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Edited Transcript of APLLTD.NSE earnings conference call or presentation 22-Jan-20 10:30am GMT

Q3 2020 Alembic Pharmaceuticals Ltd Earnings Call

VADODARA Jan 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Alembic Pharmaceuticals Ltd earnings conference call or presentation Wednesday, January 22, 2020 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ajay Kumar Desai

Alembic Pharmaceuticals Limited - SVP of Finance

* Mitanshu Shah

Alembic Pharmaceuticals Limited - Head of Finance

* Pranav Chirayu Amin

Alembic Pharmaceuticals Limited - MD & Executive Director

* Raj Kumar Shreeram Baheti

Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director

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Conference Call Participants

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* Anmol Ganjoo

JM Financial Institutional Securities Limited, Research Division - Director

* Charulata Gaidhani

Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst

* Damayanti Kerai

HSBC, Research Division - Analyst, Healthcare and Hospitals

* Dheeresh Pathak

Goldman Sachs Asset Management (India) Private Limited - Executive Director

* Harith Ahamed Mohammed

Spark Capital Advisors (India) Private Limited, Research Division - VP

* Kunal Randeria

Antique Stockbroking Ltd., Research Division - Research Analyst

* Nimish Nagindas Mehta

Research Delta Advisors, Research Division - Research Analyst

* Nisarg Vakharia

Lucky Investment Managers Private Limited - Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Tarang Agrawal;Old Bridge Capital;Analyst

* Tushar Manudhane

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Vishal Biraia

Aviva Life Insurance Company India Ltd. - Analyst

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Presentation

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Operator [1]

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[Ladies and gentlemen, good day, and welcome to the Q3 FY '20 earnings conference call of Alembic Pharmaceuticals Limited.

On the call today, we have with us, Mr. Pranav Amin, Managing Director; Mr. R.K. Baheti, Director, Finance and CFO; Mr. Mitanshu Shah, Head, Finance; Mr. Jesal Shah, Head, Strategy; and Mr. Ajay Kumar Desai, Senior VP, Finance. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. R.K. Baheti. Thank you, and over to you, sir.]

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [2]

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Thank you very much. Good afternoon, everyone. Thank you all for joining our third quarter results conference call. I'm sure you would have received our results by now. However, let me briefly take you through the numbers for the quarter ended 31st December, 2019 -- 2020, I'm sorry. Sorry, 2019, 31st December, 2019.

During the quarter, total revenue grew by 19% to INR 1,209 crores. EBITDA at INR 332 crores is 27% of sales and the growth versus the previous corresponding quarter is 36%. Pre R&D EBITDA is 39% of sales. Profit before tax went up by 35% to INR 283 crores for the current quarter, while profit after tax went up by 38% to INR 234 crores.

During the 9 months, now I'm speaking about the cumulative numbers YTD. Total revenue grew by 13% to INR 3,399 crores. EBITDA at INR 907 crores is 27% of sales, and it grew by 29%. Pre R&D EBITDA is again 39% of sales, and net profit after exceptional item and tax is up by 31% to INR 604 crores. EPS for the quarter is INR 12.42 per share versus INR 9.01 in the previous year. While for 9 months, the EPS is INR 32.05 versus INR 24.42 in the previous year's 9 months period.

CapEx for the quarter including capital advances are INR 181 crores. For the 9 months period, this is INR 551 crores. And additionally, we have funded INR 55 crores to Aleor Dermaceuticals in the quarter. Cumulative 9 months period is -- 9 months figure is INR 155 crores.

The gross borrowing at consolidated level is INR 1-4-0-7 crores, INR 1,407 crores, and company has about INR 59 crores in cash, so the net borrowing is INR 1-3-4-9 crores. Debt/Equity is at 0.42. And return on capital is 36%, if I exclude the investments which we have made and projects which are yet to be operational, whereas in the company-wise, including the investments in projects, the ROC is 23%.

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

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

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Thanks, Mr. Baheti. It was a good quarter for the company, aided by growth in all the international markets, the U.S. as well as the ex U.S. grew pretty well in this quarter. R&D expense was INR 146 crores, which was about 12% of sales. We filed 6 ANDAs during the quarter and a cumulative tally is 176 ANDAs. Two DMFs were also filed during the quarter, and we filed 104 total DMFs. We received 8 approvals during the quarter. We also launched 7 products during the quarter in the U.S., 17 were launched in the 9 months of the year.

Our projects are physically complete and are at various stages of matches and filings. In terms of financials, the International formulation business grew 48% to INR 664 crores for the quarter. The U.S. generics grew 61% to INR 515 crores for the quarter. It grew 65% in dollar terms to $71.19 million. The ex U.S.A. generics grew 15% to INR 149 crores in the quarter. API sales for the quarter was INR 177 crores versus INR 205 crores last year.

The domestic business, the India formulation business was flat in this quarter at INR 1,083 crores.

Now I would open the floor to any Q&A.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [4]

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INR 1,083 crores is 9 months period. Sorry, Pranav, I think there was some mistake in our...

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [5]

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Yes, yes.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [6]

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INR 1,083 crores is the figure for 9 months. What's the quarterly sales, Ajay?

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Ajay Kumar Desai, Alembic Pharmaceuticals Limited - SVP of Finance [7]

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For the quarter, sales is INR 368 crores.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [8]

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INR 368 crores is the sales for the quarter, and as you said INR 1,083 crores is for 9 months period. So now we can invite questions and answers.

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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 Vishal Biraia from Aviva Insurance.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. - Analyst [2]

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Sir, could you help us with your thoughts and perspectives on the weakness in the domestic business in the India business, as to what is taking the India business -- why is it taking long to stabilize? And give your perspective on this?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [3]

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Sure. I think I've said it in previous quarters, and I repeat that it's a good stable business. It's a growing business also. What is not getting reflected is some corrective action, which we had initiated sometime towards end of last year, last financial year, and this exercise has now got completed. It's -- okay. So typically, companies give, including us, give discounts, extra discounts on institutional business. But I think trade was -- we realized that trade was, I'm not saying misusing it, but I would say were taking advantage of this loophole and was taking extra discounts from us. So now we have completely sort of blocked that and the business is far more hygienic and far more profitable. So we see no weakness in the business. On an apple-to-apple basis, I would hate to have these numbers, which are not on record, but on an apple-to-apple basis, we have grown 10%, 12% in this period. And I think once this comparable base is corrected, which we hope to continue to grow 10%, 12% in coming years.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. - Analyst [4]

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And sir, this should happen by -- in the next 2, 3 quarters? Would that be a fair assumption?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [5]

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I think April onwards it should be visible on records. Of course, we see it very clearly. But April onwards, it should be clearly visible.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. - Analyst [6]

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Okay. So just one last question on the overhead expenses that seemed to be relatively lower for this quarter. So anything specific to read in those numbers?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [7]

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So typically -- Q2 typically is a little higher expense base for domestic business. And this, you will see for most pharma companies and in our case also. So I think the more comparable number is a corresponding number rather than a sequential number.

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Operator [8]

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The next question is from the line of Shashank Krishnakumar from JM Financial.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division - Director [9]

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This is Anmol. I have a couple of questions. First is on the U.S., continued good performance there, congratulations for that, Pranav. Just wanted to understand if there is anything with the sartan market participant behavior, which you would like to flag off because last quarter, you did highlight that, at some point there could be return of competition, et cetera. And therefore, market share gains that we might have seen could be under challenge. We also see a sharp sequential drop in gross margins. So anything you would like to flag off there or call out?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [10]

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So Pranav, you can address the first part, I will address the second part.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [11]

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Okay. So -- I was about to. So basically, on the sartans, as I mentioned in the last quarter, I think the opportunities are still there. It's tough to say which product where because there are entrants, there are supply constraints, because both are going on. And with the sartans and the combinations, we're [talking about] 10, 15 different products in the market, and they're all huge volumes. So there's enough opportunities in all of them. And I see that for the next 3 to 6 months, I do see these opportunities continuing. It depends, product to product. So that is one aspect of it. As you know, yes, we've made a decent amount of money on the sartans and it's a good opportunity. But I think it is going to continue for a while, some entrants are coming in, some are constraining supplies, so it's tough to say overall. In terms of the gross margins, I'll let Mr. Baheti take that call.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [12]

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Yes. So there is no sharp decline. I think even in the previous quarter, I had said that these numbers of the previous quarter were unusually high and they were expected to be moderated a bit. So still, I think the gross margin numbers are pretty high. And that's because of the opportunity Pranav was speaking about. I don't think there's a sharp correction. I think it's about 200 basis points -- 2 percentage points.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division - Director [13]

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Yes. What I was trying to understand there's also lower API contribution. So is there anything which has changed with respect to pricing of sartans or anything we should be reading like that? Or from the end that...

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

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No, nothing changing in terms of the pricing of sartans. Because sartan the thing is that, as I mentioned, there's so many products, and each one is interdependent -- it's actually independent. And last quarter, we may have had more than one sartan, this quarter more of another sartan. So just a product mix and that keeps changing. What we see, where the shortage is and we try maximizing that.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division - Director [15]

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Okay. That's helpful. My second question to Mr. Baheti. Mr. Baheti, you had flagged off that the impact of the hygiene exercises that we had taken on our domestic portfolio. I think [Q3] should be probably the last quarter where we should have an impact. So from Q4 the comparable base that you've been talking about, et cetera, should start reflecting and we're on track...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [16]

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So Q4, last year, we had started this exercise, but I think it got over only towards the end of the year, and that's why I'm saying. So Q4 should see the return of growth, but return of full growth will get reflected in first quarter and onwards.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division - Director [17]

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Okay. That's helpful. And just one housekeeping question. I don't know whether I missed it in your opening remarks, what was the CapEx for the quarter?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [18]

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So I think I made that statement in the beginning.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [19]

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About INR 180 crores or so.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [20]

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Yes, INR 181 crores.

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Anmol Ganjoo, JM Financial Institutional Securities Limited, Research Division - Director [21]

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Okay. And was there any lumpy part in this in terms of Aleor or any other JV that...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [22]

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No, Aleor is separate -- Aleor number is separately mentioned, INR 55 crores.

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Operator [23]

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

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Unidentified Analyst, [24]

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Congratulations on a good performance. Sir, in line with the earlier discussion around the one-off in this quarter, can you tell us more about the base run rate or the growth that is happening in our business?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [25]

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This is for what part item? Was it international or the...

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Unidentified Analyst, [26]

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Yes, the U.S., international business.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [27]

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In relation to one-off, what is happening is, as -- if you see, for the last few quarters, I've been saying that there are opportunities in the sartans. So it's not a one-off, it's just the opportunity is there because of shortages and the sartans, as you know, are very high volume products. And a lot of competitors have had supply issues. So -- and I see that continuing. So it's not a one-off per se, it's just how the market is behaving currently. Will it change with additional competition coming in? Yes, but I don't know when. I'd say that for the next 3 months, 6 months, I do see still some shortages in the market.

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Unidentified Analyst, [28]

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Okay. Any other key drugs, which have helped us perform better?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [29]

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So we've launched 17 products so far this year. And so each of those products also, if you can -- if you have access to IMS or the data, you can see where we've picked up market share. So everything contributes together. Some we may have lost opportunities. The U.S. business is -- it really is a combination of all products. And as we have more products in the market, it gives us little more stability and the base business is more stable.

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Unidentified Analyst, [30]

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Great, that's good to know. So somewhere I read that top 5 products of our -- of Alembic are contributing close to 50% of our U.S. revenues. Is that a right number?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [31]

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I think in the past, I've said that about 20% of our portfolio would be about 80% of our sales. I'm not sure what the number is now. Mitanshu, do you know (inaudible)?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [32]

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Yes, that number is broadly right.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [33]

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It's around 36%.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [34]

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36%, top 5 products?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [35]

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Yes.

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Unidentified Analyst, [36]

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But today our basket is much wider, and we have done lots of launches in last 1 year. Is this number still valid? Or have we been able to more even out things?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [37]

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[What we said] Mitanshu corrected saying that top 5 is 36%.

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Unidentified Analyst, [38]

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[Of U.S.?]

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [39]

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Of U.S. sales.

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Unidentified Analyst, [40]

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Got you. Okay, top 5 is 36% of U.S. sales. Got it.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [41]

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Yes.

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Unidentified Analyst, [42]

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And any risk to the top contributors in terms of pricing or competition coming in that you're seeing in near term?

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

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As Mr. Baheti said, it's difficult to say. I don't know what's going to come, but the inherent nature of the generics is that there will be push and pull. There will be someone coming in on one product, whereas you may have an opportunity on another. So nothing we can do about it. We just have to ensure that we stay on the market and we just keep supplying.

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Unidentified Analyst, [44]

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Sure. Great. Sir, second part of my question is around the massive CapEx that we have done, and large part of this CapEx will get -- has commercialized or will be commercialized -- getting commercialized in coming times. One worry that market participants have is that we'll face higher interest and depreciation cost going forward, while the revenues will not come in. We would like to understand more about this part from your perspective. Do you see the company being able to grow fast enough to overcome these pressures on the financials?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [45]

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Pranav, you would like me to take this?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [46]

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Yes. So what I'll do is just break it up into 2 parts. I'll tell you the thought process behind the CapEx and then Mr. Baheti will explain the financial bit. So thought process is that, listen, as a company, we're growing, we have a front-end in the U.S., (inaudible) in the U.S. We were present only in the oral solids and we saw that there's lot of opportunities in some of these other forms, be it injectable, oncology, ophthalmics. And so that's how we set up these CapExes. And once we have this CapEx -- once we have these capabilities, we can progress up the value chain in these products as well. There's a thought process behind it. In terms of financials, I'll let Mr. Baheti answer that [how he expects it to go].

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [47]

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So like in pharma sector, most of you would be aware, there would always be some lead time between the spend you make or investments you make and the generation of revenues or generation of revenues and profits. So there'll be some time gap. But the call which we have taken and which I had explained earlier is that, we will commercialize the plant only in the year when we take the first commercial batches. So as long as we are only in the filing mode and the FDA inspection doesn't happen, we don't get NDA approval, we would not charge depreciation and interest. So to that extent, there'll be no hit on profit and loss account. Of course, cash flow-wise it is neutral, but once it gets commercialized, then I think -- and once we scale up, I mean, in the FY '22, '23, I think then we hope to make enough money to service all of this.

Yes, I'm through. I mean, any other reaction on this, or you have any other question on this? Is the line off?

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Operator [48]

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Sir, we are connected.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [49]

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Yes. You can move to the next question then if there is no other. You can ask the next participant to ask the next question.

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Operator [50]

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

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [51]

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Sir, coming back to gross margins. So since last 2 quarters were very strong on the U.S. front and that has resulted in very strong gross margins. And as Mr. Pranav said, it can continue for another 3 to 6 months. But just a clarification, since we are growing on the base also, so how should we look at the sustainable gross margin on ongoing basis?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [52]

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So I think it's almost repeat of what I said. I said that these margins are little higher because of these opportunities can continue as long as those opportunities continue. Will flatten a bit once such opportunities are out of the market. Now we do not know when, and we do not know by how much.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [53]

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Okay. Sir, last quarter, I think you mentioned that 68% to 70% kind of gross margin...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [54]

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I said 70% plus/minus is like a standard margin number, which I would like to retain.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [55]

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Okay. And one question on the API front. We have seen like the growth has been good, but we have seen a lot of fluctuation since last few quarters. So what is leading to that? And how should we look at that part of business...

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [56]

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Let me take that. So in terms of API business, I don't really see fluctuations in terms of API business. If you see, compared to last year, we have one big client who we do some contract manufacturing for, and that's what was lumpy last year, and that is not there this quarter of Q3. And that's one of the reason why you think it will grow...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [57]

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For the whole year.

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

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For the whole year, as a matter of fact. But what is happening is on a year-on-year basis, and I had said earlier, a lot of calls, and we should continue growing the [API] business. We are constrained by capacity, so we're trying to do as much business as we can. And I think about 10%, 15% is something that we easily expect the API business to grow every year.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [59]

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Sure. My last question on the R&D part, so that should continue at 13% to 14% of total revenues, right?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [60]

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Yes. I think for this quarter, we're down at about 12.5% or so. But yes, I think about 12.5%, 13% and gradually it'll come down as the sales increases as well.

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Operator [61]

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The next question is from the line of Nisarg Vakharia from Lucky Investments.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [62]

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Yes, I have a slightly deeper question addressed to you, Pranav. See, post 2015 in the investor community, in pharma, everything is a one-off. No matter what sort of numbers you deliver, everybody will ask you first thing is that what is the one-off, what is the one-off, and for the right reasons. Can you address this question somehow because you are actually one of the few companies who is investing a significant amount of money into the U.S. formulations and still very, very bullish on the space against a lot of other companies who feel that maybe domestic formulations is the way to go ahead. So if you can get my question and if you can answer it, it'll be helpful.

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

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Yes. So -- okay. So first of all, what I'd like to say, it's not -- one is not constraining me from doing the other. As you know, in Alembic, how we're set up is both the businesses are run almost as 2 independent companies. We are not competing for capital, we're not doing anything there. It's not that domestic is restricted to do anything because of it. That's the first thing I would like to say. The domestic business is a fantastic business, I agree. It's a very high ROCE business. You can keep growing. So that's nice. But the issue with the domestic is you're not going to get addressable big market size of adding $50 million, $100 million in a year. You can only grow the 10%, 12%, 15%, 15-odd percent every year, which everybody -- the best-in-class will do. So that's one aspect. So we're not constrained by domestic. I still love the domestic as a corporate, and we are very bullish on domestic as well.

Coming to the international. Now what has happened in the international space is, you're right, I think the dynamics have changed in the market because of a few reasons. One, there's consolidation among buyers. There is more competition because of faster approvals. These are 2 broad things, which have made it less attractive in the market. And we've seen lot of the bigger peers in the industry getting competition in their products. Most of our ANDAs are all towards the [back-end] . So the back -- over the last 2, 3 years that we filed, [20 -- 20, 30-odd ANDAs] every year. So we're getting fast approvals on that. That's number one. Number two, for us to grow in the international business, we needed to add capability. We couldn't just stick to oral solids only, hence the injectables came in because once the injectable comes in, you can grow that as well.

So based on that, compared to when we started to now, is the market looking different? Yes, it is looking different, but am I still bullish on it? Yes, I still think it's a very attractive opportunity if you have a well-run U.S. business, if you have a well-run supply chain, if you have compliant plans, there are good opportunities as well. So that's where I feel -- I don't know if that's a good enough answer, but...

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [64]

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Yes. Just to add to that question. So let's say, we're at about INR 500 crores of U.S. formulation sales per quarter.

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

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Right.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [66]

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If I annualize that roughly, I'm just talking approximately, it's INR 2,000 crores of U.S. sales. Of the INR 2,000 crores U.S. sales number, how much do you think is the steady state sustainable number ex of the pricing advantages that you might have got for 3 to 6 months of sartans?

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

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Oh, it's a very, very tough to answer that...

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [68]

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But rough -- I just want a rough number. It just helps us analyze your U.S. business slightly better, that's it.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [69]

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Actually, U.S. is not a INR 2,000 crore business, it's about INR 1,500 crores, INR 1,600 crores business.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [70]

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Sir, this quarter, you have done INR 500 crores. Nine months, you've done INR 1,400 crores. If you were to do even INR 400 crores for the whole year -- INR 400 crores for the next quarter, which is your steady-state run rate, I'm saying INR 1,700 crores, INR 1,800 crores is what you will do in the U.S., right?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [71]

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Yes, yes.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [72]

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So I'm saying that on that INR 1,700 crores, INR 1,800 crores, how much is the advantage that you might have got in pricing in sartans? If you remove that, what is the steady state base case run rate on which you can build? Just a rough number I want, I don't want a precise number.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [73]

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To be honest, I don't -- I'll have to work that number, but I don't...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [74]

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No. But, Pranav, nobody would have that number. I mean, how do I define what is one-off like. Like Nisarg was rightly saying that everything what pharma companies did in the last 4 years have been one-off. So what is the base, what is the correction, what is the -- very difficult to say.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [75]

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See, I think the way to see it -- the way I see it is, on a 2, 3-year basis, is this something that we see our U.S. business growing, and I said it 2 years back, and I said it last year that from our size, what $100-odd million that we were -- we've gone -- we'll do -- end up doing about $200 million -- early $220 million or something like that this year, right?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [76]

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Right.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [77]

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[In the trend that -- what is the --] can this $220 million go to $300 million, $400 million over the next couple of years? Yes, definitely, that has to be the goal, otherwise all this investment doesn't make sense. And that's what will happen.

Now, yes, there will be quarter-on-quarter, year-on-year, there will be some variance, but as a [basket, I think I would expect that kind of growth to happen].

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [78]

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Okay. My second and last question is that as per Alembic standards, the domestic formulation sales CAGR run rate for the last 5 years has been very low. I am saying that if I -- forget this 1 year, but if I look at your domestic formulation growth rate from 2014, '15, as per Alembic standards, I'm saying we can, of course, say the market was not growing and all that, but Alembic works on a different standard. So is there any specific reasons -- reason for that? And can that change? Because we've seen so many companies in the India space, like Pranav rightly mentioned that we work as [2 separate] divisions, which have demonstrated at least 13% to 15% CAGR sustainably over 5 years.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [79]

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Sure. Yes, sure. So other companies have surely done better than us or we have done poorly versus them. But every year in a different region, I don't wish to dwell into it. What we are focusing on and what gives me confidence to say that for future is that our [detailing] with the customers is robust, our prescription generation is robust. Now am I saying that, oh, I adopted the UCMP better than others, am I saying that we were more stringent in following the marketing practices than others, and then this demo and GST affected everyone differently? I won't -- I mean, I think it won't satisfy you. Yes, we have done badly as compared to others, but I think we will bounce back based on our groundwork.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [80]

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Okay. My last question is that there are a lot of acquisitions that are available in the domestic formulation space. Example, of course, Unichem was a very large one by Torrent. But the kind of efficiencies that a company of your standard can bring about in some of these small domestic formulations, INR 200 crores to INR 500 crores sale companies can, of course, be large. So have you looked at any of these guys, which can be a nice fit into your portfolio?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [81]

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Sir not recently, but I think we have looked at acquisition opportunities from time to time. And I think our consistent trend, which I have shared with investors in the past also is that we are not looking for any acquisition in domestic market. And the reason from our perspective, people who do acquisitions do a great job, I mean, I have no reason to tell them that they are not doing their job correctly, but our reason is different. Our reason is sustainability and the value proposition for acquisition versus our organic growth. We find organic growth more attractive.

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Operator [82]

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The next question is from the line of (inaudible) Capital.

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Unidentified Analyst, [83]

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My name is (inaudible). First of all, congratulations on the good set of numbers. Sir, I have 2 questions. One is, sir, for research and development, expenses of INR 145 crores in the quarter and the INR 459 crores in the 9 months ending December. So can you just put on light -- can you just tell me that the expenditure has been debited in revenue or some part has been capitalized also?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [84]

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So all of our R&D expenses -- R&D investments have been expensed out.

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Unidentified Analyst, [85]

--------------------------------------------------------------------------------

In revenue?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [86]

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In revenue, except the expense which is incurred by Aleor, which is a separate company.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [87]

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No, no. So everything in Alembic, R&D is all expensed out, there's nothing...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [88]

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All expensed out.

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Unidentified Analyst, [89]

--------------------------------------------------------------------------------

All expenses in revenues -- has been debited to revenue account?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [90]

--------------------------------------------------------------------------------

Yes.

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Unidentified Analyst, [91]

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Okay. My second question is, sir, just I wanted to know, sir, how much CapEx company gets to incur in financial year 2020 and 2021? I just wanted further CapEx done by the company in the next 2 years?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [92]

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So as Pranav says that our existing projects have been -- are physically complete, and we are now doing -- we are taking batches, scale up, exhibit, filings, et cetera, et cetera. So no major CapEx is expected on these -- the new projects. But at the same time, we will continue to invest for our existing projects for debottlenecking, some capacity expansion, some balancing equipment and some maintenance CapEx. So that CapEx is expected to be between INR 300 crores and INR 350 crores in a year. And of course you don't know, I mean, there can be more opportunities for CapEx in future, but this is the plan we have now.

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Unidentified Analyst, [93]

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Okay, sir. You have clarified your net debt is, I do believe, INR 1,300 crores as on December? Net debt, net debt by the company is INR 1,300 crores?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [94]

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Yes, that's right.

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Unidentified Analyst, [95]

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How much are these -- how much borrowing -- further borrowing can be done by the company by year -- March 2020?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [96]

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March 2020, we don't expect too much of additional volume.

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Unidentified Analyst, [97]

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Okay. Regarding the debt, I just wanted to know, sir, how you are funding this debt, i.e., mostly with term plans or debentures?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [98]

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So it's a mix of short term, long term. So we have done debentures, we have done some ECBs. And we, of course, use the bank funds. I mean, the working capital limits. So it's a mix of both -- it's mix of all. And if you look at our 6 months results, that will be there. In 6 months, we've given the detailed balance sheet also.

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Operator [99]

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

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [100]

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Yes. On the USP, sir, we had the benefit of the 180-day exclusivity on febuxostat. So can you give some color on what is the base business growth has been without febuxostat (inaudible)? And what do you expect -- what kind of competition you are expecting for the first time from now on?

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

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So I think when we launched febuxostat, there were 2, 3 others in the market. As of now, I think there's -- as we got to day 181, from what I've heard, I think another 2 entrants or so have entered the market. There will be some pricing pressure on that. And so we will lose some share. So far, it was only 4 of us in the market, but I think another 2, 3 entering, if I'm not mistaken.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [102]

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I see. We are not likely to see any just steep competition, okay?

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

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No, I think -- even if we get one person, if he wants to be aggressive, you'll see lot -- steep competition. And I think we will take a little bit of a hit because as the new entrant comes, he will try reducing the prices. But let's see, it's still early days, so let's see, we'll know in the next few weeks how it pans out.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [104]

--------------------------------------------------------------------------------

And what was the market share they could gain in the -- post the 180 days?

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

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So anyone can gain as much market share as long as the price is there. So I don't know how much it's there and what price we want to keep market and what -- it's really open. It depends how the customer side behaves.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [106]

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No, I'm talking about the historical market share so far that we have achieved, not the futuristic. So that puts you...

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

--------------------------------------------------------------------------------

So, we have -- we were, I think, about 20%, if I'm not mistaken of its historic market share.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [108]

--------------------------------------------------------------------------------

Okay, great. And there has been Y-o-Y growth (inaudible) in the U.S. business on a constant currency basis?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [109]

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Yes, because, overall, the U.S. business has grown by about 50%. So there's been growth across the board in a lot of different products.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [110]

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Okay, understood. Next is actually once again on the gross margin. Baheti sir, you mentioned that there was 78% in Q2 was very high. I mean, from a business perspective, there is no much difference between Q2 and Q3. So what was that base effect in Q3?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [111]

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There is always a higher expenses booked for the domestic businesses in Q2 because the promotional activities are maximum in Q2, more with companies which have significant acute businesses.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [112]

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No sir, I'm talking about the gross margin. So gross margin in Q3...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [113]

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Gross margin is at -- that's only because in total we are saying. I thought you were talking about other expenses.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [114]

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No, no, no. Sir, gross margin between Q2 and Q3 is significantly differently, but...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [115]

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No, it's not. But any product can have a different product sales. No, every quarter would have a different product mix or different product sales.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [116]

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Sir, but between these 2 quarters, the major products have kind of remained the same.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [117]

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So I don't know whether (inaudible). We can move to the next question.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [118]

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Okay. The other is, you can just let us know the capitalized expenses, that is the pre-operative expenses for Alembic and R&D expenses for Aleor, that will be helpful.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [119]

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So I think the cumulative pre-op expense in Alembic is about INR 400-plus crores.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [120]

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Sir, if you can tell me about this quarter that would be helpful.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [121]

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Only this quarter?

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [122]

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Yes, sir.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [123]

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INR 198 crores.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [124]

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Only this quarter is about INR 200 crores.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [125]

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This is for pre-operative?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [126]

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Pre-operative, yes.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [127]

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And what is Aleor R&D capitalized?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [128]

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That's around INR 200 crores.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [129]

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That's around [under] INR 200 crores.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [130]

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This quarter?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [131]

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That is cumulative.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [132]

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No, he is asking for this quarter.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [133]

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This quarter is around INR 40 crores.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [134]

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INR 40 crores for the quarter.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [135]

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INR 40 crores for the quarter and the INR 200 crores. Lastly, on the domestic part, you mentioned about this flattening on the corrective action. So does it also impact our AIOCD growth numbers or IMS growth numbers, the one that you mentioned in the presentation.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [136]

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Yes, it would have some impact. Yes, surely it would have some impact. So the IMS numbers or AIOCD numbers also will get impacted, both ways, when we start turning around. I mean, on a positive manner. But the impact would be much lower than our primary growth numbers. So if you look at the IMS number, then you would see a growth rate of about 5%, 8%, whereas the primary growth is not that.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [137]

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Okay. So that also gets consumed because of the corrective action.

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Operator [138]

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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 [139]

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Yes. Congrats on good numbers. Sir, just I want to know the like-to-like number for the INR 134 crores that you mentioned in the first half as pre-op. Just wanted to know for the quarter, what would that number be?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [140]

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Around INR 200 crores.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [141]

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No, no for the quarter.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [142]

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Quarter pre-op, he is asking pre-op.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [143]

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He is asking the -- for the quarter. Prakash, I'll come back to you. I mean, I'll come back to you, but you can ask another question if you have.

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

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Okay. And for the Aleor, I understand, you have started expensing it from this quarter onwards. Would that be correct? And what would be the number?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [145]

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Yes, that's right. Because they have started commercial production, we have started expensing out.

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

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And so as called out by various participants, and you also mentioned Q2 is higher, so on Q-on-Q basis, we have not seen the dent. So are the numbers really small, and we expect it to become bigger? Or this is the run rate we should see going forward also?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [147]

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So this you're asking in context of Aleor consolidation?

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

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Yes, sir.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [149]

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No, numbers are not small. For the quarter, numbers are not small. They are fairly good cost base. So this is included.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [150]

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Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [151]

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And we don't expect this to increase further. I mean, this would be the normalized cost base for Aleor going forward also?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [152]

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I think so, I think so.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [153]

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Prakash, going on your first question, what you're asking us was the pre-op for a quarter, right?

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

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Yes, sir.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [155]

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Pre-op for the quarter is INR 65 crores.

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

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INR 65 crores. So it is in line with what we've done in first half, INR 134 crores, and what you mentioned the full year would be 134 [x 2] plus/minus 10%?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [157]

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Yes. So total around INR 200 crores for current year, YTD.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [158]

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Okay, YTD. So looking at your presentation, when you mentioned the state-of-art facilities audit and filing status, the way to look at it is, for example, the Panelav oncology injectables filing status to start filing from second half fiscal '21, it doesn't mean the cost will start, right? Once it's commercialized, when your products are getting approval, then only the expenses start. Would that be right thinking?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [159]

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That's right.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [160]

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Okay. So next year, we would probably see the Jarod coming as an expense, no, not really? Which ones were the facilities which we'll be start seeing some expenses, sir, next year, fiscal '21?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [161]

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I think general injectable will be the first one to start commercial production.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [162]

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General injector, Karkhadi?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [163]

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Yes, that's right.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [164]

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Only one facility?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [165]

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No, no. I think it is -- I'm saying that will be the first one to start. There is a -- I think in my investor presentation, there is a schedule given.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [166]

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Yes, I'm [referring] that only. Yes, those reflect the expected filing. I'm asking commercialization, sir.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [167]

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No, but that's really difficult for us to say, no because I don't know -- I can't predict when FDA will inspect us, approve the facility, then FDA will improve my ANDA, and then I can start the commercial production. So I have given what is under my control.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [168]

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Fair point. Understood. And on this India business, if you look -- what would be our share of the generic generic of the total India business?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [169]

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I have hardly anything, not much.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [170]

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So we don't have generic generic?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [171]

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No, we have, but it's not much. Actually, we have pruned the portfolio. We are keeping only the most profitable portfolio. Otherwise -- so my generic business in terms of profitability is [as good] as branded business, but the number is small. It's not worth anyone discussing.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [172]

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Okay. And lastly, on the R&D side, earlier you used to give a grade of [lakh] 200-plus products working across these line items, derms, injectables, onco. How is this grade moving up and down given that there is a lot of...

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

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Yes, it's a good question. So it's not moving up. I think it's about steady because some products have a longer gestation period. So we're not increasingly adding more people or anything, I think we'll be flat now, whatever, I think, 200-odd products that we have. We'll continue the same [throughput] for a while.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [174]

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And then the engine that you started 2 years back with the 30-plus kind of filing, how is it looking for '21 and '22?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [175]

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I think we'll stick to that number, [about 30-plus]. What will happen is the composition of that may change. As we have more injectables coming in, it may increase a little bit. But yes, I don't expect it to go upwards -- fairly upwards of 30, 35 or so. That's where we'll be, I think.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [176]

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For '21. For FY '21.

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

--------------------------------------------------------------------------------

Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [178]

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Okay. And do we see a hockey stick going forward? Is that -- I mean, would that be...

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I think that is -- it really depends on -- okay, we're not chasing a number per se that we want to pursue for the U.S. market because you have to see if there's any opportunities and what are the opportunities and what is the bandwidth that the company can handle. And I believe this 30, 35 is where we are currently. And the next -- for the next 2 years, I don't see that increasing drastically.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [180]

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Prakash, if you don't mind, can you come back in the queue because I see a lot of questions, lot of people are in the queue.

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Operator [181]

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The next question is from the line of Nirmal Gopi from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [182]

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This is Nitin here. Sir, on your SG&A costs for the 9 months, the other expenses seem to be broadly flat despite you mentioned Aleor has been commercialized in this quarter. So what should explain that, despite the fact that you've had reasonable growth in the revenue also in the 9 months?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [183]

--------------------------------------------------------------------------------

So I think we have done our job better at a lower cost.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [184]

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Okay.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [185]

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So -- yes, I think, broadly, these numbers are -- I mean, I have no specific comments to make whether -- so probably -- I don't know, some ForEx -- there will be some ForEx elements, some transaction...

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [186]

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There was a ForEx gain there and this time as well. I mean there is generally a general reduction. I mean Q3, Q4, I mean...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [187]

--------------------------------------------------------------------------------

No, he is comparing 9 months versus 9 months. It's almost flat.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [188]

--------------------------------------------------------------------------------

Yes.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [189]

--------------------------------------------------------------------------------

Because, sir, that implies significant operating leverage. And if we were to sort of build on similar sort of trends going forward, it just creates a very different profitability picture for the business.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [190]

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So we have to keep our shoes tight, and that's what we are trying to do.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [191]

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Fair enough. But sir, this is nothing -- this is non -- unsustainable. This is where the business is a bit -- these are (inaudible) fairly sustainable base of expenses.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [192]

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No cost has been left out or has been avoided or ignored. I mean it's a sustainable revenue business.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [193]

--------------------------------------------------------------------------------

Okay, sir. And then, on that account, just all this -- Prakash asked earlier, this 200 -- INR 250 crores, INR 260 crores of expenses which will probably get capitalized over the next maybe couple of years or whenever the commercialization starts. So it is the current base plus this another INR 250 crores, INR 260-odd crores, which should get added on to the cost base. How should we look at it?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [194]

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Correct. You're right. I don't know whether it will be INR 250 crores. I don't know, I mean, how projects actually get commercial -- get into commercial production, but the concept you share is right.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [195]

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Fair enough. I mean, basically, growth on this current -- whatever normalized growth on this current base plus this additional base sitting on it and in whichever way it really plays itself out?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [196]

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Absolutely.

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Operator [197]

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The next question is from the line of Tushar Manudhane from Motilal Oswal.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [198]

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Sir, just referring to your state-of-art facility infrastructure slide, comparing it with Q2 FY '20, the timelines for filing have been pushed, say, for oncology injectables and the general oral solids.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [199]

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No, what is your question? I've not understood.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [200]

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Say for example, oncology injectables, the -- in the second quarter presentation, it was like in first half FY '21, now that filing would happen more or less in second half FY '21. Similar is the case for general oral solids, wherein the filing was to happen in H2 FY '20, now we have pushed that to H1 FY '21. So if you can just explain this.

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

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Mitanshu, would you like to take this?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [202]

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Tushar, because this would entail a little longer discussion, can we take it offline and you call me after this call, and we'll discuss.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [203]

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But I think there might have been some delay of 2, 3, 4 months, but -- which is all right. I mean, when you take the batches and when you prepare for filing, few months delay here and there can happen.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [204]

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So effectively, it's like second half FY '22 to see meaningful revenues pickup?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [205]

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Revenues, yes, that's right.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [206]

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And if you can just help me with the number of MRs for acute and specialty separately?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [207]

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So I think the number remains the same. We have about 3,900-odd MRs and about 40% of them are in acute business, about 60% of them are in the specialty [class].

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Operator [208]

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The next question is from the line of Harith Ahamed from Spark Capital.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [209]

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Will it be possible to comment on umbralisib, the molecule which your associate company, Rhizen, has outlicensed to TG Therapeutics? If you could help us understand the timelines for commercialization and the status of development here, that would be helpful.

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

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So Harith, to be honest, we can't really comment on that. Whatever is there is in TG Therapeutics' public disclosures. And I think they presented at JPMorgan, it's on the website and online. They have quite a bit of information. From what they put in the public is, they have started rolling submission for the NDA, and you can check it online. But for the -- apart from that, I have nothing much we can comment on.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [211]

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Just one additional question there. Is there an opportunity for Alembic in terms of supplying the API or the finished product for this one?

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [212]

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Yes. Yes, there is.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [213]

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Okay. And the second question, I just wanted a confirmation on the INR 65 crores pre-op expense number that you mentioned which is getting capitalized. Does this include the interest costs that are related to these projects, the INR 65 crores?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [214]

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No, that doesn't include the interest costs. It's all -- it's the part of plant operations and overheads.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [215]

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And whether the R&D that we're capitalizing at Aleor, is that included in the INR 65 crores?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [216]

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No, R&D is -- Aleor is a separate number.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [217]

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Okay. So the INR 65 crores is all above EBITDA, I mean when -- eventually when it hits the P&L?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [218]

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That is correct.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [219]

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Correct. It will be all above.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [220]

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Aleor, we actually capitalized on first of October. So there is no pre-op anymore now in there.

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Operator [221]

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

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Unidentified Analyst, [222]

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Sir, I had got disconnected earlier, so I couldn't hear the response to my question around the commercialization of the current CapEx we are doing and how it will hit our interest and depreciation cost till we get the revenues.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [223]

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So we had a long chat on this subject. I mean, a lot of subsequent guys also asked this question. You can refer to our transcript in a few days later, Ayush.

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Unidentified Analyst, [224]

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Sure, sure. I'll do that, and I'll perhaps get in touch with you if I...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [225]

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If you have any question, you can always call back Mitanshu. I mean, it will be in the interest of time for everyone.

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Operator [226]

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

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [227]

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Sir, in the domestic market, the corrective action that you have taken, is it across the portfolio? Because in the last couple of quarters, acute growth seems fairly healthy and in specialty it seems weak.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [228]

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These discounts are always a little on the higher side for the specialty segment and not so much for acute. So obviously, the adverse impact also is not so much on acute but more on specialty.

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [229]

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Right. Right. And you have a fairly strong and aggressive launch trajectory for the U.S. So is there enough capacity in the Panelav formulation plant?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [230]

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So yes, I think we are running to capacity. And of course, once Jarod becomes operational, once it gets approved by FDA, that would ease the pressure on our existing plant a bit.

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [231]

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Right. And my last question, how many ANDAs are sort of depending on the Karkhadi API plant?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [232]

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Karkhadi API plant, how many ANDAs? I mean, I don't know -- I won't have the number...

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [233]

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What is the precise question?

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [234]

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Sir, how many ANDAs are dependent...

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Unidentified Company Representative, [235]

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How many ANDAs have Karkhadi [API] as a source?

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

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I would say about, if I'm not mistaken, because we do have same products that we filed from both API facilities for a derisk, but I would say about 15, 20 ANDAs would have Karkhadi API. I don't have the exact figure, but I'm just guessing.

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Operator [237]

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

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Tarang Agrawal;Old Bridge Capital;Analyst, [238]

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Just one question on capacity utilization for your formulation facilities and API facilities.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [239]

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So the capacity utilization, I don't have a number per se, but it's pretty much, I think, we are at peak. [At least APIs], we are at peak because aside it's -- we like to keep API ready for formulation to see the ups and downs. So we must be at about 80% for both, I'm assuming.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [240]

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Also Pranav -- I mean, okay, let me put it this way. We are almost to the full capacity as far as technical capacity is concerned, but capacities get changed because of the product needs, because of the processes and all of that. So there is no absolute number for capacity, it's all relative terms.

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Tarang Agrawal;Old Bridge Capital;Analyst, [241]

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Okay. The next question is, you have around 97 products approved, of which 71 are launched and 26 are yet to be launched. So what is the schedule like? If you could throw some light on that.

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [242]

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So out of the 26 pending -- again, I'm just going to give you a rough cut what I see. Out of the 26 pending, about 5 will be launched soon, it's just in the matter of getting ready for commercialization. So 5 will be launched soon. About 10 to 12 would be not viable in terms of the market situation. It's not worth the effort to put it in the market right now because of competition and pricing. And another 5, 10 could be -- possibly we may launch, there may be a technical issue, there may be some supply issue, something like that. So that's roughly how it is.

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Operator [243]

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

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [244]

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Yes. Just confirming on...

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Operator [245]

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Excuse me, this is the operator. Mr. Pathak, may we request you to use your handset, please. Your voice is not very clear.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [246]

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Is it better now?

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Operator [247]

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Yes, thank you, sir.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [248]

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Okay. Just confirming on the Aleor. So the depreciation for the quarter would have the full impact of the Aleor plant depreciation. Is that a fair understanding?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [249]

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Yes.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [250]

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Okay. But sequentially, there is not that much increase in the depreciation, it's just INR 6 crores increase, annualized like INR 24 crores. Is that all coming from Aleor?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [251]

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Yes. I mean, other things are remaining same. I mean, largest -- biggest -- largest impact is of Aleor.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [252]

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Okay. But it is there for a full quarter, it's not like for a month or so, right? It is for the full quarter?

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

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That's what I said, 1st October.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [254]

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Okay. Okay. And just understanding on this 9 months CapEx you mentioned was INR 551 crores. Included in that, I would assume, is the -- I'm talking about 9 months numbers here, so you've mentioned INR 551 crores, 9 months, that includes the OpEx capitalization of INR 200 crores, right? So the balance, planned CapEx is only INR 351 crores. Is that correct understanding?

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

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That's true.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [256]

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And on top of this, there is an Aleor R&D capitalization of INR 155 crores for 9 months. So total CapEx on a consol basis would be INR 706 crores for 9 months?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [257]

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That's true.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [258]

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Okay. And this Aleor thing, that will -- capitalization even on R&D and everything will stop going forward? For this quarter, it has stopped, right?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [259]

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No. So basically, we continue to invest in R&D. Till the time we put product to commercial use, it will continue to get capitalized actually. As soon as the product comes into a sales grid, then the amortization starts.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [260]

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So this is for Aleor. As far as Alembic Pharma is concerned, everything is expensed out.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [261]

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Okay. No, I'm saying even though Aleor plant is commercialized, further R&D on Aleor will still be capitalized till the respective ANDA is commercialized. Is that correct?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [262]

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Yes.

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [263]

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Yes.

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Operator [264]

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

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Unidentified Analyst, [265]

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I mean -- this is my follow-up question, sir. There was a filing in the recent -- I mean, stock exchange that the company has been granted approval by USFDA for launch of the Empagliflozin tablets of 10 mg and 25 mg? Hello?

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Mitanshu Shah, Alembic Pharmaceuticals Limited - Head of Finance [266]

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Yes.

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Unidentified Analyst, [267]

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There has been recently a filing in stock exchange, sir, that company has been granted approval by USFDA for Empagliflozin tablets of 10 mg and 25 mg, which is equivalent to tablets of -- manufactured by the Boehringer Ingelheim Pharmaceuticals and having the market size of USD 3.4 million -- USD 3.4 billion.

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

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Yes.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [269]

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So, what is your question?

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Unidentified Analyst, [270]

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Like, I just wanted to know that this is a very good market size of Boehringer. I mean, the tablet is very high, is it USD 3.4 billion?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [271]

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USD 3.4 billion.

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Unidentified Analyst, [272]

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Just I wanted to know, when company is launching our product in the market, can we have a good share of business in U.S. market because of this...

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [273]

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I'll explain to you. So this is an innovator market size. And when it gets genericized, we will launch. There's still time to launch it because it's still under IP, if I'm not mistaken, under intellectual property. So it's a few years till the patent expires. And when we launch it, it depends on the competition who else is there. It could be an interesting opportunity. [But really depends on how many others also launch].

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Unidentified Analyst, [274]

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Yes. But I mean, I was just looking at the recent -- past filing of the company, but first time I've seen the market size is running in 3.5 -- running in billion dollars of any drug. So just I wanted to get -- just wanted a clarification, because the size of the market which we are filing the -- we are getting the approval is much lower than the filing. Therefore, just I wanted to have...

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Pranav Chirayu Amin, Alembic Pharmaceuticals Limited - MD & Executive Director [275]

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No, no, you're right. But the thing is you have to see some products are old products, which are already genericized, that's why the market share is low. This is not genericized, that's an innovator size, that's why it's a high market share.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [276]

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I think we are running out of time. If you can take the last 1 or 2 questions. We can -- I mean, anybody who is having follow-up questions can get in touch with Mitanshu or Ajay subsequently. We're just running out of time. Yes, take 1 or 2 last questions.

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Operator [277]

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We take the question from the line of Charulata Gaidhani from Dalal & Broacha.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [278]

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My question pertains to the acute segment. What is the inventory days currently?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [279]

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You are talking about domestic market?

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [280]

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Domestic market.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [281]

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Yes. So in domestic market, I think both our receivables and inventories are best-in-class, best in line. I don't have the number, but inventory -- sorry, receivables should be about 26, 27 days. Inventories should be about 60 days.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [282]

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And I'm talking about the...

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [283]

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All right. We are talking about -- see, I'm talking about total inventory balance [sheet].

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [284]

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Yes. No, I'm talking of channel inventory.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [285]

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The channel inventory in the market?

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [286]

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Yes.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [287]

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Yes. So that would not be different between acute and specialty. While you said acute because that's -- generally that's typically the same. So that is about 45 days.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [288]

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Okay. Yes. And why is the specialty segment not growing?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [289]

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So I think I've said a few times, and I'll repeat for the last time that our internal parameters did their growth but because the base year last year has few issues which we have corrected this year, the growth number looks -- doesn't look to be there. We should be back in growth starting next year.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [290]

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Okay. Right. And my question pertains to the 10 or 12 ANDA approvals that we have received, which don't seem viable. So what is the policy for amortization?

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [291]

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Because we have already expensed out, there is no question of amortization. We already expensed out. So see, you are confusing 2 different statements. Aleor does only the amortization, Alembic Pharma expenses out right from the beginning, so there is no -- nothing sitting on the balance sheet.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [292]

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Okay. Okay. Yes, fine. All the best.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [293]

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So we can wrap this up, and we can take the subsequent questions offline.

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Operator [294]

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Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. R.K. Baheti for closing comments.

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Raj Kumar Shreeram Baheti, Alembic Pharmaceuticals Limited - Director of Finance, CFO & Executive Director [295]

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Yes. Thank you very much for your interesting session, for your question, answers. I think it keeps us also on the toes. And it has been good quarter, with your blessings, we'll continue to do better, hopefully. And look forward to be interacting with you again next quarter. Good evening, and good night and best of luck to all of you.

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Operator [296]

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[Thank you very much, sir. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.]