Ladies and gentlemen, good day, and welcome to the Q2 FY 2022 earnings conference call of Ipca Laboratories Limited, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital. Thank you, and over to you, sir. Hi. Thank you. Good morning, afternoon, everyone, and a very warm welcome to Ipca Labs Q2 FY 2022 post-results earnings call hosted by DAM Capital Advisors. On the call today we have, representing Ipca management team, Mr. AK Jain, Joint Managing Director, and Mr. Harish Kamath, Senior VP Legal and Company Secretary. I hand over the call to Mr. Jain to make some opening comments, and then we will leave the floor open for questions. Jain, please go ahead, sir. Yeah, okay. Thanks, Nitin and DAM Capital Advisors for organizing this call. Good afternoon to all participants, and thanks for taking out time and joining us for Q2 FY 2022 earnings call. Today's earnings call and discussions and answers given may include some forward-looking statements based on our current business expectations that may be viewed in conjunction with risks that pharmaceutical business faces. Our actual or future financial performance may differ from what is being projected or perceived. You may use your own judgment on the information given during this call. Our business recorded a strong performance for the quarter. Domestic formulation business delivered 30% growth for the quarter and on improved base of Q2 last year, from INR 535 crore to almost around INR 698 crore. Domestic API business delivered around 25% growth for the quarter, from INR 67 crore to almost around INR 82 crore. Export form... Export business of formulations and API declined during the quarter, but excluding the exceptional business of Q2 last financial year, last year Q2, the branded, generic business has grown by almost around 17%. Generic formulation business has grown by around 15%, and institutional business declined by around 23%. API business, at around INR 287 crore has declined by around 7%. Some of these businesses also impacted due to the delayed availability of containers and shipment. Some of the key highlights of our domestic formulation business. Domestic market, our ranking has improved to 16th in the month of September. Our MAT ranking has also improved to 19th in September, and currently it is around 18th as per IQVIA. We have improved our market share to almost around 1.35%, in MAT September 2021. Most of our therapeutic areas have delivered a strong performance. Our internal sales growth in key therapeutic areas, if you look at the pain segment excluding hydroxychloroquine, it's delivered almost around 32% growth. Including hydroxychloroquine, where we had, the significant business, from institutions last year, has delivered around 24% growth overall. Cardiovasculars have delivered almost around 13% growth. Antibacterials around 37% growth. Cough and cold preparation almost doubled practically, 95% growth. Dermatology almost around 52% growth. CNS 30% growth. Uro almost around 46% growth. Antimalarials has also delivered almost around 75% growth. The therapeutic contributions of key therapies in domestic market, pain is now almost around 48% of our business. Cardiovasculars accounts for almost around 17% of this business. Antibacterials has now jumped to around 8% of the business. Antimalarials around 7%. Derma has the significant growth by almost around two percentage points, and now it is increased to almost around five per... It's around 5% of the business. Cough and cold has also become around 4% of our business. Still our standalone EBITDA for Q2 FY 2022 stood at around 23.60% for the quarter, as against 27.28% for Q2 FY 2021. We have witnessed a very significant cost rise during Q2 due to increase in commodity prices, energy costs, shipments and logistics costs. Raw material prices also moved up, in some cases to almost around 200 to three... 2-3 folds, and more due to the energy issue faced by China, and also impacted by China's dual control policy. Since the key provinces where the chemicals and intermediate units are located were functional only for a few days a week, and that created the shortages. Lower energy allocation by China into the mining sector also impacted the prices of some of the raw materials very adversely. Higher prices trend is still continuing, and we have not seen much of the sign of decline yet. Domestic prices of the key materials like solvents, acid, alkali, specialty chemical, pharma excipients, in many cases has moved by almost around 100%. Higher inbound and outbound freight cost increase, as well as domestic logistic cost increase, has also impacted overall overhead costs. As a result of input cost increase, material cost to sales ratio went up by 2.12% in Q2 in segment accounts. Overall EBITDA went down by almost around 2.65% compared to Q2 last year. As against our earlier guidelines of around 25% EBITDA for the financial year 2022, EBITDA is lower at around 24.63% for the Q2 FY 2022. Having given some broad numbers, now I'll request participants to ask questions. 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 your 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'll wait for a moment while the question queue assembles. The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead. Thanks for the opportunity. Sir, firstly on the overall guidance for FY 2022, given the first half FY 2022 performance, would you like to revise the full year guidance? Look, sir, domestic business is doing very well. Our institutional and it has recorded almost around 30% growth in this quarter and last quarter also it was almost around 28% growth. Our overall projection for domestic market was almost around 16%-18%. As against that we are performing much, much better. Overall domestic business would be far better. We hope that even some of the seasonalities due to the antibacterial sales was much higher due to the infections in the first half of the current year. Even if they are at lower side, we still feel that in second half also we will be doing it better than what we have projected in the overall for the full of the year. Overall growth for the whole of the financial year is much, much better going to be much better compared to last financial year overall. As far as our branded generic businesses are concerned, more or less our guidelines will remain same. Institutional business also our guidelines will remain same what we have given earlier. But our API business will see some kind of decline because of some disturbances, more particularly on certain sales, due to the nitrosamine impurities. We have already filed with regulators our revised processes and taken all the establishment batches and done everything. There could be some time, maybe the regulators first may take around 2 months time to give approval. We expect that approval might come at December end or maybe early part of January. Therefore, in the next quarter, there could be some impact on business relating to API. Overall, projection for the API business in third quarter particularly will go down. There will be significant recovery coming back in the fourth quarter of the year. Overall, as far as the EBITDA numbers are concerned, right now we are not in position to give the guidelines because the input costs, the rises are significant, and we are yet to see the kind of, the retracement in those kind of prices. No signals are yet visible. Industry is hoping that maybe by fourth quarter things will be normalized. We are yet to see the sign of that. Understood, sir. Just on the domestic formulation front, the pain segment has been giving significant growth. Any factors you would like to call out for and, of course, the sustainability for those factors? Let's say most of our businesses have given good growth in the first half of the year. I would say that every segment we are in, except cardio diabetes, there we have given almost around first half around 17% growth. Pain has given significant growth to us almost around excluding the hydroxychloroquine business, what exceptional business we did. We have grown by almost around 34% in first quarter in pain segment. Antibacterials has recorded in first half almost around 81% growth. Cough and cold almost 90%. Derma almost around 65%. And some of these higher numbers are also because in the first quarter last year the base was lower. Overall the trend appears to be good and we should be doing very well. The factors for that is that as far as first in current year overall infection levels and all were very high. Overall acute business has improved significantly in the whole of the industry. We are not seeing such kind of antibacterials and other sales. As far as pain is concerned, we continue to even in normalized period we will continue to grow around 18%-20% kind of business because we are significantly taking the market share from. So various other molecules in the market, and that trend will continue. We are long way to go. Got you. Just lastly, sir, on the gross margin. The gross margin is trending down despite higher share of domestic formulation business. Is that to do with the raw material price increase being already factored in 2Q or it will be more intense and visible in the upcoming quarters? Let's say in the Q2, as against around 10% growth in the top line, our material costs have gone up by almost around 17%. That trend will continue maybe even in the third quarter or so. Fourth quarter, I can't say what kind of visibility will come, because if there is some kind of signal start coming at the end of December or early part, then some kind of reduction may happen in material cost. We are yet to see those kind of signals there. All right, sir. Thanks. That's it from my side. Thank you. Thank you. The next question is from the line of Kunal Dhamesha from Emkay Global. Please go ahead. Thank you for the opportunity. First question will be input costs. Sorry to interrupt. Sir, your line is breaking. Could you come in the reception area, please? Is it clear now? Yes. Yeah. The first question again on the input cost. Given we are highly backward integrated, shouldn't that be kind of blunting the impact of the material cost or input cost increases for us? That gives us some kind of advantage, but there are a lot of domestic products also, their costs have significantly gone up. Some example, like even caustic soda flakes has gone up by almost around 150% in this period. Even your product like phosphoric acid has gone up by around 235%. A simple product like sulfuric acid has gone up by almost around 88%. Even some kind of solvents, the prices have been significant. MDC has gone up by almost around 107%. Toluene, the petroleum product prices has gone up. It's almost around, rise is around 27%-30%. Ethylene dichloride has gone up by almost around 44%-45%. Lot of solvent prices as methanol almost 46% rise. Significant prices has risen up only, and also the specialty chemicals which are supplied by the Indian manufacturer, that has moved up. All your input costs, whether it's solvents, whether it's acid alkali, whether it's specialty chemicals and all that, they are moving up. For example, even like say commodity prices are impacting like the all packagings are in PVC, PVDC. That has moved almost around 28%-30%. All plastic bottle caps, PP, your PET bottles has moved up almost around 35%. All paper products has moved by almost around 15%-18% kind of those movements has happened. All those prices are moving up. In case of like, say, all antibacterials, the fermentation prices have moved up significantly, practically double. Common product like paracetamol, which used to be a year back, INR 300 and INR 350 rupee, now we are buying almost around INR 900 rupees is the pricing now. Every pill you sell, you are making losses today, because it doesn't cover the prices today. The kind of prices which has gone up in the market. There are a lot of those kind of challenges which are there currently, because of all the disturbance which are happening in the supply chain. If it is stabilized, then yes, then your material cost to sales ratio can again come down. But currently it's all disturbed. Okay. Between let's say September to October also you are seeing increase or they are more or less stabilized? No increase trend is not there, but currently it has reached a stabilized level of increased level. We are not seeing any kind of retracement yet. Sure. Second question on the other expense. Sequentially other expenses including R&D has gone up. I believe some part would be due to power, fuel as well as logistics cost. In terms of the branding or trade and marketing effort except for conferences, is everything back in the domestic market or the branded market in the first item? Overall, if you look at, I will just give you some kind of break-up on what kind of cost impact we had on the major items in Q2. Let's say the fuel cost has almost moved by almost around 24%. Yeah. Export freight and insurance, that's another area where it has almost moved by almost 51% in this quarter. Mm-hmm. Overall, if you look at factory level, overall against, let's say 10% increase in the top line, my expenditure on factory level has gone up by almost around 12%. Marketing cost has moved up by around 7%. R&D cost has moved by almost around 18%. Other overheads, which are reduced by almost around 9%. Overall, there is a increase of 7% in other expenditure, as against 10% increase in the overall, top line. It's all because of, let's say, exceptional increases which has happened in the energy cost and also the freight cost. Marketing cost increase was significant in first quarter because last year the sales force was all sitting at home and there was hardly any kind of promotional cost. From second quarter onwards, the marketing costs started returning back. From that level we are not seeing much kind of growth. Marketing costs has only gone up by 7% in the second quarter of current financial year. Thank you. The next question from the line of Viraj Kacharia from Securities Investment. Please go ahead. Hi. Thanks for the opportunity. I just had one question was on the subsidy. I've seen some dip in the performance. When- [audio distortion]. On subsidiary side, let's say we have major subsidiaries. One is Onyx in the U.K., that's doing very well. Its income has almost gone up by around 50%, and they have a significant profitability. They have contributed that. Mm-hmm. As far as Ramdev is concerned, that we have talked that we are changing the product mix out there. Mm-hmm. It was almost a drug intermediate company. Mm-hmm. We are in process of validating lot of APIs and also, filing to EDQM and other regulators. That process is going on. Mm-hmm. We have a lot of those kind of intermediate businesses that this company was doing. We have stopped those kind of businesses. Mm-hmm. more focusing on the API side. Mm-hmm. Therefore business got disturbed, and there are losses for some more time. It's only a matter of time. I think maybe in one or two quarters, this company will be coming back to the profitability overall. We don't foresee any kind of difficulties there on that account. Only problem we have is the subsidiary company where we have at Pisgah in U.S. That company, there are some kind of losses. We wanted to have the kind of CRAMS business which our UK subsidiary is doing similar kind of business there. Because of pandemic and all, it became difficult to approach the customers and also talk online, also increase the manpower there and all that. That business was disturbed there. We have started getting now the contracts on the CRAMS business and all. Hopefully next year that business will also start seeing lot of revival. Another company we have is Bayshore Pharmaceuticals. That's the front end what we have created for once our U.S. FDA get cleared, we will, that company will be front end. Currently they are doing some kind of some product tie-up from companies and they are doing marketing and there are some kind of nominal loss and those losses are also on account of whatever, say, our the their intellectual property rights which we have capitalized, that we are writing off. Those losses are only because of that. Other than that, it's by and large Onyx profit is by and large getting set off against the losses what we had in these two, three subsidiaries kind of thing, which we in time to come will definitely improve. What kind of losses do you have seen in, say, the U.S. and the other subsidiary, how many? I didn't get you. What kind of losses do you have seen in some other subsidiary? You are not audible, bro. Yeah. Am I audible now? No, no. Sorry for that. Is it better now? Yeah, slightly better. Yeah. Yeah. I was just trying to understand what kind of losses these would have made, the U.S. and the other one. I'll give you the numbers. Let's say that, Bayshore losses is around INR 4.62 crores. Onyx profit is around 18 point- Half year. This is half-year numbers, which is around INR 18.79 crores. Ramdev has incurred around INR 6 and a half crore losses and Pisgah around INR 7.67 crore losses. These should by and large get reversed. I mean, most of the subsidies should start having profitability from Pisgah may take little longer time, but Ramdev may be I think in 2, maybe in 2 quarters, once we have validated around 5-7 APIs and all, things would be well, and things will start improving from third and fourth quarter there. Okay, cool. Thank you. Thank you. The next question from the line of Abdulkader Puranwala from Elara Capital. Please go ahead. Yeah. Hi, sir. Thank you for the opportunity. Could you please provide some update on the capacity addition at Dewas and Ratlam on the API side, where are we now? I think, Dewas project was little delayed, and I think it should be operational in the first quarter of the next financial year. As far as Ratlam is concerned, that capacity will be available from the next month onwards. Okay. The validation exercises are all going on, and it should be commercially available from December, yeah. Okay. By and large, what would be the blended increase in capacity once Ratlam comes in play? I think overall increase will be at Ratlam around 10%. Once Dewas come, it will be almost around another 25% capacity it will add. Sure. Just one more question on this API pricing. I understand your commentary on the raw material increase, but how pleased are the customers? I mean, are we approaching our customers with renewed pricing or are we still waiting for TCP to, you know, move out and then we see what is the scenario and approach our customers accordingly? Normally what happens is, we have almost around 3 to 4 months order in pipeline always. On those orders, prices cannot be revised. When your prices moved up, like, say, solvent prices, acid, alkali and chemical prices. We generally know that what kind of trends are there, some kind of coverages are there for intermediate, but these are spot buys. When these prices move up or energy prices move up, you can't help it, and you can't pass on them to the customers immediately. As far as intermediate prices, when overall trend, which are the major building blocks, you revise the prices, but after you have serviced all those kind of pending orders. It takes some time. There's a gap of almost 4-5 months in the overall prices revision takes place. To the extent you are covered maybe around 2- 3 months, that helps you. Some of the prices moves immediately. Some prices you have already covered, so you still get some kind of lower prices material. It take almost around 4 months or 4-5 months to get the higher price revision. Customer also knows that, yes, what kind of intermediate prices trends are taking place, so you get a price increase. It's not that you these all price increase, whole industry is passing on, but there is a timeline. Understood. Thank you for answering. Thank you. The next question is on the line of Ankit Jain from Spoon Advisors. Please go ahead. Thank you for this opportunity. My question is regarding the associate company, Krebs Biochemicals & Industries. They've been incurring losses for the last 4 to 5 years. If I can recall, last con call it was said that we could break even in this quarter, that means either third or fourth quarter. If I look at the numbers, apart from equity, we have put in around INR 30 crore plus 80 crore of preference capital. If another 100 crore is expected, there could be some discrepancy in the numbers. The preference capital has been put at 9% rate. When do you think that Krebs can service this debt with its own operating profit? Now, if you see sales last, like half year sales is roughly around INR 16 crore. A rough figure says that maybe around INR 920, 130 crores of sales could help them, you know, just service this debt with their own operating profit. For how long, you know, does the parent company, Ipca, feels that they'll keep putting in, you know, capital in this associate? Overall, if you could also describe the issue. Hello? Is it more from the production side or is it like it's more demand for this, you know, for what Krebs is doing? Just to understand how the numbers will move, in case of Krebs. As far as Krebs is concerned, they have two plants. The one is at Nellore, which is producing some kind of the APIs, which are not fermentation-based APIs. Another plant is at Vizag, which is a fermentation plant. As far as our Nellore plant is concerned, that has already come in the profits now. As far as Vizag plant is concerned, we were producing some kind of fermentation products like serratiopeptidase. That demand which used to be almost 3-4 metric tons, practically we were selling every month. That has come down significantly during this kind of pandemic period. It's also producing simvastatin and lovastatin. Those all demands also got disturbed. Therefore, the overall, so whatever journey we were planning, that didn't happen that way. Demands are now coming back. We have already started selling lovastatin. Good quantities have started selling now. Simvastatin also now is picking up. Serratiopeptidase, we have our own captive demands and also demand from other customers, so that's also picking up. Hopefully it's only a matter of time, maybe around two more quarters, we should be able to get the Vizag plant also in the overall breakeven. Sir, is that like two quarters? Are you saying that within two quarters, Krebs will turn profitable? Yeah, it should be. Okay. It looks like very ambitious. That is like we are expecting almost like 3-5x jump in the revenue within next two quarters. Is that kind of dependency we have on this Vizag plant, I think? Or, I mean, because, sir- Overall guidance, it's a listed company, so I can't talk much about that. Broadly I can say that, yes, we are on the course. Okay. Maybe within next two quarters we could see something with a very good from Krebs. Some better results, yes. Okay. Okay. Thank you, sir. Thank you so much. Thank you. The next question is on the line of Deepali Patadia from Sameeksha Capital. Please go ahead. Yeah. I think most of my questions are answered, but I wanted to ask that in exports, we are maintaining our guidance for generic and branded, right, for FY 2022. That means, Generic and distributions, yeah. Yeah. In the institutions, there is an approval for anti-malaria vaccine. In the long run, how are you looking at it? How will it impact our revenue institutional business? As far as this vaccine is also to be given with some kind of your antibacterial antimalarial tablets. It's not that vaccine is administered alone. Your traditional products will continue to have good sales here. Okay. Yeah. Thank you. I'll join back in the queue. Thank you. The next question from the line of Charulata Gaidhani from Dalal & Broacha. Please go ahead. Yeah. I wanted to know if you could quantify the delayed shipments or the exports because of container unavailability. That number we have not worked out. Let's say institutional business, we have seen around 23% decline in this quarter. That's purely because of your non-availability of containers. Even in your branded generics business, we have seen a lower growth. It's also because of almost around $2 million worth of shipment got delayed. Those are the things. Exactly, I don't have quantifications right now. Okay. As far as the institutional business is concerned, we maintain our guidelines for all of the year. That whatever guidelines of around INR 400 crore we had given in the beginning of the year, that will happen. The overall branded generic market is also doing well, we should be able to deliver on our guidelines. There will be disturbances as far as the generics are concerned, and there will be also. It's also because of a lot of the API prices are higher. A lot of our export goes to the Europe, and Europe is still disturbed. There were excess inventory in the market and demand is sluggish. Europe we will see some kind of challenges are there. Other markets like South Africa, Canada, Australia, New Zealand, they are doing well, but on Europe side, there could be some kind of challenges. In API, there will be some kind of disturbances because of losartan part, overall, and that's for one quarter. Next quarter there could be disturbances, and thereafter it should be back. By the time our the azido impurity free process will get an approval from EMA and we should be able to be back in the businesses, in what whatever normal business what we were doing. Even in first half, our losartan shipments are by and large much higher compared to what we had been there done in the first half of last financial year. Because of intermediate prices coming down of losartan, overall there is some kind of decline is there. Once azido impurity-free process comes up, prices are again moving up, and therefore the overall business could be better. Timing for a quarter there could be some more disturbance. Okay. In terms of the degrowth in exports, how much of this degrowth can you attribute to price erosion? There are no kind of exports. There are no price erosion as such. It's basically our input cost increases. We do a lot of European business on generics, practically. There we are facing problem because market is sitting with higher inventories because there are still lockdowns and so many other things. Europe is always was operating with much higher inventory levels. Most of our distributors are sitting with higher inventory and therefore our overall order flows are slow. Therefore, there are some kind of declines in European markets. Yeah. Okay. In terms of the China increase in costs from China, by when do you expect this to settle down? It's a very difficult question to answer. We have not yet seen any kind of prices coming down. I can't really make out when it will happen. Industry is hoping that by fourth quarter, that's what we hear from industry players, that hopefully it should settle around fourth quarter. We have not yet seen those kind of signals. Okay. Right. Yeah. Thank you. All the best. Thank you. The next question is on the line of Prakash Agarwal from Axis Capital. Please go ahead. Yeah. Hi, this is Prakash from Axis. My question is on, you know, the clarity on, the cost aspect you talked about China disruption, et cetera. The current quarter would have seen only impact in September because we would be sitting on existing inventory. Would that be correct understanding? We are yet to see a full quarter impact in terms of rising costs, et cetera. I think it started from the, let's say, the part of August and September. Those issues were there. Around 1.5 months there was a little excess prices paid. Some of these costs, like our acid, alkali, or solvents and all, they started moving from our beginning of the quarter itself. Okay. Yeah. Knowing that and seeing significant cost increases in something which we can control on our expenses, are there any efforts so that we can maintain or improve the margin or at least, you know, not let it go down? What are those measures, sir? Let's say those measures are on a regular basis, those kind of, let's say, cost-cutting exercises and all are regularly done. More particularly on overhead side and all, to reduce the overall operating cost and all. Those exercises are regular, but some kind of price increase or play will also come up. Therefore, even if there is a higher ingredient in the cost, that will start getting offset by our increases in the prices also. Most of, let's say, our domestic market related price hikes has happened in the late first quarter and in second quarter per se. Those all effects will also come in third and fourth quarter, because there we work with almost maybe around 60 days inventory overall in the cycle. I think those extra realizations will also start coming in as a result of whatever the cost increases we have compensated. Somewhere the overall trend, I will say that yes, the cost increases are higher and compared to the whatever top line increases are there. Some cost reimbursement will also come in, will start coming in, and full impact will come in the third quarter, definitely of the overall cost increase. I agree with you. Okay. I mean the Q2 quarter EBITDA margins, we could see some further pressure or we with the cost saving measures we will be and the pricing. We could see some further pressure on that. Okay. Fair enough. Got it. The second question is just clarity on this API impurity, which is largely pertaining to the European markets, is what you said. Once you say it's out in Europe, every country wants those kind of impurity-free kind of products. There are some disturbances in business currently. We seem to be certain about resolving by Q4. We have already resolved and filed. Okay. The process applications are already filed, and regulators have given us almost around 60 days to get approval. Hopefully by December end we should get approval. If because of Christmas holidays and all it get delayed, then it may be in early part of January we should get an approval. We have already started sampling to all customers. Practically all our customers we have sampled, so that they can do the testing and everything with our. Except European manufacturer, all others need not to wait. Maybe- Sir. Is that specific or it is a industry-wide, phenomena that you are seeing? It's an industry-wide phenomenon. Lastly, sir, on the inventory side, I don't know if you covered, there's a recent spike. If you could explain that as well, inventory and receivables more so. In fact, inventory has gone down. I'll give you the overall number. Receivables, sorry. Yeah. I'll give you the overall numbers. Yeah. Sir, they're in the Excel sheet. Just wanted the number on the receivable move from INR 18,110 to INR 1,070. If you look at our inventory turnover ratio, in 2020 it was almost around 107 days. In 2021 it has come down to almost around 109 days. In September 2021, it's 92 days. In fact, inventory to sales ratio is currently 107 days inventory in FY 2021 and 109 days inventory in 2021. We are currently at 92 days inventory. We have in fact since reduced the inventory level. As far as receivable cycles are concerned, in 2020, it was almost around 71 days, which in 2021 it has come down to around 56 days, is largely because a lot of those incremental businesses and all of the hydroxychloroquine and chloroquine that has happened on advanced payments and all. It has come down. Currently we are around 63 days overall inventory level, so from receivable level. Practically we have improved from 71 days to 63 days. It's not on higher side. Okay. Okay. Fair enough. Thank you. Okay. Thank you, sir, and all the best. Yeah. Thank you. Thank you. The next question from the line of Kunal Randeria from Edelweiss. Please go ahead. Good afternoon, sir, and thanks for taking my question. Sir, can you share how much is the sartan contribution in your API revenues and how much is the price corrected from the? Roughly both the sartans contribute about 30% of my API business. Right, sir. How much is the price corrected? No, no, Mr. Jain has already said, no, whatever price correction that has happened is because of the reduction in the intermediate prices and whatever reduction was there, it was passed on. Sir, it's almost a 20% reduction was there in price correction. Got it, sir. Just, Even though our sales quantity tonnage-wise is more than what it was in the first half of last financial year, but realization is lesser because of this price correction. Understood, sir. Just, you know, you had earlier mentioned that you typically see a 3-4 month lag on price renegotiation. I mean, just hypothetically, would it be fair to assume that in case these input price remains elevated, you can pass on the entire increase to customers and still protect your margin? What is happening today now because of this, phenomenal increase in the prices, even customers are also not very sure whether to, increase their inventory or reduce them. They are also into a tight corner what to do. That is also the reason why even the order inflow has reduced because of this, issue. Okay. This is more like a hypothetical question, but I'm just assuming three or four months down the line, the prices don't correct. I mean, what is the typical practice? Do you sort of- There is no option. Manufacturers will increase the price and customers will buy. See, today paracetamol prices are so high, so inventory in the market is also reduced because people are not willing to buy. They are not willing to give order at this price. Because of that also generic business is impacted. It is not only paracetamol. Several of the API prices have increased like this. Sure, sir. That's extremely helpful. Just one more second, Srikanth. Do you maintain the tax rate guidance around 18%-19% for this year and next? We are a MAT company, so actual tax also there won't be any difference, percentage-wise. As far as the deferred tax is concerned, if there is a more capitalization of the assets, there will be more deferred tax. It is a non-cash outgo item. Right. That will increase only in FY 2024. It will increase maybe even next financially. Once you capitalize your Dewas new API facility, it will increase. Correct. Okay, sir. It is the difference between the IT depreciation and company side depreciation, right? On that tax, whatever amount is there. Understood, sir. Okay, sir. Thank you very much, and all the best. Yeah, thanks. Thank you. The next question is from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead. Yeah. Hi, good afternoon, and thanks for taking my question. Just on this azido impurities, I mean, this is an older issue for rest of the industry, so why is it coming for you now? I'm just trying to understand. No, no. Initially in the sartan it was not azido impurity. It was something else. This is a new phenomenon. Oh, okay. Yeah. There was some nitrosamine. Nitrosamine, yeah. That was the issue. This is something different. Oh, okay. Yeah. Okay. This is again because of some inputs KSMs or is this, that is, what is carrying reason for this? Let's say there are azido reactions happen in sartans. As a result of this in parts per billion, there are some kind of impurities generated, which was earlier not the regulator's overall requirement was, say, your impurity levels was little higher, which regulators have now reduced that level. We have to qualify the process now at a reduced level of those kind of impurities. Therefore the whole process correction has happened. There are one more stages increase in the manufacturing of another purification stages. Therefore overall cost of productions are also going up. It is increasing and the market prices are correspondingly also increasing of those products. Azido impurity products are 20% higher in pricing compared to a normal material. All process corrections and everything is done. It's already filed with regulators. We are just awaiting the approvals. I would say that other markets may not wait to that extent. EMA approval. EMA approvals. Whatever, EMA markets like, say, European markets are there, supplies will only happen after the CEP, your revised CEP approval is received. Therefore, to that extent, there will be some kind of disturbances are going to be there. Some kind of additional, your existing inventory also need to be reprocessed. Instead of producing new, your capacities will go in purification side. Therefore some kind of disturbances will happen as far as the business of losartan is concerned or, the, so in the current quarter. That's why I say that the business would decline in the third quarter for losartan and sartans, and it will come back in the fourth quarter of the next year. In current- Got it. You do not really see this fundamentally impacting your market share and this. It's only timing impact, yeah. It's temporary impact. Just again, another broader question on the API side, like you mentioned that the inventory levels with distributors, et cetera, are high and the manufacturers are high as well. At the same time prices are going up because there is a lot of input cost pressure. I mean, do we see that as that, I mean, like, this is not just you, for you specifically, but I'm like, do we see that the API manufacturers therefore have to bear more of the brunt because in terms of margin, because last year, of course, there was a very strong margin because the demand was very strong. Now we're seeing a normalization or a worsened that because demand is weak and the input prices are going up. My comment was with reference to generics. In Europe, more particularly with reference to generics in Europe. That European generic manufacturers are carrying higher finished goods inventory of all the finished formulations. Not with reference to it, the API. API is bought by the producers. They don't keep higher inventories of API. Yeah. Mr. Harish Kamath has given the comment that when there is a price increase, the order size goes low because they don't want to buy higher at those prices. They also see that what kind of trends are going to be there. At higher prices, they'll give a lower order. Order flow get reduced. That's what he commented on that. Got it. No, thanks for that clarification. Just on the API side, do we see the potential to pass on the cost pressures fully or do you think there will be some margin- It's not we. Whole industry is passing on. Eventually everybody has to pass on. There is no option. Whole industry is passing on. Got it. The costs are. Absolutely everybody is passing on. Got it. Got it. Nobody can absorb the cost. It's only time being, maybe 3, 4 months time you suffer because whatever your orders are there in, with you can't revise those prices. Got it. Great. Thank you so much. Thank you. The next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead. Hi. Thank you so much, and good evening, everyone. Just taking from the previous participant, you are passing on prices for API domestic formulation and for export formulation as well? All lines of the businesses you're able to pass it on? Yeah. European business, since business itself is slow there, it's a little difficult. It's taking time there because the market is having higher inventory, so the passing on will take a little longer time. The rest all business that is happening, maybe at a gap of around three or four months' time. Okay. Sir, if you are, say in January 2022, looking back, what sort of a portfolio-wide, company-wide pricing fees would you have taken or something that you need to take? Each product-wise impacts are different. Each product-wise price increases are there. I can say about domestic market, normal price increases used to be around 4.5% or so. Now this year it's almost around 6.5%-7% price increases are there. You know, beyond which we can't go because there are the portfolio which is in price control there. This year there was no price increase. It's almost around full price increase of 10%, whatever is there for the non-scheduled formulation. We have taken 100%, full 10% price increase on almost all products of the company. That. A lot of those price increases happen in the end of first quarter and in the second quarter because you can take price increase on a. 12-month rolling basis, yeah. 12-month rolling basis. Suppose price increase is due in September, then you can take it only in September. Some of the price increases are taken late, so they will become effective after, say, a few months' time when your overall company inventory get exhausted. What would be, Sir, similar number for export formulation and APIs? Export formulation, each product-wise it differs. Because the impact in each product is different. Some product there are no impact. Some product there is a significant impact. Like, say, metformin and all, which used to sell. It's currently the prices are practically double, so 100% it is passed on to the customer. Some product maybe 5%, some product maybe 10%, some product maybe 20%. Each product-wise it's different because it's not that everything is coming from that eight, 10 provinces which are there. Some is, some are coming from other provinces where disturbances are not much. Okay, sir. Got it. It's different on each product, yeah. I can't give on API side those number. I can give on formulation. Yeah. I would say that European price increases was not much even though their input cost because there is already resistance from customer because he's already have higher inventory. The buyings are at a reduced level. It's their price increase has not been much. Got it. Sir, any update on the FDA's re-inspection for the three warning letter sites? No, Sameer. Nothing. It is just, status quo. Okay. Even though the agency has started to come down to international, you know. Yeah. Yeah. We have not received any notification so far. Your best guess, sir, you know with No, no idea if anybody's yet. Okay. Okay, no, that's fine. Sir, I've heard all your commentary, pluses and minuses, but your full year guidance for sales was 8%-10% and the EBITDA margin was 25% for FY 2022. Does this stand or keeping all the pluses and minuses? See, as far as guidance is concerned of domestic, Mr. Jain has already explained we will do better than the guidance given. The same is whatever guidance given for institutional business also we will do. Today's issue is about API export business and the generic business, especially Europe. We are into such a situation, very, very difficult. Maybe end of third quarter, along with the third quarter result we will give the guidance. This quarter is very crucial. Mr. Jain has already explained API. There are issues, generic business, especially Europe. Which is a very big market, that is a problem today. Very difficult to say at this juncture. Also the overall price increases and other things. Even though we are trying to pass on, the benefit will come after a quarter or four months. Next quarter will be crucial. Okay. No, it's very clear, sir. Yeah, that's it from my side. Thank you. Thanks, Sameer Baisiwala. Thank you. The next question from the line of Rahul Jeewani from IIFL. Please go ahead. Yeah. Hi, sir. Thanks for taking my question. Now with respect to the Piparia and Silvassa formulation facilities, because these facilities are underutilized, because we are not exporting to the U.S. market right now, what is the hit to our operating expenses on account of these two facilities? As far as these two facilities are concerned, there is no any improvement in their capacity utilization. Unfortunately, as we explained today, Europe, generic business is also not, in that kind of a good shape. Overall, whatever, margin pressures were there on these two units are continuing today also. In the past you have indicated that the quantum of fixed operating expenses which you were incurring from these two plants were to the tune of INR 50-60 crores. Is that number correct or higher than- That number has not increased, that is what I said. Except whatever inflation-related and increments to people, other than that, there is no change in these numbers. Sure, sir. Whereas capacity utilization of both these plants are almost similar last year or so and till today also. Sure, sir. Sir, my second question is on the Sartan market. You indicated that the intermediate prices for Losartan have come down, but they have again started inching up. How do you see the overall pricing in the Sartan API market to shape up over the next 12- to 18-month period, given that the formulation products in the U.S. market have been seeing some pressure? Whereas some of the other Chinese players who had vacated the Sartan market, they could also incrementally make a comeback in the market. How do you think the overall price environment will play out in the Sartan API space for you? Let's say the prices of mainline intermediate used to be almost around $28. From that it came down to around $12. It again started moving to around $18. Since this new issue of azido impurity has come up, everybody was busy with revising their processes. In meantime that demand dried out for the suppliers, for the Chinese suppliers. The prices has again come down to around $12 or so. There has been too much of zigzag on prices of all these kind of intermediates that are there. This azido impurity issue is only as bad as the nitrosamine impurity for industry took lot of time because lot of process corrections was required. Azido impurity is not going to take a long time for industry. We have already filed our process and many other manufacturers has also filed the process, revised processes, maybe in a month or two. It's not only a timing differences, timing difficulties for industry, but it will be resolved very quickly. Okay. You expect the overall Sartan pricing to hold up over the next, let's say, a 12-month period despite the incremental competition which might come in from China? Prices will increase by 20% now because your additional purification will be required by everyone. When there is additional purification, one more step, your overhead goes up. Also there are some kind of process loss are there. Since your cost goes up, that prices. Currently also azido impurity free prices are almost around 20% higher than your normal pricing. Those prices will again increase. It's already increased. Okay, sir. That is related to the cost of production for us also going up because of this additional purification step which we have in the process. That 20% price hike would actually not flow to margin as such for us. Oh, that it will also cover the margin, yeah. Sure, sir. Okay. That's it from my side. Thank you. Thank you. The last question is from the line of Deepali Patadia from Sameeksha Capital. Please go ahead. Thank you. I had two broader question. Can you help me understand that we said that top seven producers are vertically integrated. In such environment where prices are going up, is there any area where, you know, I know shipping and all the costs are going up, but is there any area where we are benefiting because we are vertically integrated? Or in the longer run, if such prices continue in China, power related prices, would we be able to benefit because we are vertically integrated and we are so strongly present in the API, which is again vertically integrated? See, we say company which is not vertically integrated, definitely to that extent we will benefit. Other than that, it is a normal industry phenomenon. There is nothing called more benefit and all. Every company which is vertically integrated will have a better margin in their formulation business. Okay, sir. Got it. The second question in the longer run, again, that, the answer goes for that as well, right? Yeah. Correct. Right. Okay. Okay. Yeah. Thank you. Yeah. Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Yeah, yeah. No, no further comments. Since there are no questions, we will close this session. Thank you. Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thanks. Bye.