Ipca Laboratories Ltd. — Call Transcript 2023

Feb 20, 2023

February 20, 2023

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THRU ONLINE FILING

BSE Ltd. Phiroze Jeejeebhoy Towers Dalal Street Mumbai 400 023 Scrip Code – 524494

National Stock Exchange India Limited, Exchange Plaza, C-1, Block-G, Bandra Kurla Complex, Bandra – (East). Mumbai-400051. Scrip Code : IPCALAB

Dear Sirs,

Pursuant to Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, we are enclosing herewith transcript of our Conference Call which was held on Thursday, 16[th] February, 2023 to discuss the Company’s Q3FY23 earnings and business update.

Thanking you

Yours faithfully For Ipca Laboratories Limited

HARISH PANDURANG KAMATH Digitally signed by HARISH PANDURANG KAMATH DN: c=IN, o=PERSONAL, 2.5.4.20=3e5648a57390d9262997da3de9051643bfb87e352b111402af42d207e52e25c6, postalCode=400063, st=Maharashtra, serialNumber=72050fb9fadcbc5de6404685117b8355792f5784c7617d9c4cae2a3887d6b809, cn=HARISH PANDURANG KAMATH Date: 2023.02.20 12:10:34 +05'30'

Harish P. Kamath Corporate Counsel & Company Secretary

Encl: a/a

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“IPC A Laboratories Limited Q3 FY ’2 3 Earnings Conference Call”

February 16, 2023

MANAGEMENT: MR. A.K. JAIN – MANAGING DIRECTOR – IPCA LABORATORIES LIMITED MR. HARISH KAMATH – CORPORATE COUNSEL AND COMPANY SECRETARY – IPCA LABORATORIES LIMITED

MODERATOR: MR. NITIN AGARWAL – DAM CAPITAL

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Moderator: Ladies and g entlemen, good day and welcome to the IPCA Laborat o ries Q3 FY ‘23 Conference C all, hosted by DAM Capital Advisors Limited. As a remin d er, all participant lines will be i n the listen-only mode and there will be an opportunity for you to ask questions after the pres e ntation concludes. Should you need assistance during the conf e rence call, please signal an op e rator by pressing star then zero on your touchtone phone. Pl e ase note that this conference is being recorded.

I now hand t h e conference over to Mr. Nitin Agarwal. Thank you, and over t o you, sir.

Nitin Agarwal:

Thanks, Mik e . Good afternoon, everyone, and a very warm welcome to I P CA Lab’s Q3 FY ‘23 Earnings Call, hosted by DAM Capital Advisors. On the call today r epresenting IPCA Labs’ Manag e ment are Mr. A.K. Jain, Managing Director, and Mr. Harish K amath, Corporate Counsel and C ompany Secretary. I will hand over the call to the IPCA M a nagement team to make the ope n ing comments and we’ll open the floor for questions. Please g o ahead, sir.

Ajit Kumar:

Good afternoon. Thanks, Nitin and DAM Capital, for organizing this call. G ood afternoon to all participan t s, and thanks for taking out time and joining us for Q3 FY ‘23 E arnings Call.

Today’s ear n ing call and discussions and answer given may include som e forward-looking statements b a sed on our current business expectations that must be viewed i n conjunction with risks that ph a rmaceutical industry, business faces. Our actual or future financial performance may differ from what is projected and perceived. You may take your ow n judgment on the information g iven during the call.

Domestic Fo r mulation business has delivered 9% growth for the quarter from INR 645 crores to INR 702 c r ores. First nine months of the year, the domestic business has d elivered a growth of around 10 % . In segment both Rheumatoid Arthritis and Osteoarthritis c o ntinue to lead the business wit h 15% growth for the quarter.

Cardiovascul a rs and Anti-diabetics segment growth has been lower at a r ound 2% for the quarter. Anti m alarials, continuously in last three quarters, continued its de c line. Even in this quarter, it ha s declined by almost around 36%, Antimalarial domestic busine s s. And overall for all three quar t ers, this business is declining by almost around 37%.

In spite of all that, we have continued to improve our market share in Indian pharma market in last five yea r s. In 2018, our market share was around 1.85%, '19 it bec a me 1.61%, '20, it became, 1.7 6 %, '21 it became around 1.77%, '22 it has become 1.86%. S o on a continuous basis, we ar e improving. Not only improving our market share, we are a l so improving our rank. We we r e 21st company, now we are 17th company as per IQVIA’s nu m bers.

We have fiv e brands in Top 300 brands and all five brands in current year have improves its further ranki n g. Zerodol-SP is 17th rank brand now with nine-rank jump over last calendar year. Your Z e rodol-P is 57th rank with six-rank jump over last year. Hyd r oxychloroquine is

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almost aroun d 132 rank with 14-rank jump over last year. Zerodol TH is 2 6 4th rank with 38rank jump over last year, and Folitrax is 284th rank with 33-rank rank jump over last year. So all five top b r ands have jump the ranks in the current financial year overall. T hese numbers are based on the I QVIA trade audits late December ’22.

We have con s istently outpaced the industry growth in last four years, with t he highest growth in Top 30 c o mpany. With three-rank gain over previous year, IPCA is ra n ked now 13th in Acute Thera p ies, and one-rank gain over the Chronic segment. Now, we a re ranked 18th in Chronic seg m ent. In late December ’22, we have outplacement industry i n both acute and Chronic gro w th as per the IQVIA numbers. With the addition of almost ar o und 1,500 reps in the current y e ar, we hope that we will continue to improve our penetrations in the market and further impro v e our market share in domestic market.

Most of the p roduct where the NLEM pricings was to announce is alrea d y announced and published no w . We expect almost around 15% reduction in the control s e gment Scheduled Product prici n g in the –whatever, we have almost around 104 SKUs on whic h the prices was to be announce d . And everything is announced now.

The price re d uction is in the range of around 15%. And with almost arou n d 12% price rise, which will h a ppen in April, overly, probably, for next financial year, the o v erall reduction in Scheduled F o rmulation prices would be almost around 3% to 3.5%, in bet w een. And by and large, the im p act of these price reductions will happen only for the -- may b e around three to four months i n the month of February, March, then April is the going to be the major. By the time the new prices will come, from May onwards, I think overall reductio n will come down too, but Q4, i m pact would be full.

Overall, our Scheduled Formulations’ contribution to the overall business has gone down significantly now, because one is Antimalarials, which are mostly Sched u led Formulations. That has declined. And also because of this reduction in pricing and all. So o verall, Scheduled Formulations are now contributing only 17% of our business. So rest of ou r product portfolio is not covere d in the Scheduled. It’s all non-Scheduled Formulations.

On Export B r anded Formulation market, this quarter we have delivered gro w th of around 17% from INR 10 9 crores to around INR 125 crores. For the first nine months, t h e business growth has been aro u nd 11%, and I think for whole of the year we should be growing in excess of around 17% t o 18%, the fourth quarter growth will be further significant i n the Promotional market segm e nt. Market like Latin America, Middle East, Africa, Southeast A sia has delivered better growth for the quarter. [SEAs 0:07:02] has delivered around 11% gro w th for the quarter.

Generic exp o rt business including Institutions has delivered 14% grow t h, and excluding Institutions, t h e growth in Generic business has been around 6% for the quarter. After first two quarters of d e cline, because of various issues which were facing, industry was facing lower demand of A P I, price reduction, nitrosamine impurities, azido impurities, a l l these issues, and therefore bus i ness of active pharma Ingredients has declined in first two qua r ters.

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API business , this quarter, has delivered around 4% growth to around -- from INR 310 crores to INR 322 c r ores. For the first nine months of the current year, the busine s s has declined by around 7% fr o m INR 1,084 crores to around INR 1,004 crores. But most of t hese declines will get covered i n the fourth quarter of the current financial year. We hope t h at probably, there may not be a ny decline in the API business in the current year. There ma y not be a growth also. It’s jus t going to be a marginal site. And although ongoing issue s like nitrosamine impurities or azido impurities and all which the regulators were facing, all th o se issues are now since have passed. There are no issues left of that nature now.

This quarter, material cost to total income ratio has come to around 34.13% as against 32.46% in third quart e r in last financial year, an increase of almost around 1.67%. L argely the inputs cost rise was there, mostly in the solvents or maybe aluminum foil, but ongo i ng China COVID issues and hi g her cost inputs got converted at lower API prices. That has res u lted.

And KSM p r ice trends are also towards decline and therefore whateve r KSMs we were holding, beca u se of the price reduction, this impact is there, but we don’t for e see that our gross margin in ti m e to come, we will be able to go back. Gross margin is not a co n cern for us. It’s a short-term is s ue.

For the first n ine months of current year, our material cost ratio is around 3 3 .88%, marginally higher than 3 3 % in last financial year. The price softening trend, we hope to improve our gross margin in co m ing quarter. The other expenses include forex loss of almo s t around INR 16 crores for the quarter as compared to a gain of around INR 10 crores in last f i nancial year.

Apart from be above, other expenditures has largely gone up because of h igher promotional cost in the p o st-COVID era. And large addition of medical representative a d ditions of almost around 1,500 is also contributing to the higher cost. With their becoming p roductive in next financial yea r , we hope that this ratio will also get corrected.

Our fourth q u arter growth is expected to be almost around 10% to 12% range, and we expect that much be t ter growth will come from Branded Promotional market. Ge n eric formulations and API business, all three will contribute better growth. EBITDA mar g in for the fourth quarter may get further impacted due to the change in the Scheduled pricing and price reductions, which will get some impact during the fourth of the year. But w e are confident that next financia l year, our margins will certainly improve.

Having given the broad numbers and guidelines, I request now, participants, t o ask questions.

Moderator:

Kunal Dhamesha:

Harish Kamath:

We have the f irst question from the line of Kunal Dhamesha from Macquari e .

The first que s tion is on the MR additional. I think till last quarter, we were at 1,200. Now we have said we will add 1,500. So are we done with that addition? Is the incre m ental cost already baked into Q u arter 3 number?

Yes, that nu m ber is done now. Almost around 1,500 people are added. There are certain vacancies, bu t broadly it’s done now.

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Kunal Dhamesha: And sir, if th a t is done, then why we are not able to see the jump in the e m ployee expenses? Because I be l ieve the fixed salaries, it would be part of employee expens e s, right? And the allowances will be part of other expenses…

Harish Kamath:

Last financia l year, our business growth in domestic was significant hig h er, almost around 28%, 29%. A nd therefore our incentive payment last year was very, ver y high. It was the much, much a bove normal incentive because from incremental sales, peopl e get much higher incentive. A n d this year, the overall growth numbers are lower and t h erefore incentive payments ar e also lower. And that is offsetting the increase in the cos t . So overall, it’s appearing th a t overall manpower cost has gone up by 13%, but in fact, exclu d ing incentive, it’s on higher sid e .

Kunal Dhamesha:

And secondl y , if I look at on a nine-month basis, our margins have kind of compressed by around 650 b a sis point. That excludes any forex loss or gain from both the y e ars. Can you kind of provide so m e kind of clarity in terms of what are the major drivers, one b eing the MR cost impact that is already baked in into these nine months? Similarly, let’s say, p o wer and fuel cost increase, which are the major drivers of this 650 bps, and which of them you see reversing over the next year?

Harish Kamath:

Number one was material cost. Practically, it’s around 1%. It has gone u p by 0.89%. The second head h as been the personnel costs, which has moved by 0.72%. The m ajor increase has come in the manufacturing as our expenses, which is almost around 4%. So, that is major increase. Ma t erial cost front, we are not worried now because overall, there is a softening and by and large, all the old KSM inventories which were weight more particula r ly in API and API business outf l ows, and particularly also the certain inventory which got st u ck up because of nitrosamine, which was at -- their procurement price of KSM was m u ch, much higher compared to t he current prices.

So practicall y , 17%, 18% higher prices. That has also not only increased t h e material cost, it has also depr e ssed the margin because KSM prices have come down. So th a t has happened in many, in fact , KSM price. And KSM prices are soft. So overall, material c o st ratios are going to be soft, an d I think overall margins will improve.

Personnel co s t is higher because the numbers have moved up in current y ear, and that has resulted 0.72 % kind of overall increase in personnel costs.

As far as ma n ufacturing and other expenditures are concerned, by and large on manufacturing side, as agai n st our growth of, let’s say, around 9%, 10% overall increase is around 13% is the increase in m anufacturing side. Largely, the power tariffs were not incre a sing for last two years during COVID times. So most of State boards have increased the p ower tariffs. The energy cost c ontinue to remain very high. I think, overall energy cost n u mber increase is almost aroun d 45% for current year. So, that has been very high, because t h e all the coal and other coal furnace foil and all that we buy for energy, that has been at a very, very high level.

Analytical c o st has also moved significantly, because now lot of batches n eed to be test for nitrosamine t ests and so many other tests are introduced there. So, testing cost has

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significantly, plus this year also, lot of work has been to reestablish t h e methods, more particularly f o r all those kind of testing. And since lot of work has at the s a me time, so lot of work also ne e d to be given outside because everything cannot be done in-ho u se at a [inaudible 0:17:02]. So, even that cost has been high.

Then, travel c osts mostly doubled. That’s another cost. Shipping costs, in first two quarters was very, ve r y high, but from third quarter onwards, the shipping costs have started coming down. Then it’s a promotional costs. The major impact during the y e ar has been the promotional c osts. And practically, that has moved up by almost around 50% in the current year.

So that is a m ajor impact, is also addition of the people and also various a c tivities which we wanted to do as a company on various therapy areas and all that. Those act i vity was not there in last two, three years, and lot of those activities was done. And be c ause of that, the promotional c ost is on a higher side. And that is the major contributing facto r for this.

With the pro d uctivity additions and with people becoming productive, the s e costs will come down. Energ y costs, we are not seeing much of trend in further reduction, but if petroleum product cost comes down little bit, then probably that cost may come down. But overall, there’ll be re d uction in the cost, because of higher productivity additions an d also material cost softening an d all that. So with that, the margins will improve.

Kunal Dhamesha:

Harish Kamath:

Moderator:

Cyndrella Carvalho:

Harish Kamath:

And would y ou be comfortable providing any broad range in terms of EBITDA margin improvement for next year?

I think it could be remain in the range of around 21%.

We have the n ext question from the line of Cyndrella Carvalho from JM Fin a ncials.

Sir, in terms of the NLEM impact that you’ve mentioned, have we take n it in this quarter already or so m e of it will flow in Q4 as well?

I think most o f the impact is going to come in Q4, because price enhance m ent started late, in late Decemb e r. And so December impact is, I will say that very marginal. Most prices have started gettin g announce in early December, and then, I think it has now co m pleted. I think we have almost 1 04 SKUs, which are in price control. All product prices are a nnounced. 10, 12 prices are an n ounced yesterday only.

So, all those price announcement, I would say, I can give the number now . We have got the numbers. It’s around INR 70 crores reduction on annual basis as far as NLE M portfolios price reductions is t here. And it’s working out to be around 15% of the NLEM pr o duct sales. Out of this, 12%, as I already said that around 12%, we will get the wholesale p rice increase. So overall impa c t will be 3%, 3.5%, not more than that. And that too, it will r e main for three to four months, because we are now keeping very low inventories of products and so, hopefully we’ll be able to do a faster implementation.

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So it’s only going to be say your January, February, March and April, t hese are the four months in w h ich the impact would be there. And thereafter the -- and our NLEM contribution has also com e down. Now, it’s only 17%, whereas largely Antimalarials are i n big way in price control. Our Antimalarial business has gone down. And with that, overall, NLEM contributions to the overall, say, business is only at around 17% now as o n January-end. So overall, 83% of our portfolio is out of price control, I would say. And so those impacts are going to be m arginal now.

Cyndrella Carvalho:

Sir, in Q4, w e ’ll see some impact on the overall gross margin because of this ?

Harish Kamath: Yes, Q4 will be the highest impact. Because Q4 will be all 15% kind of impact on NLEM product woul d be there.

Cyndrella Carvalho: And sir, we’ v e not building any [inaudible 0:21:31], because of the price c ut in the INR 70 crores numbe r that we are seeing, right?

Harish Kamath:

That INR 70 crores is for full year. I’m taking full-year basis. And in Q4, t h e impact maybe a little more al s o because of the trade inventories in the market also. Trade w ill ask for credit notes. And w e will have to give them credit notes. So we are in process of verifying as and when the pri c es are announcing, all these fields are verifying all the stock i st inventories and other things. And all those credit note business will also be there in the f ourth quarter. So fourth quarte r impact would be greater for industry.

Cyndrella Carvalho:

And sir, if w e look at our India domestic business, our Zerodol franchise co n tinues to do well. But are there any other segments or specific therapies which are kind of im p acted our overall growth?

Harish Kamath: The Cardiov a scular business, which we want to grow fastest. In fact, a s far as industry numbers are concerned, they’re looking at that, we are, in fact, in Chroni c segment, we are having jump of one-rank, but our overall growth in Cardiovascular segm e nt in current nine months is on l y around 4%. So, it’s a low number. We expect it to grow m u ch faster. So that number is lo w er.

Antimalarials has declined by around 37%. But our other segments like, an d Antibacterial this year has dec l ined by -- because last year, we had almost around 100% g rowth because of COVID issu e s and others. On that, there is a very marginal decline, on An t ibacterials in first nine months, we did a business of INR 134 crores as against INR 143 cror e s. So around INR 10 crores de c line. So it’s not significant in spite 100% growth in last fina n cial year. In fact, that is buildi n g base for our future growth also in Antibacterials.

Our CNS bu s iness is growing by around 18%. Cough and Cold, despite las t year’s significant business, we h ave growth of around 10%. Derma is growing by around 18%. Neuro is growing by around 1 3 %. Ophthalmology portfolio is around 17% kind of growth. So by and large, Neuro therap i es are also doing very well for us, yes.

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Cyndrella Carvalho: And sir, on t h e Cardio, Diabetes, even the segment is also not improving a s highlighting, so what is our st r ategy here? What are we trying to play to gain higher share an d faster growth? Harish Kamath: As far as this segment is concerned, now we have very good recognitions a t marketplace with whatever wo r k we have done in the last few years on our CTD range and o t her range, and we have added t w o more divisions in Cardiovasculars in current financial year. In fact, the o n e of the reasons for little lower growth is also because of the a ddition of people because doct o r-product relationships and all get disturbed and all that. S o that is also one reason for lo w er growth that is around 4%. But with addition of these two m arketing divisions in Cardiovas c ular and the addition of products, we will certainly have a muc h higher growth in time to come in Cardiovascular. Moderator: We have the n ext question the line of Dheeresh Pathak from White Oak Cap i tal. Dheeresh Pathak: Sir, for the d o mestic business, the Cardio and Diabetes and the Antimalari a l portfolio has not done well. S o for the full year last year, FY ‘22, what would have bee n the sales in the domestic bus i ness for these two therapies? Harish Kamath: I’ll give you t he number, just a minute. Ajit Kumar: Yes, Dheeraj , Antimalaria last year was 5% of my domestic business, and t he Cardiovascular and Anti-dia b etes was 17%. So both put together around 22%. Out of tha t , 17% portfolio is growing at 4 % , only that 5% portfolio of Antimalarial, they are de-growing a t around 35%. Dheeresh Pathak: But you’re s a ying ex of this, the balance 78% of the portfolio is growing a t mid-teens, right? Because you said Pain and Rheumatoid is growing at 14%, 15% and then you listed Opthal, Neuro, Derm a , everything going at mid to high- teens? Ajit Kumar: 17%, 18%. Yes. So other therapies are growing definitely anywhere between 12% to 20%. Dheeresh Pathak: So sir, what a re we doing to increase the growth? Because Cardio and Dia b etes, that covered market woul d not have grown at 4%, right? Have you lost market share? Wh a t is in this… Ajit Kumar: In fact, we h a ve increased. In fact, our rank has jump in cardiovascular side. That’s what I said in the openin g remarks as far as on Chronic segment, overall, our rank has also jumped. I’ve now become 18th company in Chronic segment. We were 19th earlier a year earlier. So compared to m arket, we have done better and compared to… Dheeresh Pathak: So why is the market only growing at 4% in those molecules? Ajit Kumar: It’s only bec a use of [divisionalization 0:27:14] in current year, certain lo w er end products, because the p roduct reshuffle has happened. So with that, all those mar k ets get disturbed. Whenever th e re is a realignment in business and all that, some disturbance happens. And this is the year w h ere we have added two more cardiac divisions and reshuffle d the products and all that. So th e re is a suffering on that account, yes.

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Dheeresh Pathak: No. Sir, you h ave anyway grown better than the market. I’m saying, why is t h e market in those Cardio and D iabetic portfolio is not growing more than 4%? You’ve don e internally, right? What has ha p pened to the market overall? Ajit Kumar: Market over a ll, there is probably in Chronic segment, people were keep i ng, one is higher stocks. The p e ople buying because of COVID times and all six-month stock to one-year stock, many people w ere buying that way. So those demand has now is normalized . So now buying is on a normal p attern. So that could be one factor. Second facto r also could be that a lot of the people who are in old age and a ll that and taking so many med i cines, they’ve also disappeared from the market. So that’s also maybe one factor, which becau s e a lot of old people have died, which were using a lot of car d iovascular drugs, significant a m ount of cardiovascular drugs. So post-CO V ID also, that also may be one of the impact could be there in th i s market, because we have nev e r seen this kind of growth in Cardiovasculars and Antidiabet i cs for last 15, 20 years. This m arket has been significantly moving up. It’s only the curr e nt year that your market itself h as not done that well. Dheeresh Pathak: Which are th e main molecules that were presented in Cardio and Diabetes? Ajit Kumar: We have pre s ence on diabetes all the main kind of molecule like, we have sulfonamide urea we have, we h ave are all these newer drug… Dheeresh Pathak: Metformin, t h e newer ones also you have HBMC-2 and BPC-4? Ajit Kumar: For which, w e ’re not marketing as an individual single drug, but we have th e se newer product portfolios. A n d like gliclazide we have, glimepiride we have Vildagliptin we have, yes. Dheeresh Pathak: And in cardi o ? Ajit Kumar: On cardio si d e, we are on beta blockers, and we are also there on chlorthali d one. And now the newer molec u les whatever has come in the market, we have introduced at th e same time. Dheeresh Pathak: And sir, last q uestion, could you say the 21% EBITDA margin for FY ‘24? Ajit Kumar: Yes. That’s w hat I told, yes. Moderator: We have the n ext question from the line of Amit Kadam from Canara Robec o Mutual Fund. Amit Kadam: Sir, I have t w o questions. One thing is in an opening commentary you ment i oned that because of API price s , my gross margin had impact. So just wanted to understand, ex that particular API, so ex A P I, our gross margins would have been better or has it done b e tter in the at least sequentially? Harish Kamath: If you exclud e API business, definitely, yes.

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Amit Kadam: And then jus t wanted to understand how the – like, now the prices are f o r the overall API basket, how o ur export numbers are looking forward, especially like the re g ions like UK, the ROWs? And then just your early commentary on how we need to look at t h e tender business going forwar d in FY ‘24?

Ajit Kumar:

I would only say that your ROW markets, we are doing well. I think for fir s t nine months, we had 11% gro w th. This quarter, we had delivered 17% growth. Fourth qua r ter is going to be much better. A nd overall, I think branded promotional market for the whole of the year would be growing a r ound -- in the fourth quarter is going to be significant. The gr o wth may come to around 15% t o 16% for the whole of the year for in the Branded Promotion a l market. In most markets, we a re doing better now. All these issues of whatever COVID rel a ted issues and all that are not t h ere.

As far as you r Institutional business is concerned, probably it’s going to be i n the range of INR 300 crores to something plus. We expect one more product approval that co u ld have a scope of almost aroun d INR 50 crores, INR 60 crores addition in the business. But w ith that addition, I think the inst i tutions may reduce the buying of your KL. That’s what we are l ooking at. And so overall, Instit u tional business, I’m not giving much bigger number. I think o v erall, may remain between INR 325 crores to INR 350 crores, that’s the kind of number coul d be there in your Institutional G eneric business.

Amit Kadam: Sir, in the A P I business, has the drawdown in terms of like the price coming or going down, so has that stop p ed?

Ajit Kumar:

No, prices n o w, there is no as such dropping has already happened. Becaus e whatever KSM's, the trend has g one down, that has with that even prices dropped. Already ha p pened. We are not seeing now f urther decrease in overall in the prices. And we are also no t seeing the KSM prices furthe r going down. With that only now, with the demand picking u p , KSM prices will also start mo v ing in next year, a little bit. And API prices will also move in l i ne with that.

Amit Kadam: But how the market has behaved in last few months, just to understand w here it’s getting settled?

Ajit Kumar:

Most, I think API players had poor businesses in first two quarters. We also had a decline in the API busi n ess in first two quarters. This quarter, we have done better, aro u nd 4% growth. In fourth quarte r , we are looking at much better growth. Overall, I think we will have some recovery in t h e API business in fourth quarter. Currently, we are at aroun d 7%, 8% kind of decline in A P I business. I think that may entirely get covered in fourth quart e r. That’s what we are looking f o r.

So probably t here may not be a growth. We may be at last year, we did a l most around INR 1,311 crores k ind of business. We may be more or less at the same numb e r, more or less in API businesses. Good ground will be getting covered. And all those iss u es which are that regulators w e re looking for, azido, nitrosamine impurities in all those prod u cts, every product that needed t o be tested for all that and revised method needs to be worke d out to test every product and a ll that. You’re all filing in various markets on that. All those w o rks are now done.

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So there are n o those disturbing factors, and all those excess inventories in t h e market, because the develope d markets were definitely carrying higher, higher inventories o f API and higher inventories a l so of the generics. So those also, inventories have now gettin g depleted and all that. So prob a bly API business will also have a good recovery in the next fin a ncial year.

Amit Kadam: Sir, next ye a r, in FY ’24, on this particular base, any new product l a unches and new geographies w ill be, because we have an expanded capacity available so o n that, can we see that organic g rowth to Q2?

Ajit Kumar:

Yes, the exp a nded capacity, by and large, what’s happening, we have, I thi n k, lined up almost around 11 t o 12 product validations at Dewas. And each product valid a tions take almost around two o r three months’ time. So most of the time, we’ll be going and f iling. And I think filings will start somewhere in, I think, in early next year, beginning, f i ling should start. Thereafter, t h e inspection should happen of that plant. So because for a fili n g unit to have six month stabili t y and then your dossier compilations and then filing.

Some of the regulators may come early, some regulators may come late. S o hopefully, next year, some, a t least a few inspections should start happening from of that s i te, and we should start getting a pproval. Post that, the business would increase. So right now, we are not in our projections, w e are not adding any kind of business increase coming from D e was plant because some of thos e kind of production may happen and we may sell in domest i c markets and all because ther e , you will not need any kind of approvals all those approvals are already in place, licenses and other things. Even GMPs are in place. So that’s not an issu e at all. But your developed m a rket business will only start after the inspection of the plant.

Moderator: We have the n ext question line of Surya Patra from Phillip Capital. Surya Patra: Sir, if you ca n give us an understanding whether the high cost inventory is l i kely to sustain for or what mor e period? So whether it will be depleted in the coming quarter or if it will take a few more qu a rters to deplete so that some sense on the margin front that we w ill have? Ajit Kumar: I think most of the inventories are now depleted. It’s only a matter of, le t ’s say, for fourth quarter, I thi n k will -- some more will go. But except one particular KSM , of Antimalarials, where I think compared to the market, I think current pricing, my overall pr o curement average price may be around $30 to $40 higher because we were the early one to do the tie-up and since the pro c urement and did not happen so prices has -- it’s more particul a rly for [inaudible 0:38:18] in t h at prices have dropped to around $140 or so. My average holding maybe at around $180. So that’s onl y the KSM where it may have some impact for the next six, eight months, six months, I wo u ld say. But all others have normalized, will normalize in this quarter. Yes, next quarter. Surya Patra: And sir, if y ou can give some sense about the promotional spend durin g this nine-month period? Or di r ectionally, how much that it would have gone up versus last year?

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Ajit Kumar: I think almo s t it’s around 40%, 45% that has moved up compared to last y ear. And more or less, these numbers would remain at same level in next year. So with increase in the business, the promotio n al costs will not go up. And that will add to the margins now. And a lot of these people added , there also, the marketing cost or promotional costs have gone u p. But whereas it has not adde d to the productivity to that an extent. So that will also he l p in building the margin. Yes.

Surya Patra: Sir, about the revised or the new process about the sartan the after the impur i ties issue that you had filed, so, any update on that? So have we started seeing some recovery? Harish Kamath: No, we are b a ck on normal business, both Valsartan as well as Losartan. Th e re are no pending issues, Surya . Ajit Kumar: All approvals are received. Harish Kamath: Everything is in place. There is no issue. Surya Patra: Sir, you have provided some update about the Dewas. But if you, means, si r , since some time, we have no t heard about the Nagpur site, which was expected to a kind of KSM or intermediate s ite. So if you can give some sense about it? Ajit Kumar: Nagpur, I think two months back, we have got the final clearance from t h e government on environment side, because they have put earlier one condition that you ne e d to get a Forest Department a pproval. And it took almost around one, 1.5 years’ time to rep r esent and see to it that the fores t clearance is not required for this site, which finally the Envir o nment Ministry in Delhi has ac c epted the Maharashtra Government’s recommendation that thi s site doesn’t need any kind of f orest clearance, because there are certain parameters defined t hat it has to be in that much kil o meters from all these wildlife and everything. So it doesn’t fa l l in that category, but it has ta k en almost around very long time because forest is a multi, m ultilayer kind of approval, so t hey’re most stringent approval.

So it took a long time. And finally, we got. We are working on some kind of flow chemistry projects, whi c h will be put at Nagpur. But because of these delay, one partic u lar product which we were to t ransfer to Nagpur that we are putting at Aurangabad. So th a t plant is already ordered. So t h at is not going at your Nagpur, it is going at Aurangabad. Pr o bably, it’s only in the next fin a ncial year, something would happen on that. So right now, we are only at, basically dra w ing board stage, not finalize any kind of capex on that front ri g ht now.

Surya Patra: Sir, just last o ne question. So this tax rate that we have guided, so I think w e are currently at a much higher than the indicated tax rate levels for the current year. So h ow should we be building on t h at for next year?

Ajit Kumar: See, the tax r ate now from 18% has moved to 25% because our opting for that method. And now becaus e of all these judgment of Supreme Court and also last b u dget revision or disallowance s all the promotional costs. So that is adding almost around 3 % to 4% kind of additional ta x . So tax rate is likely to be in the range of around 29% to 30% k ind of rate.

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Moderator:	We have then ext question line of Kunal R. from Nuvama.
Kunal Randeria:	Sir, this testin g cost of the APIs that you spoke of, is it restrictive to sartans or other products
	also? And isi t an ongoing expense?
Harish Kamath:	It is not onlyf or sartan, most of the other APIs also. And more or less, that co st is now already,
	I don’t thinkg oing forward, there would be anything of that nature.
Ajit Kumar:	See, nitrosam ine is one kind of thing, which is to be tested for all AP Is, including our
	Antimalarials and everything, all generics, all your formulations and all API s, everything need
	to be tested.A nd it’s in parts per billion. Somewhere it’s maybe around 3 5 part per billion,
	somewhere 15 part per billion. So everything has to be done. And it can com e from anywhere.
	It may not be there in your product, but it may come from water, it may com e from anywhere.
	It can come fr om any kind of excipients which is being used. So a lot of vali dations need to be
	done and see to it and all these numbers have to be filed with regulator.
	It’s a huge am ount of work industry has done in last financial year. OnA PI, intermediates,
	formulations, excipients, everywhere it needs to be tested because all the new standards are set.
	So that was a very, very tough work, which industry has done in last year. It’s a big, big…
Kunal Randeria:	But sir, if it co mes from water also, that means it has to be an ongoing thing, right? Because…
Ajit Kumar:	Yes, so, testin gs are going to be ongoing….
Harish Kamath:	But initial tes ting, method validation, development, that takes a lot of time an d a lot of money.
	Once it becom es a routine part of your process of testing, then there is not mu ch issue.
Ajit Kumar:	Because when you establish, so many components you need to test. Buto nce you are final
	product, final ly everything is okay, then only our final product testing bec ause there are 10
	componentsa nd all 10 components need to be tested. But suppose in final pr oduct, it’s coming
	in the rangeo r lower than that range, then subsequently, it’s only one test.
Kunal Randeria:	Sure, sir. And sir, maybe some aspiration guidance…
Ajit Kumar:	Establishingt he method of testing, method of -- is a very big subject, and the n validating that.
Kunal Randeria:	And I assume , all the manufacturers would be going have been testing…
Ajit Kumar:	Yes, everybod y has done that. Everybody, every formulation, it’s a big, bige xercise, yes.
Kunal Randeria:	And sir, mayb e some on a slightly longer term, maybe a two or a three-yea r kind of outlook,
	maybe somea spiration guidance for generic export and API, you would liket o share?
Ajit Kumar:	Like I said, a s we have already talked that we are already talking that from here onwards, our
	API business should double. Formulations, we are continuously doing veryw ell in the market.
	We are growi ng around 1.5x the market growth. And with that, and domestic because with the
	addition of pe ople and all, it should continuously add to the market share.

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In the last fo u r years, we have had a significant market share from 1.58% to 1.86%. So we will continue to d o that. And the first time I think in current year, we will be cros s ing, I think ROW market busin e ss of around INR 500 crores. And at that level, we should continue to grow around 15% to 16%, 17% on ROW market business.

So overall, t h e growth in time to come is going to be good. But overall, we will give the guidelines w h en our overall budget for the current financial year is finali z ed and maybe at around the ti m e first quarter results and all, our annual results. Around that t ime, we will give the guidance f or the next financial year.

Kunal Randeria: And just as o n e follow-up to this. If you talk of API doubling, what would b e the main driver, maybe woul d it be new products? Or do you believe there is a lot of hea d room for existing ones?

Harish Kamath: Even in the e xisting product, there is a lot of headroom. So it will be bot h , new products as well as volu m e growth in the existing products. Ajit Kumar: Plus capacity additions and new product… Kunal Randeria: So I assume d emand is not a concern for you. It’s just… Harish Kamath: It is not recor d ed, no. Moderator: We have the n ext question from the line of Nikhil from SIMPL. Nikhil: Two questio n s. Sir, like last quarter, and this was an industry phenomeno n in API, that the KSM prices were high but the API prices has fallen. As a result, the p r ofitability in API business has been impacted. Now, during the call, you mentioned that th e API prices have fallen, but th e y are not falling anymore. And the KSM prices have also fal l en, but not falling too much. Harish Kamath: That is right, y es.

Nikhil: So if we loo k at the profitability of the API business, based on the corre c tion in the KSM prices and ev e rything, are we back to the normal profitability or is it…. Harish Kamath: No, not in th e third quarter. See what has happened, actually, whatever KS M we purchased at higher prices , they got converted into API, which got sold at a lower price. So that was going on for last tw o to three quarters. Maybe some pain will be there in the fourt h quarter. But from the next fina n cial year, first quarter onwards, everything should be back to n o rmal. Nikhil: So the net pr o fitability on API should be back to what it was in… Harish Kamath: I mean to say that the gross margin on API business will improve. Nikhil: And this 12 % price increase on the NLEM which we mentioned is the W PI price increase, which the whole industry will take?

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Harish Kamath:

Yes.

Nikhil: And last que s tion, sir, like if we look at last 1.5 years for IPCA, the cost p ressures were too significant. S o prior to, like in around second half of ’21 and all, we were cl o se to a 24%, 25% kind of EBI T DA margin. And then there was a high freight cost and then the API cost increases an d the testing increases, all of that has impacted very badly and this quarter was a worst quarter .

Do you thin k from here on, with the cost pressures and everything getti n g normalizing on freight and p o wer cost and everything can we come back to what we were doing at around 24%, 25% o n a longer period, not in next two, three years, but is the bu s iness still able to maintain that 24%, 25% or do you think it could be a difficult task?

Harish Kamath: See, last tw o years, there were also benefit of COVID business, correct ? Because of that, margins wer e very, very good. But having said this, now Mr. Jain has alrea d y explained. This year, there i s an unusual, one is increasing the people, expenses, energ y cost as well as increase in th e material cost, correct?

So these two things are taking away around 5% to 6% of my margin. As we progress, our business will grow because of addition of the people. This material cost, w h atever, 1.5%, 2% negative is t h ere, it will become positive going forward. And as the people will become productive, e v en the other expenses portion where we are today 4% increas e is there, that will also become n ormalized. So going forward, definitely, margins should improve. Ajit Kumar: No, so, curr e nt year, even Dewas plant all costs are debited to P&L acc o unt, there are no business. It w ill -- all cost only because till the time we start filing and getting approval, depreciations and all your people cost, testing costs, all the energy cost, ev e rything is debited to P&L acco u nt, and there are no top line coming from that plant. So it’s onl y validation mode. So it’s a one - year 1.5 years, that pain is there in pharma industry everywh e re. So that is also getting debit e d to P&L. It’s not only people costs, it’s also the plant and c a pacity cost is also adding to the overheads. Nikhil: And last thin g , what would be capex guidance for next year, ’24-’25? Any large capex or we would just lo o k at utilize, improving the utilization… Harish Kamath: INR 200 crores is our depreciation and maybe INR 400 crores to INR 500 c rores level will be the total cape x , including routine maintenance capex. Ajit Kumar: Only new thi n g what we have budget we have is a biotech project which is c oming up in MP, where we ha v e around INR 150 crores kind of investment. So that will be commissioned next year. We ha v e almost around five products in pipeline now, two around a r e in clinical stage now. So we a r e building the capacity for biotech projects. Nikhil: This INR 50 0 crores was cumulative for two years? Ajit Kumar: Yes.

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Harish Kamath: No, it is each year. Moderator: We have the n ext question from the line of Tushar M. from Motilal Oswal. Tushar Manudhane: Sir, just exte n ding this discussion on this biotech. So what sort of projec t s are we working on… Moderator: Sorry to inter r upt, Tushar, your audio is not very clear. If you go off the spe a kerphone or come closer to the m ic? Tushar Manudhane: I will come b a ck in the queue, maybe. Moderator: We have the n ext question from the line of Dheeresh Pathak WhiteOak Capi t al. Dheeresh Pathak: Sir, on this f o rex loss and gain that we show, what is the underlying nature of the -- underlying reason for th i s? Can you just explain like which currency is it linked to an d which market is this operatio n linked to? What is it? Ajit Kumar: By and large , all these forward contracts, we have today not much of fore x liability, but we have assets i n terms of bills outstanding and all that. So your realizations a t lower prices and forwards, the readjustment is all debited to P&L account. If you look at cur r ent year, we have realized gain of -- realized loss is around INR 6.68 crores, unrealized loss b o oked in account is around INR 3 5.22 crores. And overall net loss because of forex is around IN R 41.9 crores. If you look a t other breakup of that INR 41.9 crores, there’s that INR 21 cro r es is only account of INR 10.7 3 crores is on account of packing credits outstanding which w e re repriced in the books, and f o reign currency loans, your ECBs is around INR 10.3 crores. So INR 21 cr o res is on account of loans. And INR 20.86 crores is on accoun t of your balances, against the i m port of material on outstanding payments and by and large be t ter realizations on bills, but on forward side, there is a loss of INR 48.84 crores and INR 4 0 crores is higher realizations. S o overall, INR 21 crores on trade account. And around INR 2 1 crores is broadly on loans acc o unt, that’s more breakup. Dheeresh Pathak: But sir, on t h e asset side also, we’ll be benefiting, right? Because the reali z ation will book at the higher ex c hange rate in the revenue line item, right? Ajit Kumar: That’s what I said, the realization higher is INR 40 crores and forward gain loss is INR 48.84 crores. And on import side, there are around INR 10 crores loss. So overall, i t’s around INR 21 crores is on a c count of your business transaction. Around INR 21 crores is m ore or less around same level is on account of outstanding loans. Realized loss is INR 6.68 c rores. Unrealized loss booked i n books is around INR 35.22 crores. And we don’t create a res e rve kind of things that when the contract gets matured and we debit instantly to the P&L accou n t. Dheeresh Pathak: Sir, on this d i d Artemisinin, did you say that you will still have loss on the -- so for last two, three quarter s , we’ve been having this, right? So why is it not running, w h y is it not rolling over? Becaus e how much inventory do you carry off the KSMS and for Arte m isinin?

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Ajit Kumar:

Artemisinin, n ormally, it’s a seasonal product. So normally, you don’t carry the inventory, but you sign co n tracts, though it’s seasonal. It comes in the agri season, y o u need to do the contract for t he entire year. So, your contracts are at higher price, not tha t you are carrying inventory at h igher price. So those contracts you have to honor. It’s not that we are keeping every invent o ry in pipeline, because when your agri output comes, around t h at time, you need to do the con t racts.

Harish Kamath: This particul a r product, as you know, the price varies. It is an agricultural c o mmodity. History is $140 to $8 0 0, just imagine the fluctuation in the price of this commodity. Ajit Kumar: This year be c ause of tenders there was lower procurement from the authority. So prices have gone down. T here are only three, four manufacturers and your contract h a s to be with only with them be c ause they are all WHO prequalified, again, suppliers of arte m isinin. Everything comes from C hina. 95% of that comes from China, and only three, four man u facturers. Dheeresh Pathak: No, sir, if ev e rybody is having the same higher cost of agri… Harish Kamath: I’m the large s t consumer, that is the issue. Unless I… Ajit Kumar: What happe n s that, suppose your procurement price and now open marke t prices have gone down. So op p ortunity to procure at a lower level is -- suppose you are s e lling API, market would be pricing those API sales at the current price, current artemisini n price. It doesn’t matter as far a s your Antimalarial formulation business is concerned. But w h en you do the API business, yes , it matters because we will do the pricing based on not my procurement price, but market price a nd then same price. Further, I’ll not be able to sell APIs. Dheeresh Pathak: And sir, apar t from artemisinin, the other KSMs you carry for like three mon t hs? Harish Kamath: No, there are no other KSMs. Ajit Kumar: No KSMs of t hat nature is there. Dheeresh Pathak: No. Like you said, you’re explaining that we are carrying higher priced KS M and the API cost has come do w n, that is affecting the API gross margin. Harish Kamath: No. That is w hat happened till Q3 end, as we speak now, there are not many KSM left out now. See, fro m procurement to utilization, there is a time gap, because ever y stage you have to carry invent o ry. We are backward integrated. So, right from intermediat e , we manufacture API, that is w hy our inventory of KSM in few material is higher than averag e . Ajit Kumar: Plus these all sartan inventories were stuck up, which was at much, much h i gher price. See at $9, it was do u ble the rate earlier. So my procurement of those which -- be c ause of six, eight months, all t h ese issues, approvals and all that a lot of those inventorie s are now getting disposed off. That’s the major issue. Moderator: We have the n ext question from the line Saion Mukherjee from Nomura Sec u rities.

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Saion Mukherjee:

Saion Mukherjee: Sir, on EBIT D A margin, so there has been a lot of volatility in the past. I mean before the US FDA issues h appened, we were at early 20s. Of course, it went up last year and now it has come down, a nd you’re guiding for 21% next year. What’s your assessmen t from a, let’s say, three, five-ye a r perspective, where do you see as the business normalizes, th e EBITDA margin you think wo u ld sort of settle at? Ajit Kumar: I think from next year onwards, for the next three years, I would see t h at not significant expansion wi l l happen in field for size. And therefore, and businesses will i m prove. So overall margins fro m that level will further keep on rising, maybe around 1% every y ear or so. Saion Mukherjee: Sir, you made a comment around the NLEM 100-odd SKUS which have come under price control or th e prices were revised, right? So since the revisions just happe n ed and there’s an annual inco m e impact of INR 70 crores, this WPI increases would be allowed in these products wit h in a few months? I mean this will get negated? I mean is there a visibility on that? Ajit Kumar: 1 April, yes. Saion Mukherjee: There’s visib i lity on that, okay. Ajit Kumar: Yes. That’s t h e visibility for that, Yes. It’s…. Harish Kamath: So whatever price on 31, March, whichever product, you can increase t o that extent. It is simple. Saion Mukherjee: There’s no a m biguity. Kunal Dhamesha: No, there is no ambiguity. Saion Mukherjee: And sir, on US FDA, we haven’t heard much. So I’m just wondering if you have any interactions o n why the FDA is, I mean, where are we on the remediation and any progress there, and w h y we are not seeing much progress on… Harish Kamath: From our sid e , remediation work, everything is complete. We are just awaiting inspection, and we are in dia l ogue with…. Ajit Kumar: So, your G M P inspections, GMP has given in writing that we are nothi n g, we don’t need anything furt h er from you, and we have responded to the inspection team. Now inspection, when they sc h edule, it’s another team, which we are regularly taking, but they don’t tell that when they w i ll come for inspection. So they have their own priorities and s u bsequent. But we are certainly in the -- because now there is absolutely, nothing is asked by FDA as far as or they don’t n e ed anything from our side as far as remediation part, and a l l those issues are things of past.

It’s only, the y need to now schedule the inspection, that’s all. That’s not d one by the GMP department. T hat’s done by the inspection department. So we are in touch w ith them, but we

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don’t know w hen they will come. And they don’t tell that when they will schedule. We are sending anot h er reminders to them. Saion Mukherjee: So, when wil l the last set of queries you had from the GMP department? Ajit Kumar: I think a ye a r back. Final clearance has come six months back. They do n ’t need anything further from u s, yes. Saion Mukherjee: And sir, can y ou also give us, you mentioned about this biotech project, s o me capex you are doing. So if y ou can give some details of what are the products, what kind of -- what is your overall thoug h t process on this project? Ajit Kumar: I think it’s to o early. We will not like to talk of products right now, yes. Saion Mukherjee: So these are b iosimilar products or what… Ajit Kumar: Biosimilar, Y es. Saion Mukherjee: And you wan t to do it for the Indian market, you have a CDMO plan or… Ajit Kumar: We have tak e n the developed markets consultations from the regulators. A n d all your clinical trials and ev e rything is going to be in line with that. Indian market, you cannot make money because, it h a s to be for global markets, yes. Saion Mukherjee: But sir, typic a lly, the costs are very high. So if you have to run clinical tri a ls, will that mean there would b e significant increase in R&D investments over the next three, f our years as these projects com e to clinics? Ajit Kumar: I think there a re some kind of the -- each clinical trials may cost around INR 15 crores, INR 20 crores. So w e have five candidates in pipeline. So overall cost would be g o ing up in time to come. In cur r ent year also, our spend on biotech would be around INR 2 0 crores, INR 25 crores higher . Saion Mukherjee: This is the R & D expense, INR 20 crores, INR 25 crores? Ajit Kumar: Yes, yes, R& D expense. Saion Mukherjee: And sorry, s i r, finally, if I can ask any update you can give on your key subsidiaries, how they’re doing and any material update there you want to share on the subsidi a ries? Ajit Kumar: On subsidiar y side, we have a company called Onyx in UK. They are d oing well in UK. They’re a go o d profitable company. This year, there was a significant expansion there on their side. So bec a use of that, I think their profitability have little come down, but they are a profitable co m pany overall. And we expect that current year, they shoul d be doing almost around GBP 14 million to GBP 15 million kind of business with around 2 7 % kind of overall EBITDA ma r gins in current year.

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And then the r e is another company which we have is Trophic Wellness. I t ’s a nutraceutical marketing ki n d of company where we have almost around 55% stake. Th a t company is also doing well, a n d they are also profitable. As far as the Onyx business exten s ion further in the US, we have o ne small API manufacturing and contract research kind of co m pany in US, small company cal l ed [phisca 1:07:22], but because of these COVID issues an d all our UK team could not do much on that. So, but we have started getting now projects th e re. And this year, they have re d uced their losses also significantly. And hopefully, in time to c ome, they should do better.

Only concer n we have is the US market is Bayshore, which is frontline, w e are awaiting that once our FD A get cleared and they get to market, our products, and till su c h first time, there are -- they a re right now procuring products from third parties and the n selling. So that company has losses. As far as the another company, associate company calle d Kraps at Nellore and Vizag, t h ey have reduced their losses and I hope, I think, next year, t hat company will come in prof i t. The current developments, what we have on our product mi x and all currently going on.

So these are t he broad number of subsidiaries that we have. And Ramdev i s basically was for again, for F D A approved site, and that site anyway, we are merging with o ur operations and there are a lo t of our APIs are now under filing from that site. So then that w ill be another site, which is the y have approved site and from there, we will then once our f o rmulation facility gets cleared, t hat also will be sourcing API from that site also.

Moderator:

Prakash Agarwal:

Ajit Kumar:

We have the n ext question from the line of Prakash Agarwal from Axis Capi t al.

Just trying t o understand the margin bridge. I know you talked about it a little, but you are currently at 1 6%, guiding for 21%. I understand top line will improve m a rginally, but raw material, so m ething you’ve been saying that it’s not under your control as things come from China, etcete r a. So how do you think you’ll regain to that 20%, 21%, whic h was pre-COVID levels?

See, overall g ross margins will improve because most of the portfolios ar e outside the price control. It’s - - 83% of portfolios are price controlled. More or less, there wil l be no increase in the promotio n al cost next year. It will remain more or less at the same kind o f -- increase your business wit h promotional costs now going up, it will also add to almost around 2% to the overall marg i n levels in the business. Gross margin levels itself will improve by around 1%, 1.5% on that because KSM prices are soft, and this was a very unusual s i tuation in current year. So beca u se of that, the cost is higher.

And overall, o ur capacity utilization with business is going up, will also increase to the overall operating per f ormance and margin. And once in the middle of the year, I thi n k overall, Dewas, if things star t on commercial side, at least some recovery of expenditure will start because currently tod a y, all costs are getting debited to P&L account and there are n o revenue coming right now be c ause of all validation exercise and filing is currently going. So that will also contribute to t he margin.

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So all those f a ctors and there are no more addition of people next year. So it’s only going to be a wage inflat i on, whatever addition. So with -- and with the people produc t ivity increase and all that, so t h at will also contribute towards the better sales. So it will also add to the overall margin. So a ll those factors will add, will go back to that around 21% kind of EBITDA margin. Prakash Agarwal: So if I under s tood it correct, you are saying that 150 basis points from gr o ss margin coming back to 65% and top line being early-teens and then operating leverage cos t being lower than early-teens, you will see 20%, 21% margin. Is that correct understanding, sir ? Ajit Kumar: Yes, more or less, yes. Prakash Agarwal: And secondl y , if I see your emerging market business, ROW Generics as w ell as the Export Formulation o verall, there in the last two, three years, there were a lot of i n ventory stocking, etcetera. And that’s why the growth has been a little volatile, not only for y ou, but across the pharma com p anies. Do you think the inventories and the demand, et c etera, have been normalized? A nd a company like yourself could come back to at least early - teens, if not highteens in both, in the overall Export Formulation market? Ajit Kumar: Yes. Even cu r rent year, I think my European business is growing by around 20%. It’s only the UK business b ecause of -- and the UK business will also grow from next ye a r because the base will not be t h ere of at a year back of Bristol. So UK will also grow very well. Other markets are also gro w ing good. We should be able to -- and ROW market will grow faster with higher margin. Prakash Agarwal: And API, sir ? Ajit Kumar: API, we’ll s a y that around next year, till the time, those capacities from D e was are available and approval , only thereafter the business will start moving faster, but it s h ould have around 10% kind of g rowth. Prakash Agarwal: And that hig h base of the sartan etcetera is all behind us now. So on this b ase, we can grow 10% or… Ajit Kumar: There are no n ow those kind of issues on all the impurities and everything else, whatever work was required t o be done, has been done. Prakash Agarwal: And early te e ns is good to modelling or we should look at mid-teens to high-teens as the overall growt h for the company? Ajit Kumar: I think it sho u ld be almost around 12% to 13% kind of overall growth. Moderator: Thank you. T hat was the last question. I would now like to hand it over to t h e management for closing com m ents. Harish Kamath: Hi. There is n othing further to add, unless there are questions, I think we c an close this con call. Thank y o u, everyone, for participating in our Q3 FY ‘23 con call. Than k you.

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Moderator:

Thank you. O n behalf of DAM Capital Advisors Limited, that conclude s this conference. Thank you fo r joining us and you may now disconnect your lines.

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