Edited Transcript of APLLTD.NSE earnings conference call or presentation 23-Apr-20 10:30am GMT

CapEx for the year, including capital advances, was INR 731 crores, very close to the last year number, which was also around INR 650 crores. Cumulative CapEx, ongoing projects under WIP, including preoperative expenses for all the 4 plants, was INR 1,492 crores. Financial assistance to Aleor JV for the year was INR 205 crores. Cumulative financial assistance stands at INR 677 crores. The gross borrowings in the consolidated balance sheet are INR 1,749 crores, which are up by around INR 620-odd crores vis-à-vis last year. And we have INR 81 crores of cash in hand. So net borrowing stands at INR 1,666 crores. Debt equity remains at 0.52.

Dividend. We had declared a dividend in the previous Board meeting on 6th of March. Dividend on equity shares was at INR 10 per share, which is 500% for ’19/’20. Previous year, it was INR 5.50.

I will now hand over discussion to Pranav for his presentation on international business.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [4]

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Thanks, Mitanshu. It was another good quarter for the international generics business. GMP compliance continues to remain a focus area for us. Our formulation plant, F1, was recently audited by the FDA, which received 4 observations. These are procedural in nature and largely to do with SOP improvement. We have submitted our response and are waiting to hear back from the FDA. Apart from formulation 1, the other plants saw that the EIR in place. We filed 10 ANDAs during the quarter, out of which 4 were from Aleor. We filed 25 ANDAs for the year, which includes 11 from Aleor. R&D expense was INR 185 crores for the quarter. And for the full year, we spent INR 645 crores, approximately 14% of sales.

We filed the first of our ANDAs from formulation 3, the general injectable facility, during the quarter. We will file the first ANDA from the ongoing injectable facility, which is formulation 2, in the second half of this year. Exhibit batches were also taken in the quarter at formulation 4, the new oral solid dosage facility at Jarod. We received 34 approvals during the year, and we cumulatively have 119 ANDA approvals.

We launched 5 products during the quarter and 22 new products during the year. We plan to launch approximately 10 products in the first half of this financial year as well.

In terms of financials, the international formulation business grew by 80% in the quarter to INR 710 crores. Whereas for the year, it grew 40% to INR 2,473 crores. The U.S. generics grew 85% to $77 million for the quarter and 52% to $270 million for the year. The rest of the world generics grew by 63% in the quarter and was flat at about INR 500 crores for FY ’20.

Shaunak will talk about domestic before Q&A.

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [5]

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Good afternoon, everyone. Let me just run through a couple of the domestic numbers. Overall for Q3, sales grew by 13% to INR 342 crores. And it grew to INR 1,425 crores for the financial year with 3% growth. The specialty segments for us grew 10% in the current quarter. And for the acute, it grew by 24% in the current quarter.

Other than that, I think this quarter has been a quarter of some recovery for our business. As you guys are aware, last financial year, we did take certain strategic decisions, which have impacted our business for the last 3 quarters of the year. And post that, we have seen some of these strategic interventions giving us good traction. We’re seeing a strong ramp-up in our business, which should give us a lasting impact on our top line as well as a substantial impact in our P&L.

All our segments of growth are completely aligned in terms of having high-growth molecules and high-growth brands driving our key growth segments like acute, CV, gynac and gastro. As per this time, the impact of COVID on the business in this quarter has been neutral. There hasn’t been any — may — there have been some positives as well as there has been some negatives in the month of March, and we’re seeing the trend continue in the month of April. So net-net, it’s working out to be equal for us.

Along with that, if I could just give you a small commentary of the business. Over the last 2 years, we have been focusing aggressively on our far more scientific and medical marketing-driven approach to communicating to our customers. And after this — after some amount of lead time, it started to give us big dividends, and we — it’s allowed us to cut through the clutter and communicate with the customers on our key brands and those key benefits of our brands.

Along with that, there is still substantial scope for this business to ramp up over the next 3 quarters in terms of operational as well as in terms of strategic interventions that we’ve taken. So we look forward to driving the business and seeing some of these numbers really pan out, hopefully. Thanks.

I’d like to open the floor for Q&A now, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Anmol Ganjoo from JM Financial.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [2]

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Congratulations for a good set of numbers. My first question is to Pranav. Pranav, if you look at the full year as well as the quarter, the U.S. continues to do extremely well. So if you were to kind of breakdown this $90 million of incremental sales that you have had over the FY ’19 base, I know you won’t go into exact numbers, but directionally, if you were to breakdown the benefit of this $90 million between sartans and pricing in some of our base portfolio as well as some of the new launches like Febuxostat, how would you comment on the interplay of those 2 because you guys had stellar performance in the U.S.?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [3]

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Anmol, it’s a good question, but I can’t really give the breakup of the sartans and the others. What I, however, can say is — because we get this question a lot about what our base business is. And what I’m seeing — and it’s not like a one-off or something, I think for the — consistently for the last 3 quarters, the U.S. revenue has been at about — in dollar terms, in terms of $70-odd million every quarter for the last 3 quarters.

So I think it’s safe to say that this is a new base for now. Moving forward from this is what we’ll see in terms of new launches, what we can add to it and new opportunities, what we can add to it versus on the opposing side will be if there’s any price erosion. So our base — new base that we’re seeing now is about $70-odd million per quarter for the U.S. business.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [4]

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Okay. That’s helpful. And my second question is to Shaunak. Shaunak, you spoke about the initial impression of COVID being neutral and the revival in domestic business finally having taken off. If the current situation was to continue, do you think this will be the picture for the full year as well? Or do you think these are very initial kind of signs where you see virtually no impact on the business as a consequence of whatever positives and negatives you’ve seen?

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [5]

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Sorry, could you just repeat yourself one more time? I didn’t completely understand.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [6]

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No, so just taking from your opening comments where you said that as of now COVID has been a neutral event and should not normally impede with the turnaround, which has started in the domestic business. Do you think this dynamic to hold throughout the year? Or you think this is just a 1-, 2-month time frame, and it’s too early to tell how the next 3 quarters will pan? That’s what my question is.

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [7]

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Okay. Yes. So in terms of the business, in terms of the turnaround, I think it’s — I think we’re very confident that this is sustainable. Any of the trends that we started seeing, how we started seeing the business come through, definitely is sustainable. And it’s not a 1-quarter trend. It will sustain for the next 3, 4 quarters at least, for sure.

In terms of COVID, I think the impact has been neutral because it’s only the last 2 weeks of March that we actually started seeing some impact of COVID. Actually, it’s the last week of March that we really saw the impact of — in — related to COVID-related disruption. So we strongly believe — I mean, we’re seeing this trend from — continue from December, Jan, Feb, we saw this trend quite rigorously. We’re seeing it quite robust, and we see this trend continue going forward.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division – Director [8]

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That’s helpful. And last, if I may squeeze in, and this is to Mitanshu standing in from Mr. Baheti. We’ve seen a fair expansion of working capital. It’s not unusual given what’s happened in the U.S. in terms of growth. But if we see for the next year, I mean, where do you see the working capital cycle stabilize at? And simply comment debt, how should that look like for the year? What are we thinking in terms of our debt to equity, et cetera?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [9]

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Even if you look at the current set of numbers, I mean, it’s not at all alarming, I mean. If you see the debtor days, they are just 68 days, actually. If you look at the inventory days, they’re 93 days. So of course, this will move in absolute numbers when the business does increase, actually. But everything is in control when it comes to the number of days and the key parameters are concerned, actually.

So I mean, next year, of course, this will remain in this vicinity in the number of days. Of course, it will follow the absolute number based on the business growth.

And debt, of course, I mean, it could be a combination of what we have to invest in, in terms of CapExs as well actually, which we see around INR 700 crores again for next year. All blended, put together, we don’t see more than INR 200 crores of increase in debt.

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Operator [10]

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The next question is from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [11]

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Congrats on good numbers. Sir, first question on the U.S. business. So you clearly mentioned in the last call that for the sartan opportunity, we don’t think it’s only a near term, it’s a medium to — medium-term opportunity. So what has — any update there? Any more competition coming? Or — on the volume side, you already seen U.S. business Q-on-Q improvement. Is it largely sartan-led? Or there are more to read into it?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [12]

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So Anmol also asked a similar question. And as you know, yes, sartans is part — a big part of our portfolio over the last 2 years we added it. Because Alembic is present in pretty much all the sartans, and we don’t have any impurity issues with any of the sartans, right? So we have a big basket of sartans. All put together, it’s almost about 15 different ANDAs of sartans which are there. So it’s a big portfolio for us.

Having said that, competition has increased. But — and I said in the last call as well, my outlook remains the same. I said 3 to 6 months. I still feel that another 3 to 6 months, I don’t see anything changing because the pure volume of sartans is still huge and there’s a lot of demand, and we’re just trying to keep up with the demand right now.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [13]

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Okay. So 3 to 6 months is a rolling one, and depending upon how the competition changes, maybe you can update us?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [14]

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Yes. Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [15]

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Okay, and do you feel — sorry…

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [16]

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Sorry, Prakash. Just to clarify one more. And I think what’s important is one has to realize that there’s about 15 ANDAs of sartans that have different combinations. So it’s not only one particular sartan which is making up our sales. It’s a combination of all of them depending on where the volumes are.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [17]

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No, that helps. And so the other question is on the capital work in progress. So I understand the 3 large facilities, the onco-injectable, general injectables, and I think one more, right? So oncology. So these are still under — still capitalized. So when do we start seeing the preop expenses as well as the depreciation kicking in? Should we start building in fiscal ’21? Or it should move to ’22?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [18]

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Largely, we’ll see, except for F4, which is Jarod’s facility, this would be in FY ’22.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [19]

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Sorry, can you repeat that?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [20]

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I said for — except for Jarod facility, F4. F2 and F3, both general injectable as well as onco-injectable would go in FY ’22.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [21]

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So what will kick in, in ’21 and the quantum?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [22]

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So what will kick in would be the Jarod plant. And that’s a smaller plant with lesser overheads. That would be around INR 40-odd crores.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [23]

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That is on the operating side? Operating or below the EBITDA?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [24]

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So I think this is the operating cost.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [25]

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Okay. So we’ll start seeing this cost in the P&L?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [26]

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Yes. In the — in H2, Prakash.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [27]

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In H2, okay. And INR 40 crores is the annualized number. So half of it will come through. Is that correct?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [28]

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That’s true, Prakash.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [29]

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Okay. And for the other 2 facilities, onco and general injectable, that is ’22. But if you could help with the quantum, please?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [30]

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Yes. Sure. So in — it would be like — we expect both of them around H2 time of FY ’22. And quantum would be — operating would be INR 250-odd crores.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [31]

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Okay. Okay. So this is annualized, obviously.

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [32]

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Yes, annually.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [33]

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Okay, okay. Perfect. And last question for India. So we have seen a significant recovery. But what struck me is specialty versus acute. So specialty 10%, acute 24%. Well, you see the AIOCD data, there were a lot of prebuying in chronic specialty side. For you, it is the other way around. So is it on a low base or product based? Or what has led to that kind of high growth in the acute segment?

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [34]

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I think acute partly was driven by azithromycin as well as the cough and cold portfolio.

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Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [35]

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Okay. So this can continue, I would believe, right?

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [36]

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Yes, it will continue.

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Operator [37]

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The next question is from the line of Aditya Khemka from DSP Blackrock.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [38]

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Shaunak, I have a question for you for the domestic business. So I understand we have taken some few strategic initiatives in the domestic business over the past few quarters. But if I look at Alembic for the last 4, 5 years, also, there has been a performance which is inferior to the broader market. We have lost market share at our category, as a company, we have. We may have gained a few molecules on lost in certain others. So what I want to understand is what is the way forward? How are we changing the business model? I understand the initiatives taken as to deduction of discount, et cetera. That, I figured. But how do we make our uplift permanent again in this industry? How do we ensure that we gain market share and grow higher than the market going forward?

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [39]

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Okay. So 2 part — I’ll answer your question in 2 parts. So we see in any of our key focus brands, we’ve not lost any market share in that over the last 4 years. Actually, we’ve gained market share in all the key focus brands. Where we have lost market share in the last 4 years is products which we have said are not critical to us in terms of long term. And classic case is something like injectable penicillin or if you look at a lot of tail brands, which have been rationalized over the last 4 years, so that is one.

Secondly is our generic portfolio, which we have been focusing on. And that part of the business has substantially come down. So if I put — all these put together, yes, we have lost market share. But if you look at my key brands and we do a brand up market share portfolio construct, we haven’t lost our market share. We actually gained market share. So that’s just to clarify that question.

Second thing is after all this, some of these — the decision that we have taken was something which was affecting our market share gain and preventing some sustainably driving the market and driving prescriptions, which after this correction, we feel a lot of those loopholes have been plugged. And we see a big growth in that.

In terms of how is the performance, I think looking at these base numbers, I want to definitely look at outgrowing the market and definitely look at — looking at a good double-digit growth with the market share gain over the next 3 years, at least.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [40]

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Fair enough. And would you say that your domestic field force productivity now is optimal and you would need to hire incremental number of MRs to grow? Or do you think there is scope for your MR productivity to improve over the next 3 years?

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Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [41]

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So I think the way we look at it now is that what is optimal, whether we — our productivity is optimal or not, I’m not sure. But what we are looking at is as and when in specific areas and specific divisions where we see a scope for expansion, we definitely want to look at adding in a systematic mix. I mean we don’t foresee a large, single time expansion to happen at any given time. But I think over a year, definitely, every quarter, we will look at adding manpower to our strength in key areas because we are underrepresented in the market. I mean if you compare my acute team size versus anyone else in the industry of a comparable size, I think we’re pretty much — maybe 70% of what all our competitors are running at. So I think we will do that, but we will do it in a very selective way and not in a one-shot expansion.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [42]

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Got It. And Pranav, I’ve got a question for you. So given what has happened in the U.S. market in terms of high infection rates and obviously some supply chain disruption because of China and COVID and all, has the bargaining power equation between a supplier and those 3 large buyers in U.S. changed somewhat? Or would it — would you say it hasn’t impacted that equation at all?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [43]

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No. I think as of now I’m not seeing that in the market. We haven’t got any feedback of that. We have realized most of the products are coming — or the finished dosage side are coming in from India. So I don’t see that any — I don’t see an impact of that as yet.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [44]

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Right. And to that extent, your base business portfolio in U.S., has it seen price erosion of mid-single digits, low single digits, high single digits?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [45]

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You guys ask me this question, it’s very tough to say. I think it’s broad based, product specific. On our overall portfolio, we haven’t seen much erosion. If at all, if I had to just put it all together, probably in low single digits.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [46]

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Yes. Okay. Just to — sorry, just to harp on that. Would you say a sartan portfolio is seeing price inflation even now? Or have the sartan prices stabilized in the U.S. as we speak?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [47]

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No. So again, what I told Anmol and Prakash earlier, there’s about 15-odd sartans. So we’re seeing a lot of fluctuations in all of them. So it’s a combination, it’s a weighted average. We have to see how all of them go. Because there are so many strengths on them, and not everyone is able to keep up with demand for each of them.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [48]

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Understood. Do we sell azithromycin also in the U.S. and ROW market?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [49]

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Good question. We do have ANDA that was approved, and we should be launching it in the next few days. The product ship — shipment is already in the U.S. We should be launching it in the next few days.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [50]

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Right. And do we do that in the ROW market as well?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [51]

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No. We supply mainly the API.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. – Assistant VP Healthcare [52]

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Right. Got it. Just, sorry, one last question for Mitanshu. Mitanshu, if I look at the gross margins, 3Q was 75-odd percent. 4Q, despite being like a lower India business quarter, has seen a significant gross margin improvement. Any pointers what is leading — because I — what I was hearing was because of the China COVID disruption, raw material prices have actually gone up. But on the other hand, we have seen inflation in our gross margin. So what exactly led to this?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [53]

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See, it’s all about product mix, actually. If you see my Q1, Q1 margin profile was as good as Q4, actually. And then Q3, Q4 were like 3 percentage off from Q1 and Q4 numbers.

So I think it’s all got to do with the — also the function of — the depreciation of rupee plays a bit of a role there. It helps actually, right, Aditya? So that’s being the case. So yes, 77% kind of margin is for the average for India, actually.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [54]

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That’s India’s business impact.

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [55]

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India’s business is (inaudible) much. It’s more stable. Yes.

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Operator [56]

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The next question is from the line of [Rashmi Sancheti] from CGS-CIMB.

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Unidentified Analyst, [57]

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Congratulation on good set of numbers. Most of my questions have been answered. Just 2 questions. What will be the guidance of R&D in FY ’21 and going ahead?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [58]

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So we don’t give a general guidance, per se, but approximation, I think this year, we ended up at over INR 650 crores. I think next year, we should look at about INR 700 crores or so.

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [59]

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Yes.

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Unidentified Analyst, [60]

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INR 700-odd crores?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [61]

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Yes.

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Unidentified Analyst, [62]

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Okay. And sir, how many product launches have we done in India business in FY ’20? And if you could bifurcate in acute and specialty segment?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [63]

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I’ll have to get back to you on the numbers. But in terms of product launches in ’20 in domestic, there haven’t been many. I think we launched — I think the main launches for — which were happened in Q4 was Vildagliptin and as far as any large launches, I’ll get back to you on that. But there are no large launches per se for us. We had one. Yes.

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Unidentified Analyst, [64]

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So you mean to say that it is mainly single-digit launches?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [65]

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Yes, it’s single-digit launches for the year.

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Unidentified Analyst, [66]

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Okay. So post this turnaround in the domestic business, what kind of run rate we are expecting going ahead?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [67]

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Sorry, could you just repeat the question?

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Unidentified Analyst, [68]

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I mean in FY ’21, how many launches we have planned for India business?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [69]

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I’ll have to get back to you on that number.

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Operator [70]

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The next question is from the line of Dheeresh Pathak from Goldman Sachs.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [71]

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Yes. For FY ’20, can you give a breakup of the CapEx in terms of the core CapEx, the OpEx capitalized and the R&D capitalized?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [72]

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Yes. Sure. So core CapEx was INR 300-odd crores, which is our maintenance CapEx and R&D CapEx and all put together. Then we had project CapEx, including preop, which was around INR 370-odd crores.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [73]

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This would be mainly OpEx capitalized, right?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [74]

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OpEx in that was INR 250-odd crores.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [75]

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INR 250-odd crores. Okay. And R&D capitalized is how much?

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Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [76]

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R&D was not that big a number, around INR 50-odd crores.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [77]

——————————————————————————–

Sorry, say that again, Mitanshu?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [78]

——————————————————————————–

5-0. INR 50-odd crores.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [79]

——————————————————————————–

INR 50 crores. Because in the last call, you said INR 155 crores was R&D capitalized Aleor.

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [80]

——————————————————————————–

No, no, no. Dheeresh, that is a different thing. That is R&D, the intangibles that — of Aleor actually.

So this is a core CapEx that we are talking about in Alembic Pharmaceuticals, which fits into your [PP], plant and machinery.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [81]

——————————————————————————–

Okay. But what was the Aleor R&D capitalization?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [82]

——————————————————————————–

Aleor R&D capitalization for this year, you mean to say?

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [83]

——————————————————————————–

Yes, FY ’20.

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [84]

——————————————————————————–

Around INR 120-odd crores.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [85]

——————————————————————————–

INR 120 crores. Okay. And when you gave that INR 700 crore CapEx number for FY ’21, does that include the OpEx capitalized also? Or this is just the CapEx number?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [86]

——————————————————————————–

Yes, Dheeresh, it includes the OpEx as well.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [87]

——————————————————————————–

And this also Include the R&D — Aleor R&D capitalization?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [88]

——————————————————————————–

No, no, no. Aleor R&D capitalization doesn’t form in part of that capitalization. That forms under the intangibles, which we do not consider as part of the core tangible CapEx.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [89]

——————————————————————————–

Okay. So when you gave the plant-wise annualized OpEx, you said F2 and F3 combined is INR 250 crores on an annualized basis. F4 is about INR 40 crores. That is INR 290 crores. And then how much is Aleor on an annualized basis? Although it is getting expensed right now, but just to get a sense.

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [90]

——————————————————————————–

Around INR 75 crores.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [91]

——————————————————————————–

INR 75 crores. Okay. And there was some goodwill and investment impairment. Did you call it out earlier? I was not there in the call in the earlier part. So can you explain that?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [92]

——————————————————————————–

No, no. So this is the first time that you’re asking it. It is about Orit, actually. So what we have done is Orit had some intangibles and goodwill, actually. So we have done an accelerated amortization of that piece.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [93]

——————————————————————————–

Okay. So it is all written off now there? Or there is something else that can…

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [94]

——————————————————————————–

No, no, it is absolutely written off.

——————————————————————————–

Operator [95]

——————————————————————————–

The next question is from the line of Damayanti Kerai from HSBC.

——————————————————————————–

Damayanti Kerai, HSBC, Research Division – Analyst, Healthcare and Hospitals [96]

——————————————————————————–

Coming back to gross margin. So given now — you said we have like nothing changed for last 6 to 9 months for the sartan opportunities, plus India improving. So how should we look at the base gross margin trend?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [97]

——————————————————————————–

See, I mean, it’s a function of a lot of many things, right? It is a function of what product mix. It’s a function of where is dollar, rupee. So a lot of things influence it. But I think it would be around 70%, 75%. It would be hovering around that.

——————————————————————————–

Damayanti Kerai, HSBC, Research Division – Analyst, Healthcare and Hospitals [98]

——————————————————————————–

Sorry, 70% to 75%?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [99]

——————————————————————————–

Yes, I’ve given you a larger, broader base because it’s difficult to pinpoint on a particular number, Damayanti.

——————————————————————————–

Damayanti Kerai, HSBC, Research Division – Analyst, Healthcare and Hospitals [100]

——————————————————————————–

Okay. Okay. My second question is, can you update us regarding your manufacturing plant status or your logistic situation compared to like what you have given a few weeks back? Are we going back to 100% operations? In between, obviously, there was some disruption and all. But what is the situation right now?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [101]

——————————————————————————–

Yes. So good question. I think as we are at practically 100% in terms of realistic and in terms of theoretical, it would be a little lower. Because what we do is in this period, first of all, in the first few weeks, there was a little shortage of the labor force. And second, what we do is we stagger some of the shifts and working. So we reduced — so we would be at about 70%, 80% of our regular capacity.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [102]

——————————————————————————–

Okay. That’s the manufacturing plant. And sir, how about the supply in terms of both inbound and outbound logistics? Like how we are seeing (inaudible)

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [103]

——————————————————————————–

No, no issue. No issue there.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [104]

——————————————————————————–

So it’s coming normally? Because I think we heard in between that there were some shortage of people at the ports and all that because (inaudible)

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [105]

——————————————————————————–

Yes, you’re right. So a few things. One is, as I said, I think what happened at the ports, there was a shortage pretty much in the first few weeks of the lockdown. But as you know, we generally carry a lot more safety and buffer stock. So we were absolutely protected with that.

One of the reasons why, in Europe, if you saw compared to Q3, the sales are a little down, about INR 10 crores, is some dispatches were held up from the customs and the clearance and flights. But now I think we’re seeing regular movement of all inbound and outbound. So it shouldn’t be an issue.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [106]

——————————————————————————–

Sure. And if some of this current lockdown extend, do we see any impact? Or we should be operating normally without facing any much impact?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [107]

——————————————————————————–

I don’t see there’s an impact. I think we’re fine.

——————————————————————————–

Operator [108]

——————————————————————————–

(Operator Instructions) The next question is from the line of Harish Kumar Gupta, an individual investor.

——————————————————————————–

Unidentified Participant, [109]

——————————————————————————–

Hello?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [110]

——————————————————————————–

Yes. Go ahead, please.

——————————————————————————–

Unidentified Participant, [111]

——————————————————————————–

Hello?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [112]

——————————————————————————–

Yes. Please go ahead.

——————————————————————————–

Unidentified Participant, [113]

——————————————————————————–

Yes. Sir, I think my — almost all the questions have been answered. So you can…

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [114]

——————————————————————————–

Oh, thank you.

——————————————————————————–

Operator [115]

——————————————————————————–

(Operator Instructions) The next question is from the line of [G. Vivek] from GS Investments.

——————————————————————————–

Unidentified Analyst, [116]

——————————————————————————–

Sir, congratulations on good set of numbers. I just wanted to have, sir, the macro idea about the sector as such. Is there a shift to — in manufacturing from China to India on lines of chemical, agrochemical sector also worldwide because world wants to reduce the dependency on a single country and location?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [117]

——————————————————————————–

Yes. It’s a macro question. I think it’s tougher to answer. It depends which product and which market it is going to. What is most important is to ensure that your supply chain is reliable. I’m not seeing any anti-China right now. I think we want to ensure that we have more robust supply chains. And that’s — consistently we’ve been working on that by having multiple sources, not just China, but India as well.

——————————————————————————–

Unidentified Analyst, [118]

——————————————————————————–

Okay. And sir, basically, the opportunity in the numbers, which I believe have been dated in U.S. market, other people have also raised this query, but I’ve recently started tracking the company. So if you excuse me for that part. And it seems to be a onetime sort of thing? Or will it keep on happening and we’ll keep on getting some other molecules? And it’s some of the differentiated for our company, which you can highlight, I believe our front-end capability in the pharma sector in the U.S. especially is really good. And some other differentiator, if you can highlight, sir?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [119]

——————————————————————————–

So it’s a good question. I think a lot of people have been asking it, but I’ll just clarify. So sartans is a big portfolio because the sartan products are very high volume products. So we did see an opportunity this year. We saw it actually last year also for 1 quarter and then this year for quite a few quarters.

Consistently now, our base business in the U.S. is about $70 million in dollar terms. So that’s what our base business is. And this constitutes a lot of the sartans, and we have pretty much all the sartans. So this is one aspect of it. Apart from that, we’re launching about 20-odd products every year in the U.S. So that should also help in getting more business moving forward.

——————————————————————————–

Unidentified Analyst, [120]

——————————————————————————–

And sir, in India, I think we have — I’ve been a personal user of many of your brands, Wikoryl and are so many, for a long period of time. So we have an enviable range of brands in Indian market also. And any plans of enhancing that also and exploiting more?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [121]

——————————————————————————–

Yes. I think we’re always looking at expanding. And I think we are constantly work to build brands. Even in the acute — old acute portfolios, we try to prioritize high-growth markets as well as in other specialty areas. I think women’s health care is one area where we had substantial brand-building activity. That’s happened in cardio. We’ve had substantial work that’s going on in that area. Gastroenterology, we built. So yes, we are in the process of building a lot of brands. I mean no question about it, so…

——————————————————————————–

Unidentified Analyst, [122]

——————————————————————————–

And sir, COVID helping us overall in the world market, sir, both in India and abroad also? COVID closure and lockout and sort of a pharma demand worldwide. Is it the same thing as this is in India?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [123]

——————————————————————————–

No. I think — see, pharma is one area that the demand hasn’t really changed much. And I think that’s — market-wise, we’re not seeing any changes on that.

——————————————————————————–

Operator [124]

——————————————————————————–

The next question is from the line of Ashish Thakkar from Motilal Oswal Asset Management.

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [125]

——————————————————————————–

So given this lockdown, so like some of the industry experts obviously said that there was some prebuying of the medicine. So this is for Shaunak. So like, how do you see FY ’21 panning out at the industry level? Do you anticipate that there would be a slowdown in the growth of the acute segment? And any color on this would be helpful.

——————————————————————————–

Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [126]

——————————————————————————–

Okay. So I cannot predict what’s going to happen because none of us know what’s going to happen in the next 3 months. But I can just give you a brief idea of what’s happened last month and what’s happening in April too. I’ll look at 2 points on this. One is IMS. If you look at IMS in terms of what — the numbers that they put out for March, the first thing is, if you saw the split, if you see largely the market degrew far faster for companies between the size of 25 and up. So what I’m trying to say is smaller companies degrow a lot more compared to — had lower growth rates compared to the larger companies. So that’s one thing what we are seeing.

Second thing, within the portfolio mix, I think the way I see it is, at the moment, essential products are being consumed at the same rate. So when I talk of antibiotics, cough and cold, acute segments, I think those were seeing the same traction and some amount of sensitivity due to COVID. Cardiovascular continues.

I think the only place where we have seen a slight touch of slowdown is in those nonessential kind of area. But I don’t mean nonessential, but things that could be put off to a later date. For example, a lot of women’s health care has got affected, the portfolio. Orthopedic seems to have gotten affected this month.

So we’re seeing a balancing of that. But I think the minute the clinics open up again, we definitely are going to see — we see a quick recovery of that. So…

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [127]

——————————————————————————–

Okay. Sir, so in absolute sense, it would be — it would not be fair to assume that there could be some sales lost during the year? If anything happens on that side, it could be recouped. Is that a fair understanding?

——————————————————————————–

Shaunak Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [128]

——————————————————————————–

Yes. So I don’t think there would be sales lost per se at this moment.

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [129]

——————————————————————————–

Okay. Fair enough. So another question for the U.S. markets. So like

(technical difficulty)

CapEx related to Aleor, 120 has been capitalized in this year. That’s what you said, right?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [130]

——————————————————————————–

No. So there are 2 parts in Aleor, okay? One is about the core CapEx, which is around INR 230 crores, which is plant expense which got capitalized, which was on 30th of September.

And then there is R&D spend on the products actually, which also gets capitalized in Aleor, which is the other number.

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [131]

——————————————————————————–

So for the year, how much amount has been written off above EBITDA on this related to preoperative expenses?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [132]

——————————————————————————–

[Ashish] effectively, questions on Aleor, can we talk off-line? I mean we will discuss the entire balance sheet of Aleor.

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [133]

——————————————————————————–

Okay. No — so other expenses is — obviously, there would be element of preoperative expenses in Q4 also?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [134]

——————————————————————————–

Right.

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [135]

——————————————————————————–

So that, I wanted to understand. But anyway, if this is not available, I’ll talk later off-line.

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [136]

——————————————————————————–

Yes. And specific things with this joint venture Aleor, let’s do it one-to-one, yes.

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [137]

——————————————————————————–

Okay. Secondly, I see interest cost is flattish, so while debt has increased significantly. So why is this so?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [138]

——————————————————————————–

Yes. So what happens is that the bulk of this loan has gone to fund the new CapExs, which are the projects, actually. And that’s obviously portion of that interest goes and get capitalized. That’s why you don’t see that impact on P&L.

——————————————————————————–

Ashish Thavkar, Motilal Oswal Asset Management Company Limited – Associate VP [139]

——————————————————————————–

Okay. Okay. And have you seen any pricing traction in azithromycin in domestic market?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [140]

——————————————————————————–

No. I think this is price control. So I think we are — we’re limited by WPI. I think if I remember clearly, the WPI last 12 months was, I think, 1.2%, if I remember clearly. I could be wrong. I’ll get back to you on that number.

——————————————————————————–

Operator [141]

——————————————————————————–

The next question is from the line of Prakash Agarwal from Axis Capital.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [142]

——————————————————————————–

Question is on the launches in the U.S. So in the presentation, you’ve highlighted you launched 22 products. So the base business that you’re talking about is the existing portfolio. So would it be correct to understand these 22 products launched during last financial year, plus the 10 that you’re planning to launch for the first half, that is over and above? That’s correct understanding?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [143]

——————————————————————————–

No. So base business because I’ll tell you how we look at the this, okay. The $70-odd million what I’m talking about is with the products that have also got launched. That’s one thing. Second is in terms of us and helping our strategy, we see whenever on the first few weeks or whatever we launch, we don’t pick up market share right away. In fact, sometimes, we take a while to launch the product as well. That’s why it’s very tough for us to break up the existing and the old.

But this is what our business as base business as I see it today as on first — 22nd April or so.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [144]

——————————————————————————–

So this — I mean, I’m just trying to understand this $70 million is ex sartan or including sartan?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [145]

——————————————————————————–

Everything, total.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [146]

——————————————————————————–

Okay. Understood. Fair enough. And just one question on the — we are seeing daily shortages updates, which is the list is increasing by the day. So are you seeing some supply opportunities, both on the volume and price side, where — which you’re already in a sweeter spot for the quarter and the year going ahead?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [147]

——————————————————————————–

So — and this is just overall, what I’ve been talking for the last few years is that the U.S. market is one market which there are always supply disruptions. And our strategy is we want to be a nimble player that we can catch some of these supply opportunities. And we keep seeing them. I don’t know where the next one is going to come from. But we keep seeing them, one of the ones that we saw recently was there was increase in the need for famotidine because ranitidine was pulled off the shelf. So we keep seeing that in various products. Sometimes you see a shortage. Sometimes a little more long term, sometimes short term.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [148]

——————————————————————————–

Okay. And lastly, you spoke about shipments. So as per you, you are having regular shipments is what I understood correctly in terms of — because other companies that I speak to, they say that they are doing more airfreights. So are you doing regular shipments for your products?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [149]

——————————————————————————–

Yes. So we’re doing regular shipments. But we’ve always done more air anyway. So right now also, we’re doing more air for our shipments.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [150]

——————————————————————————–

Sorry, I’m not able to hear you.

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [151]

——————————————————————————–

We do more air shipments anywhere. I think about 65% of our shipments will probably be by air. And that ratio hasn’t changed.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [152]

——————————————————————————–

Okay. And the rates have gone up significantly on that, but that would be small cost to the overall scheme of things?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [153]

——————————————————————————–

Yes, absolutely. You’re spot on.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [154]

——————————————————————————–

Yes. Okay. Got it. Got it. And if I may squeeze one more. On the finished goods inventory and the raw materials good inventory, what is the company policy like for the export markets? Do we keep like 1, 2 months or 3 months for both finished goods and raw material?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [155]

——————————————————————————–

This is a very complex question because it depends which product, what is the regular moving product, how we do it, what’s the API eventually. So very tough to give an answer because it’s too complicated.

——————————————————————————–

Prakash Agarwal, Axis Capital Limited, Research Division – Executive Director of Pharmaceuticals [156]

——————————————————————————–

Okay. But any general comments?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [157]

——————————————————————————–

Ideally, we would like to have at least 3 months inventory, but it’s never the case.

——————————————————————————–

Operator [158]

——————————————————————————–

(Operator Instructions) The next question is from the line of [Shubhechha Jain] from AMS Wealth.

——————————————————————————–

Unidentified Analyst, [159]

——————————————————————————–

Sir, I have a couple of questions. The first question is regarding the FDA audit that happened. And I think you mentioned you only had some 4 procedural observations.

Is it possible to throw some more light onto it? And does that impact the production happening from F1 plant in future?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [160]

——————————————————————————–

Okay. So it doesn’t impact our production at all or our supplies. They were pretty much procedural. One was — there’s one which was related to a product — what we classified as a withdrawal rather than a recall. So it was — to make it procedurally clear, so procedure for complaints.

Second was just some basic SOPs for governing, basic SOPs for some camera system, basic SOPs for some labels and labeling material. So it’s quite a procedural nature. We’ve sent our responses. We’ll hopefully hear the FDA soon as well.

——————————————————————————–

Unidentified Analyst, [161]

——————————————————————————–

Okay. Okay. And sir, another question related to this. I think there is a slide on the presentation that you have said the F1 plant has been audited in March ’20. The API 3 has been audited in Jan ’20. So what happens to the plants that have been audited, say, like F2 in June ’19. So how typically does FDA audit works? Like what is the typical interval? One is that.

And second, there are certain plants like F3 and F4 where filings have happened, but there has been no audit. So what typically happens? I just want to understand that — yes, go ahead, sir.

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [162]

——————————————————————————–

Yes. Historically, the FDA used to come once every 2 years, but that is no longer the case. They come whenever there’s either a GMP audit, which is a facility-based or preapproval inspection for a product. In terms of F2, it’s approved. EIR is in place, so there’s no issue there and product approvals will come as they are filed.

F3, the product was just filed in Q4. So typically, it takes about at least 9 months to a year until the time — by the time they come for an audit, so we should see an audit from the FDA in the next 9 months.

As regards F1, commercial sales are ongoing. So there’s no issue. We should get the EIR soon.

——————————————————————————–

Unidentified Analyst, [163]

——————————————————————————–

Okay. So F3, now is the filing — so what happens is — if the filing is approved but it has not been physically inspected, can we still go ahead with the production? Or we have to wait for the final audit of the FDA?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [164]

——————————————————————————–

It depends on the FDA, and I don’t know what they’ll do in the situation. We still have about 9 months left. Normally, if it’s the first time, they like to come and audit it in person before approving it. So we still have time. So let’s see what happens.

——————————————————————————–

Unidentified Analyst, [165]

——————————————————————————–

Okay. Okay. And sir, one more question and I’ll come back in the queue. There has been reduction — degrowth in the API segment, even on a quarterly basis and then on a full year basis. So can you just throw some light on that?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [166]

——————————————————————————–

Absolutely. So it’s a good question, someone else may also have it. The API business, we have 1 custom manufacturing deal — contract manufacturing deal with an MNC. And last year, they picked up a lot of business. And this year, that is 0. Apart from that, the balance API business has actually grown compared to last year. So that’s the only reason why this year is a little less.

——————————————————————————–

Unidentified Analyst, [167]

——————————————————————————–

Okay. And what trend can we expect in FY ’21?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [168]

——————————————————————————–

I’s tough to give a guidance, but I would expect that the API business should grow this year about 15% or 20% at least.

——————————————————————————–

Operator [169]

——————————————————————————–

The next question is from the line of [A. N. Lodha] from [Sanmathi Consultants.]

——————————————————————————–

Unidentified Analyst, [170]

——————————————————————————–

Hello? Am I audible, sir?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [171]

——————————————————————————–

Yes. Yes, please go ahead.

——————————————————————————–

Unidentified Analyst, [172]

——————————————————————————–

My first question is to Mr. Baheti. And in consolidated, I also observed that trade receivable has increased to INR 864 crores against INR 488 crores.

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [173]

——————————————————————————–

Yes.

——————————————————————————–

Unidentified Analyst, [174]

——————————————————————————–

Yes. Also, inventory has also gone from [INR 960 crores, INR 700 crores] to 1,187 crores. So mainly, I was — my question is pertaining to inventory — increase in inventory as well as trade receivable. Please clarify.

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [175]

——————————————————————————–

Yes. So that is an absolute increase in the numbers. And you have to see it in relative to the growth in the business as well, actually. And also in the number of days.

So last year, our inventory days were 88, which have increased to 93, which is absolutely fine. We have built some strategic inventories as well.

As far as receivables are concerned, our bulk of growth has come from U.S. markets, 53% of growth vis-à-vis last year. And there, with the natural growth in the business, receivable days also increases. But nothing concerning because it is 68 days in the absolute terms. So yes.

——————————————————————————–

Unidentified Analyst, [176]

——————————————————————————–

Okay. Okay. My second question pertains to sales, sir, which is for Pranav. Actually, we have grown — we have shown a very good growth in U.S. results. Whereas Rest of World and India business, in last quarter, India business has grown. But overall, if you look in the 12-month figure, the India business growth is just 1% and rest of the world is normal growth in the rest of the world also. What is the main reason, sir? In India — why we are not increasing our sales in India, (inaudible).

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [177]

——————————————————————————–

I think we talked about in my opening statement, India growth is less for the year. I think because we took some decisions to make some changes how we do business. So because of that, we had a couple of quarters of no growth. But I think Q4 is a better idea of how we expect the business to behave going forward.

——————————————————————————–

Unidentified Analyst, [178]

——————————————————————————–

Can we take this Q4 growth as a benchmark for FY ’21, sir?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [179]

——————————————————————————–

A lot of the growth will be determined by market growth. So as long as the market keeps growing at a double-digit growth rate, I think we can comfortably say that we actually — we will outgrow the market.

——————————————————————————–

Unidentified Analyst, [180]

——————————————————————————–

But sir, I am tracking this is generally pharma and Glenmark and all other companies, which are selling in India. They are showing good growth, double-digit growth. Whereas we are a 100-year-old company, and our growth is not that much in Indian formulation.

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [181]

——————————————————————————–

So sir, I think he answered it. There were some questions that when would we be cleaning up the business? And Q4 is more indicative of our growth.

Sir, in the interest of time, can we take this off-line? I can ask Mr. Baheti and Mitanshu to take this off-line with you. Because we have a long line of people in the queue and they’re still — we’re running out of time.

——————————————————————————–

Operator [182]

——————————————————————————–

The next question is from the line of Nimish Mehta from Research Delta Advisors.

——————————————————————————–

Nimish Nagindas Mehta, Research Delta Advisors, Research Division – Research Analyst [183]

——————————————————————————–

Congrats on a great set of numbers. Just 3 questions. One, on the febuxostat launch that we had 1 quarter before and we need to expect more competition this quarter, did we see any few months of low competition in this quarter? In other words, the first half a big contributor towards the U.S. in this quarter?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [184]

——————————————————————————–

So I think febuxostat, if I’m not mistaken, there were about — initially, there were only about 4 or 5 that launched. And since then, there’s only been one more entrant in the last 3 months.

——————————————————————————–

Nimish Nagindas Mehta, Research Delta Advisors, Research Division – Research Analyst [185]

——————————————————————————–

Okay. So it has been a big contributor this quarter, right? I mean in comparison to the previous one, would you say?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [186]

——————————————————————————–

Yes. This is one more [entrant].

——————————————————————————–

Nimish Nagindas Mehta, Research Delta Advisors, Research Division – Research Analyst [187]

——————————————————————————–

Any reason why not — why competition is not increasing there?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [188]

——————————————————————————–

Good question. I don’t know. You’ll have to ask somebody. It was — FDA, I don’t know why the others didn’t file or didn’t get approval. I don’t know what the issue is.

——————————————————————————–

Nimish Nagindas Mehta, Research Delta Advisors, Research Division – Research Analyst [189]

——————————————————————————–

Okay. Okay, good. And secondly, we have been reading in the newspapers that Baddi in Himachal Pradesh has been impacted because of (inaudible).

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [190]

——————————————————————————–

We don’t have facilities in Himachal.

——————————————————————————–

Nimish Nagindas Mehta, Research Delta Advisors, Research Division – Research Analyst [191]

——————————————————————————–

Yes, Himachal as well. So — I’m talking about (inaudible).

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [192]

——————————————————————————–

We don’t have any facilities in Himachal.

——————————————————————————–

Nimish Nagindas Mehta, Research Delta Advisors, Research Division – Research Analyst [193]

——————————————————————————–

Oh, you don’t? Oh, I’m sorry. Okay, fine. I though you already said. Okay, but we don’t — we are not taking any of those supply constraints, right?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [194]

——————————————————————————–

No, I think we have — as I mentioned earlier, our supply side, we’ve been okay in both India and the U.S. business.

——————————————————————————–

Operator [195]

——————————————————————————–

The next question is from the line of Nikhil Upadhyay from Securities Investment Management.

——————————————————————————–

Nikhil Upadhyay, Securities Investment Management Pvt Ltd – Fund Manager [196]

——————————————————————————–

Yes. Congratulations on good set of numbers. Hello?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [197]

——————————————————————————–

Yes. Go ahead.

——————————————————————————–

Nikhil Upadhyay, Securities Investment Management Pvt Ltd – Fund Manager [198]

——————————————————————————–

Yes. Sir, I have 3 questions. One is because of this issue of lockdown and supply chain issues and a lot of prebuying, just wanted to understand what would be the inventory in the trade channel in domestic market? So as I understand, it used to be around 45, 60 days, so is there a big fall in that inventory holding which has happened?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [199]

——————————————————————————–

I think the trade inventory, I think that — I think certain areas, the inventories have gone up. Certain areas, inventories have come down. So I think net-net, it should be same.

——————————————————————————–

Nikhil Upadhyay, Securities Investment Management Pvt Ltd – Fund Manager [200]

——————————————————————————–

Okay. So you don’t see any major change in the days?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [201]

——————————————————————————–

No, we don’t see. I think trade channels are operating pretty smoothly now. So I don’t think there’s any — there’s — I think supplies are happening as — without hiccups. So I think inventory, there’s no overstocking or understocking at this point.

——————————————————————————–

Nikhil Upadhyay, Securities Investment Management Pvt Ltd – Fund Manager [202]

——————————————————————————–

Okay. Sir, on this question of COVID. So we’ve seen that some of the companies in India have been impacted with the people at the manufacturing site being detected COVID-positive. So just want to understand, if a similar thing happens, is there a protocol? So does that mean that the whole facility would be shut down or — so just to understand, is that — how do we manage that?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [203]

——————————————————————————–

Yes. So I’ll answer that for you. So what we do is we’ve taken some precautions. One of the basic precautions, what they’ve recommend in terms of spacing, less people in a bus, canteens have been moved out. Apart from that, what we’ve also done is we’ve made our plant into clusters. So each one — each of them are segregated with their own individual canteens, dining area, so there’s less mix up. So some of the measures we’ve taken, how it happens, how the government reacts, what kind of preparedness, I think there’s some SOPs that IPA has also recommended, and we’re implementing those.

——————————————————————————–

Nikhil Upadhyay, Securities Investment Management Pvt Ltd – Fund Manager [204]

——————————————————————————–

Okay. Okay. But that does not mean that the whole plant would be shut down, so only a part of it could be shut down and…

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [205]

——————————————————————————–

We hope not. God forbid, we get a case. We hope not. But otherwise, it depends. I think some plants have shut. But we’re trying to take as many precautions as we can.

——————————————————————————–

Nikhil Upadhyay, Securities Investment Management Pvt Ltd – Fund Manager [206]

——————————————————————————–

Okay. Lastly, sir, on sartans. So I think there was this issue of NDMA, as a result, many of the API suppliers were not there. But now, how do you feel? Like, are there new API suppliers which are evolving without this impurity? Or how is the scenario developing on the sartans?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [207]

——————————————————————————–

We’re not seeing any — as someone mentioned, I’m seeing some more people come in. No new suppliers. I think the old ones who have cleared up. But again, it’s a big range of products. So I think overall, there’s still a lot of opportunities there in sartans in the next 3 to 6 months, at least.

——————————————————————————–

Operator [208]

——————————————————————————–

The next question is from the line of Purvi Shah from Kotak Securities.

——————————————————————————–

Purvi Shah;Kotak Securities;Analyst, [209]

——————————————————————————–

Yes. Sir, my question is related to the dependence on China for the raw materials. And are those supplies on-stream right now?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [210]

——————————————————————————–

Supplies from China, Mitanshu?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [211]

——————————————————————————–

Yes. So yes, we have seen — there was definitely disruption in February, January. But from March, we have seen the normalcy returning, actually. So you say that it is around 70% normalcy has returned. If you were carrying, Purvi, material for 3, 4, 5 months of inventory at your place then you are really not disturbed actually.

——————————————————————————–

Purvi Shah;Kotak Securities;Analyst, [212]

——————————————————————————–

Okay. Sir, what is our dependence on China for the raw material?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [213]

——————————————————————————–

15% on the overall imports.

——————————————————————————–

Purvi Shah;Kotak Securities;Analyst, [214]

——————————————————————————–

15%, okay. And sir, the other thing I just wanted to understand is that now that you’ve said that 3 — since you’ve already supplies of 3 to 5 months, you are through for it.

But then going forward also, in case there are shipments that are going to come from China, what are the kind of precautions we will be taking? Because I guess one of our competitors’ plant was shut down. First, they had that shipment that come from China where the traces have been found of the COVID virus.

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [215]

——————————————————————————–

So actually — so as I mentioned, we’ve taken all the — the person before you asked the question. And we’re taking whatever precautions there are. In terms of this plant, I don’t know if they were infected by a shipment from China or physical, no one knows. But we’re taking whatever precaution we can and as per the guidelines that have been issued by the government and with by the pharmaceutical…

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [216]

——————————————————————————–

(inaudible)

——————————————————————————–

Purvi Shah;Kotak Securities;Analyst, [217]

——————————————————————————–

Yes. Sir, and the last one is that for Q1, are we seeing any disruption on the logistics side for domestic business because of the lockdown or of restriction and movements for interstate?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [218]

——————————————————————————–

There were some disruptions in the first 10 days of the lockdown. But I think now it’s extremely smooth. I think there’s been huge support from the government, both central and state, so we’re getting absolute smooth movement of products.

——————————————————————————–

Purvi Shah;Kotak Securities;Analyst, [219]

——————————————————————————–

Okay. And sorry, sir, one last one. I’m really sorry. This is regarding the APIs. So are we looking at — like one of the participants in the very beginning has said that there are chances that a lot of global and MNC players looking at India for certain APIs.

So do we see some DMFs that we would like to revive, looking at the current situation in case if people would like to shift from China? Do we see some traction in the assets?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [220]

——————————————————————————–

So I — we see enough opportunities in the current APIs that we already have. It’s also — we’re also making azithromycin. We’re one of the larger manufacturers of azithromycin in India. So we’re just focusing on those opportunities for now.

——————————————————————————–

Operator [221]

——————————————————————————–

The next question is from the line of Mayank Hyanki from Axis Mutual Fund.

——————————————————————————–

Mayank Hyanki;Axis Mutual Fund;Analyst, [222]

——————————————————————————–

Sir, because of the current situation, is there any major change in our thought process of our manufacturing strategy with regard to vertical integration or with regard to supply chain sourcing from various parts?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [223]

——————————————————————————–

So I think this call — this question was asked of me earlier as well. I think the most important thing is that how we have a robust supply chain. And be it China and India, that’s a constant area that we’ve been working on to ensure we have local suppliers and we have multiple suppliers. And that does not change irrespective of COVID. I think right now we are, as Mitanshu said, by total, as a percentage of total imports from China, it’s only about 15%. So we’re still looking on that. Moving forward, we’ll develop more as we can.

——————————————————————————–

Mayank Hyanki;Axis Mutual Fund;Analyst, [224]

——————————————————————————–

So there is not — no thought process right now to increase the vertical integration backwards? Is that…

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [225]

——————————————————————————–

No, that is also there. We are increasing our vertical integration backwards as well in terms of intermediates. And as I said, irregardless of COVID, because increasingly, the regulatory bodies want to inspect intermediate manufacturers. They want to inspect advanced intermediates. So instead of putting yourself at risk after all the filing, you would rather have these in your own control.

——————————————————————————–

Mayank Hyanki;Axis Mutual Fund;Analyst, [226]

——————————————————————————–

Okay. Second question is with regards to CapEx now, sir. I believe that we have already done almost 95%, 100% of our CapEx with regards to all the new facilities which you are doing. So just wanted to understand, going forward, out of the INR 7 crores, INR 8 crores (sic) [INR 700 crores] CapEx, how much is on the facilities, whether it be maintenance or the new odd — or towards any new facilities?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [227]

——————————————————————————–

So as I explained in one of the questions, INR 700 crores of the CapEx that we are talking about, INR 300-odd crores would be on the projects, and bulk of that would be from the preoperatives actually. So it’s not brick-and-mortar or machineries for the new plant. That is all done, actually. But until we put these plants to commercial use, we would capitalize the expenses.

——————————————————————————–

Mayank Hyanki;Axis Mutual Fund;Analyst, [228]

——————————————————————————–

Sir, this INR 300 crores is broadly our maintenance CapEx on all our plants currently? And this is the going maintenance CapEx which we have?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [229]

——————————————————————————–

That’s true.

——————————————————————————–

Mayank Hyanki;Axis Mutual Fund;Analyst, [230]

——————————————————————————–

Okay. And lastly, is there any change in the API price trend for us, which we have seen in our products which we are selling basically in the last 1 month or so?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [231]

——————————————————————————–

No. I think no price changes per se.

——————————————————————————–

Operator [232]

——————————————————————————–

The next question is from the line of Bharat Celly from Equirus Securities.

——————————————————————————–

Bharat Celly, Equirus Securities Private Limited, Research Division – Associate [233]

——————————————————————————–

I just wanted to get a clarity. ‘Til 3Q, we were maintaining a stance that $50 million would be the base revenues for the U.S. market. However, in fourth quarter now, we are referring to $70 million. So just wanted to understand what has changed between this period which has led to incrementally $20 million increase in our guidance?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [234]

——————————————————————————–

So first of all, it’s not a guidance. I’m just saying that if you see the last 3 quarters, Q2, Q3, Q4, we have consistently done $70 million. So it’s not that 1 quarter — the first quarter is a lower cost. But since then, we’ve done consistently $70 million. That’s why I’m a little more confident saying that this is the base business, and this is what I expect moving forward and then what the new launches will do to that.

——————————————————————————–

Bharat Celly, Equirus Securities Private Limited, Research Division – Associate [235]

——————————————————————————–

Right. But sir, when we referred that sartans would be another 3 to 6 months phenomenon. And after that, it may plunge. So in case if it happens, then will we be looking at a number lower than $70 million? Or that number we can still attain by some other solution?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [236]

——————————————————————————–

So as I said earlier, the sartans — there’s about 15-odd sartans in the market. And some, we’ve already seen some erosion. Some, there’s still being supply disruptions. So it’s a combination. And I think I would look at it as how we look at any other companies if you see an erosion in a particular product or a particular basket. That may happen. Now how severe the erosion, it’s very tough for me to predict. But today, as we see it, we’re seeing a trend for the last 9 months. I’m fairly confident that $70 million is the base number for us.

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Bharat Celly, Equirus Securities Private Limited, Research Division – Associate [237]

——————————————————————————–

Right. And sir, is it possible for you to share what is the composition of top 5 products in the U.S. market, including sartan portfolio?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [238]

——————————————————————————–

So top 5 products is about 35% of our sales for the U.S.

——————————————————————————–

Bharat Celly, Equirus Securities Private Limited, Research Division – Associate [239]

——————————————————————————–

And that includes all the sartan portfolio?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [240]

——————————————————————————–

Top 5. I’m not dividing sartans. Just top 5.

——————————————————————————–

Operator [241]

——————————————————————————–

The next question is from the line of [Ayush Mittal] from [MAPL Value Investing Fund].

——————————————————————————–

Unidentified Analyst, [242]

——————————————————————————–

Sir, congratulations on a good performance yet again.

Sir, can you share more about the product pipeline that we are preparing now given that the R&D expense has been increasing even more? Like in this quarter, we have spent almost INR 180 crores on R&D. And the R&D expense will continue to be at elevated levels, as we mentioned, for the next year. So can you tell us more about how you — in what areas are this R&D happening? And what kind of pipeline are we getting going forward?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [243]

——————————————————————————–

So R&D investment is 2 things. One is your part of the area where R&D also included in this, number one.

Number two, what we’ve been saying, I think throughout, now we have increasingly more R&D happening in injectable products, ophthalmic products, oncology products and the new facilities that we’re building. So apart from that and the (inaudible). In terms of filings, we said about 25 to 30-odd filings is what we expect. I don’t expect that to go up significantly. I think that should remain in the case that we’re seeing.

We also keep pruning our portfolio, depending on market situation. So this year, we’ve actually cut some products as well.

——————————————————————————–

Unidentified Analyst, [244]

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This INR 650 crores won’t be including the Aleor R&D, I believe?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [245]

——————————————————————————–

So yes. Ayush, it’s like the product that we commercialize, we put to use is something that gets expensed off, actually.

——————————————————————————–

Unidentified Analyst, [246]

——————————————————————————–

Yes. Yes. So this INR 650 crores would be expensed out in the P&L for this year?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [247]

——————————————————————————–

Yes, that’s true. So — and we have close to INR 30 crores which is expensed off in the R&D.

——————————————————————————–

Unidentified Analyst, [248]

——————————————————————————–

Yes. So what I’m trying to understand is like, when we compare our R&D expense with any other company, our R&D expense for ANDA is very, very high. It is more than double or triple. So what causes that when we are more into generic products? And how do you see the payoff happening in coming years?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [249]

——————————————————————————–

Ayush, we haven’t done a comparison like this. Actually, we have been consistently having a spend of 13%, 14%. And you’ve seen that it has paid a handsome dividend over the last half a decade or so, actually. So we do not do this comparison, I mean, yes. And we do not know what the grid which others are working on. So we haven’t done that. But yes, we can take it off-line, we can discuss this.

——————————————————————————–

Unidentified Analyst, [250]

——————————————————————————–

Sir, something more on the product side wherein for next 1 year, you see some promising product in a pipeline. Can you brief us more about them? Where do you see the next pipeline of products that could be contributors?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [251]

——————————————————————————–

It’s very tough, Ayush. We can’t give a guidance in terms of our products. As I just mentioned that we filed our first from the injectable facilities. So hopefully, we’ll have more filings for injectables. But I can’t really give a guidance for what is expected.

——————————————————————————–

Unidentified Analyst, [252]

——————————————————————————–

Okay. Sir, other thing on the debt, the absolute debt number, given the CapEx and everything we are doing is a bit high now. What are your plans? How do you plan to do the capital allocation going forward for next couple of years?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [253]

——————————————————————————–

So if you see, Ayush, what would be our — bulk of our projects are done, actually, we’ll have INR 300-odd crores of maintenance CapEx. And if we continue to kind of gross the kind of profits that we’ve done now, we see debt levels to go down in next 2 years from here, actually. So — and at 0.52, which is current level, I think it’s very comfortable zone that we are in.

——————————————————————————–

Unidentified Analyst, [254]

——————————————————————————–

But we plan to reduce it to some absolute number or some other metrics that we have for longer term before we embark on the next capex cycle or something?

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [255]

——————————————————————————–

No. The robust internal accruals will ensure that this number comes down in absolute number as well as the — in the debt equity ratio.

——————————————————————————–

Unidentified Analyst, [256]

——————————————————————————–

Sure. As you also, I think — is Mr. Jesal on the call?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [257]

——————————————————————————–

Yes. I think (inaudible) if you have a quick question.

——————————————————————————–

Mitanshu Shah, Alembic Pharmaceuticals Limited – Head of Finance [258]

——————————————————————————–

Ayush, I’ll set up your call with Jesal.

——————————————————————————–

Operator [259]

——————————————————————————–

The next question is from the line of Tarang Agrawal from Old Bridge Capital.

——————————————————————————–

Tarang Agrawal;Old Bridge Capital;Analyst, [260]

——————————————————————————–

Just wanted to get your perspective on something. I see Indian injectables facility is being under enhanced scrutiny by FDA. And some of the bigger players either are struggling to get EIR or even considering setting up facilities in the international territories. Being in the business, why do you think the Indian injectable facilities are witnessing such an enhanced scrutiny from FDA? That’s number one.

And a follow-up on that is, what are you doing differently from your larger peers to ensure that these units are not stuck there, especially given a significant chunk of Alembic’s future growth engine over the next 3, 5 years is on the injectables opportunity and you’ll have significant capital being deployed there?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [261]

——————————————————————————–

So that’s a loaded question. Okay. Let me see if I can give a quick answer. The issue is not just with injectable, our company’s injectable, but I think it has to be more with culture in India. And that is something that all companies are working with. And it takes a while to get this culture in India, i.e., the big companies are starting getting it. We are on the ball and keep going fast.

What we have done is a few things. We don’t have as many facilities because we believe that the risk is — our management bandwidth doesn’t enable us to take more than a certain amount of facilities. Number two, we have this all in — within an hour from corporates, so all the technical teams are at the facilities and not at corporate. Number three, we have — we use — proactively use consultants. We do some of this stuff.

In terms of purely injectable, I think there’s 2 parts. One is a cultural aspect. And second is a hardware aspect. And you have to mix both of those up. This is inherent business challenge. This is what we have to do to ensure that we remain compliant, that our workforce is trained, our cultural issues are resolved, and that’s an unending thing. So it’s a very general answer. I can’t really tell you more than that.

——————————————————————————–

Operator [262]

——————————————————————————–

The next question is from the line of Kunal Randeria from Antique Stockbroking.

——————————————————————————–

Kunal Randeria, Antique Stockbroking Ltd., Research Division – Research Analyst [263]

——————————————————————————–

So some — you have around 107 approved ANDAs and 76 launches, so I understand some of these will be some settlement for outer years. What I would like to understand is, have you sort of — you might not have launched some of the products because it might not have been commercially viable. But because of increasing shortages in the U.S., some of the business having higher cost, do you see approved ANDAs some opportunities in the coming months?

——————————————————————————–

Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [264]

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So we keep evaluating that on a regular basis. And yes, you’re right, I think out of all our approved ANDAs we haven’t launched. Some, as I say, we don’t launch. Some our older ANDAs, we take our time launching when we believe the time is right, when there is an opportunity, when there is a shortage. Some of them are tentative approvals. And some don’t make a sense right now. They may makes sense in the future. But as of now, they don’t. So we keep evaluating that. Wherever we do see an opportunity, we do get into that. That’s how we did the theophylline and all the sartans as well. Whenever we see an opportunity, we activate that and try launching it fast.

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Kunal Randeria, Antique Stockbroking Ltd., Research Division – Research Analyst [265]

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Any sort of — no, maybe some guidance on — of your approved ANDAs, any — maybe 2, 3, 5 that you expect to launch in the next 6 months, something like that?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [266]

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Sorry, I can’t really say in terms of — you’ve seen our approved ANDAs, what is not launched, you know. So yes, one I call tell you is azithromycin, which we’re going to launch, hopefully, by the end of this week, in the U.S.

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Operator [267]

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Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Pranav Amin for closing comments.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited – MD & Executive Director [268]

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Thank you, Margaret. Thank you, everyone, for joining our call. I know we had a lot of people on today, a lot of questions. We ran a little long. Some of you might not have had a chance to ask questions and get your answers. If so, please contact either Mitanshu or Ajay. You can reach out to them, and they will advise you.

Thank you very much. We had a good quarter in these difficult times. Stay safe. And we look forward to catching up again in 3 months’ time.

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Operator [269]

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Thank you. On behalf of Alembic Pharmaceuticals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.