Ladies and gentlemen, good day, and welcome to Indoco Remedies Limited Q2 FY 2023 earnings conference call hosted by JM Financial. As a reminder, all participant lines will be in 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 Ms. Cyndrella Carvalho. Thank you and over to you, Cyndrella. Thank you, Yashashri. Good morning, everyone. I'm Cyndrella Carvalho. On behalf of JM Financial, I welcome you all on the quarter two FY 2023 earnings call of Indoco Remedies. At the outset, I thank the management of Indoco Remedies for giving us this opportunity to host the call. I'm looking forward to have a detailed insight on the earnings from the management. Today from the management team we have with us Ms. Aditi Panandikar, Managing Director, Mr. Sundeep Bambolkar, Joint Managing Director, Mr. Pramod Ghorpade, Chief Financial Officer. I now hand over the call to management for their opening remarks. Over to you, Ms. Aditi. Thank you, Cyndrella, and thank you all for joining us this morning. Amidst a very volatile Indian pharma market experiencing highs and lows due to COVID therapy product performance, at Indoco it has been a pleasure to report excellent overall performance for the last few quarters. Our journey of financial excellence continues for Q2 FY 2023, where a steady domestic business and a fast-growing international business have helped us post good numbers. We closed second quarter this year with a YOY growth of 8.6%, with domestic branded business contributing to 55% of revenues. Anti-infectives and respiratory segments have shown substantial improvement over their Q1 performance this year, but the high base of last year for these therapies continues to create a drag for growth for Indian business. Overall, acute therapies which were degrowing by 20% in Q1 are now only marginally degrowing at 1.8% for Q2. I'm confident that in the coming quarters, both anti-infectives and respiratory as well as acute therapy overall will start showing better performance for the company. Sales to U.S. and E.U. have shown substantial growth and helped the company post a overall good performance. As part of our super transformation journey at Indoco, we recently achieved a major milestone when we successfully implemented SAP S/4HANA across all verticals and geographies for the company. This was particularly satisfying as we went live within 8 months on the dot as planned. I'm confident that SAP and all the advantages it offers will help us significantly in our quest for better top and bottom line in the years to come. On August twenty-third, Indoco completed 75 glorious years. Indocoites wholeheartedly participated in the celebrations of the platinum jubilee year. I'm confident they will strive hard and allow us to register an excellent performance this year. This was a short preamble from me. I now hand over to Mr. Sundeep Bambolkar, Joint MD, to take you through the financial performance for Q2 and half year. Thank you, Aditi. Good morning, participants. Hope you and your family members are all safe and healthy. Let me first begin with the business highlights. Net revenues for the company grew by 8.6% at INR 404.6 crore, compared to INR 372.6 crore for the same quarter last year. In the first half of the year, revenues grew by 6.1% at INR 799.5 crore as against INR 753.8 crore. EBITDA to net sales for the quarter is 21.7% at INR 87.8 crore compared to 23.2% at INR 86.3 crore. EBITDA to net sales for the first half is at 19.9% at INR 159 crore compared to 23% at INR 173 crore. PAT to net sales for the quarter is 12.3% at INR 49.6 crore compared to 11.2% at INR 41.6 crore. PAT to net sales for the first half is 11% at INR 88 crore compared to 10.8% at INR 81.2 crore. Earnings per share for the quarter is INR 5.39 compared to INR 4.51. EPS for the first half is at INR 9.56 compared to INR 8.81 for the same period last year. Coming to the domestic formulation business. Indoco ranks 26 in the second quarter, FY 2022/2023, with market share of 0.69% and reflects growth at 10.2%. This is as per AWACS data. Revenues from domestic formulation business for the quarter registered a growth of 4.2% over the immediately preceding first quarter of current fiscal, and degrew by 2.4% at INR 208.5 cror as against INR 213.6 crore for the same quarter last year. For the first half, revenues degrew by 4.7% at INR 408.5 crore against INR 428.7 cror. During the quarter, one product was launched by Indoco's Spade division, namely Febrex tablets. That is Levocetirizine Hydrochloride 5 milligrams with Pseudoephedrine Hydrochloride, 120 milligrams sustained-release tablets under the respiratory segment. Coming to the international formulation business, revenues from international business registered a growth of 28.5% at INR 174 crore as against INR 135 crore. For the first half, revenues grew by 22% at INR 351.5 crore against INR 288 crore. Revenues from regulated markets for the quarter grew by 32.6% at INR 147 crore as against INR 111.4 crore. For the first half, revenues grew by 23.2% at INR 295.3 crore as against INR 239.6 crore. Revenues from U.S. business for the quarter grew by 44.7% at INR 69.3 crore as against INR 47.9 crore for the same quarter last year. For the first half, revenues grew by 42.7% at INR 134.2 crore as against INR 94 crore for the same period last year. Revenues from Europe for the quarter grew by 25.2% at INR 74.7 crore against INR 59.7 crore. For the first half, revenues grew by 9.8% at INR 152.5 crore against INR 138.8 crore. Revenues from South Africa, Australia, New Zealand were at INR 3.7 crore, constant as the same quarter last year. For the first half, revenues grew by 28.5% at INR 8.7 crore compared to INR 6.8 cror. Revenues from emerging markets for the quarter grew by 9.5% at INR 26.5 crore against INR 24.2 crore. For the first half, revenues grew by 16% at INR 56 crore against INR 48 crore. Revenues from API business for the quarter are at INR 18.3 crores against INR 19.7 crore. For the first half, revenues grew by 3.2% at INR 31.6 crore as against INR 30.6 crore. Revenues from CRO and analytical services for the quarter are at INR 3.7 crore, constant as the same quarter last year. For the first half, there is a growth of 20.8%, totaling to INR 7.9 crore against INR 6.5 crore. One satisfying factor is our going live for the SAP S/4HANA on fifth of August. We now completed the closure of three months of sales revenue from the system, and the first quarterly results have come out from the system. All together, the implementation of S/4HANA by our team has been completely satisfying and highly successful. Thank you very much for giving me a patient hearing. Now I would like to invite questions from all of you. 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 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 Aditya Khemka from InCred PMS. Please go ahead. Hi. Thanks for the opportunity. Aditi ma'am, first question on the India business. If I understand correctly, last year in the first half, we had sales of about INR 430 crore, of which I think we had previously called out roughly INR 50 crore was COVID-related sales. If I adjust 430 for 50, I end up at INR 380 crore of sales for last year first half. This year first half we are at INR 408 crore. If I do the math, it's about 6-7% growth excluding COVID impact in the base. If I understand correctly, the level of price increases we have taken during the first half is around that number, 5-6%. Does that mean effectively that in the first half of FY23 over first half of FY22, the contribution of volume and new product introduction put together is zero? Interesting question. I think there are a lot of calculations you seem to have done, which I'll have to put in order. The scenario you have finally arrived at is incorrect. Because let me start from new products. New introductions in the current quarter contribute to INR 5 crore revenue, with a contribution of 2.3% to top line, which is the best we have done in the last you know several years. Same quarter last year, we were at 0.8% of top line at INR 1.7 crore. New introductions are doing exceedingly well. The kind of math you have done is a bit difficult to apply for the Q1 and Q2 this year, because I have explained before, various products performed well and did not. The entire impact of top and bottom line going up or down cannot be assigned entirely to COVID or COVID basket. Because ATM is a product which is a great strength for the company. This is a product which without the COVID impact also does all right when the season comes in. I'll just give you a few numbers which will explain things possibly. Mm-hmm. Anti-infectives as a category, in absolute terms from Q1, went up, you know, by 73%. Respiratory has gone up by 25%. Overall, the categories have started doing well. But in some cases, there is this huge, you know, kind of. If you see Q2 last year, besides the COVID products, other acute products have also done well because this was around the time when you know peripheral therapy peripheral diseases to COVID were increased et cetera. It's not correct to assign entire growth or degrowth to COVID basket. in Q2 this year, for example, Febrex Plus as a brand has not done very well, while all the COVID basket products, including ATM for that matter, and Karvol Plus are doing much better than the same period last year. I hope this answers your question. Yeah. To an extent it does, ma'am. So essentially, you know, I understand that the performance of individual products might be different, but at a basket level, if you are growing at 5%-6% for the first half over, you know, the like-for-like, excluding COVID, and that is the level that is. You cannot use that calculation for excluding COVID. Mm. Technically. Yeah. Okay. That is where we differ possibly. I get your point. Yeah. No, that's okay. Second question therefore, you know, is then, you know, last year we did roughly INR 800 crore in India. This year, given that we have done INR 408 crore in the first half, and first half tends to be the heavier of the two halves, would it be fair to assess that this year will be almost zero or negative growth in the India business? No, we will do much better in the second half. I'll explain why. Mm-hmm. These two are a very challenging year for us for target setting for India business, as I've said earlier. Because when you have, you know, for Indoco in particular, anti-infectives and respiratory contribute to 40% of our top line at least. When these two therapies have had ups and downs last year, and we expect that it was very difficult to target, set targets for the field. We had therefore created a target for excluding COVID and COVID baskets. Surprisingly, it did not support us, this strategy. We have now revised it strategically for the second half, and I therefore expect much better performance. While we thought there would be many areas where the ATM drop would affect people performance, and therefore gave them separate targets. Actually, ATM has done much better than expected, but people did not push, you know, typically as field does. We might have got impacted partly for our primary, but at a secondary level, I feel we are all right and therefore our second half will be better. Ma'am, second half generally, given that the fourth quarter is the worst quarter of the year, second half generally tends to be like a 45% of the full year, and first half tends to be 55% of the full year. You are saying this year, second half can be more than 50% of the full year? Yes. Yes. Therefore, I mean, if you were to guide us, ma'am, what would you guide us to for the full year in India business on a reported basis on the base of INR 803 crore of last year? What kind of growth, you know, should we be looking for? At least 5%, if not more. 800 going to 840, 845. That's what you are looking at. Yes. Understood. No, that's helpful, ma'am. Second question, Sundeep, sir, on the U.S. Business, just to understand in the current quarter, is there any element of brinzolamide's profit sharing in that INR 70 crore revenue that you have reported? No. Ever since we relaunched brinzolamide has settled down in the market. Mm-hmm. The profit share from brinzolamide is not appreciable. The total profit share from U.S. business is around INR 7 crore. That has many products, you know. Brinzolamide is just settling down. In the coming quarters, you'll see profit share from that product. Right. What is the status with Combigan, Sundeep, sir? Have we been able to launch the product? What is the kind of traction? Yeah. Combigan, as you know, is a much bigger product compared to brinzolamide. Mm-hmm. It's more than double the market size. We have been the third player to launch besides the innovator. We luckily had stocks in Teva's warehouse already when we got the approval, and Teva has launched it just about a month back. A month back. We are saying in the second quarter number, there is no impact of Combigan sales. Am I right? Right. From third quarter onwards, we have that. Right. Basically, when you ship the product to Teva, that's not when you recognize the revenue. When Teva actually launches in the market, that's when you recognize revenue of the product. Is that the right way of understanding? Because you said the stock was already there in Teva's warehouse when you got approved. Yes. Yes. Okay. You recognize revenue when Teva actually sells, not when you sell. Okay. The profit share is recognized when Teva sells. Mm-hmm. The first part of the dispatch we already recognized. Manufacturing cost plus markup, that revenue which you recognize, that you recognize when you sell to Teva, when the product goes from your warehouse to Teva's warehouse. Okay. That element of revenue will be there in the INR 70 crore of 2Q. Yes. Yes. Yes. Correct. For Combigan. Okay. Got it. Now coming to the European market, Sundeep, sir, obviously very tough time given, you know, how the currencies are playing out. In fact, you know, before this quarter's results were published, we were reading so many reports that Indoco will be severely impacted because of the pound depreciation. Could you talk a bit. But your European revenue seems to be fantastic, you know, better than what I had expected. Can you talk a bit about the impact of the euro or the GBP on your business and, you know, why that hasn't adversely impacted you yet? Yeah. I think a very smart question, Aditya, for the benefit of all those who are listening, and I will certainly talk at length on this. We deployed a very careful strategy while hedging the euro and the pound. With the result, you know, our hedging has been nearly perfect. I won't boast too much about it because things could go wrong in subsequent quarters. I'll be very careful with my words, but at least for the time being, we are on good track. Like to like currency-wise, pound has recorded sales 2% higher than the same quarter last year, euro 11% higher, and dollar 13% higher. That is in constant currency terms. Now, coming to why Indoco has done better. The order book itself is INR 150 crore plus as on today. That's the first point, which gives us ample and good scope and very good opportunity to control costs and do a near to perfect production planning activity in all our plants. That is the two plants in Baddi and Goa one and Goa three, as and when required. Mm-hmm. Interestingly now, going ahead, we have got approvals for one capsule product of neuropathic pain and one of epilepsy. Europe will certainly see better times going ahead as far as margins are concerned. Right now, margins are totaling around 10% of EBITDA, 9.5, 10. Going ahead, within 3 quarters from now onwards, I hope to see EBITDA of 14, 15% minimum. Coming to your specific point. This is from the entire European business, Sundeep sir. Sorry. This 10%-15%, margins going from 9.5%- 10%-15%. This is for the entire European business. Entire European business. Got it. Yes. When the pound was around 1.20 to the dollar, and dollar was around 79-80, you know, we got ample chances to hedge the pound at that time. Because if you see, the pound was recording over 100 to a rupee, and that's the time we really hedged the pound. Euro hedging also has been quite favorable for us. The high rates were 95, 98, all those rates, and the low rates were around 82, giving us an average rate of around 90. Hmm. Hello, am I audible? Yes. Yes. Yes. Yes. That is where we are on the European business. As I told you, euro has recorded in constant terms also 11% growth. Pound we will do far better now going ahead because pound on constant currency was 2%-3% growth. Got you. Sundeep Bambolkar, sir, this hedging that you do, how long do you hedge? I mean, what time frame do you hedge for? 6 months exposure, 12 months exposure? What is the extent to which you hedge? This point in time, around end of 2024. Till the end of FY 2024, you are already hedged. Yes. Yes. To what? Okay. That's a rolling exercise. As in right now, you'll be buying fresh hedges for 25. That's a roll. Perfect. That's a rolling exercise. We get advantage of it every month. Got it. Now couple of questions on the P&L, Sundeep Bambolkar, sir. One is our other operating income. It was slightly on the higher side in 1Q and 2Q, substantially higher. Is the majority part of this other operating income Forex gain? Other operating income was higher by about INR 7.5-8 crore. But that is operating income, not only other income. As you know very well, the exchange gain is part of our business. It is not speculative exchange gain. Yeah. That is very important to be noted. Out of this INR 28 crore this year, this quarter, for other operating income, how much is exchange gain? Exchange gain is around. Incremental exchange gain you should look at. It's 13. It's INR 13 crore. 1, 3? Yes, yes. Okay. Got it. Given that the India business was actually a lower contributor this quarter to the overall revenue than it has been in the past, I'm slightly surprised that we are seeing gross margins improving 1Q versus 2Q. You know, 67%, 67.5% gross margin in 1Q and 70.5% in 2Q. There are two questions on the gross margin. One, the sequential improvement is slightly difficult to understand given that the India business has not really performed very well. Compared to YOY, obviously, your gross margins are down 200 basis points. I guess the other question is, you know, when do we see normalcy being reflected in the gross margins? How long would you guess it could take? First question, how did it sequentially improve? Second question, when does it go back to the normal level of 72? Yeah. As I already mentioned to you, the basic product mix of Europe is changing, and I have to talk on Europe because Europe was dragging us down. Mm-hmm. A solid conscious effort has been put in within the organization. Aditi and myself are, you know, talking about this extremely frequently when we address management teams. An operational excellence team has been set up under the leadership of our CFO, Pramod Ghorpade, and our operations head, Amit Gosar. These two teams are interacting extremely frequently and putting the plants under constant surveillance so that our overhead come down and as a result, cost of goods improve. That's the first point. Second point, if you notice, the raw material costs have now started normalizing compared to the sequentially previous quarter. Mm-hmm. A lot of effort has been put in to have alternate vendor development, which is, you know, a constant process for the APIs which Indoco is not manufacturing on its own. That's the second point. Sequentially, things should certainly look up. With the U.S. business going up, that is going to be a very major contributor because we are in niche segments such as injectables. Now getting into complex injectables. The first complex injectable has been developed by R&D, and will go into the plant for exhibit batches in January end or February beginning. New line has been purchased, which is getting into the plant in this month. Point number two, suspension ophthalmics like brinzolamide have entered the market. That is the second point. Third, sustained release products solid will get into the U.S. market. One is under very active development. I won't be able to give you the name. These factors all are pointing towards the high scale U.S. business in time to come. Downward comps movement and resulting into much higher gross margin. Okay. Thanks a lot for your responses. Listen, I have three more questions, but I will give others an opportunity and come back with you. Thank you so much. Thank you. Thank you. Ladies and gentlemen, in order to ensure management is able to answer all queries, kindly restrict your questions to two at a time. We have our next question from the line of Mitesh Shah from Nirmal Bang Securities. Please go ahead. Thanks for taking my question. When Aditya asks questions, then we have already less questions to ask, but I will try my best. Mitesh, next time you ask the first question. That would be better. Again, coming to the domestic market, are you expecting around 16%+ growth in the domestic market? Like, you're giving the guidance for 5%. What would be the major reason or major drivers for this 16% growth are you expecting for second half? I think 5% was on annual sales. True. The 16%. This is 5%, of course, includes the COVID impacted basket. Taking the COVID impact basket quantum aside, we would do much better. Right? Got it. Got it. Yeah. So, uh- As I said, almost all parameters, the business is doing well. We have certain setbacks on a few molecules. For example, this quarter, anti-infectives as a category did well for the industry in Q2. The anti-infectives we sell, Cefprozil or, you know, they have not grown as substantially as, you know, azithromycin, your amoxicillin. When you compare MAT or our performance vis-a-vis industry, you'll see a little bit of hitches. Overall, for the company on product like Cyclopam is at 10% growth, you know, an old product, even QoQ, you know, YOY basis. On QoQ basis, all products are on good growth, Febrex Plus is flat. I'm very confident going forward we'll do well. How much price hike have you taken in your entire portfolio approximately? Effectively, we get around 6% price hike. that all have started reflecting in this quarter, it will start reflecting. Depends very much on how the units, the inventory in the system, consumption, the new price inventory going out. There is some scope in future to get better efficiency and effectiveness here. We have identified this as an area of improvement. Okay. My second question is regarding your other expenditure. It increased sharply in the QOQ basis. What is the reason for that? Yeah. There is a one-time expense. Indirect. related to indirect taxes of around INR 7 crore. Otherwise, we are all right on all other items. Got it. Is that freight cost and other things has normalized or still on a high level? It has steadied. It has not yet normalized, but it is not increasing much. Basically, as Sundeep explained earlier, it is our mix, geography and product mix of international business this quarter which has helped us, because we have done probably higher contribution from U.S. than any other geography at any time. That has helped because, you know, that certainly helped margins. Got it. Then, again, in Europe and the emerging markets, the currency volatility. Definitely you have done good job in the hedging front, but there is scope for passing on the currency appreciation or depreciation of the euro and the emerging markets to the end users. Can you repeat that? This currency impact would be passed on to the end users for both E.U. and the emerging market. It's hedging is definitely a good policy, but it won't be sustainable for long, right? One second. See, majority of our, this thing, emerging markets are in dollars. That's the first point. Complete Latin America, major part of Africa and, Southeast Asia are in dollars. The only part which is in euro in, emerging markets is the French West Africa portion. That is the first part. We stand very strong on the dollar. Got it. To the front end, you know, fortunately for us in Europe, we are not exposed to the front end because a large portion of our Europe revenue is from being contract manufacturers. You know, the impact is really taken by our end customers. The portfolio is like that they understand and so it is being absorbed. Got it. Coming back to the domestic market of the strong second half growth, what would be the key drivers as per you? I mean, definitely the price hike benefit will be coming into the two. You said that new product introduction are also higher than the past. It would be like a combination of all volume, price hike and the new product introduction would be a driver? Yes. New introductions will definitely continue to do well. If you've seen, you know, it's already come to 2.8, right? 2.3%. It will further go up to at least 3% by end of the year. I'm very confident. Legacy product growth, Cyclopam is doing very well. It will continue to drive. Febrex Plus will also start catching up. As I explained earlier, both my acute divisions, Indoco and Spade, were impacted with one product each, which did significantly well last year for COVID. That posed tremendous challenges in setting targets. You know, we had given targets to Indoco main division, for example, without Karvol Plus, and with Karvol Plus, you know, separate targets. Same for Spade with and without Febrex Plus. Now, what happens here is that this sort of binds people and it doesn't allow them to stretch. I'm very confident in the second half, this particular hurdle, which we identified pretty early and we have already strategically resolved it. The performance will give us more. I'm very confident. Got it. Thanks for your answers. That's it from my end. Thank you. We have our next question from the line of Rashmi Shetty from Dolat Capital. Please go ahead. Yeah. Thanks for the opportunity. Aditi, on US business, you know, if you can dissect, you know, how many launches have you done in first half, and what are you guiding for the full year? If you can dissect it in terms of, you know, how many injectables you have launched and how many oral solids you have launched. Yeah. Hi, Rashmi. Thanks for your question. Three new launches happened up to this point in the first half. Overall for the year, we expect to do at least INR 300 crore from U.S. Any launch guidance, like in second half, how much are you planning to do? There are, yeah, several opportunities, but at this stage, you know, with the regulator and the time and everything, I'd prefer to wait to announce. Okay. Out of the three new launches, how many are injectables or oral solids, or all are basically? Ophthalmic. Ophthalmic? 1 ophthalmic, 2 injectable. One ophthalmic injectable. Whatever filings we are doing in the U.S. business, are they majorly skewed towards injectables? Like, you know, we are adding more of injectable filings, or we do have a solid basket of oral solids also. Yes. We, yeah, you guessed correctly. A major first priority or largest contribution to new filings is coming from injectables, followed by Ophthalmics and then the solid. We have already filed solid orals in the past. As you remember, we had several First-to-File opportunities, which will now start getting converted into, you know, commercial whenever the patent time comes in. Solid oral work has been done in the past. Now most of the filings are of steroids. Rashmi, I think you might have joined late because I gave a very elaborate answer on the U.S. business when Aditya Khemka asked this question. Our preference now would be towards complex injectables, suspension Ophthalmics and sustained release solids going forward. Sustained release. Okay. Sir, everything would be, you know, via partner only, right? We are not doing anything on our own. Yeah. I mean, if you're talking of front-end sales, yes. Filings, several are ours. You know that. Yeah. Correct. Okay. The pipeline which you are talking about, the complex injectables, will be all through the partners only, right? Yes, yes. Obviously. Intellectual property will be handled by Indoco. Again, coming on the India business, you know, I understand that you already mentioned that, you know, second half we would be doing much better. Now, on this high base of, you know, FY 2022, FY 2023, how do you see FY 2024? I mean, you know, are we expecting that, you know, we will come back to the double-digit growth in FY 2024? And if yes, how that would be achieved? Also, if you can comment on, you know, number of MRs and do we have any plans, you know, adding additional MRs like, you know, your peers are doing this? We have heard a lot about our peers adding MR. Let me try to answer several questions, but let me start with where we see India business going forward. Of course, it's something, this is my opinion. I feel very clearly that the end of 2023, this COVID impact business will all get over, and we'll have a new base on which we can grow. After that, the market, I believe will start giving, that is for the industry, higher single digit at least, and in some quarters, double-digit growth. Indoco will be able to beat those numbers as a company. Second question is about the incremental field staff being added. Because Indoco has always had an acute portfolio, we have, compared to many of our other peers who have high chronic and have people mostly in the metros, our field staff is actually more scattered in the tier 2, 3 and, you know, interior, rural as we call it. We have a substantial presence, but we are watching what is happening in the industry and whether this number of people added by others is impacting us directly in any case. Number 3, Indoco has, especially with Warren Ace, at least a good portfolio which has an OTX element attached to it. The company has done several strategic things so that we should be able to turn this around. You know, we internally work very hard to generate prescriptions, and our all our strategies of evaluation of performance, excellence, et cetera, are around prescription generation. You'll be surprised that in a quarter like this when you know respiratory has given us so much trouble, we have actually added 1 lakh prescriptions even for a product like Karvol Plus. So sometimes at Indoco, addition of prescriptions and outcome of sale is not something that goes hand in hand, especially if the product has a lot of OTX element attached to it. At Indoco today, several initiatives have been taken by way of which we can change the ratio of prescription to sales for such products in the coming years. I'm expecting at least in the next year to start seeing some element of this this converted into sales. I hope that answers your question. Okay, ma'am. Finally, on margin. Now in the first half, we have achieved around 19% operating margin. Second half, you know, normally first quarter basically it is very soft, you know, because all the costs come in, but you have already guided that second half will be much better. Is it better in terms of operating margin also because cost is also getting normalized? Are you expecting that, you know, for the full year, you know, we can meet our guidance of around 20% or 20% plus in FY 2023? Yeah. Rashmi, as you said correctly, we have given much better guidance for India business. In fact now international plus others is almost 50% of our top line. These businesses we are expecting a good ramp-up in the second half itself. Therefore, you know, until Indoco used to be heavy on India business, I could understand that the second half had issues on profitability because, you know, the numbers start looking different. Now it is very different, so we are very confident going ahead, we will do well and we will maintain our guidance of 20% odd which we have made for EBITDA. Mr. Sundeep explained earlier, but let me say this again, that various initiatives have been taken to increase operational efficiency. Even this month, if you take out a one-off INR 7 crore out of the other expenses, you would see much better profitability for the company in this quarter also. Costs are coming under control. Contribution from U.S. and India business to total business is going up. All of this will help us. Okay, ma'am. Thank you so much. That's it from my side. Thank you. We have our next question from the line of Deepan Sankar Narayanan from TrustLine PMS. Please go ahead. Good morning, everyone, and thanks a lot for the opportunity. Firstly from my side in the domestic business, how is our chronic business portfolio performing, and what are our plans to scale up this business? What kind of targeted contribution we expect from this business over the next 3-5 years? Yeah. Thank you for that question. Thank you for asking it. Actually because sometimes we forget to talk of our chronic, and that's not good. Chronic today contributes around 10% of India business and is expected to ramp up, well. The size is small, so we, you know, the incremental sales coming from these therapies don't show great improvement. But cardiac therapy, for example, this quarter has grown by 70% and is now at INR 3.5 crore. Your antidiabetic is at INR 6.5 crore. You have, you know, sort of, the chronic therapy market is slowly making a presence felt. In fact, if I was to share with you on year-over-year basis for the quarter, it is our subchronic and chronic data for the half year. Subchronic therapy has grown by 11.5%. Chronic therapy has grown by 2% and helped us tide over the -13% or -12% acute up and down. Slowly and steadily it is making a presence. For the first half this year we have clocked around INR 50 crore in sales from chronic. Last year we did a major restructuring of our two chronic divisions and made it into one Synergy division so that we could get efficiency and we could focus on the products that matter. In the call in the last quarter, I had explained this. It did not make sense to be the fiftieth, you know, launch, where there are top three players take 60% of the market or something like that. We are very careful now. We are focusing on the right brands. I'm confident going forward, Synergy division will show great results. In the previous year, we used to talk about the launch of Apixaban in kind of products. Those kind of critical products, are we planning to launch in chronic business? Yes, certainly. Apixaban is also in the market. Performance of Apixaban is still muted, but a lot of work is being done there. You know, our plans to launch better chronic products in Indian market continues. Okay. Very good. Ma'am, any updates on Apixaban launch in Indian market? Apixaban we are reviewing. When we were one of the two, it was an absolute fantastic kind of a scenario for us to get in, considering we are such a small player in the cardiology segment. Now, when the patents get sort of over and the market opens for everyone, then for Indoco, which has such a small presence in cardiology, whether we can make a substantial dent in this market is something we are reviewing. We will come back to you once we finalize, but it may not be such a great advantage now as it would have been had we won the case against BMS. Finally from my side, what is your long-term guidance in the margins looking like over next three, five years? Considering now Europe business transforming from CRM to launches and the U.S. business also complex products are getting launched and India business continue to do well. Are we expecting our long-term guidance of margins in the range of 25%? How much? Twenty-five. I didn't get you. Twenty-five. Twenty-five? 25%. In 3 years I feel confident we can hit 25. Certainly, yes. Okay. Sure. Thanks a lot, and all the best. Thank you. We have our next question from the line of Aejas Lakhani from Unifi Capital. Please go ahead. Yeah, thanks for the opportunity. A couple of questions. One is, on lacosamide could you speak a little bit? Second, could you quantify what was your SAHPRA business, you know, earlier? Where was it reported, and what is your outlook on that portion of the business? Which one? South Africa? Got you. Yes. Yes. Yes. Okay. First coming to lacosamide, for three months Indoco enjoyed a position of being the only generic in the U.S. market for lacosamide injection. Thereafter, two players have got approval. When I visited our partners in very early August, I was told very fondly that $43 million market size, which was prevailing when we just entered the market, had grown to $49 million within three months. Which is very good news for us. That means the prices have not at all come under pressure. In fact, we have been able to sell the product at good prices. Taking into account that one or two competitors might have joined right now, but still I think Indoco is holding very strong with its front-end partner. Now, coming to South Africa business. We have revived the South Africa business after all the approvals for all three plants in Goa are in place now. In fact, in the long term, we have plans to get the Baddi plants also approved, because right now for the quarter we are doing about INR 3.5 crore. With more business coming in, more products getting approved, we have certain contracts with large companies. I wouldn't like to name the two large companies at this stage. There are various dosage forms like creams and ointments, liquid orals. Profitability in these dosage forms is much, much higher compared to solid dosage. South Africa business will definitely grow. In 2 quarters we should double this business, and going ahead, a strong growth of around 15%-20% I can project. Your question of where it gets reported, it gets reported in the FDA under SA, ANZ. South Africa, Australia, New Zealand. Correct. There has been fantastic performance from South Africa this quarter. SA, I mean, Australia, New Zealand, we expect now things to ramp up in the quarters to come. Ma'am, no, I was talking about Medico Safra. You had a tender business with South Africa. It's from the regulator of South Africa. Yeah. Correct. Earlier that business was, if I recollect, larger, right? INR 60 crore-INR 70 crore, I think, 3-4 years back. Yes. Yes. Yes. Yes. Thereafter, there were certain regulatory issues, but those all have been solved. That 60-70 crore business is driven by tenders. We have applied for tenders, and those will be announced shortly. You expect the tender business to come back for you in 2024. Is that correct? Yes. Starting April 23. Correct. Okay. Whatever the tender business growth, and the size of the tenders are what you used to do earlier of that INR 60-70 crore magnitude? Yes. Yes. Per annum around INR 60 crore business is there. Okay. This business can really scale up much more than if the tender business really comes on board. Certainly. Yes. Noted, sir. Okay. Just again, an earlier participant asked this question. Given the fact that, you know, you'll have profit shares coming in from brinzolamide in the third quarter, and you have been speaking about a lot of these initiatives that you have done, the RM basket coming down, it seems quite obvious that your margins will shoot up in excess of 20%. Directionally, is that understanding correct? You may want to guide more, but I mean, directionally, it seems that it will definitely far exceed that. Yeah. See, India business and U.S. business are the top contributors right now to the margins. I'm taking three quarters time for the Europe business, as I clearly mentioned earlier, because new product launches will happen then. U.S., sorry, Europe business margins will definitely improve in about three quarters from today. All put together, you are right. Next year onwards, margins should be better than what we are doing today. Got it. Just one strategic question. You know, because the landscape in the U.S. is so vast and so large, and you are you know, being very targeted on specific molecules. I just want to understand that how do you go about in the R&D process? Is it partner-led where you know, they are pushing you that you know, there are such opportunities in the market next year? Or could you just speak a little bit about that process, please? I can answer the question on a general note because there are a lot of confidential matters involved. We have a process of molecule selection within the organization, which we do sitting with the business team and the R&D team. As I said earlier, we are specifically going after complex injectables, suspension ophthalmics, and sustained-release solids. Partnering opportunity, we do it at the right time. Sometimes when the molecule is very, very close to approval, because the value then increases. That has been the overall strategy. The partner pushing us, those days are gone. That was co-development. Now Indoco has become very strong to have its own product pipeline going ahead, and we have a solid pipeline with the R&D right now. If I can add, there is also parallel development for the API done the moment the pipeline selection happens. For 80%-90% of our products, we have the in-house API as one of the sources, if not the only. This is very helpful, especially at the time of launch, at the time of making product available for cash flows and everything else. Got it. Could you just quantify what has been the CapEx till date and, for the rest of the year, what is the CapEx outlook? CapEx for the year we have projected INR 125 cro, and we are almost in line with that. Thank you. We have our next question from the line of Aditya Khemka from InCred PMS. Please go ahead. Yeah. Hi, thanks for the follow-up. Sundeep, sir, CapEx INR 125 crore for the full year. First half, I think your cash flow statement shows INR 90 crores plus. Is it going to be only INR 35 crore for the second half? The 95 includes a lot of advances, Aditya. We are confident to control it as I said. Got it. Secondly, on the other expenses side, I was just looking at it, you know, our YOY growth in other expenses this quarter is about 20%. You know, other expenses include your sales promotion, fuel cost, power cost and traveling expenses, et cetera, and also sales promotion. I just want to know which of these costs have gone up dramatically YOY, you know. Aditya, we answered this earlier, but I'll anyway say that, there is this element of a one-time expense related to indirect taxes of around INR 7 crore, especially for this quarter. Almost all other expenses are under control. INR 7 crore of indirect tax that you have paid, and you recognize it under other expenses. Yes. One time. Yeah. One time. Okay. Otherwise it would have been basically INR 112 crore and not INR 119 crore as you mentioned. Correct. Absolutely. Okay. That helps. Lastly, on the API business, because we are obviously internally consuming more and more in this year, you know, what do we see as our external sales of API for this year? Yeah, we had aspiration to do very well in API external, but I'm not complaining that internal consumption is increasing. External sales, I feel confident to be able to do as much as last year above. As much. Close to 100. Close to 100. Okay. Yeah. Okay. That's helpful. Sundeep, sir, what is the utilization of the Micro Labs plant? Micro Labs plant, there is huge scope for utilization. All the European businesses have been put under approval in that plant. As you know, the regulatory agencies have given okay till December 2023. They have maintained the currency of the certification right now till December 2023, so we are on very strong ground. By December 2023 we will be in 70% occupancy. If need be, there is space for expansion in the plant itself, if I can say this? Yeah, Aditya, the way we... That plant is used for supplying to many geographies today, not just Europe. In fact, some of domestic also gets done there. The idea is as the European business ramps up and as we transfer more and more from Goa to Baddi, we will move the India business out. Yeah. It will be outsourced to third-party or your own plant somewhere in Baddi itself? Third party mostly. We have relationships with these players now for a very long time for India business. I understand that. I think I had one more question. Sorry about this. On the R&D side, you know, our R&D is now 5% of sales. Where do we see R&D going? You know, given that we have aspirations for being complex products or U.S., where do we see the R&D as a percentage of sales going? Yeah. Aditya, see, most important part of the R&D is, you know, developing smart products and well in time. Yeah. Necessarily the 5% need not go up because the revenue size is going to go up and 5% of that incremental revenue size will automatically enhance the quantum. Mm-hmm. I think we stay put at around 5% right now, and we have an excellent biostudy center in Hyderabad, which we acquired in 2015/2016, which has an excellent record of zero Form 483s after about 8-9 FDA inspections have been done. Considering all this, I think we are on very sound footing. Yeah. Because I'll tell you why I asked this question, Sundeep sir, because half of our sales is India, and I doubt any significant portion of this R&D goes for our India business, which effectively means that on our export business, we are doing 10% of sales as R&D. Correct. That's a substantial amount of R&D that we're already doing. I'm really crossing my fingers that that doesn't go up and it shows in terms of profitability and top line growth for exports. It will not go up. We'll stabilize it around this. Got it. Yeah, I think that's it. Thanks a lot for taking my questions and all the rest. Thanks for your very active participation. Thank you. We have our next question from the line of Ritu Kumar Shah from Sumangal Investments. Please go ahead. Hi. I just wanted to know why our CRO business is not ramping up. It has a very meager contribution. What is the logic of continuing in that business? What are the plan for? Yes. We actually backward integrated into or rather forward integrated into CRO when the company had you know got into the aspirations of filing products in U.S., especially the first to file products. As of today, 65% of the you know capacity at the CRO is consumed by Indoco for our own products. We have only 40% capacity for external sales, which appear here as income from CRO. Happy to share that we have ramped up capacity of the CRO and an expansion is underway, and I'm confident in couple of months that additional capacity which will help us double will then allow us to you know get more business from this segment. As Sundeep already mentioned, it's an excellent CRO. We have had 8-9 USFDA audits, all with zero 483s. The CRO itself is looking at various new projects. We are very much focusing on CRO going forward. It may not look substantial in size, but it is a critical part of our business. What second question, ma'am. What is our MR productivity at present and have you seen any improvement over last 2-3 years there? Yes. We have actually gone from 3- 3.5 over last couple of years. I see that this will only go up in the coming years. Thank you. We have our last question from the line of Cyndrella Carvalho from JM Financial. Please go ahead. Thank you so much for taking my question. Ma'am, I have just one question. As we are seeing almost all our engines firing, let it be India, U.S., Europe, and especially regulated markets, which will support our EBITDA margin, which also going ahead. Is there any vision that you would like to share with us for maybe a little later in time, but if you could help us understand how do you see this business going ahead? That's it from me. Thanks for that question. When it comes to vision has, you know, an aspiration. I believe it has to be something very, very large, right? Recently, as I already declared, we completed 75 years, and I was very happy that the first line team that reports to Sundeep and me collectively took a target of achieving INR 5,000 crore in 5 years. That's very, very fair. Very encouraging. Thank you. Thank you. Cyndrella, we can't hear you. Am I audible, sir? I'm saying that's very encouraging to hear. Anything more, ma'am, you would like to add on that in terms of- No. I think anything else we'll speak as and when it turns out. You know us. I think, Cyndrella, today's has been one of the most active calls. Whatever we had to share, I'm sure we have shared. Yes. Yes. Absolutely, sir. Thank you so much for that insight. Thank you. Thank you for organizing. That's it from my end. Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you very much. Thank you. The conference is no longer being recorded.