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Edited Transcript of ERIS.NS earnings conference call or presentation 14-Feb-20 11:00am GMT

Q3 2020 Eris Lifesciences Ltd Earnings Call

AHMEDABAD Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Eris Lifesciences Ltd earnings conference call or presentation Friday, February 14, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Amit Indubhushan Bakshi

Eris Lifesciences Limited - Chairman & MD

* Kruti Raval

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Conference Call Participants

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* Amey Chalke

Haitong International Research Limited - Research Analyst

* Anubhav Aggarwal

Crédit Suisse AG, Research Division - Associate

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Rahul Veera

Abakkus Asset Management, LLP - Research Analyst

* Riddhesh Gandhi

* Sapna Jhawar

IndiaNivesh Securities Limited, Research Division - Research Analyst

* Tausif Shaikh

Prabhudas Lilladher Pvt Ltd., Research Division - Research 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 Results Conference Call of Eris Lifesciences. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Amit Bakshi, Chairman and Managing Director of the company. Thank you, and over to you, sir.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [2]

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Thank you. Good evening, everybody, and welcome to the quarter 3 '20 earnings call. Let me take you through the presentation, and then we will open after for Q&A. The first slide in our presentation talks about a very momentous period for us. As you are aware, in the last call, I told you that we have initiated a study called India Heart Study. It got mentioned in nothing less than the official journal of ESH, which is one of -- which is a great thing to happen. And we could be possibly one of the very few company or the only company to have achieved this feat. Again, putting forward the whole thought of achieving thought leadership in hypertension.

Immediately then, I come to the point, which is higher expenditure in this quarter. So we see INR 14 crore to INR 16 crore higher expenditure in this quarter, which is nonrecurring in nature. The reason of this expenditure is, number one, we have hired around 215 (sic) [219] BEs and the managers for 2 different businesses. These expenditures are for their onboarding, for the training and also for sometimes a notice payout, especially at the higher managerial level.

Secondly, we have invested heavily on Zomelis and Rariset, which is our Sucrosomial Iron. These are the 2 products, which we were quite bullish on. These were launched in the month of December, so nothing much is captured in the sales. But going forward, it seems that these 2 product itself will contribute around 6% to 8% of additional growth in the coming year. So it's a good start. AICD numbers do tell us that we are somewhere averaging INR 3 crores, INR 3.5 crores at this point of time based on the strips.

The other point is we are not able to sell Zomelis as much as primary because we had an arrangement with Novartis that first Abbott will sell their stock. And according to an order from the court, Abbott is allowed to sell it only until April. So we think that the entire sale will be captured from the first quarter of the new year.

Rariset, again, we have invested very heavily, just to give a number on that. We have done around 400 medical education meetings only in the first month of launch, that is December itself. And we are seeing a good traction. If these trends -- if they move forward, which we are sure, then we would be -- we are looking at around INR 18 crore to INR 20 crore brand of the Sucrosomial Iron in the next financial year.

The other news is that Guwahati plant is now ready for production of the newer products, which we're talking about, especially in the softgels and the nutraceuticals. And we will be hitting around 80% from the Guwahati plant coming from the first quarter of next year.

We have also got some renewed focus in the business. The entire business is now defined into 5 SBUs, and we've got some people from outside to manage these SBUs. So 2 SBUs are in the Cardio Metabolic business, which remains our largest business. Because of a very sharp focus on CNS, CNS has also been put in as an SBU. And there is one business which is Acute business, wherein we already have a person in-charge, the cluster head, who has joined us recently. And one SBU is for the Newer businesses. This, not exactly restructuring, but kind of putting them into buckets, will give more focus to each of the businesses. And these will be run in a more professional manner than before.

Now coming to the secondary growth, I'll talk about the quarter 3 and the 9 months ending simultaneously one after the other rather. So you see this year, up until now, the market has grew by 9.5%. Acute has actually grown by 10%. So acute has overgrown chronic, which is not very common, but this has happened this time. And especially in the third quarter, it has grown ahead of acute quite significantly looking at the past records.

So that is one of the reasons that our sales for a 9-month perspective, as per the secondary, is 9.8%. And for the quarter 3, it's 6.4%. Where in acute, we have degrown by 8%. And in chronic, we have grown by 11% vis-à-vis 9.2%. The change in the performance for the quarter 3 is actually coming from subchronic brands and 2 brands, in particular, where we have underperformed the market. The market has grown by 8.3% in the third quarter, and we have grown just by 3.8%, which is 22% of our contribution.

On a 9-month basis, we have grown at around 8.2%, almost at par with the market. This underperformance in quarter 3 is because of 2 brands, which has already been corrected in the month of January because the January sales are out. And we saw a 9.8% growth in January as per the same data we are talking about.

So quarter 3, we grew by 5.3% in growth sales internally. We have an 18% dip in EBITDA, which I've explained. We have spent around 16 -- INR 18 crores extra. There is no exceptional item there. Next quarter, we will come back to around INR 55 crores, INR 60 crores. Our average has been INR 70 crore, INR 74 crore. Generally, in the fourth quarter, it is between INR 55 crores to INR 65 crores, and we have preponed certain expenses, including our meetings -- budget meetings. All that has been done in December. So there's a blip there, but this will get even out by the end of the next quarter. On the 9-month side, we've grown by 7.7%, 3% growth in EBITDA and 1.3% growth in net profit. Rest everything is as it is.

We can take in questions now.

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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 Amey Chalke from HDFC Securities (sic) [Haitong International Research].

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Amey Chalke, Haitong International Research Limited - Research Analyst [2]

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I'm from Haitong. So first question is on, obviously -- on incremental investments. So we have added around 300 MRs. So going ahead, should we expect the MR count to remain stable for at least a year or so? Or what is thought process over there? Then the second question is on -- we have announced that we are entering into the generic space. What kind of investment will go into this business? And what is the thought process in entering into the generic market at this point of time? These 2 questions.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [3]

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Sure, sure. I'm sorry. I didn't mention the trade generic part. So we have -- we are entering into trade generic. I think next month, we will start the billing. So the whole thing will start coming out in the April. So I'll answer the first question first, which was -- let me start from the trade generic part, which I missed in my presentation. So the idea of getting into trade generic was 2. One is that, as you're aware, our company is largely INR 18 crore to INR 20 crore (sic) [18 to] -- 20 brand company, which contributes more than 75% of the sales. Our representation into acute market has always been very less. And over the years, it has come down to 14%, 15% now. The trade generic market, as you guys are aware, is more of an Acute business than anything else. So it gives us a good -- and this business has been rising -- has been growing steadily in the country, and there have been companies who've been able to demonstrate good EBITDA margins also.

Now going ahead, the plan is to launch this division. We already have the leaders in place, and we have got one of best of talents of the industry. We are setting our distribution system at this point of time. The idea is to be in the trade generic side, but to be on more on OTC able kind of product. So initially, there will be a mix of OTC able product and pure, pure pharma, but the strategy is moving ahead with more rigor in the OTC able part, so that it is scalable and it is also profitable. So that's the thinking around trade generics. Amey, your question on the expenditure. Can you please say it again?

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Unidentified Company Representative, [4]

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Will it be lower or remain stable?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [5]

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About the people? Yes. So right now, what -- the additional of people have -- still to happen in the trade generic. We will have a team of around 50 people. Right now, we already have 20 people, 25 people boarded. But as a thumb rule, we always invest in the managers and the leaders first. So the people now coming would more be at the bottom of the pyramid, the front-facing field force. As far as -- so 25 more people for trade generics. No other plans at least for the first 6 months of the launch. Depending upon how we do, we'll think about it in the later half of the next year.

Talking about our current business. We just added one division in chronic. We have no plans for this year, but we see some more products coming in the next year. So a possibility of one more division in Cardio Metabolic is there maybe in the second half of next year. So until the first half of next year, we don't see any significant improvement -- addition rather. There would be some 30, 40 people, depending upon how we want to expand the current business.

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Amey Chalke, Haitong International Research Limited - Research Analyst [6]

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Yes. Just one follow up that do you expect this business to be margin relative? Or you -- because we are operating at 35%-plus EBITDA margin. And so typically, what I understood from the industry, the margins in the trade generic side is close to 20% or more or less over there. So what is your thoughts on that?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [7]

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No. Amey, this -- I don't see this coming to the level of the present business. That is the reason we are taking this into wholly 100% owned subsidiary, so there is no mix up between the 2 businesses. We don't see this business going to 30%, 35%, even in the long term. But we are very hopeful that once we gain traction, 20% is something which is achievable.

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Operator [8]

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The next question is from the line of Tausif Shaikh from Prabhudas Lilladher.

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Tausif Shaikh, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [9]

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Can you give us the breakup of revenue subsidiary-wise? And can you just break up that INR 18 crore which you have spent extra on other expense? How much you have spent in Zomelis and new employees?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [10]

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We -- both the things we don't have the break up. We have been giving the breakup for all this time. So we are no more giving the breakup because they have been completely integrated now, and they have been merged also. As far as the additional expenditure, which you are saying, so look, broadly -- I don't have the math splitting. But broadly, what happens, it is like -- from a people point of view, it is onboarding, it is training, it is notice period buyout, especially at the manager level, and then it is about internal meetings as well as external meetings. So promotional expenditure is at the top, followed by people and their settlement.

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Tausif Shaikh, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [11]

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Okay. Just one more, if I can. You have moved into generics. Can you throw some more light on it, like how many products you're planning to launch in the next 6 months?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [12]

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So you have to bear with me for one more quarter. What I can tell you right now that we are ready with around 65 products as of now. But is this enough? The answer is no. So the brand addition is -- generic is not as filtered as it is in the -- as in our core businesses. So as and when the need arise, but this business typically is done at a larger brand level, at a more SKU level.

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Operator [13]

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The next question is from the line of Rahul Veera from Abakkus Asset Management.

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Rahul Veera, Abakkus Asset Management, LLP - Research Analyst [14]

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Sir, I just wanted to understand in terms of our product shift to our own Guwahati facility, we've moved up to 65% in Q3 FY '20, but there's been no improvement in the gross margin, sir?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [15]

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Yes. We actually dropped down to 65%. Before we took Strides, we were at 75%, 80%. We actually dropped down from there because we didn't have a couple of lines available with us. Now with the line coming back to us and 80% moving in Guwahati, we'll see -- that difference will now come up from the first quarter of next year.

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Rahul Veera, Abakkus Asset Management, LLP - Research Analyst [16]

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Okay, okay. And the generic 65 products that we are planning will be manufactured in-house? Or...

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [17]

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No, no. Nothing in-house as of now. Nothing in-house.

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Operator [18]

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(Operator Instructions) The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [19]

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This first question is Zomelis. Did you have to cut prices after you bought this brand?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [20]

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So now the price which we are selling is at INR 9 and INR 10. INR 9 for the 500 mg variant and INR 10 for the higher metformin variant.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [21]

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And when they were selling, they were selling at around INR 25 for this? INR 25?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [22]

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Yes. Yes, yes. In that range.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [23]

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Okay. And the other question was on this 2 brands that you mentioned, which have not done well. What are these 2 brands?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [24]

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So this is -- we are -- these 2 brands are Remylin D and Tayo.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [25]

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Tayo, right?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [26]

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Remylin D and Tayo.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [27]

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Tayo, okay. But -- okay. So there's nothing new, right? For us, even these 2 brands have not been doing well for some time, right?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [28]

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No. It is not. It is only in quarter 3 they got -- so if you look at the -- in quarter 2, the contribution from quarter 2 to quarter 3 has come down by around INR 3 crore.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [29]

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Okay. And then I have a question that -- one question just asking on this Acute division. We've been always saying that we are not focused. So why don't we decide when we were restructuring business to let go this Acute division? I mean why don't we divest it?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [30]

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Okay. Anubhav, acute and the semichronic is intertwined with each other. So what happens in every one division where there is an acute, there are a couple of product for semichronic also. So we'll give you an example. Our biggest acute basket lies in our gastro division, which also has relearned in that. So while from an AICD part of it, we say it is only 14%, but it is intertwined with other reasonably big brands also. In fact, what we have done is that we have put this under a different SBU. And we've got somebody who has a huge -- a lot of experience handling this for the last 30, 35 years. And we are looking to improving our share in acute because acute market in the last 2 years have been performing well. It is not the time 2 years back when they were consistently underperforming. So it makes sense for us that we kind of revamp this business and try and get better out of that -- better in that. Regarding Zomelis, look, the data is telling me that we are already at a INR 3.5 lakh run rate. Now INR 3.5 lakh run rate at the new NRV is around INR 3 crores, INR 3.5 crores a month. That's the AICD data, which I'm quoting.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [31]

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Okay, okay. And just last question on this generic entry. So just asking that this option was always available to us, and we've chosen to enter this business when the regulator is considering this industry of putting margin caps. So what's triggered this -- our entry into -- so late into trade generics?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [32]

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Yes, Anubhav. It's a very reasonable question. Why did we enter now? We -- as a company, we are going through expansion, which I had talked about in the last call. This space in my head wasn't as big or was not becoming as big as it has actually become. The advantage with us is that we were very, very -- we are very concentrated brands, small -- less number of brand doing larger business. Now when it comes to the trade margin issue, which you are talking about, Anubhav, in my understanding, trade margin business will not completely change -- will not -- this business will not go away anyway. Now if you know, in volume terms, it is quite large. And we -- and there is a huge population who goes to the chemist and asks for drugs for his ailment. So this business might get a little restructured in a manner, but this business getting into big problem doesn't seem slightly.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [33]

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So if I can just ask a very simple question. I think what is the fixed quantum that we're attributing to the business? Like, kind of -- I know a lot will -- you will buy it from outside, et cetera, so all will be variable, but what's our total fixed cost investment into this business?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [34]

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Fixed cost investment.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [35]

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Yes.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [36]

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So fixed cost investment is only going to be on the people and on the inventory. Nothing else.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [37]

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And how much would that be?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [38]

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People cost would be, say, around 15 -- INR 12 crore to INR 15 crore, even less than that, maybe INR 10 crore for a full year when we are 50 people. And we think that the gross margins here would be in the range of 50%, 52%. So depending upon whatever the sales is that part would come down.

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Operator [39]

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(Operator Instructions) The next question is from the line of Riddhesh Gandhi from Discovery Capital.

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Riddhesh Gandhi, [40]

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Could you just expand a bit, again, on your trade generics business as in -- I mean how particularly familiar with who you'd be competing with, the current distribution approach and how it differs from a branded generics business, which you've -- which, I mean, typically, we see in the Indian market?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [41]

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Yes. So that's a -- I mean, that's a lot to talk actually. I'll try to put this in the shortest possible framework. So typically, branded business is something just described -- which is a prescription business and a trade generic business is something, which is over-the-counter business where a patient goes to the chemist and either they buy something for themselves or chemist gives him whatever he needs, depending upon the problem he is having. The distribution system is very different. So you have different distribution for the branded generic, which is more of fulfilling kind of a distribution, where there is a demand fulfillment, and the demand is generated by prescriptions, while this is more of a push business, where you are doing demand creation, and it is more on the shelf kind of a push, which happens. So these are the...

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Riddhesh Gandhi, [42]

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We don't have MRs and all of that in the generic trade business?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [43]

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No. This is a distribution-driven business. So the distributor is a quasi-salesperson here. So you don't require that many feet on the ground. It is more of a distribution business.

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Riddhesh Gandhi, [44]

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Got it. And in terms of -- at the EBITDA level, it would -- I'm assuming these are still lower in terms of margins?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [45]

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Yes, yes. Absolutely.

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Riddhesh Gandhi, [46]

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Got it. And the reason why you guys are actually expanding into this area is because you see this as being a trend in the acute space, which you're seeing? Or...

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [47]

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Yes. To an extent, yes. And this is one market which has actually grown very well in the last 5 years. Typically, we enjoy a lot of respect in the market from a brand perspective because of being at the top of the pyramid. That makes it easier for people to recommend and sell our brands, so that -- and our presence in the biggest market of generics. Trade generics from a branded perspective is very, very lower, almost missing. So there's nothing which comes into our own business, which we are doing. So they completely remains separated.

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Riddhesh Gandhi, [48]

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Got it. And as -- say -- and how much actually profit margin would the -- actually pharmacist make with a trade generic as opposed to the -- actually a branded generic?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [49]

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So significantly more. I would not -- because it depends upon pharmacist to pharmacist. But it is significantly more than the branded business.

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Riddhesh Gandhi, [50]

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Got it. So effectively, you would -- effectively, you'd be running these 2 parallelly or you would do -- I mean, ultimately, look to move your queue towards being a traded generics business?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [51]

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No. They are completely different. Absolutely. They will be run in different -- this would be running a different subsidiary. This has a different distribution system. So they don't cut each other at all.

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Riddhesh Gandhi, [52]

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Got it. And are there any other of your peers who is also looking at this market or not really?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [53]

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No. So I think the larger peers -- the larger companies are already in this market, and some of them have been doing exceptionally well.

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Operator [54]

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The next question is from the line of [Subrata Sarkar from Mount Intra Finance].

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Unidentified Analyst, [55]

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Sir, a couple of questions. First, can you share the January data of AIDC -- AICD and your position with respect to chronic and subchronic and acute?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [56]

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You pardon me for a percentage here and there because I'm not carrying it. But since you've asked, I think, at a company level, we are at around 10% growth. And at the chronic level, we are at around 12.5% growth.

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Unidentified Analyst, [57]

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Okay, sir. And in case of acute, like, sir, any rough idea?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [58]

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Acute, we are at 7% growth. How much is it, Kruti?

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Kruti Raval, [59]

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[3.49 month].

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [60]

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January?

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Kruti Raval, [61]

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January month.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [62]

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Just wait. Since you have asked, I'll just pull the data.

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Unidentified Analyst, [63]

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Yes, sir. And please share the industry data also, sir, then it will help.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [64]

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Okay. So I can't spend much time here. I'll just tell you in as a preview. So acute, we have grown -- there's a degrowth of minus 3%; chronic, there is a growth of 13.6%; and subchronic, there's a growth of 10%; and overall, there's a growth of 10%.

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Unidentified Analyst, [65]

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Okay. Perfect, sir. Sir, now on a broader level, one question. Like, since we have launched, just help me like if I'm wrong. Sir, if -- since we have now launched Vildagliptin, so is there any like cannibalization possibility for our Tendia in that respect?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [66]

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So Tendia growth slowing off is a possibility, and that is happening in the market. So there would be some amount of cannibalization, which will happen. The cannibalization is -- will happen on the growth, not on the base business. So the Teneligliptin market, which by and now was growing by around 25%, 30%, we expect this to come back -- come to around 10% to 12% -- 10% to 14% in the next year. Having said that, whenever this kind of -- whenever this kind of thing happens in the market, the lead brand generally tend to take a budget share because the noise actually comes down drastically. So we are hopeful that Tendia will continue to beat the market and remain a very vibrant brand in this market.

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Unidentified Analyst, [67]

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Okay, sir. Sir, now just one question. Can you share some, like, color on the, like, Strides -- the acquired Strides portfolio right now, sir. How it is doing, sir?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [68]

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So we have been doing this for 4, 5 quarters. We are not doing it anymore. I'm sorry for that.

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Unidentified Analyst, [69]

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Okay. No issue. Sir, last question, sir, regarding this China and coronavirus issue, sir. Like is the -- on the API side, which we are as well, so are they facing any -- means, in the entire supply chain, is there any problem on that? And like what we are anticipating on that, sir?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [70]

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So yes, it's a valid point. If this continues for a long period of time, then there will be certain challenges around the intermediate. As of now, we are -- the way we see this -- the kind of comfort which we are getting from the vendors in China, it seems that we should be okay.

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Unidentified Analyst, [71]

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Okay. So like how much time if it is continue we can face some challenge, sir? That's what like -- until what time we can sustain easily and then there will be some effect, sir?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [72]

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So look, we -- like everybody, we also have [buyed] up on things which we thought are important, at least, we have bulk of the orders. So I don't find any problem until the first quarter. And by that time, everything should settle down. I don't think there's an issue there.

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Operator [73]

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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 [74]

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Yes. Sir, on the cost, just a reconfirmation and clarification. You mentioned it would normalize to the earlier levels, which is about INR 70 crores, INR 75 crores. Is that right understanding?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [75]

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Yes, Prakash, absolutely right understanding. This is only one time this has happened. We have been maintaining our other cost at around 28%, 29%. And that's going to be the norm. Nothing is changing there. Only in this quarter, we had preponed some expenditures and also built up some campaigns and other promotion for the newer brands. That's the only moving point. We remain around 27% with 9% on other cost as it has always been the case.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [76]

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Okay. And this will be from Q4 onwards, basically?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [77]

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Yes, yes, yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [78]

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Okay. And on the revenue front also, we've always said that we will try and grow higher than the market growth. But even if I adjust the subchronic element, which is like 20%, I would say, we will be still near or below market. What is leading to the base business, be it chronic or acute or whatever? On a blended basis, we are still below our near market growth. So what is not playing out for us at the moment? I mean future, obviously, new products will come to that, but the base, like-to-like 6.4%. You explained that there is a subchronic, 2 brands have not grown, but say, like-to-like, even if we add that back, we would be still 9% or below. So what is not playing out?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [79]

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What is not playing out, that 65% of our market, which is in the chronic side has underperformed in the 9-month period. And typically, Prakash, whenever acute has overperformed the chronic business, if you take a large slice cut, you will see that chronic business suffers. This is for a larger -- from a larger point of view. And from an inside point of view, what we have not been able to done is turning around our acute business. As I just said that, even in January, there is a negative growth of 3.4%. So that is something, if we are able to correct that. So it's not the top, which is actually making us bleed. The top 65% and the next 20% is still 20% ahead of the market. But it is the lower acute, which is dragging us down.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [80]

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And just taking it forward. So when you say you're expecting 6% to 8% of additional growth, that is via Zomelis and Rariset which practically means INR 60 crores to INR 80 crores?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [81]

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Yes, absolutely.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [82]

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So this you are seeing from fiscal '21? Because you mentioned, I think, that Zomelis sales will only see light from 1st April because of the inventory sitting in the system?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [83]

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Yes. Yes, Prakash, please complete.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [84]

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So I'm just trying to understand what is the run rate which we can actually assume in Q4 before we start seeing some growth from new launches?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [85]

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Q4 run rate -- you're talking about the current quarter?

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [86]

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Top line.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [87]

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Yes. So look, I -- Q4 is generally a quarter which is subdued. And not having a lot of tailwind in the third quarter doesn't makes me very positive about quarter 4. We'll be -- we'll do what we have done in the 9 months period, but I do not promise something spectacular coming out in the fourth quarter. My entire bet, which you initially said, is that I want to get around 7% to 8% only from these 2 products in the next year. And where -- I can see there is an undercurrent which is there. Also remember that we have launched a couple of more brands. I spoke to you about this in the last call that we had been guilty of not launching new products because of trying to integrate all that, which we bought in the last couple or 3 years. So in the month of December and the month of January, we have also launched a couple of more products, which are in the base, which are in the base business, especially in CNS. So that also will take traction. So all put together, I am keeping 6% to 8%, maybe 9% of additional growth only from the new product, which hasn't happened in the last couple of years.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [88]

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Okay. And the base growth that you're assuming for your base portfolio, around 10%?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [89]

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Yes. So in a subdued circumstances, I'm almost at the market or a little lower than the market. So when this starts picking up, the chances are that we will again try and beat the market at the base level.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [90]

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Okay. And last question on the allocation of cash. I mean, even after doing this buyback, we would still be with some cash. What is the thought there in terms of using the cash?

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Unidentified Company Representative, [91]

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We have INR 106 crores of cash as of yesterday.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [92]

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Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [93]

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Okay. And this is after paying Zomelis and I think a buyback would have been done, right?

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Unidentified Company Representative, [94]

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Yes, yes. It is after paying INR 93 crores for Zomelis and -- $13 million or to be precise and INR 100 crores of buyback. And also, if you remember, we did a prepayment of INR 175 crores of loan also. So we have done that all this year. So after all the cash outflow, we are at INR 106 crores of cash as of yesterday.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [95]

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Yes. Prakash, regarding the strategy of cash, we will come out with a structured strategy for that, which will be between the buyback and the dividend now. We have to discuss this subsequently about when the new -- in the new tax regime that what will be a suitable way out. But between these 2 options, we will come out with a strategy, say, in the next quarter.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [96]

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No. So I was trying to understand, is there a thought on buying more brands or using the cash from a growth perspective, not from a buyback or dividend perspective.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [97]

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Yes, that always remains. That always remains at the top. So there is some amount of the whole cash, which would be -- which we would strategize in terms of giving back to people, but the largest chunk of cash will always be utilized for growth opportunities.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [98]

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Okay. Okay. Perfect. Okay. Great. And one more, if I may. On the gyne piece, where does it fit in acute? I mean gastro, gyne, vitamins will all be clubbed under acute now?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [99]

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So yes. In our SBU, it is all intertwined. In the reports, which you see, they are differentiated as per the AICD classification.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [100]

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No, I saw your Slide 10, which is like 5 SBUs.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [101]

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Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [102]

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So your gyne, vitamins sold will be clubbed under acute. Is it?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [103]

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Yes, yes, yes. So acute will be coming -- clubbing the gastro business, the gyne business as well as the ortho business. So around INR 30 crores, INR 31 crores of a monthly business between these 3, which is a mix of acute as well as semichronic will come under acute, which will have special focus.

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Operator [104]

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The next question is from the line of Sapna Jhawar from IndiaNivesh.

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Sapna Jhawar, IndiaNivesh Securities Limited, Research Division - Research Analyst [105]

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So I remember distinctly last time we spoke about product rationalization, the entire exercise that we did. So then, why is it that our tail-end brands still continue underperform -- we still have certain set of brands, which are underperforming in our portfolio. I mean if you could just throw some light on that.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [106]

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Let me just get some data before I speak to you. Kruti, are you carrying that brand data? So I can tell you about 9-month period of our top 10 brands, which are 66% of the revenue. So Glimisave, which is our brand, which is under -- which side is the market, which side is the brand, Kruti?

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Kruti Raval, [107]

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Orange is the market.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [108]

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There is no orange. This is simple, first and second. Just a moment. So orange is the?

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Kruti Raval, [109]

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Market.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [110]

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Yes. So Glimisave, our top brand, is going ahead of the market. Eritel, our #2 brand, is growing below the market. Now Eritel has been restructured, and we are shifting this to a new division, which is clearly hypertension-based. ReNerve is going much ahead of the market. Tendia is going ahead of the market. Cyblex is going ahead of the market. Olmin is going ahead of the market. LN Bloc is shade under the market. Tayo for the 9-month period is growing ahead of the market. Rabonik, the PPI brand of ours, is growing much below the market. That's how the top 10 brands stands up for us.

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Sapna Jhawar, IndiaNivesh Securities Limited, Research Division - Research Analyst [111]

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Sure. So in your initial remarks, you did mention that Remylin D and Tayo underperformed in Q3, but they have resumed result growth back in now Q4. I mean we're already in middle of Q4. So what went wrong then? And what have we done to correct that?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [112]

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No. Look, what happened -- last quarter had in October, which is actually a little disruptive month from a pharmaceutical point of view. So in the month of October, we expected it to go down. But then we could not compensate in the month of November, December. So I cannot be very, very specific about that. But let us start looking at it for a 9-month period and ignore quarter. So for a 9-month period, it has done well, ahead of the market. It's only the quarter 3 where it has gone well below the market.

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Sapna Jhawar, IndiaNivesh Securities Limited, Research Division - Research Analyst [113]

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Okay. So the second question that I have is about Zomelis. Now we've already invested INR 93 crores when you bought the trademark and then certain investments when we hired this MR of -- 186 MRs. What kind of a breakeven time line are we working with for this particular product?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [114]

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Breakeven time line, we haven't worked. But we can tell you broadly how will it work like. So now as soon as we start hitting the market with all our stocks, we expect this brand to be at least INR 50 crores in the next year. We are -- internally, we will make around 78% gross margin in this brand. So the gross profit would be INR 40 crores, very significant. Regarding addition of people, so additional of people -- for first 6 months we will not give them any other brand. They will remain a team only for one brand. Later on, we will push some more brands in that division, and that is how the whole productivity will increase. So we haven't done the payout but -- payout numbers, but I can broadly give you how will it stand at the gross level.

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Sapna Jhawar, IndiaNivesh Securities Limited, Research Division - Research Analyst [115]

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Sure. And I suppose with INR 50 crores as a revenue guidance that we're expecting for this, this would actually be amongst the top 10, top 15 products very soon for the next year. With 78% gross margins, do we expect gross margins to actually be stagnant or dilutive for next year? Is that what we are guiding for?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [116]

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No. This 78% has significant headroom. These are the first supplies. So once the market edges up, we will have significant headroom. And Zomelis will be at the upper end of our -- of the company gross margins.

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Sapna Jhawar, IndiaNivesh Securities Limited, Research Division - Research Analyst [117]

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Sure. And my third question is regarding Rariset. Now which set of doctors will this product go to? Will it be like a subset to any chronic product? Or this is -- this will be a purely chronic prescription?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [118]

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So this will go in 2 segments. One is gynecology, of course, which remains the largest market for iron. And second is nephrology, which has the highest productivity for iron supplement. The nature of this product is not acute in -- during pregnancy. It is indicated for the first 2 -- the last 2 semester and also 6 months after the pregnant -- after the child birth. So it has the life cycle of at least 9 months to 12 months, almost every time. And in nephrology, it could be used for even longer.

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Operator [119]

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The next question is from the line of [Ranvir Singh] from Sunidhi Securities.

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Unidentified Analyst, [120]

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Sir, on trade generics part, what have been the total investment in this business? I mean planned investment.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [121]

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Business has not yet started. So we will not be able to give you the numbers. But as I alluded to when I was speaking to one colleague that the only 2 investment would be people and the inventory.

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Unidentified Analyst, [122]

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Yes. So given that their operating margin or EBITDA margin has been lower than your base business, the other business, so just wanted to understand the kind of return we will be getting from this business over 2, 3 years? That is what precisely I wanted to understand.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [123]

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Return on capital?

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Unidentified Analyst, [124]

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Yes, yes.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [125]

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Just give us more time to respond to. That business has not even taken off as of now.

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Unidentified Analyst, [126]

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Okay. And the last year we started 3 business verticals. So what has been the contribution of these verticals?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [127]

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Which --

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Unidentified Analyst, [128]

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That add -- that fertility nutrients and one more division you added?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [129]

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Okay. So the fertility business, which is for 50 people, will end up at around INR 11 crore to INR 12 crore this year. And the other business was Nutriverse. The Nutriverse business was -- we started with some 35 people. We have scaled it to 100 people in the last quarter. And right now, their run rate is around INR 70 lakhs to INR 80 lakhs per month.

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Operator [130]

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It seems we've lost the line of the current participant. So we will move to the next question, which is from the line of Tushar Manudhane from Motilal Oswal.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [131]

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Sir, just on the chronic segment, which is 64% of the revenue, if you can just help me on the price, volume, new launches, growth?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [132]

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On the -- we don't have that number. We will have to get to you offline. Maybe my colleague, Kruti, can help you on that.

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Operator [133]

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(Operator Instructions) The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [134]

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Amit sir, I just wanted to understand this new structure which you have put up, which you have reorganized your divisions into 5 SBUs. Earlier when you had the division structure, you had the division heads who were directly reporting to you. So under the new structure, you will have the division heads reporting to this SBU heads or --

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [135]

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Cluster head, yes.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [136]

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And now what's happened? So some of the division heads have been promoted to the SBU heads? Or all the 5 SBU heads you have hired from outside?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [137]

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No. Only 1 we've hired from outside. The rest 4 have been internal promotion.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [138]

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Okay. So when you were evaluating, so how does this change lie for you? Is it that now you will have 5 guys reporting to you versus, I don't know, earlier all the guys equal the number of divisions were reporting to you? How does this -- things change for you?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [139]

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Yes, yes, Anubhav. It changes significantly for me. One is that I get more time to invest on -- in the Newer businesses,and other strategic things. And I'm quite hopeful that this will ease out a lot of growth also. Because this was a point when it was getting too much from a reporting perspective. So we had to take this and then we took some time. We did some -- we involved some agencies outside, did some good homework on that. And then we have made the structure and then put people there. So what it will -- what difference does it makes to my life is that I will be able to give more time to Newer business and more strategic plays. My operation -- the time which was into operations will considerably go down in the first year, but significantly go down -- will go down after the first year.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [140]

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And just one more question I had is now for last 1 year we've been trying to get into more and more businesses. Just a thought, which comes is, are we stretching ourselves in the sense that base portfolio is not growing as fast as it was doing, let's say, 2, 3 years back. Newer businesses are all subscale right now. Maybe one business may become good at some point of time, but it's a very, very tricky phase where the Newer business which are at subscale maybe all may not perform. And we entered one more business, trade generic. It will, of course, take some more of your time. So you always had the choice of picking one -- let's say, it could have been CNS or, let's say, concentrating on one more therapy in more focused way versus like investing your time in so many business, sir. How did you come to a conclusion of investing in so many other businesses, smaller businesses?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [141]

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Okay. So look, Anubhav. Let's be reasonable. While what you say has merits, but let us take the kind of resources, which we have got into. So you -- if you remember, I just spoke about the IVF business. So we started this business with 50 people, and now we are doing INR 2 lakh productivity per person, which we are planning to take it to INR 3.25 lakh for the next year. So if we are getting INR 2 lakh productivity in 2 years, that's not a bad thing to start. Second, my resource allocation has only been 50 people. Plus this is a market which is a very growing market. That's number one. If you see the large investments we have done from a resources point of view, as -- look, Zomelis has been one of the largest investment which we have done, which is right in the middle of our business -- our core business, and that is there also I'm expecting the greatest growth. CNS is the largest investment we have done in this year. And I had told you in the last year -- in the last call that we are expecting CNS business to grow significantly.

So if you look at my CNS business, if you cut the CNS business growth, you will see that, that business, which was INR 2 crore -- INR 1.5 crore, INR 2 crore to start with from what we took in Strides, in 2 years is now reporting around INR 4.8 crores to INR 5 crores at AICD So the energy and the resources allocation are in the right businesses. Now talking about the generic business. I am not going to run generic business. I have -- we think we have hired one of the best person. And I am very confident about this. So my time allocation on trade generic business is only going to be at the strategic level. My -- we have a clear cut understanding that our core business is our best business, and this is the best scalable business. The new launches, whether it is out of the patent or in-licensing, is our second biggest opportunity. So between these 2 opportunities, you will always find us giving most of the resources and most of the time.

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Operator [142]

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The next question is from the line of Vishal Biraia from Aviva Life Insurance.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. - Analyst [143]

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Sir, over the medium term, say, 3 to 5 years, what is the kind of growth outlook that you have? And what are the kind of investments, including capital expenditure and acquisition of products? What are the kind of investments that you are envisaging?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [144]

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So gentleman, money in terms of acquisition is something which is difficult for me to think about at this point of time or to articulate rather. But I have always maintained that because we generate a lot of cash and the best way to put cash to work is on growth side. So whenever we have an opportunity, which we think is scalable, we will always go for that. That remains one. CapEx on the other side. So look, from a manufacturing point of view, we have just done around INR 25 crore, INR 30 crore -- how much did we do?

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Unidentified Company Representative, [145]

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We've done INR 24 crores. INR 7 crores, INR 8 crores is in process. So we'll be ending at INR 32 crores, INR 33 crores.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [146]

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Okay. Let's broadly put between INR 35 crores to INR 40 crores we have just put in. Post this enhancement, we would -- at 80%, we would be 35% to 40% of actualization capacity in 3 terms basis. So I really don't find the CapEx getting into manufacturing, unless and until there's a strategic reason.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. - Analyst [147]

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Okay. And just for the Strides -- the portfolio that you acquired from Strides, could you share the revenue and EBITDA for the 9 months?

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [148]

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We haven't done that. I'm sorry. We have shared it in the last quarter. We haven't done this for this quarter.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. - Analyst [149]

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Okay. The last question is on the working capital. Could you share how the working capital has moved from September to December?

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Unidentified Company Representative, [150]

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So working capital, basically, the stocks have increased because we have bought in -- we have stocked a lot of material this time. And that's what -- for the stock purpose. Otherwise, there is no significant increase from September to December in terms of the debtors period or creditors period.

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Vishal Biraia, Aviva Life Insurance Company India Ltd. - Analyst [151]

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Inventory has increased, you said.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [152]

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Inventory has increased a bit.

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Operator [153]

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Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.

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Amit Indubhushan Bakshi, Eris Lifesciences Limited - Chairman & MD [154]

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Thank you all for taking out time. And I hope we have done this well, and see you on the next call. Thank you.

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Operator [155]

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Thank you. On behalf of Eris Lifesciences, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.