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Edited Transcript of IPCALAB.NSE earnings conference call or presentation 8-Nov-19 5:30am GMT

Q2 2020 IPCA Laboratories Ltd Earnings Call

Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Ipca Laboratories Ltd earnings conference call or presentation Friday, November 8, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ajit Kumar Bhanwarlal Jain

Ipca Laboratories Limited - CFO, Joint MD & Executive Director

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Conference Call Participants

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* Aditya Khemka

DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare

* Alok Dalal

CLSA Limited, Research Division - Research Analyst

* Charulata Gaidhani

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

* Kunal Dhamesha

SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals

* Manoj Garg

* Niteen S. Dharmawat

Aurum Capital - Co-Founder

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Rahul Jain

* Rahul Sharma

KARVY Stock Broking Limited, Research Division - Analyst

* Sachin Kasera

Lucky Investment Managers Private Limited - Analyst

* Surya Narayan Patra

PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst

* Tushar Manudhane

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Vaibhav Badjatya

Honesty and Integrity Investment - Founder

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q2 FY '20 Earnings Conference Call of Ipca Laboratories Limited hosted by IDFC Securities. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Nitin Agarwal from IDFC Securities. Thank you, and over to you, Mr. Agarwal.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [2]

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Thanks, Margaret. Good morning, everyone, and a very warm welcome to Ipca Lab's Q2 FY '20 Earnings Call hosted by IDFC Securities. On the call today, we have representing Ipca management, Mr. A.K. Jain, Joint Managing Director; and Mr. Harish Kamath, Corporate Counsel and Company Secretary.

I hand over the call to the Ipca management team to make some opening comments, and then we'll open the floor for questions.

Please go ahead sir.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [3]

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Good morning, everyone. For Q2, our domestic formulation business was around INR 543 crores as against INR 469 crores last year with a growth of around 16% in domestic formulation business. Export formulation business was around INR 341 crores as against INR 288 crores in last financial year. So there is a growth of around 18%. And overall formulation business in this category has grown by around 17% to around INR 884 crores as against INR 757 crores in last financial year.

The API business has again shown a very good growth in the second quarter of the current year to around 40%. So business is around INR 314 crores as against INR 225 crores last year. And overall income from operations is around INR 1,212 crores as against INR 997 crores in last financial year. So overall, domestic business has grown by around 17%; export business, including formulations and API, has grown by around 27%; and overall business growth in this quarter is around 21%.

If you look at the first half of the year, more or less, the growth remains on the similar line. Domestic formulation business in first half has overall grown by around 15%, export formulation by around 13%, and overall formulation business growth in first half is around 13%. And the API business growth is around 38%. And overall first half total income growth is around 20% in the first half of the current year.

If you look at the overall -- the margin surprise. Overall, the EBITDA in this quarter has gone up to around 22.69% as against 21.46% in Q2 last year. And overall, there is an increase in the -- overall in the material cost-to-sales ratio came close to 31% to around 33.4%. So around 2.4% is the overall increase in net ratio.

Personnel costs has gone down by around 2.24%. Manufacturing, other expenses and debt ratio has also gone down by around 1.4%. And overall, the EBITDA increase is almost around close to -- if we look at -- around 1.23% in this particular quarter.

Having given the metric numbers, now I request participants to ask 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 Rahul Jain from Credence Wealth.

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Rahul Jain, [2]

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Sir, congratulations on a fantastic set of numbers. A couple questions from my side. First, on the business side in terms of our APIs and formulations. Sir, as far as your API is concerned, you have in quarter 1 guided for a 20% growth for FY '20, yes? But your quarter 2 earnings has surprised all of us with a 40% growth, and your half 1 is almost now at 38% growth, yes? So how do we look at -- is there some kind of one-offs which is coming in the growth, certain products only contributing which can probably fall in the next half? I needed to understand, how do we look at the second half and the next year?

Similarly for formulations, we have had again a fantastic growth of about 16% for this quarter. If you check on details about what kind of therapies is leading to this kind of growth, and again, as in API, how do we look going forward.

Secondly, sir, in terms of remedial costs, you explained about INR 6 crores in quarter 1 and you have guided about INR 10 crores for the full year. So given your observations, which you have at plan, are we going to increase the guidance for the [next quarter]?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [3]

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(technical difficulty)

second quarter of current year, our pain segment has grown by almost around 22% and first half also is around 22 % kind of growth; cardiovascular-related (inaudible) had grown by 10%, even first quarter also, around 10%; antimalarial in this quarter has grown by around 20%, and overall in the first half, it's around 6% growth; antibacterial is almost around 37% and first half is around 33%; CNS is around 21%, first half is around 23%; derma, probably around 19%, first half is 18%; urology, around 27%, in first half it's around 26%. So by and large, most of the therapies have done well. Except in first half, antimalarials has not done well. This quarter, antimalarials is all better first half. There was a decline in -- overall, in antimalarial. So most of the therapies are doing well as far as company is concerned in domestic market.

As far as international, our overall API business is concerned, there is nothing one-off in the business overall. Overall portfolio is doing well. And let's say that the products which contributes a major portion of the overall sales, there, most of the products have done really very well. And sales are, more particularly from sartan category, has been very good. But it's not that only sartan has contributed. All other portfolio has also contributed to the overall good growth in the business. So the trend is likely to continue. But also it depends on days, and we have continuously -- sales for the second half also, our guidelines will remain around 20% growth.

But yes, the overall business growth in the first half has been very, very good and beyond our expectations. So that has been about the -- overall in the -- as far as the business growth are concerned.

As far as the overall expenditure side is concerned, I think overall, I think the first quarter was almost around INR 6 crores. And I think this quarter, the remedial costs were almost around INR 4 crores kind of remedial costs have been spent. There could be some more costs maybe around INR 3 crores, INR 4 crores, INR 5 crores and maybe around remaining period, so it -- maybe it may range around, say, INR 15 crores, INR 16 crores for the whole of the year as against INR 10 crores, which we had guided earlier.

And overall, about the expenditure side, if you look at the numbers, we have saved almost around INR 18 crores as far as remedial costs is concerned compared to September '18 quarter. But there is a -- some off -- a one-off cost there is around INR 11.5 crores, which is relating to 1 biotech project which we have taken definitely from U.S. But looking at now the yield which is coming from that particular project and our R&D efforts, we are getting much higher yields than different platforms. So we are now going ahead with that kind of -- that project. And therefore, whatever cost incurred in that, that has been taken to the P&L account in current year which is around INR 11.52 crores.

And we have taken additional fees on account of FDA because I think last -- in the current quarter, the FDA demands mostly more than $2 million for the U.S. fees, and all has been taken as a period cost in this particular quarter. Because right now, there is no business. And since the ANDA number is now more than 20 because of some addition of ANDAs from Bayshore, so as against $0.64 million, which we have paid as ANDA fees last year, this year, the number has gone by around $1.66 million. So more than $1 million extra has been paid. And that's around more than INR 7 crores. That was also debited to P&L account.

So whatever 18 -- the INR 18.5 crores savings that has come by the remedial costs, they got offset by around INR 11.5 crores, whatever is written off on account of that biotech project, and around INR 7 crores, which we have paid on account of U.S. FDA's additional fees which has gone this particular quarter.

Overall excluding guide and overall excluding actions, adjusting the numbers for actions in profit and loss accounts, practically our expenditure size in this particular quarter, our expenditure has gone up by around 15% overall in the numbers, yes.

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Rahul Jain, [4]

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So sir, you said a 20% API growth. So are you saying the 20% growth for the second half which is...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [5]

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Yes. Second half, second half, yes.

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Rahul Jain, [6]

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Okay. So you're not -- so overall, the growth for the full year FY '20, which you had earlier guided for 20%, I expect 20% will go up now? Yes. Is that fair?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [7]

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Yes.

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Rahul Jain, [8]

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Sure. And sir, with regards to R&D. You continue to maintain a guidance of about INR 220 crores to INR 230 crores for FY '20.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [9]

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Our R&D cost is going to be in the region of around 3% overall for the whole of the year, yes.

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Rahul Jain, [10]

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Okay. And sir, any new initiatives being taken, new products which are introduced? Any color on that, sir? Including the...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [11]

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We're not doing any kind of new developments. So the cost is also on the lower side. So we are currently more circled on markets. And products are being -- getting developed for all other markets, where we have marketing generic formulation. But new selected developments are low, so therefore, the overall cost is also low on the R&D side.

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Operator [12]

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The next question is from the line of Niteen Dharmawat from Ayourum Capital.

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Niteen S. Dharmawat, Aurum Capital - Co-Founder [13]

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Congratulations on a good set of numbers. I have a couple of questions. The first one is in the cash flow from investing equities, proceeds towards business combination is shown as INR 108 crores in this quarter versus 0 during the last quarter of the previous year. Can you please explain this number? What is this number and where does it comes from?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [14]

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INR 108 crores is basically, I think, the acquisition of Ramdev, yes, in the first quarter.

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Niteen S. Dharmawat, Aurum Capital - Co-Founder [15]

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Okay. Okay. And in the cash flow again, on the financing activities, we noticed a substantial increase in the short-term borrowing to INR 121 crores from INR 25 crores. Why it has gone up so much? And what is the cost of borrowing for short-term versus long-term? And what is the total consolidated debt at the end of the quarter?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [16]

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Overall, around March '19, the debt was -- overall number was around INR 445 crores. That has gone to around INR 511 crores in August. And long-term debt is less than INR 200 crores, so it's around INR 193 crores. Short-term debt has slightly moved up. Because if you look at March, our overall business was almost around INR 868 crores and then INR 870 crores. Compared to that, in this September, the overall business base has gone to almost around INR 1,200 plus crores. So overall debt has gone up. Even though we are not concerned on number of days as far as debt is concerned, but overall, because of that, almost more than INR 200 crores as additional from cash flow has gone up in (inaudible). And therefore, Niteen, overall, slightly borrowing is on the high side.

Overall, as far as the debt rate is concerned, most of our borrowings are in dollar terms. LIBOR is currently around 2% -- less than 2% and the -- overall. And spread is less than maybe around 0.5% or even sometimes lesser than that. So overall, not more than 2.5% because most of our borrowings are in dollar terms. We hardly have any kind of rupee in the balance sheet.

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Operator [17]

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

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [18]

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So sir, antimalaria, you said, grew 20% y-o-y in the domestic business this quarter. I just --

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [19]

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Not y-o-y, in this quarter. The y-o-y is fixed for antimalaria.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [20]

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Yes. So no, my question was so how much is antimalaria as a percentage of domestic sales for 2Q FY '20? And what was this number in FY '19?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [21]

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Overall, antimalarial-based contribution to the domestic business has come down from 8% to 7% overall if you look at the [overall]. So -- and if you look at overall pie of the business, around 47% is now being contributed by the pain segment, which is continuously growing around 20% plus kind of growth is there. So -- and your other therapies, one business significantly growing is the antibacterial, which is (inaudible).

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [22]

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Right, sir. So basically, 7% of domestic sales is antimalarial for the first half, is it? Or for second quarter?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [23]

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Yes, first half. Yes. Yes.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [24]

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First half. And 8% number that you gave was what, for year-end 2020?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [25]

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Yes, yes.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [26]

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Okay. Okay. That's good. And sir, on your API sales, earlier a participant asked a question. So I was just doing some numbers. So for the first half year, you have done almost INR 600 crores in total API sales, domestic and export put together. That's about INR 100 crores a quarter. So assuming there is no one-off, as you said, and that number continues, if you do INR 600 crores in the second half as well, then the growth that I can see mathematically coming in second half, sir, is about 30%, 35% y-o-y in API sales and not 20%. So any reason why you expect API sales to decline sequentially in the second half versus the first half?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [27]

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Let's say that we have given a consolidated projection of around 20% for the API. The business, as such, at a normal growth is around 8% to 10%. So we really don't foresee the business growth to be in the second half more than 20%. But if the trend continues, it's very good and we can beat the overall number. But our guidance is around 20% kind of growth in the second half, yes.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [28]

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Understood, sir. And what percentage of our API sales could be coming from the sartan portfolio? Any ballpark number would do.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [29]

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We don't calculate as such as what is the overall sartan and non-sartan. But yes, sartans has also contributed significantly to the business overall. Maybe additional business which has come from in the region of around INR 80 crores, INR 85 crores has come from some products. And I think another product has contributed around INR 120 crores, INR 130 crores. So maybe INR 100 crores of overall business has gone up on account of sartans, yes.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [30]

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Right. And sir, your generic exports, excluding institutional generics, that came at INR 180 crores for this quarter and that was INR 126 odd crores for the first quarter. So what has driven the growth and how sustainable is this growth that we have seen in the generics business, unbranded generics?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [31]

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Let's see. Overall, if you look at the generic numbers, I think Europe has contributed INR 100 crores, INR 102 crores of the business as against INR 72 crores last year. So Europe has -- there is a growth of around 32% in the Q2. And overall, for first half, there is a 35% growth in the INR 169 crores as against INR 135 crores last year.

Australia demand in this quarter has contributed around 21% kind of growth from INR 33 crores to around INR 31 crores. For the first half of the year, it's more or less a -- there is a decline of around INR 2 crores.

Canada has contributed around INR 14 crores this quarter as against INR 21 crores last year. But first half, it's around INR 30 crores, so it's around 17% kind of growth is there. And overall, the number is around INR 178 crores as against INR 161 crores. So around 11% kind of growth. And as far as first half is concerned, this was INR 303 crores as against INR 264 crores, so around 15% kind of growth has come in generics.

Institutional generics in this quarter was given 30% growth as against INR 44 crores and INR 61.5 crores. But for first half institutional growth is around 4% from INR 89 crores, it's around INR 85 crores last year. So it's only 4% kind of development.

Overall, generics growth is, for the first half, including institutional, is around 12%. But for this quarter, it's around 17%.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [32]

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Right, sir. So this European number of INR 102 crores versus INR 72 crores last year for the quarter, this is driven by maybe U.K. MHRA regulation and therefore a sticky number? Again, can we --

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [33]

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The U.K. has grown much faster. The European business is around, let's say, other than U.K., is around INR 75 crores as against INR 63 crores last year. So that has grown by 31%. U.K. growth is around, first half, is around 31% from INR 72 crores to around INR 94 crores, yes.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [34]

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Okay. And sir, what do you think is a key number we have projecting for the U.K. now that the issue is resolved? How do you look at it going forward? And how can we...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [35]

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Market, so their business is already picking up. So we are waiting and watching, but it all depends on how their business picks up, yes. And I can't give you right now the numbers. But yes, good growth will be there. But it's difficult to give a description.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [36]

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Fair enough, sir. Sir, one last question from my side. How would you sort of guide us on your on overall EBITDA margin standalone or consolidated, whichever you want to guide us on, for FY '20 and '21?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [37]

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Our guidance, whatever that we had given, that would remain, that around 1.5% kind of growth in the EBITDA margin compared to last year. So that would remain. That guidance will continue to remain.

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

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And this is true for FY '20 and the rest of '21 or only for FY '20?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [39]

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Oh, '21, we have not done yet that exercise. So it's for the current year, yes.

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Operator [40]

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The next question is from the line of Vaibhav Badjatya from HNI Investments.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [41]

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Congratulations for a good set of numbers. Just wanted to know, do you think you have any plan to acquire any companies, which (inaudible)?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [42]

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We keep on looking at opportunity. So that's difficult to comment that -- whether we will acquire or not acquire. If right opportunities are available and if we need it, then we'll acquire. But as far as formulation side is concerned, we are already having excess capacity. So right now we are not really looking at anything.

But on the API side, yes, right now we are facing certain capacity concerns. And we'll also like to look at the various opportunity on how we can further augment the capacity that we have. And...

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [43]

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But is there -- (inaudible). You have already submitted a bid for one of the company and it has been accepted by a committee of creditors. So I just wanted to understand why you're acquiring that company and what you're planning to do with the company.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [44]

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That's basically in the middle of India and a very, very large piece of land also surrounds it, thousand acres kind of land. It's really very, very significant [asset] there in terms of land and some of the (inaudible) so. And we are, long term, let's say, we will be investing some kind of money to do more our intermediate ourselves. We were looking for some kind of site, and therefore, a bid is given. But it's too early when the final list is provided to us. So...

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [45]

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You basically plan to use it for your own business? Or you do want to something else with the land that you will get if you win the bid?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [46]

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It's our long-term plan to do more of intermediates for ourselves, yes. So less dependence on China, yes, and more on continuous chemistry and all. So those kind of things are there. It's our long-term plan. So...

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [47]

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Okay. And will that be a related-party transaction? This acquisition would be a related-party transaction? (inaudible) others?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [48]

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No. There are no related party.

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Operator [49]

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The next question comes from Kunal Dhamesha of SBICAP Securities.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [50]

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Sir, the first question pertains to the gross margins. Sir, if I remember it correctly, last quarter, the gross margins went down significantly on sequential basis, and you called out 3 reasons for that. Now this quarter, again, it improved by around 250 bps. So could you just like provide some color in terms of what were the drivers of improvement in this quarter? One would be definitely the mix because the API mix has gone down and formulation has gone up. But any other things that you would want to call out?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [51]

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By and large, we say it's a mix of business because API has a higher material cost. And material cost to sales ratio in first quarter of around 35% and -- as against 32% is largely because the API base has moved up. And this quarter also, it's basically on account of API. So certainly on formulation side, there are not much of changes there. Margins continue to remain stable. So it's only because of the API business. The change in that mix is resulting in the material costs going up and down basically.

I would like to say that as far as trend is concerned, there are some certain softening in the prices that -- which is happening, yes. But not significant. Small -- some kind of softenings are there. So price change is now there. But softenings are not happening to that extent, yes. There are some price reductions taking place but not too bad.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [52]

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And we also had a program in place to bring the raw material costs down, right? So we are done through that? Or there is still some more savings that can come through those program?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [53]

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Well, we always try to put the loss to our sales as an integrated kind of business model. But right now, we have capacity constraints so we can't produce too much of our intermediates ourselves. But in the longer term, let's say, medium term, yes, we will definitely like to produce more intermediates so that the business continuity is better. And also we'll improve our margin profiles. And also it gives a competitive advantage as far as the generics are is concerned because, overall, costs goes down. That has been always the philosophy of the company, and we will continue to work on that line and currently also working on that. So now we have on API side a lot of constraints as far as capacities are concerned. So it will take some time to augment that.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [54]

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Okay. Okay. Okay. and my second question is on the receivables side. Sir, you mentioned that the debtors have increased significantly. So is there a particular geography concentrated to that? Or is that the normal course of business?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [55]

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Let's say our business based on the March quarter, if you say, was around INR 860 crores. So March quarter balance sheet letters are based on the INR 860 crores kind of business base. Now it's gone more than INR 1,200 crores, so almost 50% increase is there in that. So debtors has also gone up in that line. And as far as the -- if you look at the overall numbers of, let's say, in terms of number of days, then debtors had just gone up by 2, 3 days. So we are not clearly worried on that part. It's -- more or less, everything is in order. And numbers are mobile. It is only because the business is based in, again, in March. Normally, our March quarter is less. So when you'd see again the March numbers, the debtors will come down significantly, yes.

But this quarter is -- second quarter, the base of business is always high. So they will always be high in this particular quarter. March quarter, it will again go down. Because business base is -- the fourth quarter is the lowest for us, yes.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [56]

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Okay. And lastly, on the institutional antimalaria business. Sir, have we orders from Global Fund? Or is it still being limited, your GDUFA orders have yet to pick up?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [57]

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The Global Fund orders are there. In fact, there is some change in unit heads. So unit heads -- business (inaudible) is slow currently regarding certain matters of their procurement and all. So it will take some time to pick up for that part. But Global Fund orders are there, and we were not there in first -- practically in the first quarter as far as Global Fund. It's only started in second quarter. And more or less, right now, executions are picking up. So our guidelines for the institutional business in current year would be around, say, overall INR 215 crores to INR 220 crores kind of business as against INR 120 crores, INR 180 crores that we've done last year. As against that, first half business is around INR 85 crores, INR 86 crores -- INR 88 crores, yes.

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Operator [58]

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The next question is from the line of Surya Patra of PhillipCapital.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [59]

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Yes. Congratulations for the great set of numbers, sir. Sir, can you just update us on the subsidiary performance, Pisgah and Bayshore? And also if you can give some of your thought process about these 2 businesses, particularly the Pisgah intermediates and the (inaudible) manufacturing base, what you are having. How well is that utilized currently? And what is the scope of expansion there or your intention of expanding that base so that we could possibly [uproot] the U.S. market possibly through your integrated base here in India for intermediates. Sir, any purposes on that front end Bayshore? What is your long-term game plan there?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [60]

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Bayshore is veritably our front end as far as the U.S. is concerned. And Bayshore in this quarter has contributed some small profit, maybe around INR 3 crores. So overall, this is amortized. Basically all -- the small part of their R&D and rest is on the marketing product. But overall, once the Ipca remediations and everything have (inaudible), they will be our front end overall. So Bayshore has been acquired, and by and large, with purpose for making it a front end entity for us. That's basically the purpose. And until that time, they will continue to do with whatever partner is present, which currently they are doing. And in addition to that, Ipca business will become an additional business.

As far as Pisgah is concerned, that was required by and large to do some kind of low volumes and the high-value APIs in U.S. Some of the products technology transfers are going on there and the submissions and all are taking place. Right now that has not contributed any kind of business in the first half of the current year. But it will start contributing in the latter part of the year. And I think they have incurred a loss of almost around INR 8 crores to INR 9 crores in first half. And that got offset by the whatever earnings we had from the Onyx operations in London. And Bayshore has contributed some small kind of profit.

So as such, subsidiaries are currently not contributing much, but they are not contributing too much of losses also, marginally INR 1 crores, INR 2 crores here and there.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [61]

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Okay. So that means if you're getting possibly play the kind of work in terms of API and manufacturing (inaudible) front-ending kind of (inaudible) for our record...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [62]

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Some of our APIs is there as well.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [63]

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Okay. And about your -- this API business progress, so whether you have started supplying the VALSARTAN also, as you are indicating, this quarter onwards possibly you'll see pickup there with the capacity addition. So how is the trend there that you are witnessing? And so if that is the case, then possibly the momentum will likely sort of possibly continue in the near future.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [64]

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Let's say, I think maybe in the month of September, overall, let's say, whatever capacity we wanted to achieve, that has been achieved in the -- on VALSARTAN and that the business flow has already started. And that will continue to contribute in the second half of the financial year, yes.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [65]

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Okay. And regards in the API front, what is the capacity inflation that you will be able to see? Although the return that is -- that you -- it is restricted for U.S. market, but it is, I believe, optimally plays to end. So what is the CapEx that we should be seeing this year and next year, this year may not be good, but next year and the following year? And your view on those trends in building capacities, either in formulation or API?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [66]

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Let's say there are -- we have different kind of plants. Some plants are multipurpose plants, some plants are -- we have dedicated plants. So we still have a lot of capacities on your dedicated kind of plants, like say, we have quite a lot of plants. We have so many other which are dedicated plants out there. So dedicated plants, overcapacity. But the multipurpose plants, there, we are facing the -- where we do a lot of changes, the campaign basis plant. So there, we are facing now the capacity constraint. And so that's the issue there, but we are in a process of addressing that. But it will take some more time.

Currently, we can't expand in the state of Gujarat because of all these grave terminal issues and other issues which are currently there, even though that our sites are more [indiscernible sites. But because of overall environment, these issues are there in Gujarat. And as far as the plant is concerned, there are certain issues which we need to address in terms of availability of power because right now, all line capacity is completely exhausted. So we are putting the new power grid line from 132 kv lines from currently 66 kv. So that work is going on.

So only after the availability of power is only whatever additional -- even if for, let's say, balancing it to be done or some kind of new plants are to be set up there, that it still will take some time and not going to open it this year. It's going to be sometime next year. And the capacity's availability will still take longer time because setting up plant, this will take around 8 to 9 months and then validations, and so maybe a year away. Additional capacities are more or less a year away from now.

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Operator [67]

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(Operator Instructions) The next question is from the line of Sachin Kasera from Swan (sic) [Lucky] Investment.

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Sachin Kasera, Lucky Investment Managers Private Limited - Analyst [68]

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And congrats for these set of numbers. Just a couple of small things. One, if you could tell us the CapEx for CapEx and the tax rate for this year and the next year?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [69]

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Currently, our CapEx is, I think, first half, we incurred around INR 80 crores, INR 85 crores. And second half there also, more or less will be on that line. But the next year, CapEx would be a little higher side, maybe around INR 250 crores to INR 300 crores kind of CapEx will be there. More CapEx will be needed on the contracts for just the API side there.

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Sachin Kasera, Lucky Investment Managers Private Limited - Analyst [70]

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And sir, on the tax rate for this year and next year?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [71]

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Tax rate, let's say, that since the net rate had gone down by 4%, so our -- we will continue to remain late and we will be paying around 17.5% kind of rate. We have around, overall, close to around INR 300 crores of net credits, which is recognized in the books at around INR 70 crores, INR 80 crores. Rest of the net credit is not recognized because we started recognizing only in last 2 years. And here, we were not recognizing net credit in the books.

So that figure will get, let's say, adjusted will take around 3 years or so from after this year. And thereafter, we will come right around 25% kind of tax rate. So for the next 3 years, our tax rate is going to be around 17.5%, and thereafter, it will become 25%. So by that time play, most of the incentives which are there relating to R&D and which is there relating to certain plants, and all will get adjusted. So net credit would not be available thereafter. In fact, maybe we -- currently also, we have started utilizing the net credits which is available.

And we have a deferred tax liability in books of around -- maybe around INR 150 crores also -- INR 143 crores also. Out of which, maybe around INR 40 crores, INR 45 crores will get -- then will be reduced, and that will be recognized maybe once the macro data are completely over, then we are 25% kind of tax rate. Currently, we will continue to be -- tax rate would be 35%, but we will be paying 17.5%, and balance will be likely accumulated net credit.

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Sachin Kasera, Lucky Investment Managers Private Limited - Analyst [72]

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Sure. So the P&L tax rate will be around 18%, 20%...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [73]

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Yes. 17% to 17.5%, yes, which is their net debt. So there is a clearly 4% savings, which is there on net, from earlier tax rate, yes.

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Sachin Kasera, Lucky Investment Managers Private Limited - Analyst [74]

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And sir, just one clarification on this other expenditure, you initially mentioned certain expense regarding the fees and A&D and biotech. Is that the main reason why when we compare to the June quarter, the September quarter, other expenditures has gone up?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [75]

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So basically, you can compare it quarter-to-quarter, not one quarter or other because they are business-based and all are the same. So one comparison I was giving you the reference to September '18 to September '19. And there, what we said that there is almost around INR 18 crores, INR 18.5 crores reserves saving compared to last year's quarter on account of a remedial cost. But that got offset by way of around INR 11.5 crores, which we had written off on R&D costs with that onetime write off. And INR 7 crores, we will extract to FDA. And FDA, so we have paid close to maybe more than $2 million, more than $2 million in this particular quarter.

The entire cost has been taken as well. Period cost, not getting spread over in the 4 quarters because right now, we don't have U.S. business. So we had taken a conservative view of debiting everything to P&L when it is being paid. So in this quarter, around INR 7 crores additional payment has been made to the U.S. FDA because the IND holding fees this year has gone up from USD 0.664 million to [USD 1.62 million]. So practically, $1 million has been paid extra to FDA, so around INR 7 crores. So close to, whatever, INR 18 crores which we have paid on the legal cost. That has got offset by way of your additional cost, which we had made in this quarter.

Excluding that, other expenditures has moved up by around 15% in this particular quarter as against the overall 20%, 21% kind of business. That is not the number I said earlier.

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Operator [76]

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The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [77]

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Sir, can you give the geographic makeup of the -- of exports?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [78]

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In generics, I've already given. Only branded, I have not given. So branded, if you look at -- or CIS business growth in this quarter is around 30%, and overall first half is also 30%. So business was, in the first half, is around INR 91.7 crores as against INR 70.7 crores last year.

You are -- similarly, East Asia, also business is around, this quarter, is around -- Southeast Asia is around 19% growth, from INR 16 crores to around INR 19 crores. And -- but first half, it's around INR 32 crores to INR 32 crores, so there is only 2% kind of growth is there.

In Latin America, in the branded business, it's around 14% kind of growth. And West Africa in this quarter is around 80% growth, from INR 7 crores to [INR 12 crores]. And on first half also, it's around 32% kind of growth, from 26 -- it has become INR 26 crores from around INR 20 crores last year. So overall, branded promotional business is around INR 192 crores as against INR 161 crores in the last financial year, around 19% growth in first half. And in this quarter also, it's around 20% kind of growth in there. So overall, that's the promotional business.

And as far as generics are concerned, your European business in the first half is around INR 169 crores as against INR 125 crores last year, so around 35% growth. Overall, generics is -- if you look at -- excluding institutional business, it's around INR 304 crores as against INR 264 crores last year, so around 15% kind of growth.

Institutional business in first half has grown by around 4%, from INR 85 crores to INR 89 crores. And overall, the generic business overall for first half is around 12% growth, INR 392 crores as against INR 350 crores, so around 12% growth. In this quarter, generic business is around 17% kind of growth, so 330 -- INR 340 crores as against INR 205 crores, so around 17% kind of growth.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [79]

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Okay. And can you give the outlook for U.K?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [80]

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U.K., so let's say the -- our agent is back -- our distributor is back in the business, but it's too early because they have a [costly] quarter. They are in business. Their business is picking up. But currently, let's say, a lot of shipments we have made to them in this quarter. They are in a process of clearing stocks and all that's out there. So it will take some time. Maybe it will be around after second quarter, third quarter, we will be able to tell you how exactly businesses are picking up.

It's really, really too early because they have just started operations. And so far, the pickup has been good in the second quarter. We have done U.K. business of around INR 54 crores as against INR 37 crores last year. And overall, U.K. in the first half is around 31% growth, but this is way below our earlier business. We were doing in U.K. almost around INR 240 crores, INR 250 crores kind of business. So it will take some time to pick up, but yes, definitely, it will pick up.

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Operator [81]

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The next question is from the line of Alok Dalal from CLSA.

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Alok Dalal, CLSA Limited, Research Division - Research Analyst [82]

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Just one question. I wanted to understand, are you allowed to file products into the U.S. market from a plant under input alert?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [83]

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We can definitely file. There is no restriction in that, and we have been filing. But currently, we stopped because they are not taking it for a year. Then the -- or each filing, you need to pay so much of fees to the FDA and then we don't get any kind of results. So it doesn't make sense to do filings right now.

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Alok Dalal, CLSA Limited, Research Division - Research Analyst [84]

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Okay. So your filings will pick up only once the facility is clear?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [85]

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The facilities are clear because currently, also, there is a huge pipeline that's available. So we will first use that pipeline and then we will start picking up R&D projects.

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Alok Dalal, CLSA Limited, Research Division - Research Analyst [86]

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Okay. Sir, just want to understand the longer-term plan in the U.S. because even after doing everything, probably you will remain a small company in the U.S. So what is the longer-term plan? Why have a front-end in the U.S. when you can easily pursue a very good job by being a back-end player?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [87]

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Let's say our business philosophy is that, let's say, we may remain small, but on the product, we will remain big. So whatever our products are there, we will have a larger market share. That is our business plan. And on the products, we will be -- we will do a great business. So -- and that is -- and that has been the business philosophy that we should be the lowest-cost producer, integrated supply chain kind of thing and then take the larger market share on that particular product. So I would say that with the products which we will be marketing, we will have a good set of market share from those products.

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Alok Dalal, CLSA Limited, Research Division - Research Analyst [88]

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Okay. Sure. And one last question. Sir, last 10 to 12 quarters, your revenues have trended far ahead of your expenses. Until when do you think this trend can sustain?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [89]

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We still have a significant amount of capacity as far as formulations are concerned and still a lot of -- this kind of operating leverage is available from formulation side. API side, as I said, certain dedicated plants and we still have capacity there. But certain multipurpose plants, the capacities are reaching to the saturation level. So certain kind of those investments would be there.

But the -- and as far as the margin profiles are concerned, by and large, are that the overall gross margin levels is almost around 67%. And your expenditure rise unless you put up too many plants and all that kind of thing or add too many people. So it's not going to grow in line with business growth. So naturally, we'll continue to keep on increasing our overall EBITDA margin profile.

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Operator [90]

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

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [91]

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So good set of numbers. So just first, on the API thing. So in terms of procurement of key starting materials for API, any consultant in terms of availability of the key starting materials?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [92]

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Availabilities are improving. The price trend is also improving, but we don't see any kind of significant dip in the prices from earlier on. So there, our prices are falling, but not significant. And availabilities are definitely improving.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [93]

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So basically, backward integration would not be a viable option given the scenario being getting favorable?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [94]

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No, we cannot have that kind of generalized kind of thing because backward integration, when you look at different technologies and other things, and we will look at the correcting the cost significantly. So we are not going to give up backward integration. Backward integration (inaudible) to reduce the cost of overall APIs and be competitive in the market. So we will continue to work towards backward integrations and that also builds a lot of confidence to the -- my buyer that yes, I have in the supply chain income growth. So that philosophy will continue to be there because we always work in the terms of India, are integrated in that we do API, we do intermediaries, we do formulations, and then we address the entire evolution. So that's the business philosophy and that would continue to remain. We are not changing that also.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [95]

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What would be the volume growth, like in the API segment per se?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [96]

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Well, let's say, the volume growth, if you look at it, would not be that significant, but your mix change is significant because the prices of the products, these are having the higher prices, are selling much higher. So our focus has been towards that. So maybe around 10% increase then, but in the same kind of increase in the overall top line. That's the kind of thing. So more and more...

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [97]

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Sorry, 10%?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [98]

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Volume increase and 40% rise has happened in the...

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [99]

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Prices...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [100]

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No, overall volume, volume, volume. Yes, it more focuses towards the high-value products there.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [101]

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So how do you see the sustainability of these high prices, like in terms of visibility, let's say, next...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [102]

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The prices will remain. Some softening may happen, but not significant because we don't see any kind of significant reductions in intermediate prices. There is a minor softenings are there, but not great, yes.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [103]

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And secondly, what is driving growth in -- or in the API itself, what -- other than for the products which are a burden sartans, maybe sartans because of the regulatory issues to peers. But for the other product, what would be like key driving factors?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [104]

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Let's say, sartans then even maybe around an additional business of around INR 100 crores, but our overall business growth is very good, yes.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [105]

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So just wanted to understand, so excluding sartans, what will be the key factors driving the growth in other API molecules other than sartans?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [106]

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So listen, we have been working with various customers, various countries, so it's the 2 and the new sources, the new buyers and all that. So that had been continuously driving, reaching out to the more number of market, more number of customers and all.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [107]

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Okay. And lastly, just the recent 483, so in terms of time line to resolve the issues and get back to U.S. FDA, any...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [108]

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Let's say, we had reached out to FDA, but they said that they are set to go through the other responses, and they normally do it around 90-days time. And so we are in the touch base on this. Soon the reviews happen, we would like to have a meeting with them and then present our side to them, everything. So we are planning that kind of meeting with them, but it all depends on when their reviews are completed. Normally, they take 90 days to review the response and all. That will hover mainly around that, just onetime that period will get over.

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Operator [109]

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The next question is from the line of Manoj Garg from White Oak Capital.

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Manoj Garg, [110]

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Congrats on a great set of numbers.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [111]

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Thank you.

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Manoj Garg, [112]

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Sir, just wanted to check on the domestic market, if you will be -- if you can help us understanding the growth between volume and price increases.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [113]

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Normal price increase is around that, let's say, 3% to 4% in a year. The current year is also remaining in that line, yes.

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Manoj Garg, [114]

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Yes. Okay. So then probably, we have seen around 10% to 11% kind of volume growth?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [115]

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The overall growth in the first half is around 15%. So 4% for this year, and maybe prices are also a little better. So around 4% in price hikes and around 11% of overall revenue growth. Yes.

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Manoj Garg, [116]

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So sir, I just wanted to understand, well, the change in the domestic market because a few -- a couple of quarters ago, there was concern around the volume growth in the industry. And even in the past [2] years, we have seen high-single-digit kind of growth. But probably, in this year, we have been seeing very, very strong recovery. So I think structurally, you would like to highlight that -- which is helping us to -- or the overall industrial growth, are they at a faster pace now?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [117]

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Let's say, our focus is more on continuously on brand building. So if you look at our top 10 brands, the growth is almost around 20%. So that is significant. Our overall top 10 brands are growing by around 20%, and others are growing by around 8% to 9%, so that is giving us around 15% kind of growth. So that kind of focus on products and driving the volume growth will continue to remain, yes.

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Manoj Garg, [118]

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Sure. And second thing is like in terms of sustainability, how do you see the domestic growth sustaining over the next maybe 2 to 3 years here?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [119]

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No, we have a long way to go because of that. And there is a lot of unmet needs we still need to address for -- our cardio franchise are going to go much better. Our pain segment will continue to drive that kind of growth this year. And we are picking up growth on antibacterials and also the other therapies. So overall, our growth numbers are definitely going to be around 1.5x the market growth.

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Manoj Garg, [120]

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So you're not sure yet. And the last question from my end, like since you said that there's a lot of scope in terms of operating details like in the formulation side. So without U.S. consolidation, how do you see that operating details maybe playing out over the next 2, 3 years? Like at some point of time, we have indicated that we would like to go back to the historical margins, which was around anywhere between 23% to 25% kind of range. And when do you see that probably will be getting to that...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [121]

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Maybe we have 2 areas away from that because we are already used to around the 22% kind of number. So maybe around 2 years' time, we should be back on our historical numbers, without the U.S. because with U.S., it will go up further high because our U.S. margins are much higher. And currently, the prices are fabulous in the U.S. for our products. So as and when it gets cleared, the margins will further improve. But otherwise, maybe in 2 years' time, we should be back with that kind of number in the margin side.

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Operator [122]

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The next question is from the line of Rahul Sharma from KARVY Stock Broking.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [123]

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Sir, I just wanted to ask you on what is the status of the plants which are there from the U.S. perspective, individual plant waste?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [124]

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Let's say, one plant is inspected. There was 483, which we already replied, and we are awaiting some kind of meeting with FDA. They have yet not reviewed the kind of -- the response which we again we are installed to that. And the other plants, also we are expecting the inspection. So as and when they happen, we are fully prepared to address that. And all the remedial actions or whatever required to be done, that has been completed.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [125]

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Okay. So they have to get back to us on this. Is 483 regarding the temporary right, sir?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [126]

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Yes. That was the (inaudible) plant which is in Silvassa, and the temporary spending and the plant is spending.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [127]

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Okay. And sir, South Africa, a lot of -- many companies are facing some headwinds. How have we performed in South Africa, sir?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [128]

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We have not faced any kind of those problems, but only there was some kind of delay on allotment of awarding the tender in current year and how that is a tender business. And the supplies are quite (inaudible) -- in South Africa. So our overall, let's say, to catch the numbers, South Africa numbers, there's much buildup very much -- they are in line with last year's numbers.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [129]

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How much we did for the half year, sir? Any...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [130]

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Around INR 35 crores as against INR 51 crores that we have done last year.

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Operator [131]

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We'll take one last question from the line of [Daniel Desai] from [Total Capital].

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Unidentified Analyst, [132]

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Congratulations on a good set of numbers. Sir, 2 questions. So one is with respect to our remedial cost. We have issued term observation in Silvassa. Going forward, bonds -- the 2 plants are being inspected and they're on observation. Do you see any possibility of our remedial cost again going back to INR 70 crores, INR 80 crores, INR 90 crores in case how the observation that are at work? That's the first question. And second -- yes?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [133]

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As far as the observations are concerned, they will require any kind of further remedial work to be done.

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Unidentified Analyst, [134]

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Okay. And you don't know...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [135]

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Now the other response will be on that. So no further remedials are required. And as far as the one plant which is inspected -- there are 2 plants that they actually inspected, so difficult to comment at this stage.

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Unidentified Analyst, [136]

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Okay. And sir, second question on the API side. So I think a lot of API players are saying that people are looking at India from -- for a second source, and there's a demand movement from China to India. So I mean, do you see also see that trend happening? And is that what is driving the growth? Or overall, is it like more companies (inaudible) they want the growth? If you can shed light on that?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [137]

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By and large, let's say, most markets are becoming more regulated now. And earlier, for a lot of markets, they're not procuring API from the sources which are there because everywhere, there is a grandmaster file, and all smaller countries also have now regulations. So it is difficult for people to change the first month. And so if you are there in anybody's procurement as the #1, #2 supplier, then you remain a long-term kind of supplier with that party.

Because of that reason, also now prices are, on API side, are much better as far as -- earlier previous prices also will be much higher than other market prices. And now many of the APIs we get at par with U.S. the prices in other markets. So prices tend to also improve because of all this regulatory environment that's currently there and which will continue to remain. So -- and people are looking for a more stable source of supply, okay, because the fast disbursement that we have seen in terms of the supply chain, which in terms of trade, we have supply chain. So they look for the more stable source of supply, and they're willing to pay that premium -- some kind of premium on the API as well. So supply performances are good. That trend is definitely there in API, and that will help Indian companies also.

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Unidentified Analyst, [138]

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Okay. And sir, lastly, on this API need. So I mean most of the APIs that we manufacture and supply, is it not yet covering that we will be vertically integrated with almost the implementation run or that is fairly across products?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [139]

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Not on everything. But yes, on our major APIs, we are integrated. And on certain other intermediaries also, we are working to see that -- how can we produce in-house those intermediaries, yes.

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Unidentified Analyst, [140]

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So that positions us in terms of with the customer in a better place because then you are vertically integrated and the supply security is kind of there.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [141]

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Yes, that definitely helps. Yes, that definitely will help.

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Operator [142]

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

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [143]

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Let's say, we are continuously committed to the resolving these issues and go back to our past glory as far as the U.S. business is concerned. And we are taking -- we have taken all the steps and that we are hopeful that we have some time to come. Yes, we will get back our -- the resolutions and then work on towards the U.S. market and see back the margins, which were in that kind of profile which we had in the past. Thank you so much.

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Operator [144]

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