Ladies and gentlemen, good day and welcome to the Gland Pharma Limited Q2 FY23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. 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. Sumanta Bajpayee from Gland Pharma Limited. Thank you, and over to you, sir. Thank you, Prasanth. Good evening, and warm welcome to Gland Pharma's earnings conference call for second quarter of financial year 2023. I have with me Mr. Srinivas Sadu, MD and CEO, Mr. Ravi Shekhar Mitra, CFO, to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview by Mr. Sadu, followed by financial overview by Mr. Mitra. After opening remarks from the management, operator will open the bridge for Q&A session. Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and based on management estimates, and this must be viewed in conjunction with risks and uncertainties involved in our business. The safe harbor language contained in our press release also pertains to this conference call. This call is being recorded, and the playback of the call shall be made available in our website shortly after the call. The transcript of the call will be submitted to the stock exchanges and will be uploaded in our website. I will now hand over the call to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr. Sadu. Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for the second quarter of fiscal 2023. My festive wishes to all our shareholders, analysts and their families. Last quarter saw heightened economic uncertainty globally. After a tough start to the year, while we continue to see some supply chain disruptions and long lead times for several processing and primary materials, we saw improvement in supplies in the second half of this quarter and have much better visibility on our key material supplies. Our efforts on easing the supply chain by qualifying additional vendors and additional lines for manufacturing are also starting to show results. Commercial production of insulin restarted during the second half of the quarter. I'm pleased to announce that our new offices in the U.S. and Singapore are now operational. This expansion is aimed at strengthening existing customer relationships, forming new partnerships in target markets to drive growth while aligning our internal product pipeline strategy with our customers' feedback and also help us in mitigating some of the supply chain disruptions in the future. This initiative will also allow us to explore partnerships to accelerate our entry into the biologic biosimilar CDMO space. We had our first physical U.S. FDA pre-approved inspection audit since COVID outbreak between 22nd August to 25th August at our Lonavala facility. We received one observation from the audit, and our teams have already responded to the observation. I'm satisfied with the preparedness of our teams across all our sites for any regulatory audit. We closed this quarter Q2 FY 2023 with a revenue of INR 10,444 million as against INR 10,805 million in Q2 FY 2022, and our PAT stood at INR 2,412 million for the quarter against INR 3,021 million in Q2 FY 2022. We have generated INR 627 million of cash flow from operations in Q2 FY 2023. The delay in material supplies impacted volumes for certain products, and we observed impact from price erosion in some of our recent launches. Our robust business model gives us the flexibility to onboard multiple customers for single molecule, which is helping us maintain strong market share in key molecules. Our strength of handling manufacturing of high-volume injectable products and compliance track record has enabled us to stand out from competition. We managed to launch six product SKUs during the quarter, which included glimepiride in the U.S. and bortezomib in the European market. We also launched other products, including oxaliplatin in the Canadian market. We continue to make investments in R&D, and we're able to complete six ANDA filings during Q2 FY 2023 in line with our plan. The filings will further accelerate in the second half of the fiscal year. We are receiving encouraging feedback from China. It should help us increase our pace of China filings as well over the next year. During Q2 FY 2023, upon excluding capital R&D expenditure, the R&D expenditure stands at 3.8% of our revenue for the period, in line with our historical trend. As of 30th September 2022, we along with our partners have 322 ANDA filings in the U.S. and 1,586 product registrations globally. We have onboarded some senior executives during the quarter to strengthen our plant operations and human resources functions. We are further looking for talent to strengthen our biotech manufacturing capabilities. Let me summarize our performance across various geographies. Our rest of the world markets accounted for 21% of our Q2 FY 2023 revenue, similar to the contribution in Q2 FY 2022. The material supply timelines have improved, and we have better visibility now. We are building inventory to support the demand. We released our products esomeprazole, melphalan, and labetalol in new geographies during the quarter. Our key markets continue to remain MENA, LATAM and APAC. Our core markets, namely U.S., Canada, Europe and Australia, accounted for 72% of our revenue during Q2 FY 2023, as against 67% during Q2 FY 2022. We continue to focus on building a niche portfolio in our core markets. Although we have seen increased competition in our new products, we remain confident of our launch pipeline that will ensure sustainable growth in the market. India market accounts for 7% of our Q2 FY 2023 revenue. We restarted insulin dispatches in the second half of the quarter. The sales for Q2 FY 2023 were lower when compared to Q2 FY 2022, on account of absence of COVID-related product sales. Increased freight costs in addition to supply chain disruptions have not only impacted our ability to compete in the ROW and India business, but also contributed negatively on our margins. Smoothing of the supply should help us negate some of this impact in the coming quarters. Sustainable growth has been our focus. The monetary tightening has impacted valuations globally, and we continue to use this to our advantage to aggressively scout for inorganic opportunities. On the geographic growth, China remains a key geographic focus, and we expect to start receiving approvals during the current year. On the portfolio front, we expect another two complex filings in the current fiscal and have completed installation of manufacturing lines for suspensions and hormones. On the biosimilar CDMO business, we have completed several customer visits during H1 FY 2023, and few of those have moved to stage of commercial negotiations. We signed up for a fill-finish clinical batch project and discussing on the PFS project commercials as well. Positive momentum is seen in the biologic biosimilar CDMO space. With this, I wish everyone good health. I would like to now hand over the call to our CFO, Mr. Ravi Mitra, who will share details about our financial performance for the quarter. Thank you. Over to you, Mr. Mitra. Thank you, Mr. Sadu. Good evening, everyone. Thank you very much for attending our second quarter earnings call. Our earnings presentation has been submitted to the stock exchanges and is also available on our website. Let me begin with sharing the financial performance of second quarter and first half of financial year 2022-2023. Revenue from operations for the quarter FY 2023 stood at INR 10,444 million, a reduction of 3% on year-on-year basis. We have seen revenues from core markets and ROW market has come back to normalcy and is in line with second quarter of previous year. We have witnessed 22% increase in revenue as compared to previous quarter. Revenue from operations for the first six months of fiscal 2023 stood at INR 19,013 million, a year-on-year decrease of 15% due to various reasons impacting first quarter of current fiscal year. Other income for the second quarter was INR 656 million, which includes interest on fixed deposit of INR 468 million and foreign exchange gains on operations of INR 181 million. For the H1 FY 2023, the other income was INR 1,400 million, of which interest on fixed deposit of INR 844 million and foreign exchange gains on operation of INR 523 million. Gross margin of the company remained stable in both Q2 and H1 as compared to same period of previous financial year, but reduced quarter-on-quarter sequentially, largely due to change in geographic mix and product mix. We have reported an EBITDA of INR 3,625 million in Q2 FY 2023, compared to INR 4,278 million, which is a decrease of 15% compared to same period last financial year. EBITDA margin for Q2 FY 2023 stood at 33% as compared to 38% of the same period of previous financial year. Increased operating expenses, such as higher logistics costs due to use of air shipments and certain one-time expenses impacted EBITDA margin of the company during the quarter. With normalization of inventory of certain critical items, we expect freight to come down with more sea shipments going forward. During the first half of the year, we managed to maintain similar gross margin, but EBITDA margin reduced due to higher power cost, employee cost on account of increased headcount for biologics and biosimilar CDMO facility, new commercial lines in Pashamylaram and for Vizag facility and other operating expenses. EBITDA for the six months ended September 2022 was INR 7,068 million, compared to INR 9,259 million for the same period last year. We have reported EBITDA margin for H1 at 35%. Our net profit for second quarter decreased by 20% and stood at INR 2,412 million compared to Q2 FY 2022. During the quarter, we have recorded PAT margin of 22%. During the six-month period of the current financial year, our PAT was INR 4,704 million at 23% margin. The total revenue R&D expenses for the second quarter was INR 394 million and stands at 3.8% of the revenue, as against INR 362 million, or 3.3% of revenue, and year-on-year growth of 9%. The total revenue R&D expenses for the six-month period was INR 743 million. It is 3.9% of our revenue. Our effective tax rate remains at about 26% in second quarter and for the first half of the current financial year. Cash flow from operation during six months period was INR 3,956 million. Working capital increased and stood at INR 21,436 million as on thirtieth September 2022, as compared to INR 20,217 million as on thirty-first March 2022, due to increase in inventory levels. Average cash conversion cycle stood at 231 days for the six months ending September 2022, as compared to 198 days of same period last financial year. Increased receivable and inventory days has pushed up the overall cash conversion cycle. Total CapEx incurred during six months was INR 825 million, used for increasing capacity at our Parchim, Ireland and Vizag API facility and for routine maintenance CapEx. Our ROCE on ex-cash basis was at 21% on an annualized basis for the six months period of this fiscal year. Our fixed assets turnover stood at 2.4 times for H1 FY 2023, decreased from 3.4 x for the same period last year. As of September 2022, we had total INR 38,200 million of cash and bank balances, which we intend to utilize for the CapEx plan and to fund our inorganic growth strategies. With this, I would request the moderator to open the lines for questions. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. Reminder to the participants, anyone who wishes to ask a question may press star and one. The first question is from the line of Neha Manpuria from Bank of America. Please go ahead. Yeah, thanks for taking my question. My first question is on the U.S. numbers that we have reported in this quarter. You know, it seemed that overall the sales were pretty much flat. I, as you mentioned in your opening remarks that we have seen competition in some of the recent launches. Could you give us, you know, some color on, you know, what's the pricing pressure that we are seeing there? How should we look at, growth in this business as we go forward? Thank you. Yeah. Good evening, Neha. Yeah, if you compare to last year, I think the business is flat. I mean, you also need to consider last year there were sales which are COVID related, that's kind of gone down. From the pricing pressure perspective, if you look at our gross margin levels, still they are intact. So I think the EBITDA margin impact is most on the cost side, which has impacted the bottom line. So from growth perspective, we have launched seven products last quarter. There's a plan to launch eleven products next quarter as well. I think it's depending on the size of the molecules, which quarter gets launched, that's where the growth comes from. We're not committed to giving any numbers right now, but you know, the robust pattern, what we have in terms of filings and approvals, it's there. We think it's you know, it will help to grow in the business as well. Mr. Sadu, I was looking at the numbers on a quarter-on-quarter basis. Given that we have, you know, launched product in the U.S., we haven't seen as much growth, you know, in the U.S. market. You know, and your comment is there was not too much price erosion. Shouldn't we have seen more growth in the U.S. given, you know, we have launched a couple of products, good products in the last two or three quarters? You know, I'm not looking at so much on a year-on-year basis, but on a quarter-on-quarter basis. Some of the products for sure, you know, because of competition, we couldn't get to those volumes what we estimated, especially the oncology products like Pemetrexed and Abiraterone. These didn't contribute because it's too many players. I think that's why we couldn't show growth in that. The other products what we launched is still has given some volumes, but these are not larger products. I would say I think the number of products launches happen also considerably lower when you look at annual basis. If you look at last year, we have launched 32 products on an annual basis. Next quarter we have few more product launches coming up. You should grow on the existing base that we have in the U.S., the $84 million-$95 million base that we have in the U.S. Would that assumption be correct? That's correct. Yes. Okay. My second question is on the ROW market. You know, we seem to have gone back to the levels that we were doing last year. Is it fair to assume that this is a sustainable number and there is no one-off in this? As we get additional, you know, vendors for syringes, et cetera, you know, again, there should be growth on the ROW business from this base in the second half. The issue what we're facing with ROW and Indian business is because of the disruptions, most of it we have airlifted last few quarters. That is just putting pressure on our margins and also the ability to compete. Unless that stabilizes and, you know, we evaluate the market, it's difficult to comment. At least, once the cost settles down, I think we'll have a better opportunity to grow in that business. There is no one-off in the current date. Is that assumption right? No, there's no one-off, no. All right. Understood. Thank you so much. Thank you. The next question is from the line of Dheeresh Pathak from White Oak Capital. Please go ahead. Yeah. Thank you for the opportunity, sir. What is the profit share number for the quarter? Profit share. Sorry. 7%. Okay. New share of new launches in the quarter, revenue from new launches. 3%. About 3%. 3%. India sales, I think last quarter maybe, I don't remember correctly, but I was under the impression that you were guiding for INR 100 crore run rate in India business. It is slightly lower. Any particular reason? India business, I think a few factors, like I said, you know, the import costs have not helped us, so the margins are pretty low. We're not able to compete in the domestic market. It's a combination of the dollar going up, so adding up to increased costs for us. And also the importing costs have gone up. That's one reason. The other is the insulin line which contributes a larger chunk for domestic business. That got started off in the middle of this quarter. This quarter. Normal run rates are around INR 25 crores-INR 30 crores quarter. I think we are below that level because it started late in the second half of this quarter. Okay. The U.S. sales also, like, given the exclusivity we have on Zinc Sulfate, and then there was the, you know, presumption of, you know, supply, both for stopper as well as for syringes. I was expecting a slightly better number, sequentially, based on the commentary from last quarter. The current U.S. sales, is this as per expectation or you are tracking below your original expectation for this quarter? The supply disruption 100% is not done. Syringes we are good. But the stopper portion is still not great. We are getting in tranches, so that's impacted us. Even some bag manufacturing has happened only 50% of the time because of some shortage issues. Still I think there's an impact of the supplies which has contributed to this sales. Even to quantify it, sir, like how much sales we would have, you know, done if there was no disruption in U.S.? We don't want to quantify that. I would say, you know, the bag line was running for like half of the quarter. Half of the quarter. Okay. Okay. Margin also, gross margin also there is some deterioration it seems. Although the mix is not very different. India you're saying we did not do the lower margin business. If you see year-over-year and compare it to the revenue buckets, you know, the U.S. business, the rest of the world business, there seems to be some you know compression in gross margin. Is that related to competitive pressure? From gross margin level, I think U.S., we are pretty much stable compared to last year. First quarter was a little exception I would say. Now I'm comparing September 2021 with September 2022 quarter, and I'm seeing the revenue mix in various geographies as well as the gross margin that we reported. I'm seeing some compression in gross margin by about 120 basis points. Is that because of U.S. pricing pressure? Because if you see the absolute revenue in terms of, you know, what we did, like INR 750 crores in regulatory markets, INR 230 crores in rest of the world. It is similar like year-over-year, but there is still some compression. Is it because of lower profit share we've had this quarter? Or is it to do with, you know, some markets having more competitive price inflation? Actually, if you look at Q2 FY 2022 to Q2 FY 2023, the U.S. market margin actually has gone up, contribution margin, 57%- 58%. Mm-hmm. Q1 FY23 to Q2 FY23, it has gone down by 1%. Basically it's flat for, it's almost like similar time for that market. I think where we have lost margin a bit is in Canada. Mm-hmm. It has gone down, where it has gone down from, I think almost 88%. We were having a larger margin for [audio distortion] in Canada. That has gone down to 65%. Otherwise- Canada is typically what percentage of revenues? As for the quarter is about INR 70 crore. 2%. Canada is not that big. Okay. Any other region you want to call out in terms of margin contribution, margin compression? In fact, rest of the core markets it's that better or flat. So Okay. Rest of the world market has gone down in terms of margin. If you look at from last year to this year, it has gone down from 35%-23%. Mm-hmm. That's mostly because of the import costs. Most of it we are importing in the raw material because of supply disruption, and we're not able to pass on this. Why are you not able to pass it on? Because others also would be facing similar, so the industry in aggregate is absorbing this in the rest of the world and Indian market. Most of it is like a planned supply, not what we have in the rest of the world, unlike U.S., where it's a profit share. Actually, one side it's a contribution margin also, you know, the freight cost comes below the contribution margins for ROW market, so it comes under the EBITDA. That also impacted our margin as a company. Yeah. Dheeresh, just to add to what Mr. Sadu was talking about is that this also includes in the gross. Gross contribution is largely 50%-52%, similarly in earlier quarters. Q1 was an aberration. This time we have also, you know, based on the discussion we were having with the several customers on our drug substance project. We have taken a one-time inventory write-off of about INR 7 crores-INR 8 crores in our biologic CDMO facility on the basis of the feedback we got and what would be required going further on different contracts we are working on. This I think is about 0.7%-0.8%, and it is a one-off in nature. This would impact your gross margin. Below that in EBITDA margin, the one-time sum what we are explaining is of course the M&A cost is about INR 4 crores this quarter. We have built up the employees also for the biosimilar business and Shamirpet cost is also like about, and Pashamylaram and Shamirpet, both these employees, we have added about 500 headcounts. This is also impacting the margin. Once the revenue starts coming in the biosimilar Shamirpet facility, I think that could negate. Thank you. Mr. Dheeresh, may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead. Hi. Thank you so much, and a very good evening to everyone. Just couple of points I wanted to check from our discussion in the previous Q1 con call. If my memory is right, if my notes are right, then you had mentioned that for the balance nine months that you would grow 18%-20% on the top line. This quarter you are more or less flat, up 3%. I just wanted to check on that. Second, I think you had guided on the margins as well, that you would maintain Q1 margin, operating margin, so 31.5%, and you have come this quarter at 28.5%, so down 300 basis points. If you can just clarify on these two points. Yeah. One is on the estimated revenues what we thought for the large oncology didn't happen because of the competition. That's one. Second, as I mentioned in the previous question, some disruption of couple of our manufacturing lines because of the supply issues. That didn't help grow the business. From margin perspective, like Mr. Ravi said, there are like one-off items which has impacted the margin about close to 1% on write-off of one-time deals and also the M&A cost. That's totally about 1.5%-1.8% has gone from there. If you add that, it will be like close to 30%-30.5% or something. Sure, sir. I mean, the numbers still don't total up because on a sales base of INR 1,000 crores, to miss 20% growth is like missing INR 200 crores. That's a big miss. I'm just wondering what happened within three months, and what's the outlook for the second half, both on the sales as well as on the margins? We don't give guidance, you know, because we're still, you know, the market is still volatile and, you know, from management perspective, I would say, one side, the insulin didn't start at the beginning of the quarter, it started late part of the quarter. You know, disruption in bag manufacturing as well as some delay in bio installations, you know, didn't help us in terms of capacities. Of course, the oncology products are big products. We estimated a larger change coming from those two products. These are our billion-dollar products, but, you know, that didn't happen. I mean, these are the factors which have impacted the numbers. If you can just, you know, I don't want numbers, but how do we model second half going into fiscal 2024? If you can just help with that, just qualitatively, you know, how do you see business panning out? This is the operator. Hello. Sir, we are not able to hear the audio. Yeah, sorry. One other aspect what we forgot is the Heparin stoppers still. We said the later part of the last quarter. That also has impacted. Heparin suppliers didn't start yet, and that's almost INR 43 crore quarter sales for us. That's only we're expecting in November to come. That's one other area where, you know, we could, we can see revenue. But moving forward, you know, while we are focusing on growth and filing products and launching products, I mean, the market is so volatile and the suppliers are not yet 100% in line with our plan. It's very difficult to estimate the near-term growth, and, you know, difficult to comment on the future growth or business guidance for short term. We are assessing the situation, and once we have better visibility of growth, I think we'll update you soon. We are doing everything in terms of, you know, growing the business, the current existing business and also working on the growth levers. While working on the current portfolio, we're also discussing on increasing the CDMO side of the business. Now that we have added new capacities in the line, I think there's also an increase in cost and the manpower because we have added 400-500 people to get the lines on track last quarter. We're aggressively pursuing the CDMO business on those lines. This should add up to some revenues coming in next few quarters. I think, once we have some visibility, we'll give you a go, but as of now, because of the volatility of the business and not clear indication of how the supply is going to happen, you know, we don't want to give an indication for the near-term growth. Okay, that's fine, sir. Thank you very much. Thank you. The next question is from the line of Ritesh Rathod from Nippon India. Please go ahead. Yes, sir. Can you give your outlook on the margin? I think last quarter you spoke about some 31%-32% margin excluding other income. Is that intact? Even you explained partly this quarter margin has been impacted due to one-offs. Even that needs to be downgraded. If you look at the quarter, if you remove the other incomes around 38.5%, and if you add the one-time expenses of whether the write-off of materials, it should come down to around 30.5%, close to 31%. We have likely to average it around that range, at least on a quarter-on-quarter basis. If there's any change, we'll let you know. Sir, on the supply disruptions, particularly for stoppers, has your visibility improved? Are you confident of things coming back by November, December end, or that has deteriorated further and uncertainty still? From stoppers, we there are two things we are doing, right? Not just stoppers, but other aspects that also has contributed to the cost. While we have added additional suppliers, worked on stoppers, gaskets and pistons respectively. Several products we have worked on in last three quarters. That also has added some cost, accompanying. In terms of Heparin, which is a key product where we are not able to supply, we have finalized alternate suppliers. We're going to file that this quarter. We're expecting an approval in three months. In the meanwhile, we are getting some, not 100%, to meet the demand, but we are getting in tranches, so some part we'll get in November. Probably next one quarter, I would say the first quarter of next year, it should normalize in a combination of what we have approved as a stopper today and also the new stopper what we have qualified. Okay. The last one, on this 500 employee addition, can you give some color what you are planning to do, what in terms of is there some visibility in terms of order backlog or order book, which is why you have done this thing, or it's more of a medium-term investment? If you look at the capacity utilization for us, the liquid vials actually we are running almost like 85%-90% of capacity. We are not able to take up new orders. Because of the delay of installations, it kind of pushed out. We have one line which got installed last quarter. There we are also planning to produce the hormonal suspension products. Currently, we are taking a lot of R&D batches on that because we have complex product filings as well to do in next four months. Once those filing batches are done, then we'll use for commercial production. That will bring the revenue from the commercial angle. We added manpower for that line. Also we have added three lyophilizers. We are running at 80% capacity for the lyophilization. There are contracts where we are not able to cater to, which are larger ones, especially on the CMO side. We can actually get access to those kind of contracts. These three lyos will come on track in next quarter. This is more a near-term commercial opportunity we have. We are also investing CapEx on bag manufacturing because current bags, again, we are not able to meet the demand what we have in the U.S. The additional CapEx will also be in the plan for that as well. From Vizag oncology, we have added one more line, that's coming on track. That will again give you know, we can leverage that to get more CDMO business from the oncology side as well. These are more growth drivers for us in the near future. Okay. Okay. Thank you. That's all my side. Yeah. Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yeah. Hi, thanks for the opportunity. The first question is largely relating more of a clarification. In your presentation, you have talked about, you know, things are getting normalized, especially for ROW and qualification of alternate suppliers is in process. It is going to take one, two more quarters to normalize or we are done with it and from next quarter we start seeing the growth on ROW? ROW now, it has come back to normalcy in terms of at least the prefilled syringe products. Now it's more to do with, you know, the costs. Costs we have been carrying on that, and you know, how our ability to compete in the market. It should come back now. In terms of supplies, we don't have an issue. We also have alternate suppliers for that, and we have already started supplying with alternate suppliers. These are qualified alternate suppliers, which is other than BD. What should we understand like that? Or because in the last call you said it will take couple of quarters to get qualification. Have you done that qualification yet? Yeah, it's already done, and we have already initiated supplies with one of the partners. Okay. You know, for the U.S., in the past you said that because, you know, ROW having same qualification, you are using ROW supplies to cater to U.S. Now with ROW resolving and U.S. you don't think there is any shortage as such. It's more related to pricing competition as well as portfolio, next number of products launch. Nothing related to shortage apart from the stopper issues. Is that the correct understanding? Yes. Stopper issue for Heparin, and we have three or four other products where we have tubing and filter issues where we have filed alternative sources for those products. There are also issue with bags where we have a problem with the twist-off caps. It got resolved in the recent past. Last one month we won't have that issue. I think moving forward, most of the issues will be covered except the stopper for the Heparin. Understood. For that commentary is that earlier was November, but you are still saying it is coming in batches, so maybe by Q1 of next calendar year it should get normalized. Is that understanding correct? Even now the first tranche is coming in November, but not. It's only a partial quantity. We're qualifying the second stopper and filing this quarter, and that might take an approval for two to three months. If that approval comes earlier, then probably next quarter, you know, that can resolve 100%. Otherwise, you know, one more quarter we have to suffer with the partial supply. Lovely. Lastly, on the U.S. FDA side, is there any commentary? Last time, I think there was a product-related inspection, and for the two largest cities we are due for inspection. Is there a commentary or we have a target, or you know, a date where we would have the inspections? We already had one inspection, like I read in my commentary. We had completed for one site for the product PAI, and we got one observation for which we have responded. The other sites we don't have any information on when they're going to visit. Mostly it's unannounced inspection, so we don't know when they're gonna come. Okay. That product related means that we are done with the facility inspection also, or, is that checkboxed or it's yet to, I mean, it's related to product only and then the facility inspection is still due for the first one. Normally for a PAI, you know, it's a combination of both GMP and all that. They don't come back again. Depends on the inspector as well. Normally, whether it's a PAI or a normal inspection, they go through the sites in entirety. Thank you. Mr. Agarwal, may we request that you return to the question queue for follow-up questions. Thank you. The next question is from the line of Kartik Mehta from Klay Capital. Please go ahead. Hi, I have a multi-part question. Can you guys tell us what is the expense attributed to the CDMO business on the OpEx side? It would include the staff, R&D, that, et cetera. Very specifically, if you could just tell us for this quarter only for the non-revenue generating CDMO business. EBITDA, it's INR 15 crore on the quarter, without including the depreciation. If you would add the depreciation also, Ravi, is it possible to quantify that? Depreciation is another INR 6 crore-INR 7 crore for the quarter. You've spoken somewhere in the call and said in the presentation also that you are closer to commercial negotiations. I'm assuming everything has been charged to R&D as of now, including the write-offs, which you earlier spoke about. I'm not asking for a date or for the contract tenure, etc. Is it fair to assume that in calendar year 2023, your revenue stream may start assuming that these expenses obviously will continue or even in fact increase as you go closer to the contractual agreement stage? Yeah, the business will start for sure. I don't know how much, you know, it will cover the total cost. It's not 100% it should cover. Yeah. No, no. I'm not asking for a revenue number. In a sense, is it fair to assume that about INR 60 crore a year at this run rate will be the cost which you will incur? I mean, or are there any more investments particularly above the EBITDA level which one can expect in Q3, Q4, or even in the next three, four quarters? Just operationally in terms of expense, EBITDA, et cetera, if that is, that's something that you can just talk about. Thank you. No, on the overhead side, I think we are all done in terms of people or utilities or consumables. It will not go up when the revenue starts. Of course, the direct material linked to that will be in line with the revenue also. Okay. Thank you. Thank you. The next question is from the line of Rakesh Naidu from Motilal Oswal Asset Management. Please go ahead. Good evening, gentlemen. Thanks for the opportunity. I just wanted to have your comments on yesterday's Moody's downgrade, and how should we think about this entire scenario, and given the lineup of assets which Fosun is intending to offload, I mean, how does that impact Gland's care vertical generally? Are there any thoughts on Indian business as well? Yeah. Look, to start with, the issues which you mentioned is at Fosun International level. Our promoter is Fosun Pharma, which is again a listed company. There is no balance sheet linkage or any dependency with them today. We have business relationship with Fosun Pharma, like for example, we sell to their subsidiary in U.S. and other area. Last year we did about INR 124 crores-INR 180 crores. This half year we did about INR 100 crores. Mm-hmm. Purchasing also from some of the subsidiaries in China, which is about, again, that's INR 100 crores. I think other than that, there is no, you know, impact in business per se. Of course the concern which you raised and came out is at shareholder level, so difficult to comment from our standpoint. Okay. That's helpful. In Q1 commentary here, one of the reasons that you have highlighted for lower U.S. performance is shortages and then inventory in transit is what you had alluded to. Now, if I just look into to see how the numbers stack up, there was a pre-existing inventory and now again there is a decent build up of inventory in the system. How should I actually look into the on-the-ground dynamic? I mean, what exactly is playing out? I mean, is it the competitive intensity or lower uptake of products or demand? What exactly is happening in the U.S. market? Yes, for sure. You know, the competition is higher compared to earlier. If you look at our older products are still intact in terms of margins. If you look at the, you know, growth, it's coming from price also and also new products. There is a de-growth of about 70%-80% by volumes. Now these volumes is a mix of what we're not able to supply and also from the demand situation for some of the products where it has not come back. Some of our key products have still not gone back to the earlier level. It should start from this quarter or the next quarter. Like I said, you know, we were having more contracts last year and the pipeline build up was there. Now that's getting used up. We should start seeing from the future. In that sense, I think it's volume de-growth which has impacted a bit, which should come back next few quarters. In last call you seemed more optimistic when you had alluded to incremental contracts from existing buyers and also seasonality. Now you seem to be declining from giving guidance for the second half. My understanding was that you guys had alluded to a more flattish kind of FY 2023. Is it fair to expect that that will be delivered or it will be tough to take a call at this point in time? It's tough to tell right now, and so we don't want to comment on it. Like I said, while we are estimating the supplies to come on track, you know, there were certain delays happening because of the volatility. As well, you know, most of the shipments we are now making by sea to reduce our costs. So that will compromise a bit on our ROW sales and Indian sales, at least to keep our margins intact and profitability higher. We'll keep you posted in next few months. Once we get a clear visibility and the volatility moves away. Okay. Sir, one final question, if I may. You had guided for INR 360 crore of CapEx per annum. We seem to be going a bit slow on that part. I mean, is there any reason, or what exactly is happening with regards to onboarding of new facilities? No, it's a timing. I think it is all on track because these are all, generic tools indicated earlier is all projectized, already approved projects. Work is going on. Okay. It is only a timing of spend. Year-end, we'll end up that number. For the next year, in fact, we are looking at some more additional capacity, which Sardu was explaining in terms of certain delivery formats. We'll in the next analyst call quarter, I think we'll update that for FY 2024 CapEx guidance. FY 2023 we are on track. Okay, thank you. 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 share? You mentioned profit share of 7%. What is the number for the first half and also for FY 2022? Yes, certainly. Yes, six months FY 2022 is 8% and even FY 2023 is the same range, 8%. Okay. Sir, the service income has been very high last year, FY 2022. Has it come off in the first half compared to what it was in the previous year? It's almost same, right? I mean, same. 7% last year. In fact, this year it's 8%, the milestone revenue. 8% milestone revenue. Okay. Sir, the next question I have is on China. How many products you're filing? How many more you are to mention? I think you will be stepping up your filings. If you can give a sense of how large these products are, any unique opportunities in terms of being present in the first wave, et cetera, any color? How should we think about ramping up of this revenue in China over the next two, three years? Eight products we have filed. Two are expected approval. That's what the team says, by end of this year. One, I think this quarter and 1 next quarter, and six probably next year. There is a filing plan of six products again in FY 2024. Sir, in terms of size, opportunity, competition, how should we think about once you get these approvals, how the China revenue will ramp up? We take that offline, Tushar. Sumanta will give you that information. Hello? Saion, we'll take that offline. Sumanta will give that information. Okay. Okay, sure. Sir, one question if I can ask on ROW. So, you know, we have seen a very good ramp over the last two years. You know, in terms of product registration, it hasn't gone up that much, but the revenues went up a lot in ROW. It was a bit volatile, and you mentioned some of the reasons. Now I understand once things stabilize, it will probably take some time. How should we think about growth in ROW, excluding China, let's say over the next two, three years? You know, the run rate has been exceptionally high for us. One is, you know, the percentage gives the wrong indication because the base was very low a few years ago, so the percentage looks high. Now the base is high. From the registrations perspective, historically we've been compromising on, you know, we didn't leverage registrations what we have because of capacity constraints or, what we are doing today. Also the GCC market we never explored earlier. Most of the focus was on LATAM and APAC regions. That region opened up because of the margin profile there is better than other markets. There's a lot more competition and, with our quality systems, you know, we are not able to compete in some of these markets. GCC has a better margin profile. That's contributing now almost 26%-27% of the revenue. Just not there before in terms of ROW business. We, with capacities coming on site now, with additional lines coming on board, we continue to focus on that in that region. While we can't comment on the growth, but a lot of focus is happening in terms of registrations also. You know, we are entering Mexico, we're entering South Africa as well, which are not there earlier. Some of the even CIS countries we are entering now. These are the new territories where we're trying to enter and increase the market. Okay. Okay, thank you. Yes. Thank you. The next question is from the line of Tarun Shetty from Haitong Securities. Please go ahead. Good evening, everyone, and thank you for this opportunity. Just few clarifications from my side. Could you help me with the number of launches for this year and next two years in the U.S. market? Just be on line. For six months, we have launched about 20 SKUs in the U.S., and next two quarters we have about 25 launches planned. Next two. For the next two years, I mean, FY 2024, is there any visibility that you have for 25? This quarter we have about nine launches happening, and next quarter is about 16 launches. Oh, I was looking for FY 2024, Sadu. FY 2024. I don't have it on hand, but normally it's between 25-30 launches. Yeah, the next one is beyond the inventory and payables levels that had. Do you see them remaining at current levels, or should we build more normalized or it might go on a downward trend in the coming quarters? No, we have restocked, if you see from March level, and should be around this level going forward. This is a high inventory we explained earlier also of the kind of, and because of the volatile situation, we would like to have the inventory in hand. Okay. Lastly, last one, clarification was on the ROW. You mentioned the ROW margins are 25% for this quarter, which was around 35% last year. Am I hearing it right or was it 10, was it different? 35% gross margin, the previous quarter compared to 25% of the recent quarter. Yes. Okay. This is gross margin. Correct. Okay. Yeah. That's all from my side. Thanks. Thank you. The next question is from the line of Anand Venugopal from BMSPL. Please go ahead. Yeah. Am I audible? Sir, there is a disturbance coming from your line. Request you to use the handset mode. Yeah. Hello. Can you hear me? Sir, please use the handset mode. There's a disturbance coming from your line. One second. Hello? Is it better? Sir, you may proceed. I just would like to know if you could describe the state of the U.S. injectable industry at the moment. Is there a risk of prolonged price erosion due to rising competition, just like we have been seeing in generic oral dosage industry over the past few years? The competition is intense for sure. All the new launches, you know, we kind of cutting down on the forecast, especially with last few quarters. Otherwise, if you see our from our pipeline perspective, our margins are intact. I mean, as you're saying, you know, gross margin is still at around 52%, 51%, 52%. Historically, that's been the case. Whatever new launches were happening, earlier it used to be higher in the first year. It used to be like 65%-70%. Even, some product it used to be like 75%-80%, I think. Then it used to settle down around 40%-60% after three years. That scenario we're not seeing from last three quarters. It is going down in the first year itself because of the competition. But we got to see with FDA coming back and auditing a lot of sites. Now we have to see whether the competition will stay intact and how long can they sustain with this pricing what they're offering in the market. Because this is a cycle. We're in that space where, you know, we have seen that few years ago, where a lot of companies will launch till the capacity gets filled up, and then they start exiting the market. We have to give that time till that happens. Okay. That's all from my side. The audio is not clear from your line, sir. There's a disturbance coming. Yeah. That's all from my side. Thank you. The next question is from the line of Prashant Nayak from Ambit Capital. Please go ahead. Yeah. Thanks. Good evening. Just had one follow-up question on growth going forward. So you see in keeping aside the near-term volatility, could you give some sense of whether this is still structurally a 20%+ growth business that we have seen in the past? Or do you think, given where we are in terms of base, you know, it could be slightly lower than that? In some sense then that would be helpful ignoring the near-term volatility part. Yeah, from growth levers perspective, a lot of opportunities are still there, right? I mean, whether if you look at long-acting injectable space, the ophthalmic suspension space, the pen auto-injector space where we have invested recently. We're investing the bags now in a big way. And also from geography perspective, we're just entering some of these markets we never grown earlier. The opportunities are there. It's just that I would say the consolidation phase we were going through. We also need to streamline the supply, thinking from long-term perspective, having several alternative sources for several aspects of products, at least for the key products. In last one year, we invested almost 20-25 products, working around, you know, adding alternate suppliers in various areas. That also has added up to the cost. You know, these are all like investments we are making for the future growth and more stability for the business. Once in five, six years, you know, we need that year where we have to consolidate the business. I think we are using that now. From opportunity perspective, there are several areas we can grow. We have seen a lot of positive feedback on the biosimilar CDMO space. A lot of customers are approaching us. The relationships what we have with customers are intact. The large customers of the portfolio is still growing with the biggest customers. Instead of the smaller players coming and creating some noise in terms of offering products at a cheaper price, but still we have our own place in terms of the growth. We are pretty confident on the growth in the future because the opportunities are there. It's just that, you know, we have to overcome the current tide in terms of supplies and operation issues. Because while we're talking about supply disruption directly linked to the components and all that, we also see when you are expanding, the lines are not coming on track as per plan because people can't travel, the technicians can't travel. Several things happen when you're running the manufacturing setup. In that side, once it settles, I think we have a good growth story to move forward. Yeah. Thank you. That's it for me. Thanks a lot. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments. Thank you. Thank you everyone for joining us today. We appreciate your participation during the call. If any questions still remain unanswered, please reach out to us, to me and our investor relations team. Thanks again. We would like to reconnect again in our next earnings call. Thank you. Good night. Thank you. Ladies and gentlemen, on behalf of Gland Pharma Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.