Release Date: February 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sustained performance in the branded segment, accounting for 72% of the quarter's revenue.
- Steady increase in revenues in Germany due to incremental tender wins.
- Stable US-based business with new launches expected to enhance performance starting from Q1 of the next fiscal year.
- Operating EBITDA margins improved to 31.8%, indicating enhanced cost efficiencies.
- India revenue grew by 12%, driven by new launches, top brands, and focused therapies.
Negative Points
- Forex translation losses of INR35 crores, though expected to reverse in coming quarters.
- US revenues down by 7% YoY, despite sequential growth.
- Gross margin dipped slightly due to the mix of increased US sales.
- Pending regulatory inspection for the Indrad facility.
- Challenges in expanding the Curatio business beyond its stronghold regions.
Q & A Highlights
Q: Just on the gross margin front, sequentially, where the India sales have been pretty stable, even Brazil sales have improved, but the gross margin has dipped. So any particular reason you would want to call out?
A: Sudhir Menon, Chief Financial Officer, Executive Director - Finance: It's actually the US sales have gone up by almost $3 million. Although there is this gross margin going down by 0.5%, it led to an improvement in the operating leverage and thereby improving the overall EBITDA margins. So it's basically the mix which has caused the dip by 0.5%.
Q: In Brazil, at least in the last two years, the fourth quarter has been much stronger than the earlier three quarters. So would that be a similar phenomenon this time as well?
A: Sanjay Gupta, Executive Director - International Business: I would guide you to what IQVIA is showing us right now, which is that the market is at about 6.5% and Torrent is about 12%. I think that's a much better indicator than primary sales on a quarter-to-quarter basis because in Brazil, invoice sales vary on a quarterly basis. So I would say that we are looking at a double-digit growth in Brazil and we'll see what it will be in Q4.
Q: Any regulatory update on Indrad?
A: Sanjay Gupta, Executive Director - International Business: No, they're still pending inspection.
Q: When you said 31% kind of margin looks a sustainable base going ahead, can you talk about the headroom improvement which might be available for Curatio? Are you broadly done with the improvement margin which you are targeting?
A: Sudhir Menon, Chief Financial Officer, Executive Director - Finance: Curatio margins have improved versus the last quarter. There has been improvement, which is continuing for Curatio portfolio. But I think what I can guide you from here is to look at the India business as one portfolio. The two levers which I keep on talking about are margin improvement because of price increase and operating leverage because of the incremental growth coming in. That should continue playing out for the next year as well.
Q: On the India business, how much would the trade generic and the consumer healthcare piece of the total India business?
A: Aman Mehta, Executive Director: Trade generics would be maybe 2% to 3% of the base, growing at about 25% to 30% depending on the quarter of seasonality. In terms of consumer, we're not looking at it separately because the brands are also part of the prescription business. We only have four brands in the consumer channel right now, which are Shelcal 500, Tedibar, Unienzyme, and Ahaglow.
Q: How do we see ourselves trying to maintain our market share or even maintain this 3% to 4% volume growth that you have talked about in the context of increased competition?
A: Aman Mehta, Executive Director: Our focus has been to ensure that new product launch performance is the maximum possible, which may be by way of field force expansion or further divisionalization. Our focused therapies will remain the same, which are diabetes, cardiac, gastro, VMN, and pain. We remain confident that our pipeline is robust and our field force expansion gives us enough headroom to continue the above-market volume growth for the foreseeable coming quarters.
Q: On the US business, where are we in terms of price erosion, because of the lack of launches? Are we still seeing a higher side of price erosion?
A: Sanjay Gupta, Executive Director - International Business: We are seeing a low single-digit price erosion right now.
Q: What is the prognosis here? Do we think that this remains and once the launches start, you will start seeing like high single-digit value growth for next year?
A: Sanjay Gupta, Executive Director - International Business: We have about seven to eight launches in the next 12 months. The sales that will come will depend upon the level of competition. But the momentum and the direction should be upward.
Q: What will be the R&D guidance now in FY25 to '26, as the US business will be picking up?
A: Sudhir Menon, Chief Financial Officer, Executive Director - Finance: We should be around 5% to 5.5% for the next year. And maybe for FY26, between 5.5% to 6%.
Q: On the macro market growth in Brazil, what do you sense has driven this improvement in the underlying market growth?
A: Sanjay Gupta, Executive Director - International Business: Brazil is intrinsically a market quite similar to India. There's a high level of product going off-patent, leading to volume growth in the branded generic segment. Brazil is a positive pricing country, with price increases available to us. Volume growth, new product launches, and pricing should give you a market which grows high single-digit, double-digit.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
