Ladies and gentlemen, good day and welcome to Q3 FY2023 earnings conference call of Alembic Pharmaceuticals Limited. We have with us today Mr. Pranav Amin, Managing Director, Mr. Shaunak Amin, Managing Director, Mr. R.K. Baheti, Director, Finance and CFO, Mr. Mitanshu Shah, Head of Finance, Mr. Jainil Shah, Head of Strategy, and Mr. Ajay Kumar Desai, Senior VP Finance. As a reminder, all participant lines will be in the listen-only mode. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. R.K. Baheti. Thank you. Over to you, sir. Thank you, Yashasvi. good afternoon, everyone. Thank you all for joining the Q3 results conference call of Alembic Pharmaceuticals. I'll start with the financials. During the quarter, our total revenue was up by 19% to INR 1,509 crores. EBITDA was INR 236 crores and net profit is INR 122 crores. EBITDA margin was 13%. For nine months FY2023, EBITDA was INR 476 crores and net profit was INR 189 crores. The company, like in the previous few quarters, continued to extend out previously amortized R&D in Ladies and gentlemen, thank you for patiently holding. We have Mr. Shaunak Amin back on the call, so please go ahead. We did INR 545 crores for the quarter. As per the IQVIA IMS numbers, industry grew by 10% and Alembic reflected a 15% growth, which again in line with our performance compared to industry. On the specialty segment, our performance was significantly higher and we recorded 14% growth versus the 10% growth for the industry, largely driven by three key therapies, gynecology, anti-diabetics and ophthalmology. On Q3, the acute part of our business grew by 21% versus industry growth of 11%. Within that, I think the two key components of anti-infective, we recorded 24% versus 12% for the industry. As well as in Cough and Cold, which is another large important segment for Alembic, we grew by 16% with industry growth of 10% as per the IMS. Animal Healthcare continues to run a strong performance by recording a growth of 19% over last year, quarter three in terms of. I will hand over the discussion to Pranav for his comments on the cash reserves. Thanks, Shaunak. The U.S. business, as you all know, it continues to remain challenging on account of the competitive intensity, but we did manage to grow the business 10%. Some of it was led due to the current strong flu season that we saw in the U.S. market. Our goal is to work on improving the efficiencies and execution in the midterm. We're looking at cost reduction as well as reducing R&D grid going forward for the U.S. market. R&D expense is INR 157 crores, ex of the one-time Alere product write-off is INR 144 crores, which is 10% of sales in the quarter. For the nine-month period, R&D expense is INR 586 crores and ex of the Alere one time, it is INR 442 crores, which is also 10% of sales. We filed four ANDAs during the quarter and cumulative ANDAs at 246. We also received nine approvals in the quarter and cumulatively have 178 ANDA approvals. We launched two products in the U.S. and plan to launch another two in the fourth quarter. In terms of regulation, regulatory agencies and compliance, the U.S. FDA conducted an inspection at our Onco facility, F2, and issued four observations. We have replied to the observations already and sent our responses. After that, we have already received three ANDA approvals from this particular site. The U.S. FDA also inspected our new oral solid dosage facility, F4, in December. They issued five observations. We have sent in our responses, and we have already received an approval for one product from this facility. In terms of pure numbers, as I mentioned, the U.S. generics grew by 10% to INR 432 crores for the quarter and 10% to INR 1,200 crores for the nine-month period. In dollar terms, we were at $52 million, which was a growth of about 1%. Ex-U.S. generics grew by 7% to INR 206 crores for the quarter, and it grew by 3% to INR 602 crores for the nine-month basis. The API business had a good quarter, robust quarter and grew by 65% to INR 326 crores for the quarter, and it grew by 19% to INR 853 crores for the nine months. What's important is both the ROW and the API business have both come off, strong base of last year, and since, been a decent performance in these verticals. With that, I'd like to open the floor open for Q&A. Thank you. Thank you very much. We will now begin the question and answer session. Any participant who wants to ask a question, may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yeah, thanks and good evening to all. First question on you had some 7-9 approvals, and there are 2 launches. Are we waiting for the launches for the new facilities? We have already started launching in Jan to March quarter, if so, the expenses, quarterly run rate would be how much? Prakash, the, from the new facility, we haven't launched as yet. We will launch from one of the facilities in the quarter, hopefully this month. The rest are in progress right now. We will see from F2, the Oncology facilities where we will launch this quarter. Okay. This diclofenac product is from, have you launched this and from which facility it is? diclofenac is an Alere product, and we haven't launched it as yet. It should be in the next couple of weeks that we'll launch it. Can this be sizable on our way? It's a decent product. As far as I don't have the exact figures with me, it's a good product and it's a decent opportunity. Okay, what would be the quarterly run rate, since we would start Alere is already on, I think, in terms of expensing, but a couple of other facilities also, I understand they will start expensing out or? Up to 31st of December 2022, no expense was charged off. It continues to get capitalized because now the commercialization of these facilities will start from this quarter onwards, and we will start charging off as and when they get into the commercial production. As was informed by Mitanshu too earlier multiple times, our annual run rate on all these facilities is about INR 200 crores. INR 200 crores, all the facilities put together? All the facilities together. Yeah, yeah. It would be not fair to understand that it would be an INR 50 crore kind of cost every quarter. It will be in tranches, before it touches the run rate of INR 50 crore, right? That's right. Okay. Okay. Prakash, Nitin is talking about cash expenses here of INR 200 crores, and there will be another depreciation on that. Yeah, operating expense and the depreciation on the overall, gross block. Yeah. This gross block pertains to how much? Is it in the range of INR 2,000 odd crores? We have about INR 1,200 crores of, would you say hard assets, and the rest is pre-operative expense, accumulated pre-operative expense. Okay, understood. This product also, this Pregabalin also comes from Jarod. That also you're awaiting EIR or it should be ready for launch for this quarter? Pregabalin is a product that we are already selling currently from our existing facility, the F1 facility. It's already a commercial product. Mm-hmm. This is a site transfer that we did from here. We'll just decide when to start commercial operations from F4. We'll probably bundle up a few products together and then we start the commercial operations. Yeah. There's no hurry there. Okay. Yeah, there's no hurry there. Yeah. Okay. Lastly, on the the API business, is doing fairly good. You mentioned that fiscal 2023 there is sufficient visibility. If we want to look at beyond then how does it look? This quarter is a little lumpy because as, we do CMO business for a large MNC, and sometimes those orders come once in a while. That was a big chunk of that order came in this quarter. X of that also there's been a growth of about 30%-40% if you take that part of it out. On a year-on-year basis, as I've been saying the API business should grow at least 10%-15% for the year. From, fiscal 2024, I mean. I think we're seeing that trend. I'm seeing that. Even next year you'll see about it. I would expect at least a 10% growth in the API business. Okay. This run rate is possible in Q4 also? No it won't because as I said, it's still lumpy. There's this one big business that we had and then a few more dispatched in this quarter. Sequentially it is. If we take a one-off, it's still lower than the last quarter. Okay. Y-o-Y growth is possible. Yeah, yeah, absolutely. Lovely. Thank you. Thank you. Thank you. We have our next question from the line of Damayanti Kerai from HSBC. Kerai? Hi. Good evening. Thank you for the opportunity. My question is for Pranav. You mentioned in your opening remark that due to persistent challenges in the U.S. market, you'll be more efficient in R&D cost going ahead. What is your thought process here? Right now also we are spending around 10% of top line towards the R&D. How or where you can bring efficiencies? If you can also tell us like what kind of returns you are seeing over for investments which are, which were done, say, last four, five years back. That's my first question. Yeah. 2 things. One is what we're doing is, the R&D spend, we're trying to optimize the projects and that we have in terms of R&D, in terms of short-term, the issues that we're facing in the U.S. market. Some of the high-risk projects is where we are putting on the back burner. At the same time, we are also increasing some of our projects for the ROW markets, because there we've been doing pretty well and consistently growing at about 10% for the last few years. We will start adding projects there as well. In terms of ROE, Jainil Shah, you wanna talk about the returns? On a, on a percentage basis, couple of quarters back, or I think last year it was about 14% of sales, which has come down to 10%. Also that's not a right reflection because sales has not, our sales did a depress sales, if I can say so, because of the U.S. situation. Volumes have gone up, the price realizations are low. In absolute number, in spite of all these cost increases, inflation, we have reduced the expense and I think, we will further prune the projects and prune the fixed costs. That effect or that impact would come in 2023, 2024. That's what Pranav wanted to convey. Okay. just to clarify- It's very difficult to do that ROE analysis of R&D because, okay, a couple of products can take care of the entire R&D expense. You are right. I mean, many of these new launches which we have done in recent past, except a handful of them, have not been great success because of the pricing erosion. Okay, sir. That's helpful. Just wanted to check any number in your mind, like where you'd like to bring down your R&D as a% of sales, say, three years from now? Like the scale-up takes time, even the pruning takes time. You need to do it carefully. I think, okay, we can target a reduction of 15%-20% from the current cost in the next year. Next year, you said 15%-20% reduction can be seen on the R&D cost from current level. Yeah. Okay. Baheti, just one clarification on amortized residual R&D for Alere. You mentioned it's INR 11 crore is remaining, which will be, say, done in next quarter or so, and after that, nothing is left on the Alere. Yeah, that's right. You are right. Okay. My second question is on input cost pressure. Can you comment like, what are we seeing in terms of pricing trend for raw materials, seed cost, et cetera, compared to last few quarters? In international business we have not seen a significant increase in raw material costs. As a% of sales realization, the cost has gone up largely because, as I said, largely because of erosion in prices. In domestic market, as far as this quarter is concerned, they are pretty stable. They've still not gone to the pre-COVID level, but I think they are stable or has come down a bit for the domestic market. My last question is on India business. Most of the therapies, you have seen outperformance versus the market except gastroenterology. Anything specific to call out there? Shaunak, would you respond or you want me to continue? Yeah, please do. Just I didn't understand. Okay. Yeah. Sorry, sir. Damayanti, you're not audible, Damayanti. Can you use your handset please? Yeah. I was just asking like anything specific on the gastroenterology segment where we have seen lesser store performance versus the market growth? Shaunak? He's joining also. You are right. I mean, you have very correctly observed. Gastroenterology is the only probably division, large division where we have done, we have done worse than the market and worse than our own expectation. There were some leadership issues. There were some inventory issue of the old times. We have done all these corrections, and we expect that FY2023, FY2024 should be much better here for the division also. Okay, sir. Thank you. I'll get back to the queue. Thank you. A reminder to participants to press star and one to ask a question. We have our next question from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead. Yeah. Thanks. Thanks for the opportunity. Just clarification first. The one-offs that has been called out with respect to Alere, right? Only Alere. Is there anything else? I joined the call late, if you could clarify. No, no. It's only Alembic Pharmaceuticals. That's only INR 13 odd crores this quarter. Good. Sir, secondly, just among the peer set, the couple of companies have got significant regulatory issues, and that has to some extent led to shift of the supplier base, particularly on the injectable side. Are we going to see a good business benefit out of it? I mean, historically, we definitely have tried to do a good benefit of such events. Anything going forward? yeah it's a good question. I think strategically what we've where we've done well is when there are regulatory issues in the industry and that leads to shortages, and we've been able to do well on the shortages when we do see it. Injectables is still early days for us because it's just we've just got the first few product approvals. Once we commercialize it and then once the rest of our pipeline, our piping speed picks up on injectables, yes, definitely we could see that. Strategically, one of the reasons we did get into injectables is because there has consistently been shortages and compliance issues. We thought there would be opportunities. Long run, yes, we do hope to see some. Anything over next 12 to 18 months given that, or let me put it other way. Given the current quarterly run rate of 50, 52, how do we see FY2024? It's tough to say right now. I think the whole thing depends on how the new launches go. Like this time, as you've seen, we've got about in INR terms a 10% growth. That's predominant because while we had erosion, at least we had erosion in the quarter compared to last year, we also had some new launches that picked up some steam. It's a combination,. With injectables, as we launch more and more injectables, that'll keep adding to our basket. Of course, FY2024 will be a little tougher one because we will have a little bit of a pressure on the profit due to the two new facilities coming up on stream. Understood. Understood. That is because of taking the expenses from balance sheet to P&L. Yeah. The opportunities on the U.S. side remains promising, no? Yeah, that remains. Yeah. For the next 12-18 months. Yeah. Yeah. Absolutely. All right. That helps. Thank you. Thank you. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. Participants are requested to press star and one to ask a question. As there are no further questions, I would now like to hand the conference over to Mr. R.K. Baheti for closing comments. Over to you, sir. There are three questions. You've got three questions. Hello. Definitely there are three questions. Yes, we just received it. I'll take them. We have a question from the line of Rahul Jeewani from IIFL Securities. Please go ahead. Yeah. Hi, sir. Sorry. Allow me for a bad throat, which I'm running. Sir, with this rationalization in R&D expenses which you are targeting for next year, do you think that you can offset the incremental operating expenses from the new plants through this R&D rationalization which you are talking about? Given that scenario, how are you looking at your EBITDA margins for the next two-year period? I think, no projections, or no estimations, internal estimations which we are doing are holding valid for more than six months. Difficult to give any answer, but yes, wherever possible we are trimming our costs. R&D, even in operations, wherever there's a possibility, we are trimming our costs. Sure, sir. That is that, for the new facilities, expenses start hitting the P&L. Do you think that with the rationalization in R&D and the fact that the API prices were also on the higher side this year and some of those benefits coming into next year, you will be able to offset this impact of the new facility costs? Very difficult to make a comment on this, on the EBITDA side. Sure, sir. otherwise, if you can just comment on the fact that have you started seeing any benefit from the API cost moderation? Rahul, I think in terms of immediate term, it's still tougher to say. Mid-term, definitely, yes we'll see all this offsetting whatever the additional cost. I think FY2025 will be a lot more comfortable in my opinion. Sure, sir. Thank you. That's it from my side. Thank you. We have our next question from the line of Chirag Paglia from DSP Mutual Fund. Please go ahead. Yeah, sir. Thank you for the opportunity. Am I audible? Yes. Yeah. Okay. Thank you for the opportunity. Sir, what do you make out of this situation where we have product approvals, but EIR is not in place? It's quite a unique situation. What is your reading or sense of what is happening here? My reading or sense is that, listen, FDA is keen to approve facilities. As far as they see it, they feel that all the sponsors are in place. They feel there's no risk to anything. They've given it. The EIR. They're waiting for a formal EIR. I think we've seen this not just the first time. We're seeing it because they want us to launch products in the market and they want new facilities up. That's one of the reason. Understood. You're not worried around potential of EIR going through? No. They wouldn't have given the approval also. Understood. Understood. Sir, over the next Q2, do you see products getting launched from all the new facilities that you have, onco, oncology injectables the new oral solids block? Yeah. Not the new oral solids block. That I mentioned earlier in the call. That we will decide when to do it because that's if the two approvals bundle up, then we'll do that. I think the first two that will go off the block will be the oncology injectables, and then the second one would be the General Injectables. Those two we will start. Those two are the big ones. We will start seeing those commercializations, one in this quarter, one next quarter, I believe. Understood. Sir, can you quantify the number of pending approvals from oncology injectables and the General Injectables? Yeah. Sure, sir. Let me touch on it. We haven't given the plant-wise. We haven't given a breakup of our injectables. I can give you just the absolute amount or offline. I'll say I don't have the figure with me. Understood, sir. Sir, is it fair to say that over the next 12 months there'll be a lot of bunching up of approvals? Yes, there would be some bunching up, and hence that's why we've seen two, three, two approvals in F three and one in F two. It could have been more, bunched up more, but I think largely due to the compliance and the remediation, our filing pace also slowed. Hopefully moving forward the next 24 months we'll see a lot faster approval rates there. Understood, sir. Okay. Sir, on the two Arformoterol products, R Arformoterol, I can see we have a double-digit market share in Arformoterol. Is that also an indication of what we can get in R Arformoterol? Yeah. Arformoterol, yes, we've picked up some decent share. Arformoterol we will be launching shortly. It's a CMO product, we're just waiting. We should launch it shortly in the next quarter or so, hopefully. Understood. For both these products, the margin profile is decent, given that these are manufactured not internally. Yeah. It's a decent product. We can stay in the market even if the market becomes competitive. I believe so. Sorry. Okay. Understood, sir. Okay. The last question, sir. This Alere INR 13 crores, in which line item in the financials is it recorded? As expenditure or- respective, what you call account heads. Employee cost and other expenditure will be the main two items. Understood. Okay. Okay. Okay. I'm done with my questions. Thank you. It is amortization. Amortization/depreciation. Okay. Thank you. We have our next question from the line of Harith Ahamed from Avendus Spark. Please go ahead. Good evening. Thanks for the opportunity. When you guided sort of 15%-20% reduction in the R&D spends next year, does the base of FY2023 include the amortized cost from earlier, the INR 140 odd crores for 9 months FY2023? No. Are you excluding it from the base? If I take that, then the reduction will be far higher. No. We are looking at the regular recurring expenses and saving from there or reduction from there. Okay, understood. Pranav, two years back you had set an aspirational target. Harith, can you use your handset, please? Your line is not very clear. Okay. I was asking about this $400 million-$500 million of targets that we had set for ourselves in terms of U.S. sales. Do we still maintain that guidance? If so, any timeline by when we'll get to those levels? , when I used to say that I used to also give a disclaimer that this is a company, a historical company. Our peers in the industry which have embarked on this have seen this kind of a growth and we could also see it. The number was about INR 300 million-INR 400 million. It was really optimistic. INR 400 million, it could go INR 500 million. The INR 300 million-INR 400 million, I still stand. INR 500 million, no. I still think there could be an opportunity to go to INR 300 million+. As you see, everything's got pushed back by about two, three years. Because of the delay in the execution of the new plants and the pricing erosion has increased, has reduced some of the outlook. I still believe that INR 400 million is still a potential in another three to four-year period. Okay. Lastly, just to confirm the timelines around commercial supplies from the 3 new facilities. For the Oncology facility, you said you will start supplies this quarter. For Jarod, probably later beyond that said 2024. Jarod is maybe, I'm not, FY2024 or even beyond, maybe. We'll just see how it is. What makes sense for us if the products are bundled up, whether or not what kind of load is there on the F1 facility. The injectable, the other General Injectables is what we will see next quarter onwards. Okay. Got that. Thanks for taking my question. Thank you. We have our next question from the line of Tanmay Gandhi from Investec. Please go ahead. Hi. Thanks for taking my question. Am I audible? Yes. Yeah. Can you highlight the key reasons for growth in U.S.? We have seen some bit of sequential recovery there. I mentioned earlier in the call that two reasons why we grew in the U.S. On one hand, you had price erosion in the quarter as well compared to last year year-on-year. That was quite a bit. In spite of, because we had some Sartan sales in Q3 of last year. What happened is this time, as I mentioned, there was a strong flu season, so some of the anti-infectives and also Tamiflu is Tamiflu's where we had at least an opportunity. The second one is we had some new product launches where we picked up some share. That's where both those put together has given us some growth. One thing I've not mentioned, though, is in the U.S. business on a volume terms, the growth is much higher, but because of erosion, it's only about 10% in rupee terms. Right. For other companies as well we are seeing some bit of, sequential improvement, right, in their base business, right. So are you seeing some bit of stabilization in price erosion?, what would be your price erosion excluding Sartan? Excluding Sartans, the price erosion is still there. I wouldn't say it's gone away. It's still there. It depends just on which product and which company. It's still there. It's maybe slowed down, but it's still around. I just I don't have the exact figure because it just keeps changing, it's still there, though. Any broad number which you would like to give? No, it's very tough to say because what's happened? The customers are bidding out the products a lot more often, hence we're seeing a lot of erosion there. Okay. broadly, for industry in general, are you seeing some bit of stabilization, some bit of improvement in price erosion? No. versus last Q2? No, no. Okay. Thanks. Got it. Thank you. We have a follow-up question from the line of Damayanti Kerai from HSBC. Please go ahead. Hi. Thank you for the follow-up. My question is again, coming back to approvals from the plants F2, F3, where we are yet to receive EIR, we saw some approval. Are these products in shortage, that's why FDA gave approval before we get the official clearance? As you said, FDA is more keen on approving new plants and that's why we got some approvals. I'm not sure, to be honest. They're not all in shortage, the products. One of them, F3, has been on and off in shortage. The other ones are not in shortage. Well, one of the other ones is possibly in shortage, but I think it's just a matter of the audit and the audit kind of report that was given and our responses, I believe. You're confident you should be getting the official closure very shortly, and then that will maybe boost a number of approvals from the plant, as you mentioned, about some bunching up, et cetera. We're already getting approvals from the plant as we go along, so whatever's pending, we're getting approved. As we file more products, then we'll do it. Yeah, but it seems okay because we haven't heard back anything from the FDA. They've received our responses as well, so we haven't received back anything from them. Okay. My second question is, can you comment on the pricing situation for your derma portfolio? Because I think last we heard it's very severe. Anything incremental there? No, we don't talk product portfolio-wise, the pricing on any of the on anything. Overall, as you said, not much change in the pricing situation compared to last, two, three quarters trend. No, no. I said there is. There's still enough erosion. I said nothing has changed. There's still as much erosion as before. Okay. Same as, what you closed, let's say, a few quarters back. That's what you're. Yeah. Yeah. If Sartan's erosion is 40%, the regular erosion must be 10% or so. Okay. Understood. Thank you. Thank you. I would now like to hand the conference over to Mr. R.K. Baheti for closing comments. Over to you, sir. Yeah. Thank you. Thank you everyone for joining the call. It has been a tough day for you analyzing budgets and then attending conference calls. Still, thank you for your presence and for your interest in the company. We'll stay in touch. Have a good evening. Thank you. Thank you. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. The conference is no longer being recorded.