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Edited Transcript of GRANULES.NSE earnings conference call or presentation 31-Jul-19 11:30am GMT

Q1 2020 Granules India Ltd Earnings Call

Hyderabad Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Granules India Ltd earnings conference call or presentation Wednesday, July 31, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Krishna Prasad Chigurupati

Granules India Limited - Chairman & MD

* Priyanka Chigurupati

Granules India Limited - Executive Director of Granules Pharmaceuticals Inc.

* Sumanta Bajpayee

Granules India Limited - Assistant General Manager of Corporate Finance & IR

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Conference Call Participants

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* Ashi Anand

Allegro Advisors Private Limited - Director

* Bharat Celly

Equirus Securities Private Limited, Research Division - Associate

* Charulata Gaidhani

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

* Harith Ahamed Mohammed

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

* Punit Mittal;Global Core Capital;Analyst

* Rashmi Sancheti

Anand Rathi Financial Services Limited, Research Division - Research Analyst

* Srihari Chintalapudy

PCS Securities Ltd., Research Division - Equity Fundamental Analyst

* Subhankar Ojha

SKS Capital & Research Private Limited - Senior Analyst of Equity Research

* Subrata Sarkar;Mount Intra Finance;Analyst

* Tushar Bohra;MK Ventures;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 Granules India Limited First Quarter FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Sumanta Bajpayee. Thank you. And over to you, sir.

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Sumanta Bajpayee, Granules India Limited - Assistant General Manager of Corporate Finance & IR [2]

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Thank you. Good evening, everyone, and welcome to Granules India's earning conference call for first quarter FY '20. I have with me Mr. Krishna Prasad Chigurupati, Chairman and Managing Director of Granules India Limited; Ms. Priyanka Chigurupati, Executive Director of Granules Pharmaceuticals Inc., to share the business outlook and answer the queries.

We will begin this call with opening remarks from Mr. Prasad followed by Q&A session. Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and must be viewed in conjunction with the risks and uncertainties involved in our business. The safe harbor language contained in our press release also pertains to this conference call. I also request you to get in touch with me if any of your queries may remain unanswered during the call. The transcript of the call will be made available in our website shortly.

Now I'll hand over the call to Mr. Prasad for his opening remark. Thank you. Over to you, sir.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [3]

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Thank you, Sumanta. Ladies and gentlemen, thank you very much for attending our earnings call for the first quarter of fiscal '20. We started the financial year with a strong performance, and this validates our confidence in exceeding our target of INR 300 crores for the current -- INR 300 crores PAT for the current fiscal year and a 25% CAGR growth in PAT for the next 3 years.

In this quarter, we have achieved a 31% growth in the top line on year-on-year basis, primarily driven by FD sales, which grew by 56% compared to last year. The sales of FD in the overall revenue was 48% during this quarter.

Through the -- though the FD vertical has registered highest growth, revenue from APIs and PFIs also grew by 16% and 11%, respectively. U.S. market was the pregrowth driver of the sales and has registered a growth of 17% compared to the same quarter last year. Except India, we have witnessed growth in other markets too.

Gross margin for this quarter has improved both yearly and sequentially. This is the outcome of increased market share of existing and recently launched finished dosages, which resulted in better utilization of your added capacities. We are confident that our gross margins at this level are sustainable and still there is scope for further improvement as we get new approvals of our already filed products.

In this context, I'm happy to share with you that we have recently received approval for metformin API from our recently built capacity in Bonthapally. This will result in utilization of this newly built capacity, which was idle till date.

We have achieved an EBITDA of INR 119 crores, an increase of 63% compared to the same period last financial year. This shift in EBITDA is on account of positive contribution at gross margin level, with minimal increase in fixed operational expenses. I'm happy to state that during this quarter, our EBITDA margin had grown to 19.9%, which is very close to our historic high of 21%.

Our net profit for the quarter was INR 83 crores, which is a 61% jump from Q1 FY '19. The main factors attributed to increased profits are stable finance costs and a reduction in the effective tax rate.

Our focus on free cash flow and debt has led us to achieve a free cash flow of INR 60 crores and a net debt reduction of INR 45 crores. Net debt today stands at INR 863 crores as compared to INR 908 crores at the end of fiscal '19.

Cash from operations was INR 114 crores, and INR 54 crores was utilized for funding CapEx and increased working capital requirements. I'm confident that we have a fairly decent -- we will have a fairly decent cash flow -- free cash by the end of the current fiscal year.

There has been a slight increase in cash-to-cash cycle in Q1 FY '20, that is, it's 212 days, an increase of 2 days from 110 days by end of Q4 FY '19. The main reason being an increase in inventory levels at our U.S. facility in order to meet customer delivery schedules and avoid failure to supply penalties.

The total R&D expenses for this quarter were INR 34 crores compared to the INR 28 crores within the same period of the previous financial year. It stands at 6% of the sales for the quarter. Out of the total R&D expense, we had expense of 47%, and the balance was capitalized. I'm happy to inform you that we delivered an improved EBITDA margin despite increased R&D expense out.

We have built on our strong product development capabilities to create a healthy product pipeline. We have received 2 ANDA approvals during this quarter and have additionally filed 3 ANDAs. As it stands today, there are a total of 22 filed ANDAs awaiting approval. The recently approved products will be launched during the current quarter.

Our joint ventures, Granules OmniChem and Granules Biocause, have contributed INR 25.5 crores to the company's net profit. Biocause has performed well during this quarter and has contributed INR 30 crores, while OmniChem has a loss of INR 4.6 crores. OmniChem's business is cyclical, and we expect a positive contribution in the coming quarters.

Currently, there is a shutdown at the Biocause plant from meeting the newer pollution control standards, and we do not expect similar contributions in the coming quarters. However, we had budgeted only INR 40 crores as contribution from both the JVs for the current fiscal, and we are confident that we will surpass our stated target of PAT of more than INR 300 crores.

On the pledge side, I had recently paid a part of my personal debt, and this will result in a reduction of a pledge in the next few days. I'm fully focused on completely eliminating the pledge, and I am confident that I will achieve this by the end of fiscal '21.

With this, ladies and gentlemen, I would like to open the call for questions.

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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 Punit Mittal from Global Core Capital.

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Punit Mittal;Global Core Capital;Analyst, [2]

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Congratulations for a good set of numbers. And just a couple of questions. What is your gross debt this quarter? And what was it on 31st March?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [3]

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The gross debt was INR 908 crores on 31st March. And as of today, it's -- sorry, the gross debt was INR 991 crores, and today, it's INR 962 crores. Net was INR 908 crores and today, it's INR 863 crores.

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Punit Mittal;Global Core Capital;Analyst, [4]

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Okay. And how much did you say you spend on CapEx this quarter?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [5]

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It's all together -- it's INR 34 crores on CapEx.

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Punit Mittal;Global Core Capital;Analyst, [6]

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I mean this quarter, I mean, sorry?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [7]

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This quarter, it's totally INR 54 crores, which also includes our expenditure at GPI in the U.S. I'm sorry, I gave you a wrong number initially.

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Punit Mittal;Global Core Capital;Analyst, [8]

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No worries. So basically, I remember in the last call, you had mentioned that total expected CapEx for FY '20 is INR 150 crores. You've already spent INR 50 crores this quarter. Do you think we will exceed that number? Or we'll still be able to keep within that forecasted number?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [9]

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They would be within the INR 150 crores. And the reason for a little excessive spend this quarter is -- the expenditure in GPI is a onetime expenditure. We expect to complete this expenditure in this quarter and next quarter. And after that, it will only be a maintenance CapEx, which will be incurred.

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Punit Mittal;Global Core Capital;Analyst, [10]

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Great, great. Just one last question. In terms of your -- since your gross debt is coming down, but in terms of the interest finance cost compared to the last year, the finance cost has gone up slightly, even though the gross debt has come down quite a bit. So when do we expect this finance cost to come down -- start coming down?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [11]

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I don't think finance cost has really gone up much, but give me a minute, I'll come to that. It sits static at INR 7 crores between last quarter and this quarter.

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Punit Mittal;Global Core Capital;Analyst, [12]

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Yes. So around INR 6.5 crores and INR 7 crores, that's correct, but your gross debt, I remember last year was INR 1,116 crores, if I'm correct. So the gross debt has come down almost by INR 150 crores, and the finance cost has stayed the same. So is it because the cost has gone up? Or when do we expect that to come down?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [13]

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Cost has not really gone up again. I think the finance cost in -- you are talking about June '18, which is INR 1,115 crores. And yes, at that time -- I don't remember the exact number, but I think the finance cost was higher than what it is today. I can get those numbers for you.

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Punit Mittal;Global Core Capital;Analyst, [14]

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Yes. I mean I just wanted to -- basically my point -- limited point was that, when do we expect the finance cost to start coming down, which will have a material impact on our bottom line?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [15]

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We already have a very fine interest rate. We always borrow in foreign currency, euros and dollars. We have a good price. I mean we keep on improving this slowly as new banks come in, but it's a marginal improvement. Rates will not improve too much. As the debt goes down, the cost will come down.

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Operator [16]

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The next question is from the line of Rashmi Sancheti from Anand Rathi.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [17]

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Sir, this time for this particular year, what would be the total budgeted R&D spend?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [18]

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This year will be about INR 150 crores.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [19]

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INR 130 crores?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [20]

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INR 150 crores, 1-5-0.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [21]

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INR 150 crores. And sir, any guidance like how much it would be capitalized. Or should we assume that it would be around 50%, 55%?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [22]

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It will be between 50% to 55%.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [23]

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Okay. And...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [24]

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It's actually, if we go on the formula, there's a policy where once pivotal buyers passed, from then on it starts capitalizing. So it keeps fluctuating a little bit here and there, but it will be around 50% to 55%.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [25]

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Okay. And sir, if you can give the breakup for OmniChem and Biocause in terms of sales, EBITDA and PAT, at JV level?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [26]

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Biocause, revenue was INR 150 crores.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [27]

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INR 150 crores.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [28]

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EBITDA was 72%, which was -- INR 72 crores, which is 48%, and PAT margin was 40%. Contribution to our P&L was INR 30 crores. OmniChem's revenue was INR 8 crores, EBITDA was minus INR 5 crores, EBITDA margin minus 71% and contribution to our P&L is minus INR 4.6 crores.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [29]

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And sir, in case of Biocause, you are saying that this kind of performance will not be sustainable. Is it only because of the shutdown of the plant? Or is it that the prices and everything is getting stable now?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [30]

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It's a combination of both, Rashmi. Actually, this quarter, China, everything is a little uncertain, especially with the pollution control standards. We did shutdown. Last year, we spent a lot of money in building new pollution control systems. But again, the Chinese government has revised the standards, and again, we're taking a shutdown and again we are spending a lot of money. So it's a little uncertain on how things are going. But definitely -- and also the prices will soften as we go back. So we don't want to talk as part of big revenue coming from there. And however, like I said, we have factored only INR 40 crores in our budget. And assuming we get only INR 40 crores out of Biocause and OmniChem put together, we can still go beyond our target of INR 300 crores PAT.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [31]

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So in the subsequent quarter, you are expecting that the contribution from the OmniChem to go up. So currently, we are just supplying 1 or 2 products only from OmniChem? Or how is it? If you can give a little more update on this JV.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [32]

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OmniChem is, again, not going along my expected line. It's a little up and down, like cyclical. There's a bit of uncertainty of where we can grow. I don't expect too much coming from OmniChem either. And what we are doing is, we had deliberately decided to ignore those numbers and workout our profit margins and profit generation without even these numbers. So again, I would like to reiterate, whatever happens to OmniChem, whether OmniChem contributes or doesn't contribute, we're going to cross our INR 300 crores.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [33]

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Okay, okay. And -- but currently, we are already supplying 6 intermediates from OmniChem, right?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [34]

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Yes, (inaudible) supplies to innovator companies.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [35]

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Okay. And sir, on gross margin front because of the -- I'm sure, because of the stable raw material prices and also because contribution from the FD, it has gone up, the gross margins have improved significantly. So can you just quantify like whether majorly it has come from vertical stable prices? Or is it because of the better product mix? If you can just quantify like how much quantum is coming from each of them?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [36]

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It's basically better product mix, Rashmi. And it's again primarily finished dosages, which have -- which has grown by a very great number and also the U.S. market. Finished dosages have grown by 48%, and that's one of the reasons that has contributed to higher gross margin. And also new product additions, we also launched new products in the last -- few new products. So market share of those products also has been growing. And all this put together, there is an increase in gross margin.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [37]

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Okay. And are you on track for launching around 4 to 5 products this particular year, which you guided last quarter in U.S.?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [38]

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We will be doing at least 6 products altogether, a minimum of 6 products. And...

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [39]

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Mainly from GPI?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [40]

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Mainly from GPI.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [41]

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Okay. And sir, what is -- last question, what is the update on Windlas portfolio? Like one product is already in the market, but what about other products like Lurasidone or Fingolimod? What is happening on those? Are these still under litigation? Or what is the status over there?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [42]

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This is Priyanka. All the 3 products are still under litigation. So at this point, we're still further away from the launch.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [43]

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Okay. And last question, if I may, how much have you invested in Windlas pharma till date?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [44]

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We have invested about USD 1.6 million.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [45]

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How much is it?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [46]

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USD 1.6 million.

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Rashmi Sancheti, Anand Rathi Financial Services Limited, Research Division - Research Analyst [47]

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USD 1.6 million?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [48]

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U.S. dollars, which comes to something like INR 10 crores.

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Operator [49]

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

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Subrata Sarkar;Mount Intra Finance;Analyst, [50]

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Can you help me regarding the -- like regulatory -- like what are the regulatory, like -- when we can expect further regulation on a plant -- further regulatory visit on a plant-wise basis, sir? And any development in last 3 quarters on like new approval from any regulatory authority?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [51]

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Are you referring to regulatory means like the FDA?

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Subrata Sarkar;Mount Intra Finance;Analyst, [52]

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Yes, sir.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [53]

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Like...

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Subrata Sarkar;Mount Intra Finance;Analyst, [54]

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Have we received any new kind of like approval from any regulatory authority -- new regulatory authority like from any developed countries?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [55]

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U.S., we received 2 approvals in the first quarter under discussion. And going forward, we expect to receive another at least 4 to 5 approvals in this year -- fiscal year.

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Subrata Sarkar;Mount Intra Finance;Analyst, [56]

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Okay, sir. So I'm talking on that. Sir, can you any -- like can we tentatively give any time line like when we are expecting visit from them or any of that detail, sir?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [57]

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This is Priyanka again. We've already received 2 approvals this quarter from the U.S. FDA for 2 products. Going forward, like again we said, we'll be receiving anywhere between 5 and 8 approvals.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [58]

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Okay. I would say, it'll be every quarter -- 1 to 2 approvals every quarter. And similarly, we have been launching 1 to 2 products every quarter.

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Subrata Sarkar;Mount Intra Finance;Analyst, [59]

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No, Priyanka, what I was trying to mention is not product wise like ANDA approval from U.S. FDA, what I mean is that any plant level like approval we have received, like some of our asset like -- plant asset has not, as of now, received developed countries' approval. So any progress on that, sir?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [60]

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Okay, regulatory...

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Subrata Sarkar;Mount Intra Finance;Analyst, [61]

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They authorized you to like fit for like production and that level basically.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [62]

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Okay, I got it. All our plants have improved, except the new facility in Vizag, which we have built and as it's newly added metformin capacity at one of our plants. So we had FDA visited last week and they had a very good inspection. That's a small point observation. But that plant also was approved prior to a few days before the inspection itself, but capacity was improved. And last month, we had an approval -- inspection from Canadian, and that also went well. And we are free to supply them from this new capacity to Canada too. About facility in Vizag, which is a multipurpose API and Onco facility, we expect inspection possibly towards the end of this fiscal or early next fiscal. And after the inspection, which will most probably be a pre-approval inspection, we may be able to supply product to U.S. and Europe.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [63]

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Our U.S. facility has had 2 FDA audits so far and both has been cleared.

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Subrata Sarkar;Mount Intra Finance;Analyst, [64]

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Okay. Both the FDA audits have been cleared, sir?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [65]

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I'm sorry?

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Subrata Sarkar;Mount Intra Finance;Analyst, [66]

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Both the FDA audits have been cleared, madam?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [67]

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Yes, yes.

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Subrata Sarkar;Mount Intra Finance;Analyst, [68]

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Okay. And sir, specifically to your Vizag like Oncology facility, like this is the only care like broad CapEx we have remained in our plan raised out of major CapEx in all other plants are over. Is my understanding okay, sir? And like Vizag, what is the additional CapEx we need to do, sir? Around INR 250 crores or what, sir?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [69]

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No, nothing more major. Whatever has to be invested -- needed was invested already. It's lying in CWIP. And once we start off a sale, which we expect possibly in third or fourth quarter, they will be capitalizing everything. And going forward, we just expect a regular maintenance CapEx in India. And after the current expansion of capacity in GPI is being -- is completed, there also it'll only be a regular maintenance CapEx.

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Subrata Sarkar;Mount Intra Finance;Analyst, [70]

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Okay. So our -- sir, this CWIP reflects the entire CapEx on Vizag plant, sir?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [71]

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Sorry? Can you come again?

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Subrata Sarkar;Mount Intra Finance;Analyst, [72]

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Yes. What I'm asking, sir, current CWIP in our balance sheet reflects the entire Vizag CapEx.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [73]

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That's right. You're right.

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Subrata Sarkar;Mount Intra Finance;Analyst, [74]

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Okay, okay, sir. Okay. And sir, lastly, any -- like, although it's difficult to share exact number, sir, but still like this Biocause like now since there is like price -- like supply constraint has been removed -- like, as market situation is normalizing in terms of supply side of your product, so like -- now, I think, like we have -- you have given a total target of around INR 40 crores. So for the next 3 quarters, we -- since we have already at least INR 30 crores makes 3 quarters, we are expecting like around INR 10 crores PAT or breakeven only or like what is, sir, if you just clarify on that?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [75]

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Okay. The INR 40 crores is between both the JVs. And out of that, we achieved INR 25 crores. So going forward, while -- but we could definitely expect more than INR 40 crores for our calculations and bookings. We would like to just get peg it at INR 40 crores. Definitely, there would be more than INR 40 crores.

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Operator [76]

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The next question is from the line of Tushar Bohra from MK Ventures.

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Tushar Bohra;MK Ventures;Analyst, [77]

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And congratulations, sir, on an extended set of numbers. A quick one. So the recent inspection that was done for the expanded capacity, we already have the approval for metformin. And...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [78]

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Yes, yes. Go ahead.

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Tushar Bohra;MK Ventures;Analyst, [79]

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Also for guaifenesin?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [80]

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No. Guaifenesin, we have not still filed. Actually to trigger off an inspection or an approval, we need to get this product used in a prerequisite formulation and the ANDA holder has to make an application. And based on that, the FDA will trigger and they will approve it. Always need not be followed by an inspection. They can do it only -- also on a paper-based thing. So for metformin, we were the user ourself. So it was easy for us to conclude this API in our ANDA and file it much simpler. But when it comes to guaifenesin, we have just filed 1 formulation with Omnicef. And after that approval comes, we can include this. Meanwhile, we have to depend on our customers to file for us. We are working with various customers, and maybe this approval is expected only in next fiscal. Meanwhile, we may want to sell some of its production in Indian markets and rest of the world.

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Tushar Bohra;MK Ventures;Analyst, [81]

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So we are expecting for guaifenesin boot, our only ANDAs to be approved maybe by end of this fiscal or early next -- what kind of customers?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [82]

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Early next.

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Tushar Bohra;MK Ventures;Analyst, [83]

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Okay. For -- so the plant has [CIR] status somewhere?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [84]

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Sorry?

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Tushar Bohra;MK Ventures;Analyst, [85]

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The plant has received the CIR, the inspection?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [86]

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No. The inspection was over only last Friday. And actually to the observation that was given, we did the corrective actions and responded to the auditor then and there, but still it's a formality that we have to respond. We will be responding very shortly. And you cannot put a time line on the IR. Sometimes it's 1 month, sometimes it's 6 months. So there's nothing to worry about. It's a very simple approach.

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Tushar Bohra;MK Ventures;Analyst, [87]

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The product is approved anyway, like...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [88]

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Yes.

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Tushar Bohra;MK Ventures;Analyst, [89]

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And sticking on metformin, by when do we expect to sort of utilize this capacity fully, sir? Or what is the target for this year, let's say, by end FY '20? What utilization we could expect from this capacity?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [90]

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As of today, we have been producing metformin ER for other locations. So what we'll be doing now is shutting down production there and slowly introduce other products into that plant -- into those plants. And here, we expect at least 60% utilization going forward on a monthly basis because we are starting late in this year, I can't say, 60% of the yearly capacity. And next year would be about 65%, 70%. And mostly, it goes into our own formulations and a little bit of sales in other areas.

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Tushar Bohra;MK Ventures;Analyst, [91]

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And the products -- the production that will be shut down in the other facilities, what impact it has on the overall in terms of cost or in terms of the overall OpEx? And what will be the alternative products being developed at those sites?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [92]

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Not a lot of impact. The impact once other products are commercialized, the profit margins will actually improve. And we have a few products in the pipeline developed, and we will be validating those products. I don't think it will be right on our part to share the names, but definitely, there will be no impact. And also the current plants is all DCS controlled automated. You feed in products from one side and the finished products comes from the other side. All we have to do is spin in. It's operated from a control room, no people inside the plant. So the efficiencies of these plants are going to be very high. Unfortunately, the CapEx on these types of plants are high, but once you put in the CapEx, it has lot of efficiency, and profitability on metformin production will definitely increase.

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Tushar Bohra;MK Ventures;Analyst, [93]

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So just to understand, sir, what kind of gross margin impact do we have? Or what kind of operating impact rather we have in terms of the benefit that we get from this plant, because it will not be revenue accretive, I understand?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [94]

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It will be -- I mean a good impact, but I will not be able to hazard a guess today. But as we go by quarter-on-quarter, you will be seeing the effect.

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Tushar Bohra;MK Ventures;Analyst, [95]

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Sure. Second question, sir, on the overall revenue, we've not had revenue growth commensurate with the overall profitability growth. So -- and if we go back to your guidance of 20% revenue growth for the year, what could be the reason that we haven't grown top line this quarter? Is it just a one-off? Or is there a product mix effect? Or...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [96]

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It's a question of product mix. So if we sell more APIs possibly in India, Paracetamol, metformin, revenues would grow, which we did in the past, but then we slowly started concentrating on bottom line. So we are concentrating about product mix and it's also our EBITDAs have grown and it's 19.9%. So we are concentrating on the bottom line and what is contributing is the product mix.

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Tushar Bohra;MK Ventures;Analyst, [97]

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But we have seen a...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [98]

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Year-on-year -- sorry, year-on-year specifically, there was a 31% growth in top line, but from sequential quarter, there was no improvement.

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Tushar Bohra;MK Ventures;Analyst, [99]

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So we expect the upcoming quarters to be maybe slightly better than this, as our API sales come up again? And...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [100]

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Revenues will increase, but I would say, the bottom line would increase disproportionate to top line.

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Tushar Bohra;MK Ventures;Analyst, [101]

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Sure. Sir, if I can quickly slip in one more. The market share of the products, if you could just help us, what are the tentative market share on some of our key products where we would just increase?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [102]

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I think this is becoming a little sensitive information, especially that customers involve, I think it's better we keep this out of the discussion.

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Tushar Bohra;MK Ventures;Analyst, [103]

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Okay. Fair enough. But safe to say that, on an overall portfolio level, have you witnessed any price erosion? Or how has the pricing been?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [104]

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The price erosion on most of our products are not there, but some of the newly launched products in the U.S., products of control substances and some products where there was a shortage, we were able to get better realization initially. But over a period of time, they are getting -- coming to normal levels. Maybe Priyanka can expand on that.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [105]

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I will just share the same thing. We addressed a situation when there was a shortage in the market and now the prices are getting back to normal.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [106]

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Some products, there has been a slight erosion, but on a volume basis, that's only a small percentage of our sales.

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Operator [107]

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

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [108]

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Sir, my question is on the gross margins. You've had around 450 basis points of improvement this quarter. So what exactly is driving this? Of course, this when I look at the March quarter.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [109]

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It's basically driven by increased FD sales. And if you -- there's been a very good growth in FD sales. Year-on-year, it's been a 56% increase in FD sales. We are able to get a better market share for most of our products, increased market share, and also increased utilization of our currently built capacities. We've spent a lot of money that were lying idle. We were incurring a lot of overheads that they will produce or not, the plant was incurring costs. So as we started utilizing our capacities, the margins have started increasing. And going forward, the more and more we use, the more and more we stretch our assets, the better margins we'll be making.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [110]

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When I look at the FD sales on a quarter-on-quarter basis, it's remained at around $40 million. So there's not -- we haven't seen a very sharp increase here.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [111]

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I say again, it's a product mix that has made the difference which type of FD we have sold and also like regions also. U.S. always contributes a little more margin than other regions.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [112]

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Is there an advantage derived from more macro integration that we are using more of our own APIs in the FD business, which is driving this gross margin improvement? Or is that contributing?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [113]

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The philosophy of Granules has always been integration. And what gives us margin increase only the integration, and we are integrated on almost -- most of our -- at least, we make the APIs ourself.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [114]

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Right. And on the FDs top line, we've been in this $40 million range for 3, 4 quarters now. So how should we think of a ramp-up here for the FD segment? And then, are there any products that we are looking at during the course of the year, which can drive a significant ramp-up of this number from $40 million where we are now?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [115]

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Most of the growth will come from the U.S. That can be said we are expecting approvals for between 5 and 8 products this year, and we're expecting to launch about 5 or 6 products at the least. So we should be seeing an increase in the total number.

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Operator [116]

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

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [117]

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Sir, actually I just wanted for understand if we look at the U.S. revenues, so it has been largely -- it has actually in terms of proportion of sales, it has marginally come down and flattish quarter-on-quarter. Even if we talk from the perspective of formulation revenues, it is also flat quarter-on-quarter. However, our gross margins have improved by 450 bps. So it seems like there has been some sharp decline in some of raw material prices or something. So is there anything like prices have also contributed to an extent? Or what...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [118]

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There has been a slight decrease in raw material prices, not a drastic decrease. And however, the good news is raw material prices are stable. They are not going up anymore. But basically, like I said again, it's efficient use of existing capacities that has made a lot of difference and also product mix.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [119]

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Right. So ultimately, can you help us in understanding which sort of products are going up by any chance on Methergine overall contribution have increased sequentially? I'm not asking quantitatively, but more qualitatively, even if you can comment.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [120]

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The gross contribution has definitely increased sequentially too.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [121]

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So the Methergine numbers have increased a little bit. They haven't increased significantly, but definitely this is there and that's contributed to the margin as well.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [122]

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Right. So actually, the amount of thing is -- actually, if we talk from the sequential perspective, actually, revenues from formulations are flat. U.S. revenues are flat. Even Methergine, which is one of the high-value product which we have, is also largely flat. Still our gross margins have actually taken up speed jump, which is actually very difficult to comprehend. So if you can further break it up and give some more sense why it is happening? Because it is becoming very difficult to understand it.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [123]

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It's basically, like I said, it is the product mix that has made the difference. And also, I would say, a little reduction in raw material prices.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [124]

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And this is, well, like, I'm sure you know that we did launch another product Metadate ER, which we partnered in foreign subsidiary license. That also contributed a little bit to the margin, but not as much to the top line. And we also launched another product from Granules India through GPI, which means to markets through our partners. So that has added to our bottom line as well.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [125]

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Which product is it? Can you name it?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [126]

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No. I'm sorry. I cannot give you product details.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [127]

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Sure. And the second thing is, actually...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [128]

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Also, let me tell you -- Bharat, sorry, one most important thing is, our own front end which we have launched, the margins when we're selling directly ourself, is much higher than marketing through partners. It's not only one product. We are slowly increasing this. And if you see GPI, I mean, it's about INR 50 crores revenue in GPI and a good contribution comes from that too. And the contribution is not only being made in GPI, what we supply from here to GPI also, they get a good contribution.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [129]

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Right. So how much of our overall products have moved to our own front end now in that...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [130]

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No, it's still a small percentage. We're slowly moving it in. There are 3 partners with whom we have worked so well in the past. I don't think we should make a drastic shift, but all new products that come in will be marketed by ourself.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [131]

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So to answer your question, right now, we have 4 products that we are marketing through our GPI label. And we have another 5 to 6 launches to go this year. And the rest of them that we have to our partners is remained with them.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [132]

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Understood, understood. And second question, actually, on Biocause facility. So if we talk from the perspective of utilization, we were already working almost at full capacity. So we were already running at, I think, 90%, 95% capacity. However, if we talk sequentially, there has been a sharp increase in our overall revenues from Biocause. So I just wanted to understand how it happened? Is it because of higher prices in any product? Or what actually led to sharp increase sequentially?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [133]

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Price, it's not a result of prices. Prices increased long ago, and they have been stable. And if at all, it has come down a bit, but it's the quantity that has increased. After the shutdown -- during the shutdown, we did some trickings to increase the capacities, and we were able to produce more there.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [134]

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So in terms of volumes, how much we have gone up sequentially?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [135]

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Maybe around 15%, 20% -- 15%.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [136]

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Understood. And sir, how you see overall outlook of our Ibuprofen prices? Has it been now softening? Or it has been more -- remaining more stagnant?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [137]

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Ibuprofen API prices are stable. They have not started softening, but they will start softening. And by the end of the year, we will see a fairly decent reduction in prices.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [138]

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Right. And sir, actually, because -- just because API prices had shot up earlier, so has it even benefited your overall formulation sales also because, I believe, if API revenues -- if API prices increase drastically, so it will be having some pass-on impact on the formulation as well. So is there anything like that?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [139]

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No. Formulation is, the way we work is we -- I mean, we try to be the lowest price to products. So we take our cost and we'll see what our margins should be. And if at all, I mean, whatever cost increase due to raw materials, it's we pass it on in our pricing. But generally, we don't try to make any extra margin on that. So it's not contributed anything more to our formulation profits.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [140]

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Right. And sir, one more. Sir, just wanted to understand, when -- what sort of operating expense can come from Vizag facility after commercialization? And when it will hit the P&L exactly?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [141]

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You mean price, I think, operating expenses?

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [142]

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Yes. What sort of operating expense can come because of it -- because of the...?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [143]

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Operating expenses, we are already expensing out some of these things. But I think Q4 onwards, there will be a little increase in operating expenses once we start charging off everything. What I think Q4, you will see a slight increase in operating expenses. And also we will see a little bit of depreciation and other things on the plant, but all that has been factored into our calculations.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [144]

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Right. And last one, if I missed this. Sir, actually just wanted to understand, so in our Bonthapally facility, since we already have got approval for metformin, so have we been already expensing the expenses? Or we'll start now?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [145]

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No. We have been expensing out everything there. Nothing has been capitalized.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [146]

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Right. And sir, we -- actually, we are looking to increase our overall share of U.S. going forward with more and more launches from there -- in terms of formulations. However, when we talk from the perspective of cash cycle days, it seems that it may also go further because since it requires much more inventory stocking. So is it a fair assumption?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [147]

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Definitely. The more and more we sell directly, there was some capital requirement, we pay lot more, inventory levels will go up and also the receivables will go up. We are trying to contain that as much as possible. So as we generate more free cash flow, some of this will definitely towards the end of this year. Some of it will definitely go to working capital. But still in spite of that, we hope to generate some free -- decent free cash flow this year. So it's a good struggle. It's not going to be easy, but we are working very efficiently. We are decreasing our receivable days from other markets. We are decreasing our inventories here. And the focus has been on inventory control and cash-to-cash cycle and free cash flow. So we are doing everything possible, and we assure that we will come out with decent free cash flow end of the year.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [148]

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Right. So in that case, how much debt reduction we should forecast over the next, let's say, 2 years or 3 years? Or -- and even this fiscal end, what sort of fuel debt reduction we can see?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [149]

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I see, at least, net debt reduction of about INR 150 crores this year. And I'm not talking of gross debt because it doesn't make sense to pay off -- pay down the debt. We normally keep it in fixed deposits. As of today also, we have some fixed deposits. The treasury management will make a little more money than what we spent on interest on the debt.

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Bharat Celly, Equirus Securities Private Limited, Research Division - Associate [150]

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Right. And over the next...

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Operator [151]

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Excuse me, this is the operator. Mr. Celly, may we please request you to rejoin the question queue for follow-ups. We have other participants waiting in the queue. (Operator Instructions)

We'll move to the next question from the line from Charulata Gaidhani from Dalal & Broacha.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [152]

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Congrats on the good set of numbers. I wanted to know what would be sustainable EBITDA margin for FY '20.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [153]

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We -- I always said, we'll go close to 19%. We are already there. And I think we'll sustain this, maybe improve, but definitely we'll sustain this.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [154]

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Okay. And my second question pertains to your U.S. business with partners. How many products are you marketing through partners?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [155]

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We have 2 products to date.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [156]

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Okay, with partners. Okay. And -- okay. What will be -- are there any marketing and sales expenses, which you have not accounted for?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [157]

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No. I don't think there's anything unaccounted for.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [158]

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Okay. Fine. And what...

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [159]

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Only thing they have not accounted for in the cash flow is last quarter, we didn't pay dividend. So this quarter, we'll be paying 2 dividends for 2 quarters. That's the only thing that has not come in. And that's on the cash flow.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [160]

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Okay. And what are the number of filings that you are expecting in FY '20?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [161]

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In FY '20, we're expecting to do between 8 and 12 filings.

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Operator [162]

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The next question is from the line of Subhankar Ojha from SKS Capital.

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Subhankar Ojha, SKS Capital & Research Private Limited - Senior Analyst of Equity Research [163]

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So I missed out on the depledging of a promoter. I think you have 43% of your holding place at the end of June quarter. So did you talk about any time line when the pledging will come to 0?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [164]

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We have the pledge -- we missed it in the speech. We have -- I have already paid down a decent amount as planned. And the effect will be seen in the next few days. The pledge will be reduced.

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Subhankar Ojha, SKS Capital & Research Private Limited - Senior Analyst of Equity Research [165]

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Okay. So when do you plan to bring this down to 0?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [166]

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It's by end of fiscal '21 is the plan. We may be able to do it earlier. But definitely, it will not go down this fall.

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Operator [167]

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The next question is from the line of [Ravi Sundaram] from [Sundaram Investments].

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Unidentified Analyst, [168]

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A couple of my questions are already covered. I will start with my first question. So are we still sticking with the 20% revenue guidance for this year -- the full year, sir? (inaudible) was the percentage roughly guided in the last few conf call for the next couple of years?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [169]

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Okay. We gave guidance of 20% improvement in top line. And we -- definitely we meet that. Compared to last quarter, we got a 31% increase. And I'm sure we will be able to achieve 20%, but more than 20% increase in top line, we are concentrating on the bottom line growth. We gave a guidance for 25% CAGR, and I'm sure we'll definitely meet that.

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Unidentified Analyst, [170]

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Just a quick clarification. Did you mention there was any shutdown in Q2 in Biocause facility?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [171]

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The Biocause facility is currently under shutdown for modifications to meet the new pollution standards. So this quarter may not be a great quarter for Biocause.

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Unidentified Analyst, [172]

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Okay. So one last question. My other questions are covered. So the 20% revenue guidance, can you just quickly summarize what are going to be the needed growth levers that's going to contribute to this?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [173]

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I guess so the main growth will come from traditional business, but even other PFIs and APIs also keep growing, but the main contributor will be the finished dosages -- increased finished dosages. Quarter-on-quarter, we are increasing. Okay? Last quarter to now, there's not been an increase. But next quarter, we will see an increase.

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Unidentified Analyst, [174]

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Okay. Can I have some clarification on the pledge part? You just mentioned a minute back that it's going to come down by in the next few days. Is that a meaningful sense of reducing on pledge number?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [175]

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It will be somewhere around 7% from 43% or a little bit more. I think the calculations are being worked out.

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Unidentified Analyst, [176]

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It will be around 36%, 37% percentage block would be less pledge roughly?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [177]

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Yes. Sorry?

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Unidentified Analyst, [178]

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So it will be less at around 36%.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [179]

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33% to 36% from that debt. Most probably, this year, we were targeting 33%. So we will be somewhere close to that.

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Operator [180]

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The next question is from the line of C. Srihari from PCS Securities.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [181]

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To understand this gross margin expansion despite flat sequential formulation business, can you please tell what is the share of low-volume products during the quarter? So basically, I guess, you could have around 14% of sales for the entire fiscal last year.

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Operator [182]

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Excuse me, this is the operator. Mr. Srihari, there is some disturbance from your line. Can you please shift?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [183]

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Yes. Srihari, can you come again? I think I lost you.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [184]

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Yes, yes. So basically, to understand the gross margin expansion, despite a flat contribution from the formulations business, can you please tell us what is the share of low-volume products during the quarter, which was, I think, around 14%?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [185]

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We don't have too many low-volume products. Our business is mainly high-volume products. The low-volume products are only being manufactured in the U.S. So there are 1 or 2 low-volume products, where the margins on those are also quite decent. So again, to answer your question, I don't want to go into too many details. But it's basically a question of product mix and maybe a slight reduction in raw material cost and operating expenses.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [186]

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And also, Srihari, one more thing is that we launched 2 products from India and 2 products from the U.S. So from the 2 products from India, we have been able to see a good margin relative to the other parts that we used to market early through our partners. So in addition to going direct, these 2 products were launched in a timely manner when the market needed it. So we did manage to get some good pricing in the market as well.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [187]

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Srihari, are you there?

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [188]

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Yes, yes. Hello?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [189]

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Yes, okay.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [190]

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;

Yes. So basically -- I'm going through your presentation. I mean, there, I can info that the share of low-volume products was around 14% last year. So if you could give some indicative figure for Q1, that will be beneficial.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [191]

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Yes, let's recheck the presentation. I think I'm not sure...

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [192]

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Even low-volume products that you're talking about last year was like everybody knows Methergine. And this year -- this quarter, we launched -- this year, we launched Metadate ER. Last quarter, there was some part of the onetime expense that we got for that product also marketed, along with the profitability that came from that product. So while that remains in absolute terms, our contributions from the other products went up in terms of the margins. And new products are coming from India.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [193]

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And Srihari, it's becoming a little sensitive information which products we have own margin. I don't think it's good being discussed this in an open forum.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [194]

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Yes. I mean -- so the only thing I was just trying to understand how much of this 450 basis points sequential growth is really sustainable?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [195]

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It is sustainable, Srihari, you will see going forward. All I can say is, only time will show you. And if we go by our track record, I think you will be convinced that what we are talking about and we always meet what we say.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [196]

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Okay. And can you highlight the new products that you've launched over the last 6 months? And what is in the pipeline over the next 12 months?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [197]

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Again, we won't want to get into the names of the products. But going forward, like I said, 5 to 8 -- 5 to 6 product launches will happen this year.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [198]

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And those will be at the forefront of maintaining the margins?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [199]

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Could you repeat that, please?

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [200]

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I'm sorry?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [201]

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Could you repeat that, please?

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [202]

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Yes, yes. I mean, will the new products basically sustain your margins, the gross margins in particular?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [203]

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Yes, definitely.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [204]

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In an effort to sustain the margins, Srihari.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [205]

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Okay. So then finally on the controlled substances, I mean, can you please -- I think you had indicated that you had some kind of a onetime opportunity this quarter. So how do you see this going forward?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [206]

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Are you talking about the number of filings or anything in specific about controlled substances?

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [207]

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Yes. I mean that would be great. I mean what are the number of pending approvals that you have?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [208]

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Right now, we have about 4 products that have -- no sorry, 7 products are within the controlled substance rings that (inaudible). And this quarter, I'm sure, if you look at the 5 things, we did get -- this past quarter, we did get an approval for 1 product, and we are in line to launch that product this upcoming quarter. And the product name is Ritalin LA, which is what we've got approved for that last quarter. We have another approval that we are expecting by mid of this upcoming month.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [209]

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Okay. So what would be the -- any time lines for the 7 expected approvals -- anticipated approvals?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [210]

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Look, some of them, we just -- a few of them -- we just filed a few of them, we filed earlier this year. So anywhere, depending on the time lines of approval, any time starting next month to the next 12 months.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [211]

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Okay. So it will get censored during FY '20 and '21.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [212]

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Yes.

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Operator [213]

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The next question is from the line of [Raghurama] from (inaudible) Research.

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Unidentified Analyst, [214]

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And congrats on a very good set of numbers. Sir, I just wanted to know one thing, sir. You have given a guidance of INR 300 crores for this year. Hello?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [215]

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Go ahead.

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Unidentified Analyst, [216]

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Sir, I just wanted to understand, like you were saying like 25% CAGR for the next 2, 3 years. So what would be the diverse for that, sir? Would we be able to grow beyond the INR 300 crores PAT on a consistent basis? And what would be the driver for that growth is what I just wanted to understand.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [217]

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The driver is going to be better market share and utilization of our newly expanded capacities. They have a lot of new capacity, which is unutilized where we have spent a lot of CapEx. And the return on the CapEx already may be what is going to drive the growth. So whatever we have spent so far, we'll achieve the growth. But going beyond that, maybe after 2 years or so, we have to start reinvesting again. So basically, to answer, make it short, whatever investments we have made are going to pay off.

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Unidentified Analyst, [218]

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Okay. So what are investments in sense like you're referring to the investments in the core molecule business and Onco as well? Or we are just linking to that core -- the core molecules investment itself is sufficient to give us that growth?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [219]

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It is basically core molecules where we have expanded a lot of capacity and also our investment in the U.S. facility and new filings from the U.S. So these are going to be the main drivers. And also, we have another facility in Vizag, which makes lot of APIs. That facility, we were not making good margins in the past. But now that facility has taken off and a lot of new APIs are being sold from that facility. That will also add to our growth going forward. Onco will not add a lot during this period. But after that, yes, there's a long gestation trend. But after that, the contribution will be quite good. In the next 3 years, basically, it's going to be U.S. operations, new APIs and our core business.

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Unidentified Analyst, [220]

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And sir, on this OmniChem, when do you see this contributing significantly to the bottom line mark? Would it take there another 2, 3 years is what -- how do you see that business?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [221]

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I would say, in another 2, 3 years, it may be earlier, but I would not make any plans based on that. 2, 3 years, definitely.

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Operator [222]

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The next question is from the line of Ashi Anand from Allegro Capital Advisors.

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Ashi Anand, Allegro Advisors Private Limited - Director [223]

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Congrats on a good set of numbers. The first question was around finished dosages. Would you help us understand how many products have we launched in the U.S. so far? And what percentage of our finished dosage will be coming from the U.S. geography?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [224]

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We've launched 4 finished dosages to our front end in the U.S. I'm sorry, could you repeat the second half of your question?

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Ashi Anand, Allegro Advisors Private Limited - Director [225]

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Yes. So I mean, what percentage of finished dosages would be coming from the U.S. geography, including…

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [226]

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Give me 1 second. All put together, about 90% will be coming -- our finished dosages will be coming in from the U.S.

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Ashi Anand, Allegro Advisors Private Limited - Director [227]

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Okay. So the finished dosage is primarily a U.S. business?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [228]

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Yes, primarily the U.S. And just to add to that, while U.S. business is growing, we are focusing on the U.S., we have started working in Europe and other markets too. We are in the process of making filings of all our existing products. And going forward, whatever products are filing in the U.S., we'll be filing them in Europe too. And in the next 2 years, we will be seeing a rise in European revenue and also bottom line from Europe also should be increasing.

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Ashi Anand, Allegro Advisors Private Limited - Director [229]

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Okay. Excellent. And you mentioned full finished dosages through our front end. How many we launched through our partners in the U.S.?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [230]

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We have 2 launched through partners, and these are historically -- these have been launched historically.

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Ashi Anand, Allegro Advisors Private Limited - Director [231]

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Okay. So a total of about 6, 2 historic and about 4 that we launched over the last year.

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [232]

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Yes. These are in the R-X phase, but what you see finished dosages also, we sell in the U.S., which we are not talking about here.

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Ashi Anand, Allegro Advisors Private Limited - Director [233]

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Okay. Also can you possibly share approximately what kind of market shares we've been drawing in the products that we've launched, even some broad ranges would do. Just trying to understand how dominant we are in these molecules.

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [234]

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It really depends because each product has a certain number of competitors. So for anywhere between 15% and 45% depending on the molecules.

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Ashi Anand, Allegro Advisors Private Limited - Director [235]

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Okay. Sure. That's very helpful. And can you just fit in a last question. You've spoken of about 25% earnings schedule. And I think a couple of quarters back, you've spoken of 20% kind of 3-year revenue CAGR. So if I'm looking at the nonfinished dosage businesses, which is the API and PFI. If the overall kind of business is only 20%, how -- from a 3-year perspective, what kind of growth should we assume on a CAGR basis on the API and PFI part?

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Priyanka Chigurupati, Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. [236]

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Sorry to interrupt you, but could you please repeat that question? You're unclear.

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Ashi Anand, Allegro Advisors Private Limited - Director [237]

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Yes, sure. You've given an indication of about 20% revenue CAGR for 3 years and finished dosage is actually outpacing the overall revenue growth. Just trying to understand (inaudible) finished dosages, how much will the traditional API and PFI business will be growing at overall, say, the next 3 years?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [238]

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Okay. In total, we are contributing fairly decently, but nowhere near what FD is going to grow. And if you see our model, integration is the model. Our APIs go towards making PFIs and the PFIs go towards making finished dosages. And also customers who have been buying APIs are moving towards finished dosages. So our focus has been on that. There will be stand-alone growth on these 2 segments, APIs and PFIs, but the main contribution is going to come from finished dosages.

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Ashi Anand, Allegro Advisors Private Limited - Director [239]

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So would it be fair to see about the 10%, 15% kind of growth is what one could take up from a modeling perspective on the other part of the business?

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Krishna Prasad Chigurupati, Granules India Limited - Chairman & MD [240]

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I would say, out of the 20%, more than 60% would come from finished dosages and the rest from APIs and PFIs.

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Operator [241]

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Thank you. Ladies and gentlemen, this was the last question for today. On behalf of Granules India Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.