Ipca Laboratories Ltd. — Call Transcript 2025

Feb 18, 2025

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THRU ONLINE FILING

February 18, 2025

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, 13[th] Ferbuary, 2025 to discuss the Company’s Q3 FY25 earnings and business update..

Thanking you

Yours faithfully For Ipca Laboratories Limited

Digitally signed by Harish Pandurang Kamath Harish DN: c=IN, o=Personal, title=1715, pseudonym=585f434c9c014c338904fe5f4cd8762a, 2.5.4.20=955479ec580ea690ffd8de8b74071cf6f1ee247da6 87a7ae82030a7ae82c443b, postalCode=400063, Pandurang st=Maharashtra, serialNumber=72050fb9fadcbc5de6404685117b8355792f 5784c7617d9c4cae2a3887d6b809, cn=Harish Pandurang Kamath Kamath Date: 2025.02.18 12:22:18 +05'30' Harish P. Kamath Corporate Counsel & Company Secretary

Encl: a/a

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“Ipc a Laboratories Limited Q3 FY25 Earnings Conference Call” F ebruary 13, 2025

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**MANAGEMENT: **	MR. AJI T KUMARJAIN– MANAGINGDIRECT OR – IPCA
	LABORA TORIESLIMITED
	MR. HA RISHKAMATH– CORPORATECOUNS EL AND
	COMPAN YSECRETARY– IPCALABORATORIE S
	LIMITED
**MODERATOR: **	MR. NIT INAGARWAL– DAM CAPITALADVI SORS
	LIMITED

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Ipca Lab o ratories Limited F e bruary 13, 2025

Moderator:

Ladies and g entlemen, good day and welcome to Ipca Laboratories Q3 FY '25 Earnings Conference C all hosted by DAM Capital Advisors Limited. As a reminder, a ll participant lines will be in the listen-only mode and there will be an opportunity for you to a sk questions after the presentat i on 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 been recorded.

I now hand t he conference over to Mr. Nitin Agarwal from DAM Capita l Advisors. Thank you, and ove r to you, sir.

Nitin Agarwal:

A.K. Jain:

Thank you, M uskan. Good afternoon, everyone, and a very warm welcome t o Ipca Lab's Q3 F '25 Post Res u lts Earnings Call hosted by DAM Capital Advisors Limited. O n the call today, we have repr e senting Ipca Lab management, Mr. Ajit Kumar Jain, Managin g Director and Mr. Harish Kama t h, Corporate Counsel & Company Secretary. I will hand over t he call to Mr. Jain to make the o pening comments and then we'll open the floor for questions . Please go ahead, sir.

Thanks, Niti n and DAM Capital for organizing this call. Today's call an d discussions and answer give n may include some forward-looking statements based on ou r current business expectations. This must be viewed in conjunction with risks that pharmaceu t ical business face. Our actual fu t ure financial performance may differ from what is projected a n d perceived. You may use your own judgment on information given during the call.

The domesti c formulation business has delivered around -- a growth of around 13% for the quarter. On M AT December '24, Ipca is ranked as 16th company as per IQ V IA and its fastest growing amo n g the top 20 players. Ipca continued to improve its market sh a re. There is an 11 basis point i m provement in market share in this particular quarter from 1 .95 MAT market share at December '23 to 2.05% on MAT December current financial year.

Six brands o f the companies are among the top 300 brands in the country. A nd both on acute and chronic m arket segment, we are delivering better growth compared to t h e market. Overall pharma mar k et in this quarter has grown by around 7.4%. IQVIA is trac k ing our growth at 11.4%. On a c ute segment, market has grown by around 6%. Our growth is t racked by IQVIA as 8.7%. An d on chronic segment, IPM growth is around 9.7% and in thi s period, we have grown by aro u nd 17.1%.

Overall, our f ormulation business has delivered a growth of around 6% for t h e quarter and API business has also delivered a growth of around 12% for the quarter. I f you look at our standalone Q 3 FY '25 EBITDA margin, it is at around 24.25% as against 18.52% in Q3 FY '24. There is a n improvement of almost around 5.73%. If you look at 9 mon t hs basis, we have delivered an E BITDA of around 23.14% as against previous year 9 months o f around 19.55%.

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There is an i mprovement of almost around 3.59%. And overall guidance for the year was around 21%, but for whole of our financial year our EBITDA is likely to r e main in the range of around 23 % to 24%. Overall, on consolidated EBITDA margin basis f o r Q3 FY '24 is at around 19.87% as against 16.1% in Q3 FY '24. There is an improvement of around 3.77%. And if you look at 9 months basis, it's around 19.18% as against 17.34 % in the previous financial yea r . There is an improvement of almost around 1.84%.

As against o v erall, our guidelines was around 18% for the year. As against we are delivering around 19.1 8 %. And hopefully, 19.18% to 19.5% this is the range in w hich the overall consolidated margins would remain for the current financial year. So both o n standalone and consolidated E BITDA margins are better than our guidelines for FY25.

Having given the broad numbers, now I'll request participants to ask questio n s.

Moderator:

Surya Narayan Patra:

A.K. Jain:

Thank you v e ry much. We will now begin the question and answer session. The first question is from the li n e of Surya Narayan Patra from PhillipCapital (India) Private L imited. Please go ahead.

Congratulati o ns for the good set of numbers, sir. My first question is on the gross margin, sir. So I think th e positive surprise in the quarter, what we are witnessing is in t he gross margins. And if I see this is one of the highest ever gross margin number that we have seen for the quarter. Wha t is driving this and how sustainable is this one, sir?

See, gross m a rgin this particular quarter was exceptionally high mainly b e cause the overall, let's say, turn o ver in this quarter has grown by around 10%. Material cost, th e re is a significant reduction, ag a inst 10% growth, material cost has come down by around 5 %. So that is the impact.

And that imp a ct is mainly -- we don't see any kind of reduction in the materi a l pricing. More or less pricing a r e more or less here and there. There is hardly any change. So it's a certain kind of product mix i mprovement that is there, that has helped us with a better gros s margin. And one another fact o r which has happened that last year in the same quarter, o ur ROW market business was very low.

It was aroun d INR104 crores-or-so. And this year, it has grown by almos t around 50%. It's only because some shipments here and there has happened in last quarter an d that has resulted in the lower. But in this particular quarter, that number has come high. So t h at has also added to the -- ove r all to the margin because there, our margins are better, and it's the highest as a company as a whole in any business line.

So that has also helped in overall better margins in the current quart e r. But there is a significant i m provement is there. If you look at each quarter by quarter, our m aterial cost ratios are continuo u sly improving. If you look at the number on a standalone b asis, in quarter 1 material cost ratio was around 28.9%, in quarter 2 it was around 29.59%. T his quarter, it has come to arou n d 27.62%.

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And overall, for the 9 months, it is at 28.73%. So more or less, for the fou r th quarter also, it will remain a r ound 28.73% that's the kind of broadly around that 28% to 29 % is the -- what is the overall. S o -- and last year, for the first 9 months, this ratio was around 3 2 %. So if you look at 9 months versus this, so there is almost around improvement of 3. 3 7%. And so that improvement is there in overall in the current financial year.

So it's largel y because of better product mix and our -- overall, if you se e that our chronic portfolio has done well, we are delivering much better growth now, and w e are beating the market on -- continuously on chronic also. So that is also helping ove r all in the margin improvement .

Surya Narayan Patra: Okay. And i s it fair to believe, sir, even the turnaround for Unichem, that is also kind of playing role i n the gross margin improvement here in the consolidated level? A.K. Jain: Talking about standalone side, as far as Unichem is concerned, last year, a round same time, they were h a ving around 5% EBITDA margin. And now their EBITD A margin has also improved to a lmost around close to 12%. So that is also helping in consolida t ions to deliver the better margin s . Surya Narayan Patra: Okay. Sir, th e second question is on the U.S. business front, sir. So could y o u give some color about the kin d of the progress on the product launches from our portfolio, a l though now it has been include d in the Unichem portfolio. And now considering the integr a tion of this U.S. business in U nichem. So how should one monitor the progress of our U.S. business in Unichem? B e cause -- or in the light of that, are you going to give an upgr a ded guidance for Unichem, sir ? A.K. Jain: As far as Ipc a portfolio in Unichem is concerned, let's say -- I would say th a t we have shipped around 4 pro d ucts till now and almost around 7 to 8 products are in pipeline . So -- and mostly, the stocks ha s gone in the current quarter and end of last quarter. So nothi n g meaningful has happened as f ar as the overall consolidated numbers are concerned. We have ma d e shipments from here, but it will take some time for the mar k et bidding and all that. So that p rocess has just started. We have started winning some kind of t h e bids and all. So in the comin g quarters, that will start reflecting. But right now, U.S. bus i ness doesn't have much of im p act as far as our overall business is concerned currently b e cause hardly any meaningful n u mber has come so far, yes. Surya Narayan Patra: Okay. Just la s t one question from my side. About the institutional business , in the light of all these fundin g issues by the agencies. So how should one think about the i n jectable business that we are having which was a kind of a promising business and a f uturistic business opportunity w hat we're targeting through hormonals, so how should one th i nk those potential business and t he existing business in the institutional side? A.K. Jain: As far as inst i tutions are concerned, it's by and large, antimalarial business o n ly. And I think in current scena r io where U.S. has abruptly stopped the U.S. aids to the variou s programs. So we are still assessing their -- the impact of that. So currently, we have no t heard from any

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institution an y kind of cancellation of orders. But we have calculated our in t ernal number that what kind of business on a year basis we were doing with, where the aids w ere given by the U.S. aid to th e concerned donor.

So that busin e ss is around INR40 crores, yes. So how much of that will im p act, right now it's difficult to s a y, but yes, that is the number which we have, which is relati n g to the U.S. aids business. An d we didn't even know how much U.S. aid is giving funds to th e global fund. So if global fund is also receiving the U.S. aid and how global fund will there a fter take up, that number is not known to us. So I will not like to comment on that. But the r e would be some U.S. aid to th e global fund. So that is not known to me right now.

Surya Narayan Patra: Sure, sir. Thank you.

Moderator:

Shiva:

Thank you. T he next question is from the line of Shiva from Purnartha In v estment Advisors. Please go ah e ad. Firstly, cong r atulations on a great set of numbers, essentially with respect t o the margins. My first question is with respect to generics. This quarter, there was a slight bit o f weakness. Could you just say a ny particular reason or what was the reason behind that kin d of slightly lower numbers in g e nerics?

A.K. Jain: By and large, this lower generic numbers are mainly because of South Afri c a. We were doing a business o f around INR120 crores in South Africa in a year. I think this year, the number maybe aroun d INR40 crores-or-so. So there will be almost around INR8 0 crores kind of -- INR75 crores to INR80 crores kind of decline in South Africa business beca u se of some tender orders are los t and all those kind of things are there.

But we are w orking on next year's plan, and there will be significant impro v ements are likely to be there i n South Africa business in the next financial year. But in curr e nt financial year, that's the one reason that which has overall impacted our overall generic nu m ber.

Shiva:

And with respect to Unichem, obviously, there was a steady progress and the margins have done way be t ter than expectation. So I just wanted to understand for the n e xt 1 year how are you looking at -- because the margins have improved better than what w e have expected during the ac q uisitions time. So how are you looking at Unichem's growth a nd margin for the next 1 year o r what are the kind of the levers that have you played and w h at are left, if you could give m o re color to that?

A.K. Jain:

So right no w , all the improvements, which is coming is basically th e improvement in operations al l . It's synergetic benefits and your -- extending the product ran g e to other markets and other d e veloped markets and all. That's a little long-term game. S o right now, it is basically all i m provements what we could brought about in the overall in Un i chem's operations and buying e f ficiencies we have created, that is what is reflecting in their ov e rall margin.

And we are also asking our U.S. team to be a little more aggressive an d all, and we are monitoring t h at part. And we see a much better business which is coming now in U.S. also.

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And overall, it's basically improvement in operation that has got the results right now and a long way to g o, I would say that, the margin will keep on improving as f ar as Unichem is concerned.

A lot of wor k is happening on API side. It's in work in progress because t h e API efficiencies are one wher e it will also reduce the captive consumption cost and also righ t now, Unichem is not able to s e ll the APIs to, let's say, the Indian market or other markets w h ere the -- more of the price-sen s itive markets and all that is because their overall production co s t is higher.

So they are m ostly consuming the API for their own production for U.S. a n d all. So once we start improving efficiencies on that and all. So that will also bring a lot of continuous improvement . And these improvement numbers will start reflecting in the n e xt 1 or 2 quarters because one o f their -- the bigger plant, which is likely to be operational m aybe in the next quarter some w here.

So that will s tart reflecting after a quarter-or-so once the regulatory appr o vals and all start coming in, fi l ing happens from there and some kind of -- once they start captive consumptions of those mat e rials, the cost of API production will go down. So there w ill be continuous improvement s will happen in Unichem's operation further.

Moderator: The next que s tion is from the line of Tushar from Motilal Oswal Financial S ervices. Please go ahead.

Tushar:

Sir, just exte n ding your comment now with backward integration of Unic h em's formulations and subsequ e ntly, chronic share increasing in India formulation business. Qualitatively, at least, if you c ould share, compared to FY '25 consol EBITDA margin, wh a t kind of margins one can think for FY '26?

A.K. Jain: So right now , the budget exercise is going on. So once the budget number s are finalized and overall -- so n ormally, we give those kind of guidelines along with our -- the first quarter -- last quarter resul t s. So around that time, we will give the guidelines. But I w ould say that the margins are i m proving and will continue to improve, but the guidelines we w ill be able to give along with o u r annual results.

Tushar: Sir, secondly, just on the API products portfolio level, is the inventory n ow more or less getting norm a lized at industry level or we are still seeing pricing pressure?

A.K. Jain:

Right now, w e have not noticed any kind of pricing pressure. Somewhere s o me solvent prices have moved, other solvent prices have come down. I think on the chemi c al side, there are hardly any ki n d of movement. And intermediate side, we have seen slight im p rovement in few, but we have s een reduction in many more.

So overall basis, I would say this is a neutral. And I don't foresee that in n e xt 2 quarters also, there could b e any kind of further improvements in the overall, let's say, inc r ease in the prices. So more or l e ss the similar trend will continue.

Tushar: And just lastl y , the effective tax rate, how much you think about for full year '25?

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A.K. Jain:	Overall taxr ate for us is 25%, but some kind of disallowances on CSR and also on the
	marketing cos t and all wise, I think overall tax will remain around 27% to 28 % kind of thing.
Tushar:	All right. Tha nk you. That’s it.
Moderator:	Thank you Th e next question is from the line of Nitin Agarwal from DAM Capital Advisors.
	Please go ahe ad.
Nitin Agarwal:	Sir, on the ge neric business, sir, can you provide an update on the EU and the U.K. market?
	How have the y sort of done so far in 9 months and how are you looking at itg oing forward?
A.K. Jain:	Overall, U.K. was also very fiercely competitive market. So overall, I think U.K. numbers are
	muted moreo r less in the line with what we had previous year 9 months. So it has not grown.
	EU numbersi s -- we had good growth in EU. So around 14%, 15% is the ove rall growth there.
	But overall,S outh Africa is a little down, and also Australia and New Zea land numbers are
	down.
	Australia num bers are down mainly because of some supply chain issueso n ACI, which we
	were using fo r formulations. So now that issues are resolved. So in this quarter, Australia
	numbers have improved, and I think overall in next quarter also those numb ers will improve.
	So that's theb road reason for overall lower growth on generic side.
Nitin Agarwal:	And then loo king forward, is the U.K. business, how are you look -- because we were
	expecting a tu rnaround in the business that I think is coming slower than exp ected, so how are
	we looking at the business now, sir, when you look at -- take a 2-year view on the business?
A.K. Jain:	Let's say, I thi nk second quarter was very bad. But third quarter onwards, the prices have again
	started improv ing there and business has started improving overall. And I th ink we have a lot
	of launches al so in pipeline. So I think in U.K. numbers, we will see around 15% to 17% kind
	of overall gro wth in next financial year.
Nitin Agarwal:	And sir, Euro pe will continue to grow at these double-digit growth rates?
A.K. Jain:	Yes.
Nitin Agarwal:	And then las tly, on branded formulations, what was -- what drove such high growth this
	quarter?
A.K. Jain:	It's only, let's say, last quarter -- last year on the same quarter, the numb er was very low
	because the sh ipment in that quarter was low. And now it has come to the no rmalized level. So
	this quarter's number is broad -- more or less is similar to the plus/minus 5% , 7% compared to
	the other quar ter.

So more or l e ss, that impact is a onetime impact because the number of la s t quarter -- sorry, Q3 number l ast year was low, so it's appearing to be high growth. B u t overall, on this promotional m arket business, we are looking for around 8% to 9% growth f o r the whole of the financial yea r .

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Nitin Agarwal: Okay. And si r , lastly...

A.K. Jain: And gross nu m ber is looking muted is also because of your depreciation of r o uble. Nitin Agarwal: And then las t ly, on the API business, sir, how should we now think abou t the API business going forwar d ? A.K. Jain: 8% to 10% g r owth. Nitin Agarwal: And sir, the n ewer capacities in both Dewas and all, Dewas have come through now, they are - - you start us i ng the Dewas capacities? A.K. Jain: Yes, Dewas c apacity we have started already, yes. But capacity utilizati o n is around 35%, 40%. So it is still too -- because a lot of regulatory approvals has yet to co m e and inspections are pending. S o once that happens, then capacity utilizations will pick up. Nitin Agarwal: Okay. Thank you. Moderator: Thank you. T he next question is from the line of Surya Narayan Patra f r om PhillipCapital (India) Privat e Limited. Please go ahead. Surya Narayan Patra: Yes, sir. So t h is is an extended question about APIs. In fact, sir, API expo r t particularly, that was one of t h e key earning driver also for us for a longer period of time b e cause of our cost effectiveness there. But if I see that, okay, during the COVID period, the kin d of run rate, what we have bee n seeing even after 4, 5 years, we have not touched that number. So obviously , there was the issues post the impurities in the couple of key APIs, what we've seen from th e U.K. side, post that we have seen there is a kind of a mode r ated performance only. So if y o u can give some sense of what is currently -- or which are the key products which are currently t he drivers? And going ahead, what should drive the growth for us? Whether it is a new product or it is a new capacity that will drive the API s ? Could you give some sense a b out the API portfolio as a whole and the export market particu l arly? A.K. Jain: Let's say, on COVID period, the major -- the API business buildup was a r ound chloroquine and hydroxy c hloroquine because they were required for COVID and that has also came with good pricin g and all. So that has given overall high numbers aroun d that time. And subsequently , we have faced the problem on certain business. So that has r esulted in overall lower growt h and also, we were carrying higher inventories and -- whi c h were at higher intermediate p ricings and all. And pricing h as slashed down to around from $100 level to almost around $ 4 0, $50 level now. So around $5 0 now. So that has also resulted in overall turnover number co m ing lower on that account and p rices of intermediates also of those API has significantly decli n ed.

So that has r e sulted in overall lower number. And overall portfolio-wise, w e are also adding the APIs and also on portfolio approach now all these things are of things o f past, we also lost

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a significant b usiness in Iran. We were doing almost around INR75 crores, I NR80 crores kind of business i n Iran.

And today, t h at business is 0. So that has also resulted in overall lower -- b ecause they don't have dollars o r currencies to pay and therefore, that market, we are not ab l e to sell anything right now. S o that business has also come down. So that consistent busines s what we have on Iran is no lo n ger there with us. So that has also impacted overall business. And now since portfolio is a lso increasing and we have Ratlam capacity, by and larg e , the incremental capacities wi l l be used for our U.S. captive consumptions and all.

Dewas capac i ty is available and all that will result in around 8% to 10% k i nd of overall API business incr e ase. More specific numbers I'll be able to give after the -- alo n g with the fourth quarter number, where -- after our annual budget exercise is complete, and w e will be able to give the prop e r guidelines on that.

Surya Narayan Patra:

A.K. Jain:

Surya Narayan Patra:

Is the Sartans still kind of the largest product segment for our API business, s ir?

Yes. Individ u al number-wise, yes, this is giving the highest growth, yes, highest overall number. But - - and we are also seeing that with even volume numbers goin g up, overall, your sales number is not moving up. Some market prices have started moving up. But overall, on a mix basis, I w ould say that number is still muted, yes.

Okay. Just o n the U.S. business side, from the perspective of Unichem, n o w since they are having the i n tegrated operation at their end, so we know that pre-acquis i tion, it was lossmaking busi n ess because of the whatever, kind of not so significant integrated portfolio as well as not so co m plex generic products there in the portfolio.

So here onw a rds that Unichem as a whole, it's a kind of significant chunk o f the consolidated business. So going ahead, what is the strategy there for the U.S. business on a consolidated basis and ho w should one think about that, particularly regards to U.S.? Al s o considering the concern of t h e tariff and all that, so how should one really position about Unichem's larger portion of th e business, which is U.S.?

A.K. Jain:

So if you lo o k at Unichem business, the product portfolio is of the order p roducts only, and they are cont i nuously launching 3 to 4 kind of new products every year. A n d probably in the next few ye a rs, at least 5 to 6 kind of launches can happen year-on-y e ar on Unichem's portfolio, an d Ipca portfolio also the launches would happen.

With consol i dation with Unichem the business overall, so what kind o f expenditure -- duplicate ex p enditure was there that we have already eliminated and that b enefit has started coming beca u se standalone Bayshore was having this again marketing opera t ions and cost, and they were n o t able to recover those costs because business operation aro u nd that time and when we wer e not having FDA approval.

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So that cost w as a burden. So that cost has gone up -- gone out now becaus e Unichem already has those kin d of people and they don't need to hire additional people to do the Bayshore and also Ipca bus i ness. So that is resulting in overall in operational cost decrease for us.

Surya Narayan Patra:

Okay. And just last one, sir, about the subsidiaries. How do see you their per f ormance...

Moderator: Sir, I just req u est you to rejoin the queue, please. Surya Narayan Patra: Sure. Moderator: Thank you. T he next question is from the line of Gagan Thareja from AS K Investment from ASK Invest m ent Managers. Please go ahead. Gagan Thareja: Sir, the first q uestion is on the gross debt levels. If you could give out the gr o ss debt levels and how should w e think of it going ahead? A.K. Jain: Overall, I thi n k gross debt is around INR900 crores in the balance sheet f o r Ipca standalone. And we have almost around INR600 crores of cash. So net of cash, we ha v e around INR300 crores kind o f debt overall, cash what is available with us. And I think n e xt financial year, practically th a t number will become nil because debt repayment and all, o v erall cash holding and if you se e , net debt would be practically zero. Gagan Thareja: Sir, this is on the standalone level, on the consolidated level? A.K. Jain: Standalone level. Gagan Thareja: On the conso l idated level, what could be gross debt be? Harish Kamath: Consolidated level, there are hardly any borrowings in Unichem. It's not a - - maybe less than about $12 mi l lion, $13 million -- $30 million overall. Gagan Thareja: All right, sir. And on -- can you also give the salience of Zerodol and its line extensions in your domesti c portfolio? And how have -- how has that franchise grown for you year-to-date? And what do you think of that particular brand going forward? A.K. Jain: Overall, if you look at the pain portfolio, overall for the first 9 months of cu r rent year, on pain portfolio, w e have grown by around 14%, which includes osteoarthriti s and rheumatoid arthritis both. So in both the market segment, we have leadership and that p o rtfolio has grown by around 1 4 %. So that portfolio continues to do very well for us. But c e rtain markets like antimalarial t h is year has not grown, so practically zero growth on there. Antibacterial have just grown by 1%. Cough and cold has grown by 4% . So these are the portfolios w h ere we have lagging. Our cardiovascular portfolios are now doing better. Our urology, then dermatology and nutraceuticals and also gastrointestinal portfolio, they are doing better. So ov e rall, we have around -- if you look at first 9 months of curre n t year, on overall portfolio, we have around 12% internal growth.

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Gagan Thareja: Okay. And o n the subsidiaries, if you could give some flavor of the subsi d iary performance both at a P& L level and also at a balance sheet level, if some details can be g i ven out? Harish Kamath: Except Pisga h and our associate company Krebs, other all companies are pr o fitable as on date. Bayshore, as Mr. Jain has said, we were incurring losses because of admin i strative costs that has gone fro m the -- our books now. So only Pisgah and Krebs are little cause of concern. Other than th a t all subsidiary and associates, there are profit in the consolida t ed level. Gagan Thareja: Okay. All rig h t. But potentially, there would be room for further improveme n t in margins in all of those? Harish Kamath: Yes, definite l y, definitely. Everywhere, there is potential room to improve m argins. Especially Pisgah, we ar e working on long-term plan and all, it should turn around in a c ouple of quarters. Gagan Thareja: Okay. Thank you, sir. I will get back in the queue. Thanks for taking my que s tions. Moderator: Thank you. T he next question is from the line of Pulkit Singhal fro m Dalmus Capital Management. Please go ahead. Pulkit Singhal: Congrats on a good set of numbers. My first question is on the U.S. portf o lio for Ipca that's going to be m arketed by Unichem. What is the potential revenue opportunit y for you over the next 3 to 5 y e ars as per your own estimation, a rough range? Harish Kamath: See, before o ur U.S. FDA issue started, maybe in the year 2012-'13, whe n exchange rupeedollar was a b out INR60, we did about INR250 crores formulation busin e ss with about 10 products. So o ut of those 10 products, we have just manufactured and shipp e d 4 products. Few other produc t s are on the verge of getting manufactured. So gradually, w e will build our business thro u gh Unichem on those initial products, which were earlier selli n g in the market -- in the U.S. m a rket. . And we have very good cost benefit because of backward integration, our o w n API and all. In most of those APs, I'm also maybe one of the largest manufacturers in the w o rld. Pulkit Singhal: Understood. S o the level you crossed, let's say, INR100 crores or INR200 c r ores of size, what kind of perce n tage margins are then recorded at Unichem level for the marketing? Harish Kamath: Unichem, w h atever -- see, earlier also we were doing business through m arketing partner. Those marke t ing partners are now replaced with the Unichem. There is a f o rmula for sharing profit, for sh a ring cost of distribution, everything is on paper. It will be b eneficial to both Unichem as w ell as Ipca. Pulkit Singhal: Yes. I'm just t rying to understand what is the dilutive effect it has because U n ichem is at...

Harish Kamath: We have n o t spent any money for doing business. Whatever plans earlier we were manufacturin g U.S. products, they were as good as not manufacturing a n ything. Then we started gradually using them for other markets like Europe and all. In spite of that, their capacity utili z ation was very less.

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	Once we dop rogression in our U.S. business through Unichem, whatevero verhead recovery
	will also imp rove. That will also indirectly benefit me as well asm y API additional
	production. S o all those benefits will come over a period of time as and we go on improving
	our U.S. busin ess.
Pulkit Singhal:	Understood.A nd when it comes to Unichem's own facilities, I think theya re at 50% to 60%
	utilization. Is my understanding correct?
Harish Kamath:	That is alsog radually improving. Goa, too, which was newly commissione d, there also they
	have startedg radually ramping up the production. So all-round improveme nt is there in the
	Unichem prod uctivity also. That is also one of the reasons why operating cos t is coming down
	because ofh igher production. So all verticals, wherever operationale fficiency can be
	encashed, eve rything is being worked on.
Pulkit Singhal:	Understood.A nd sir, in how many years do you see that you would be alm ost fully utilizing
	the Unichemf acilities...
Harish Kamath:	So next 4 to 5 years, I don't think they will need any further capacityo ther than routine
	capacity impr ovement plans and all. And whatever API they want to produ ce going forward
	that capex is already happening at Pithampur API site. Formulation, the y have adequate
	capacity avail able. So API there were a little bit bottlenecks, which are being now addressed.
Pulkit Singhal:	Thank you for answering my questions. All the best.
Moderator:	Thank you.T he next question is from the line of Tushar from Motilal Oswal Financial
	Services. Plea se go ahead.
Tushar:	Sir, just again on Unichem, given that they are also now primarily into U.S. business and Ipca
	also has. Soa ny thoughts on sort of merging Unichem along with Ipca?
Harish Kamath:	No, no. There is no currently any such plans. But the product folio of Uniche m and Ipca except
	few products which are common, rest are all different products. And as Mr. Jain has said, we
	are already ha ving a plan to take their products to other markets they were hi therto not present,
	Australia and New Zealand, most of the Europe and also ROW market,t hat action plan is
	already on, pr oduct registration, document generation, all work is happening.
Tushar:	And of course , the business-wise integration is very much happening, but th en why to have 2
	separate listed entities?
Harish Kamath:	We have not thought on that so far. Just we are trying to now consolid ate and improve
	Unichem perf ormance. That is our focus.
Tushar:	And sir, justs econdly on domestic formulation, if you could share price volu me new launches
	data for the qu arter and for 9 months?
A.K. Jain:	See one partic ular reason for not taking up consolidation is also because we are looking for a
	strategy of he dging. If anything happens to Ipca or anything happens to Unic hem like we have

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burned our f i ngers in past, so we don't want that situation to have. And therefore, we are keeping qual i ty and manufacturing everything separate. And -- so in the event of anything happening, y o u can produce product utilizing other capacities and all.

So business d isturbance doesn't happen. And therefore, currently, there i s no such idea of merging bot h of them. Because at the top of the mind of management is always there, that it should opera t e as a hedging for each other.

Tushar: Sure, sir. Sir, if you could address the domestic formulation questions, p rice volume, new launches.

Harish Kamath: Pardon, Tush a r, what was your question? Tushar: Sir, price vol u me and new launches for the quarter? Harish Kamath: Most of the g rowth was because of volume. New launches are hardly anyt h ing. Price may be overall 5% t o 6%, not more than that. And as you recollect, last year, the r e was hardly any price increas e in NLEM products. Tushar: Understood. T hat’s it. Thank you. Moderator: Thank you. T he next question is from the line of Shiva from Purnartha In v estment Advisors. Please go ah e ad.

Shiva:

And with res p ect to margins at standalone level, just wanted to understand going ahead, how do we -- I m e an, are there any other, as you said raw materials, we did n o t get much of but you're sayin g it's only by the mix. So how do you look at going ahead? I s there any other operational l e vers at standalone level that we can show any improvement or you feel these kinds of mor e improvement will be slower?

Harish Kamath:

Other than m aterial cost, there was some increase in manpower cost beca u se of addition of people. So as you recollect, the last 1, 1.5 years, we have added a lot of peo p le in the domestic market. Now they are slowly becoming productive for the company. So go i ng forward, there will be some benefit out of growth or they will bring. So overall, our gui d ance stays going forward also m aybe next 3, 4 years, 100 to 150 basis point margin improvem e nt should come.

A.K. Jain:

See, normall y , our material costs used to be around 20% of overall sal e s. Currently, it is around 21.5 % or near about, it's largely because of addition of people. A nd a lot of those additions, which we have made in the past are yet to become productive. Th e y are -- because it takes time, s o mewhere in normal therapies, it takes around 3 years' time.

Chronic is so m etimes it takes a little more. So some of the people have -- a few divisions has become prod u ctive in very second year. But on chronic side, whatever numbers we added, that is yet to beco m e productive. And as their productivity moves up, we'll have o verall good set of numbers.

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Currently, in current financials, we are seeing that permanent productivit y has gone up by almost arou n d 20,000, on an average on a total around 6,700 people. So that's overall productivity improvement in the field. And this productivity improvement will keep on happening be c ause we have added a significant number of people in last few years. Shiva: Okay. So to u nderstand correctly, if there is no much change in the raw ma t erials, the most of the productio n or the margin benefit will flow through from the employee c ost is what you're saying? A.K. Jain: Yes, employ m ent cost also will happen, then overall -- since once U.S. business pick up, then capacity utili z ations will also help in overall better improvement... Shiva: Operating le v erage. Okay. And you're saying about the MR. So if you co u ld just give some details about the present MR and what is the productivity at an overal l level and the 4 divisions, lik e 2 years ago, we made additional 4 divisions, how are their pro d uctivity? A.K. Jain: Overall, I thi n k we have around 6,700 people currently. And overall produc t ivity per month is around 4,45, 0 00. Shiva: 4,35,000, for this quarter? A.K. Jain: 4,45,000. Shiva: This is for this quarter? A.K. Jain: Yes, up to 9 m onths current year. Shiva: Okay, 9 mon t hs. Okay. And how does that compare to the last year? A.K. Jain: It was aroun d 4,25,000 with 6,300 people. Currently, 6,700 and 4,45,000 per month. Shiva: Okay. And w hat do you -- once they settle down what kind of number do t h ey hit, I mean the new division s ? How will that look like once they settle down in 1.5 year 1 or 2 years? A.K. Jain: Productivity e ach year, even if there is 300, 400 people additions will conti n ue to have around 25,000, 30,0 0 0 average productivity improvements will be there, on a co n tinuous basis. In terms of cur r ent improvement, what we are seeing in current year, that improvement will continue eve n after addition of people. Shiva: Understood. A nd how is your initial experience? I mean you said that yo u 've sent it to U.S. market last q u arter, how was the initial feedback and how are you finding i t right now in this quarter in ha n d? Harish Kamath: See, Uniche m team has already started bidding for the products in whic h we have a cost competency. So slowly and steadily, they are gaining orders. But it will t ake time because there are alr e ady other players in the market and the sellers are already t ied up with other people. So it w orks on contracts, 3 months, 6 months. So as and when peopl e come for bidding that time we participate. So there will be some gestation period from the day the goods is

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received and your sales commence. And then there will be a gradual pro g ress quarter after quarter.

Shiva: And the gro w th guidance you're sticking with the guidance that you've given ? Harish Kamath: Yes. So it is i n line with whatever we are expecting. Shiva: Okay. Thank you. I will get back. Moderator: Thank you. T he next question is from the line of Saion Mukherjee from N omura. Please go ahead. Saion Mukherjee: On the EBIT D A margin front, I think on a standalone basis, you are already 2 3%, 24%. Would it be fair tha t presume the domestic business margins are materially higher, if you can give some color g i ven the fact that the employee productivities are rising, raw m a terial prices have come down. Q ualitatively, if you can talk about the profitability or EBIT D A margin for the domestic bus i ness? And what are your expectations on that going forward? Harish Kamath: See, Mr. Jai n has already explained, the major reason for this number is b ecause of product mix change. S o if you see business wise, there is hardly any change in what e ver we have been telling from the beginning gross margin-wise. So only business-wise, t h ere are different margins and when the margins better business improves, the overall E B ITDA and gross margin impr o ves, it is that way. And wherev e r there is better margin, those businesses, we are growing y e ar after year. For example, do m estic and branded formulation business, ROW market. Typic a lly, they have the highest marg i n in the company's overall top line. A.K. Jain: If you look a t , let's say, current year, antimalarials has not grown. We hav e lowest margin in antimalarial. Antibacterial is also a low-margin business, that has not g r own. It's just 1% growth. Cou g h and cold is also generally a low-margin business because it's all bottle packings and that cost of packaging is high on the products, so that business has just grown by 4%. All other produc t s margin, business has grown faster and better where margins are better. So that is also reflect i ng in the overall EBITDA margin. Saion Mukherjee: Yes. So basi c ally, sir, what I was trying to get at is the fact that -- I mean , if I look at 23%, 24% margin, your business has API, institutional on the lower side and R O W India business are probably higher than the company average. So I'm just wondering if it is significantly higher or ma r ginally higher than where you -- where standalone margins a r e, particularly for the domestic b usiness? A.K. Jain: Domestic m a rgin will further improve. As the productivity improve, mar g ins will keep on improving an d margins are definitely higher. Saion Mukherjee: And sir, the o ther question I wanted to ask is now since the businesses h a ve stabilized on a growth path, what are the new areas the management is thinking about investing whether it is

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India or U.S. if you can share any plans that you want to -- that you can sh a re at this point on new initiativ e s that you are taking?

A.K. Jain:

See, the new areas at number one is, let's say, we are leaders in pain mana g ement. And as far as the ortho p edics and dentals are concerned, we have significant leaders h ip there on those kind of prod u cts. And now we are trying to leverage those relationships and now started a new division call e d Flexicare for adding the people -- adding the product for w hich are used by orthopedics f or other indications because pain is one area, but they presc r ibe a lot of other products.

So gradually , we are ramping up. Right now, division is -- we have just a dded around 150 people. Recr u itment of people is going on. So maybe another 200 people w ill be added in. I think next year that division will be end, we expect that turnaround and f a ster which should reach to the breakeven point because we have a strong relationship in this th e rapy area.

So we shoul d be able to -- so we are leveraging those relationships. So th a t one area we are looking at. A nother area we're looking at cardiovasculars, now we have s tarted beating the market grow t h and significantly compared to the market and all. And this i s the further time for us to furt h er consolidate our offering in the market.

So next fina n cial year, we will, again, adding 1 more division with aro u nd 300 people in cardiology. T h en another area is dermatology that we have done well and bu i ld the business on dermatology i n the last few years. And we are missing on cosmetic dermat o logy. So we have lined up the p roducts -- a lot of products under development and all.

And I think o ne more division we will add in next financial year, from ther e in the mid of the next financia l year on cosmetic dermatology. So wherever areas, like sa y , urology, we are doing well. S o giving us almost around 20% kind of 22% kind of growt h . So some people additions wil l happen in urology area. So all these therapy areas where w e are continuously consolidating, which are the high-growth areas for us. So we are further i nvesting on those areas. So that ' s a continuous journey.

Saion Mukherjee: And anythin g on the U.S., sir, in terms of ANDA filing across Uniche m and Ipca? Any product cate g ory segment? And how should we think about the research and development expenditure, w hat is it now and how much can increase?

A.K. Jain:

Let's say, ou r business philosophy is that we, by and large, use our capti v e product for the ANDA devel o pments and all. So now last, I think, 10, 12 years, Ipca has not filed anything but right now, th e re are a good number of product pipelines, which are there u nder development and all. So I think every year, we should be able to now file 5, 6 kinds o f Ipca ANDAs, so Unichem wil l also continue to do that kind of number. And more or less, it's going to remain from, let's sa y , captive API. Some of the products we may outsource also.

But broadly, s o it's not that we have to file end number of products becaus e our strategy is to always keep b ackward integrated products for forward integrations and all. So more or less, we are not chang i ng that strategy. So it will remain in that line.

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Saion Mukherjee:	And R&D spe nd, sir?
A.K. Jain:	Currently, bot h Ipca and Unichem put together, it's around 3%, 3.25% kindo f R&D cost. That
	cost is likelyt o move to around 4%.
Saion Mukherjee:	Okay. Thank you.
Moderator:	Thank you.T he next question is from the line of Harsh Bhatia from Bandh an Mutual Fund.
	Please go ahe ad.
Harsh Bhatia:	Sir, in the sec ond quarter, you had mentioned that there was some U.S. sales at Ipca level that
	was shippedo ut, but not booked. Have we booked those sales this quarter?
Harish Kamath:	Sorry, you're not audible now, Harsh. What was your question?
Harsh Bhatia:	So we weres aying that there were some U.S. sales in second quarter that were not booked,
	they were shi pped out, but not booked in the second quarter. Those sales hav e been booked in
	the third quart er?
Harish Kamath:	You are nota udible.
Moderator:	Sir, I just req uest you to rejoin, please. The next question is from the lin e of Bharat from
	Equirus. Pleas e go ahead.
Bharat:	So sir, we hav e done phenomenally well in the past years in domestic busine ss. So how do you
	see this busin ess behaving as compared to IPM in the at least next 2, 3 year s, if you talk a bit
	about it?
Harish Kamath:	So more or le ss, whatever our growth, 1.5x IPM growth, hopefully, we sho uld continue with
	that coming fe w years.
Bharat:	And how big our pain management therapy would be in the overall business?
Harish Kamath:	About 52%.
Bharat:	Sir, somewhe re the largest product would be Zerodol and if I'm not wron g that product is
	almost INR75 0 crores, INR800 crores...
Harish Kamath:	In spite of th at, the pain therapy has grown by 14% in the 9 months of the current financial
	year.
Bharat:	Are we calling out how big is Zerodol for us at this moment?
Harish Kamath:	So 2 Zerodol SKUs are amongst the top 300 selling -- 3 SKUs, top 300 sel ling brands in the
	country.
Bharat:	Right. So are you expecting pain management to stay at almost like at 13%,1 4% growth going
	forward as we ll? Is it possible to...

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Harish Kamath: Yes, definite l y, unless pain management grows 13%, 14%, I can't gro w 1.5x the market growth. So that is almost 52% of my overall business.

Bharat:

But what is d r iving this growth in the overall pain management? If you coul d talk and how this growth will b e maintained? Because we'll be covering large part of the ma r ket, doctor access will be also one of the foremost when it comes to the pain managemen t . So how we are looking to m a intain this growth going forward as well?

A.K. Jain:

Let's say, no t only osteoarthritis product, but rheumatoid arthritis products are also growing faster. And i f more penetration of disease presence in the country is very high. It's all we had to create ena b ling more number of rheumatologists practicing in the marke t and taking those rheumatologi s t to the other areas and educating doctors and all.

So rheumato l ogy portfolio, is last 10, 15 years, also, we have seen continuously it's growing 1.5x the mar k et growth. And we don't foresee next 5 years also that gro w th rate can come down. Signif i cant work is still to be done to make all these therapies availab l e in any nook and corner of the c ountry.

And as far as the pain is concerned, Zerodol is continuously growing. Even i n this market, also it is growing faster than the overall IPM, it's almost around 1.5x the mark e t is growing. And we don't see any kind of problem in growing this therapy also in next 3, 4 years at current pace.

So we are n o t seeing any kind of challenge. And as far as the new pro d uct offerings are concerned, t h ere are not much on particularly on osteoarthritis side. On r h eumatoid arthritis side, yes, the r e are a lot of opportunities and of the new patented products, a n d we are working on everythin g of that. So we are keeping our complete hold on that kind of t h ings, and we will continue to a d d the new product portfolios as and when the patent expiry ha p pens and all.

So we -- and also, we are further augmenting our ortho offering by additio n of new divisions, which we ar e currently in the process of doing that so that we can leverage those relations in the -- particu l arly in ortho segment. So that segment will continue to remai n focus for us, and we will -- we don't foresee any kind of difficulty in growing this business. I n fact, it will grow faster than th e overall company growth.

Harish Kamath:

Bharat:

And every m a jor product I'm selling in pain category, I'm the market leader and my growth is higher than t h e market growth. Okay. Sure. T hanks a lot, sir .

Moderator:

Thank you. A s there are no further questions from the participants, I will h a nd the conference over to the m a nagement for closing comments. Over to you, sir.

Harish Kamath:

No, more or less most of the areas we have covered in the con call. I d o n't think there is anything furt h er to be added. Thank you. Thank you all the participants. Tha n k you very much.

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Moderator:

Thank you, s i r. On behalf of DAM Capital Advisors Limited, that conclud e s this conference. Thank you fo r joining us, and you may now disconnect your lines. Thank yo u .

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