Trade generic. It's close to 20%. Okay. I see a- Thank you very much. Thank you, sir. Thank you. The next question is from the line of Vijay Karre from Shriram Life. Please go ahead. Thank you for the opportunity. I have two questions. The first one is, what is the approach for the price erosion in the U.S. business? That is one. Two, what kind of ROCE do you enjoy in the U.S. business versus the trade generics and the branded generics? There's a lot of echo there. Can you repeat your question? Sir, just mute. Your voice is cracking. I'll repeat my question. The first question is, what has to happen for the price erosion in the U.S. to reduce? One. The second question is, what kind of ROC do you enjoy in the U.S. business versus the trade generics and branded generics? The final question is, can you throw some light on the working capital cycle for this quarter and the inventory days as well? First question I didn't get on the U.S. Price erosion. Price erosion, I said it was 20% for this quarter. It was actually 19%, and 1% was volume reduction. No, my question was, what has to happen for this price erosion to reduce? What has to happen for price to reduce? I can't really tell you. One of the key issues has been, of course, customer consolidation, but that's not gonna change in this quarter. The only thing I can say is that, you know, at some point of time, there will not be so many offers of people giving so many offers coming through, and therefore, that automatically will come down. Some players getting out. Some players getting out, manufacturers, that is on our side. Those kind of things will impact. Mr. Dwivedi, other questions were for you, ROC and whatever. As far as ROC on international business is concerned, we have very in single digits, but definitely it is positive single digits. Yeah, we are in the process of improving ROCE. I think third question, I don't recollect. What was your third question? The working capital cycle, inventory days. Yeah. Working capital cycle for this quarter, it is 110 days. I'm not talking U.S., I'm talking on company level, so 110 days. Is it okay? Yes. Yes. Thank you so much. Thank you. Thank you. The next question is from the line of Prashant Nair from Ambit Capital. Please go ahead. Yeah. Good evening, everyone. Just a couple of clarifications because I got disconnected in between. On your margin guidance, if you could just clarify both on the growth and the EBITDA margin line. Did you mention that on EBITDA margin, you are expect to be north of 18% from next fiscal, but this fiscal it could be a bit short of that number. Is that what you kind of indicated? Yes, absolutely. Right. Thanks. On the gross margin line as well, you know, if you could just give us a general sense of, you know, how margins could progress over the next two to three years or it is? We have given guidelines of 59% on gross margin front. Yes, obviously first quarter it is not there. Going forward, we'll try to improve, but I think in immediate future, we are going to remain somewhere in 59%-60% kind of gross margin. Okay. Just one last question for me. Can you quantify the expenses you are incurring on the biosimilar biologic side, currently, R&D, any other expenses all put together? What would it be on the P&L? Yeah. In biosimilars, you know, we don't have a huge pipeline for regulated markets. In the regulated markets, we have huge R&D costs. We just have one product which we are doing currently for global markets, so the costs are not very high. You know, R&D and OpEx would be close to INR 150 crores. INR 150 crores for OpEx, that is plant and everything, all other administrative costs. Pure R&D would be close to INR 100 crores. It's not significant. Okay. Cumulatively about INR 250 is what you're You can say that, yes. Yes. Okay. Thanks a lot. That is all. Thank you. We have the last question in queue from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead. Yeah. Thank you for the opportunity again. Just couple of basic questions. One, what would be your working capital cycle for the branded India business? Just a ballpark number. For ethical business, our working capital days it will be somewhere close to 55-58 days. Would it be fair to say that branded, the trade generic would be slightly higher than this? Yes. Okay. Secondly, out of our INR 3,400 crore gross block, can you just give me a ballpark number of what would be the you know, gross block, which is targeting the U.S. market or you know? Actually, I think right now I'm not having this figure, but generally we never share our fixed asset utilization on respective business. Amit Ghare will be talking to you separately and try to provide some kind of. Amit can give, yeah. Yeah. Amit can give you. Yeah. Okay. Sure. Thank you. Thank you. That was the last question. I now hand the conference over to the management for their closing comments. Thank you everyone for joining the call. If any of your questions are unanswered, you can get in touch with me. Thank you, and have a great weekend. Thank you. 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 landline.