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Edited Transcript of IPCALAB.NSE earnings conference call or presentation 13-Feb-20 5:30am GMT

Q3 2020 IPCA Laboratories Ltd Earnings Call

Feb 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Ipca Laboratories Ltd earnings conference call or presentation Thursday, February 13, 2020 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

* Charulata Gaidhani

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

* Damayanti Kerai

HSBC, Research Division - Analyst, Healthcare and Hospitals

* Kunal Dhamesha

SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals

* Nimish Nagindas Mehta

Research Delta Advisors, Research Division - Research Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Rahul Jain

* Rahul Sharma

KARVY Stock Broking Limited, Research Division - Analyst

* Ravi Naredi

* Surya Narayan Patra

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

* Tushar Manudhane

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Nirmal Ambattuparambil Gopi

IDFC Securities Limited, Research Division - Research 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 Ipca Laboratories Q3 FY '20 Conference Call hosted by IDFC Securities. (Operators Instructions)

Please note that this conference is being recorded. I now hand the conference over to Mr. Nirmal Gopi from IDFC Securities. Thank you, and over to you, sir.

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Nirmal Ambattuparambil Gopi, IDFC Securities Limited, Research Division - Research Analyst [2]

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Thanks, Ayesha. Good morning, everyone, and a very warm welcome to Ipca Lab's Q3 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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Thank you, Nirmal. Good afternoon. Thanks for taking out time and joining us for Q3 and 9 months FY '20 result conference. Today's discussion, we may include some forward-looking statements that must be viewed in conjunction with the risks that our business faces. We will briefly touch upon some of the key performance highlights and would then leave the floor for the Q&A.

Q3 and 9 months of the current financial year '19/'20 has been strong for the company. Overall, the stand-alone net income has gone up by around 20% to INR 1,157.7 crore and consolidated net income is up 21% to INR 1,230.99 crore. And overall, the stand-alone EBITDA margin has -- is now around 24.46% compared to 22.48% in Q3 last year, a significant improvement of around 198 basis points in stand-alone EBITDA margins. And consolidated EBITDA margin also is around 23.56% in Q3 as against 20.72%.

As far as 9 months' performance is concerned, income is up around 20% to INR 3,414 crores. Consolidated net income is up 24% to INR 3,628 crore. And stand-alone EBITDA margin is around 22.45% as against 20.62%. There is a significant improvement of almost around -- sorry, 183 basis points. And overall, consolidated EBITDA margin is around 21.58%, and there is a improvement of around 154 basis points in overall EBITDA margins -- for consolidated EBITDA margins.

As far as businesses are concerned, domestic has done around INR 486 crore as against INR 421 crore. Domestic formulations and export formulations is around INR 353 crore as against INR 282 crore. So there is a -- domestic has grown in this quarter, domestic formulation by around 15%, export formulation by around 25%, and overall formulation business has gained around the -- around 19%. And overall additional business is around INR 135 crores in this particular quarter.

On API side, domestic API has grown by around 20% to INR 53 crores, export API is around INR 232 crores, around 25% growth. And overall, the export -- the API business has added around INR 55 crore. So total overall addition of business compared to Q3 last year is around INR 190 crores overall.

On 9 months basis, if you look at -- domestic business is around INR 1,482 crores as against INR 1,291 crores, growth of around 15%. Export formulation business is around INR 939 crore

as against INR 794 crores. So there is a growth of around 18% and overall formulation business has grown by around 16% and added overall in 9 months a business of around INR 335 crores.

As far as API is concerned, domestic API is around INR 186 crore, 19% growth. Export API is around INR 712 crores, 38% growth. And overall API business in past 9 months has added around INR 225 crore. And overall business addition is almost around INR [560 crore] overall in this period. And overall, your 9 months growth is around 20%.

Summing up the performance for 9 months, I would say that our focus has been on improving productivity and utilization of assets and brand building. Asset turnover ratio has improved almost around 2.6x from 2.4x in March '19, which was around 1.69x in March '18.

Cost of optimizations, process improvements are the major areas, which we are continuously working to reduce the wastage, improvement in reaction efficiencies, more particularly on the API side.

Thanks for listening. With this, I would like now the floor open for Q&A.

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Questions and Answers

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Operator [1]

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[Operators 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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Congratulations once more, sir for important set of numbers. Sir, a couple of questions from my side. On the -- any one-off cost of written-offs, the way we had in the last quarter with regards to the FDA INR 7 crore, and you'd also written-off a free amount of about INR 11 crores. And remedial costs, how do we look at it now? You have guided in the last quarter that it'll be about INR 16 crore for FY '21. Secondly, on the therapeutic wise, if you can share details therapy wise, how things have been? And lastly, on API business, you have maintaining 20% guidance but for current year 9 months, you're already around 33% growth compared to last year. And if you continue to be that kind of turnover, which you have done, one in quarter 3, then we should end up with 30% growth on the revenues on API. So can -- are we going to now upgrade the guidance for APIs as far as this year is concerned? And how do we -- lastly, how do we look at overall sales and EBITDA margins movement for the next year, FY '20?

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

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Overall, if you -- as far as expenditures are concerned, there are no one-off kind of expenditure in this particular quarter. So there are absolutely nothing of that nature. As far as the remedial cost is concerned, approximately, I think, it's around INR 2.5 crore in this quarter. Overall, up to 9 months, I think it's around INR 13 crore. And more or less, it will remain within the whatever -- we have earlier said around INR 16 crore or INR 17 crore, something like that. So more or less, it will remain on the similar lines.

As far as the therapeutic wise in domestic, I will give the numbers right now. Let's say, the -- your pain management continue to be our #1 therapy and now it contributes almost around 47% to the pie as against 45% in last year, first 9 months of the last financial year. So the pie here shifted by almost around 2 numbers from 45% to 47%. And our -- the pain management business has grown by around 19% in Q3. And overall, in first 9 months it has grown by around 21%. Second therapy for us is your cardiovascular and antidiabetics put together, and that is around 18% to the pie and around -- this quarter, around 9% growth on that. And overall, for first 9 months, it's around 10% growth.

Third therapy for us is antibacterial now. Antimalarials' has shifted one rank below. It contributes almost around 8% to our business. And grown in this quarter by around 34% and first 9 months also, it has grown by around 33%.

The antimalarials in -- is around 6% in the pie, domestic pie, and it's around -- the growth by around 4% and for first 9 months of current year, there is around 4% growth on that.

Next therapy for us is your dermatology, which continues around 5%, and it is growing by around 17% in this quarter and first 9 months, around 18%.

Cough and cold also similarly contributes around 4%. And I think this quarter, it has grown by around 18%. But first 9 months growth is around

8%. So -- and urology is another therapy for us, which is contributing around 3%, and it has a growth of around 25% in this quarter and first 9 months is around 26%.

And if you look at our top 10 branch, they contribute almost around 55% of our business and growing by almost around 19%. So that's the focus which we have on brand building. And other brands, which contribute around 45% of business, domestic business, they are growing by around

10%. So overall, domestic business growth in first 9 months and this quarter is around 15%.

And we are continuously growing better than industry. I think in this quarter, industry has grown by around -- the IQVIA number is around 9.3. IQVIA is tracking now -- our growth is around 18%. Our internal growth is around 15%. And by and large, this difference may be because our reflection in IQVIA has improved from 83% to around 85%. So that's the overall -- as far as domestic is concerned.

As far as API goes, yes, we had a good business run and -- in first 9 months, we added almost around INR 225 crores business. But this quarter, we added almost around INR 55 crores and good growth of around 25%.

And most of our business divisions in current financial year are on their budgets. And hopefully, I think we should be able to continue with momentum. But our guidance for the next quarter, Q4, would be around a business growth of around 15%, 16% overall for the company as a whole.

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Rahul Jain, [4]

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And for FY '21, how do we look at FY '21? EBITDA margin wise?

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

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FY '21, we are in a process of making better trends. There are a lot of discussions currently happening between marketing and sales team and strategies, and we are in the process of preparing our company budget for the next financial year. And probably in the fourth quarter of the current year, then we will give the guidelines for next financial year.

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Rahul Jain, [6]

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Sure. Okay. Sir last -- just one last one. In terms of domestic business, in animals as you said, has won fantastically there for us from last few year. So now going ahead in next 2, 3 years, as a medium-term to longer-term strategy, what kind of work is being done by the company management in terms of building this company over a period of next 3 to 5 years? What is the next so-called net of growth or the kind of products or the kind of therapies, which we are working upon, which can take company to the next level in the next 3 to 5 years to come?

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

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We continue to focus around brand building, and we don't add too many brands, but the overall business philosophy the company has. And the company fairly has a good number of therapies currently in the last few years, a lot of those therapies are added. A lot of the therapy-based divisions are added, like say, neurology's are now -- we have 2 divisions. In Derma, we have 3 divisions. We have octal -- we have divisions. Now neuropsychiatry, we have one division, for the next financial year, we may go for another division. We are also thinking in our formulas to add some -- another additional divisions. So a lot of work is happening on that direction. But by and large, focus remains on brand building. And on the key brands, continuously working the -- and also continuously work on clinical research, use those kind of materials again for product promotions and also, that focus continue to remain. And as far as the newer therapies are concerned, we continue to keep on evaluating them. And currently, we can't say that which therapy we'll be going for. But yes, in future, there could be some therapy additions also could be there. And normally, we don't shy out on -- from adding the people. And currently, my full force size is almost around 4,600 because that's the best investment to make because it has become productive in very second year and will start contributing to the company. So compared to the plant and machineries and all, your rest the productivity and -- so you get very, very second year, you start getting the breakeven and you start contributing to the company. So if the need be, then we will definitely depending on our budgets and how marketing makes the presentation to us, we will decide in fourth quarter that how many reps we will be adding in the next financial year.

And our business continues to remain robust, and I think we will -- the main therapy like pain management, we are significant player. We'll continue to grow the -- and outbid the market on a regular basis. Cardiovascular, we are improving now. Of course, our growth is around market, but the work we are doing on, more particularly, in hypertension therapies and diabetes therapies in recent time that will definitely increase the overall growth in that therapy also.

And newer therapies are growing much faster rate and -- but a lot of those therapies are small in number, but they add to the overall company growth.

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Operator [8]

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[Operators Instructions) The next question is from the line of Tushar Manudhane from Motilal Oswal.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [9]

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Sir, just on the API front, as you guided for 15%, 16% growth for 4Q. So effectively, compared to 3Q sequentially, you see business getting done?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [10]

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I think what happens that most of our divisions are on growth. So let's say, they have achieved the -- they're on budget practically and out-beating the budget. So it's a marketing tendency to hold something for next financial year. So that's the apprehensions we have. So the overall growth may be around that kind of number, overall for that last quarter.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [11]

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And we may be -- what would be like price growth and volume growth? If you can just for the quarter or for the 9 months?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [12]

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API, we don't work out the exactly, what is the price growth and volume growth. But as far as formulations are concerned, our price growth is around -- close to 4%, yes.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [13]

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Okay. And just if you can give the generic business breakdown?

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

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Yes, one minute. Overall, the generic business in current Q3 is almost around INR 191 crore, out of which Europe has contributed almost around INR 76 crore as against INR 69 crore -- INR 68 crore in last financial year, there is a growth of around 12%. But U.K. in this quarter has declined from INR 27 crore to 21 INR crore. Most growth has come from new orders in the new markets. Australia, New Zealand has contributed almost around INR 46 crore as against INR 33 crore in last financial year. Canada has contributed around INR 26 crore as against INR 8 crore in last financial year. And South Africa, around INR 43 crores as against INR 29 crore. So overall, generic business is around INR 191 crore as against INR 139 crore in last financial year Q3.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [15]

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And lastly, just on the domestic formulation, again. Sir, how much of this growth would you attribute to the seasonality? Overall growth?

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

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Overall, there is nothing. But I would say, this is seasonality, except the cough and cold, which has grown in this quarter to 18% as against overall growth of around 8%. But otherwise, all other numbers like pain or malaria, malaria has declined again because of seasonality, poor seasonality in this quarter as it declined by around 4%. But rest, there are not much of seasonality here, yes.

And seasonality also remains in antibacterial, but we are a small player currently, it's only contributed 8% and overall number is small. And since it is also our focus area. So it is growing much faster than overall and it's growing by almost around 33%.

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Operator [17]

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[Operators Instructions) The question is from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [18]

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And congrats on good numbers. Sir, a question on the -- basically just share your update on the last year acquisitions, small though, on the API side and the U.S., you know the Bayshore and on the API side, you had Pisgah, Ramdev and Noble. So are they contributing on the API growth? The margins, obviously, are coming down because of this issue, but how do we see this business scaling up? And how do we see the margins scaling up on this business?

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

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Yes. Thanks, Prakash. As far as Noble is concerned, this plant was shut down in 2006. Largely, it has 2 plants basically for production of chemicals based on nitration chemistry. So there are 2 plants. The plants are in good shape and all their SOS equipments are in very good shape. But all other assets are practically the MS and all are corroded. So this plant will have to be remodified. Why we have acquired Noble is largely, we want to go for a lot of intermediates to secure our supply chain. And we were looking for some site because most of our intermediates are currently produced at our Ranova site and also Mahar site, both these sites are full. And currently, we cannot set up any further capacity at both these sites. And therefore, we were looking for our intermediate production, key starting material production from site. And therefore, this -- the last 6 months, we have been working and we could acquire this. It has a huge amount of land, almost around close to 678 acres of freehold land and also, there is a lease on land and come first land is also available, so almost around 1,100 acres of land. So long term, it will address our requirements and continuous expansion as far as API is concerned -- key starting intermediates are concerned and that will secure the supply chain for long term and also the backward integration will further help us in improvement in overall margins for the company. So that's the one part of it.

As far as the other acquisitions are concerned, I go -- I'll just give the numbers. One minute.

Overall, in this particular quarter, Bayshore has continued at almost around INR 41 crores of business and Ramdev is around INR 15 crore kind of business. Onyx is another subsidiary we have, it's contributed almost around INR 16 crore of business. So overall, let's say, the subsidiary businesses are contributing almost around INR 74 crore of turnover in Q3. And if you look at the first 9 months of the current year, I think Bayshore has contributed around INR 122 crore of top line. Onyx has contributed on almost around INR 57 crore of top line. And Ramdev has contributed almost around INR 33 crore of overall top line in the first 9 months of the current year. As far as profitability is concerned, we are -- Onyx continue to remain on a very good profitability, almost close to around 27%, 28% kind of EBITDA margins are there in that business. But the recent acquisition of Pisgah. Pisgah, there are technology transfers and filings and that process is on. So meantime, whatever expenditures are there, that is expense out. And there is a loss of almost around INR 11.65 crore in the first 9 months of the current year. And in this quarter also, it has contributed around INR 2.73 crore of loss. As far as Bayshore is concerned, they have contributed a nominal profit of around INR 1 crore in the overall results of the company.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [20]

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Okay, great. Sir, just one follow-up here. In terms of bringing Noble to shape and restart, how much time do you think even if you do step-wise and block-wise, when do you see the first production starting for your intermediates at KSM?

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

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You see this industry is highly regulated. So we will have to go for environmental clearances and that process itself takes around one year. And only thereafter, we will be able to do some kind of work on that. But certain chemicals, they have already a license capacity and [MKLT] order provides that, yes, the respective authorities will have to renew the licensing. So some kind of chemicals, which -- and intermediates, which are on nitration-based chemistry and all, we will be able to revive. But that again, will depends on how the overall plants work out and we will have to revamp the complete facilities and others. So it may take around 1 year time before you can see any kind of turnover coming from that particular side, even it may take around 15 months or so. So it all will take some time. It's not going to be that quickly.

The plant has been closed since 2006, but the structure is perfectly okay. I've seen the structure, and there are not a single crack in both the structure. It is built by, I think, (inaudible) and very good civil construction and good -- overall good access equipments, which are perfectly in shape.

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Operator [22]

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

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [23]

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Congratulations for a great set of numbers. Sir, just one question on the domestic formulation business and the kind of a consistent growth, what you have been delivering. Congratulations for that also. Sir, in fact, the -- in the opening remarks, what you have mentioned, and what we are observing, just to see your core therapies in pain management, [malaria], cardiovascular, diabetic and all those are or even antibacterial and derma, all those growing faster than your company growth as well as faster than the industry growth. So what is the -- do you think that because of this, and you are confidently indicating that a similar momentum can be continued further because of the brand focus, what you are having. So is it fair to believe that given the kind of strong performance in the branded portfolio, you can sustain such performance even in the subsequent period, which is largely led by the branded portfolio, and it should be profitable growth?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [24]

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Yes. If you look at our topping brand growth, it's close to almost around 19%. It shows what kind of the -- overall efforts we are making on the brand-building side. And as a company, it's not our practice to have too many brands. We continuously work, and most of our therapies are in the growth phase. And particularly, like say, same is continuously growing. Rheumatoid arthritis, a long way to go. So those therapies are continuously growing. And our focus, let's say on antihypertensive like the cardio -- chlorthalidone based compound, where we are continuously growing now around 16%, 17% kind of overall growth is there on that also.

So these therapies will continue to find the longer to grow with us crossed the chlorthalidone based QTB branch. It's crossed around INR 100 crore business already. And they will -- with -- from INR 100 crore to INR 200 crore, that journey from the higher journey has happened from INR 0 crore to INR 100 crore. I think next INR 100 crore is around 3 years' or 4 years' time. So -- And it has a strength to grow much, much bigger.

Similarly, most of the other therapies, the -- which were added like derma, urology, the neuropsychiatry, all are growing much faster than overall. And that will continue to have good growth. We feel that, yes, that momentum will continue and our focus on brand will be definitely -- will give us greater incentive.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [25]

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And whether the brand building spend is now, to a great extent is -- or what is the trajectory that you are seeing, sir, in terms of the brand-building cost versus the incremental revenue that you were adding on the branded portfolio?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [26]

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That cost. Normally, our marketing spends are around -- only on marketing is around 8%. There are many industry players spend around 10%, 11% kind of thing. But our spends are not that high because the -- it's basically, again, because it's a -- core brand promotions and samplings are very less. So that helps us to continuously keep the cost also in control, on the overall marketing side also.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [27]

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This -- you had earlier indicated about enhancing your presence in the intermediate side and making your activities more backward-integrated and all this. So can you say something that, okay, what is the level of integration that you are currently having and post your initiative towards the intermediate, what is the likelihood of the integration level? And currently, is China situation, what we are hearing, so have you started seeing any impact on the prices of the intermediate? And accordingly, there could be a kind of so potential, near-term opportunity or impact?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [28]

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If you look at overall integrations, our formulations business is integrated to this MCI and almost around 55% of our complete turnover comes from the businesses, which are the formulation business, which is backward by our own API side. So it's a very, very significant amount of -- overall integration is there as far as the backward integrations are there. And almost around 8 to 10 top API, we have large amount of integrations announce on your intermediate side, but there is a lot dependent -- still dependence is still there on China as far as the key starting materials are concerned. We hardly import any kind of API from China. It's basically we import some key starting materials and some chemicals from there. And there, as the product becomes big, we would definitely like to have -- low supply chain, I'll say, sustainability and then work on those kind of intermediates. So currently around 8 intermediates, which are currently focused, company is having on that to right -- build the capacities in time to come. And then we're also working on different kind of chemistries and also working on continuous chemistry kind of things so that those kind of plants when we build, they give us good efficiencies in time to come.

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Operator [29]

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[Operators Instructions)

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

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

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So sir, this Noble, its look in acquisition. You said you would ramp-up the facility and make changes to it. But it's about 900 acres of land, including the resold and freehold. So does the current facility appropriately cover the landscape? Or there is opportunity for you to build more blocks and expand, whatever is the existing infrastructure?

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

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Let's say, I think overall, the nitration-based chemistry, whatever we will take up, we will consume around 250 acres of land because of safety, you need to keep certain the -- all other facilities away from that. But otherwise, there is a huge amount of land bank available, it is practically all the flat land, and that needs to be -- we will build on, which are our -- the APIs, all these intermediate facilities there, yes.

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

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So, sir, any time line? Any budget on the CapEx that you are going to do there? And how much is the potential? Sir, I'm not talking about next year or the year after, I'm talking about like a 3- to 5-year plan for such a huge land parcel, how would you utilize that?

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

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It's -- the focus is not on utilizing land, focus is on building these all 7, 8 intermediates currently, which we are highly dependent on China. So that is what we are -- R&D is working on the processes and other things. And broadly, it's from -- right now is I would say that it's on drawing board and our project teams and process delivery team. They are all working together to put all these, what kind of CapEx are required and what needs to be done. And thereafter, we will go for environmental. So it's a little too early to answer that. But yes, there will be -- some investment will be there going forward, maybe around in 2-years' time to set up those kind of intermediate facilities there.

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

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I understood, sir. And my second question is on the U.K. business. So you see a quarter-over-quarter decline in the U.K. business. So post the resolution of the issue with Bristol, how are we still losing business in U.K.? What's happened there? And what's the outlook?

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

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See initially, when that -- your -- once their issue was resolved there, they set good amount of quantity. And last quarter, they have listed almost around INR 53 crore. In 9 months, there is a good growth, but -- and since they have come back in the market, it takes some time to build the market again, because they were not there for a very long time on a lot of those kind of products. So some small here and there, it's around INR 21 crore as against INR 27, INR 5 crore, INR 6 crore. That's so small. But overall, there is a 17% kind of growth in the current financial year. And as their market share improves, the business will keep on improving there.

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Operator [36]

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The next question is from the line of Kunal Dhamesha from SBI Capital Securities.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [37]

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Congratulations on the good set of numbers. So the first question is around the capacity utilization. Given our asset turnover has increased significantly, and our revenues are growing across all the segments. Where are we on capacity utilization? And what our CapEx outlook is for next 2 years?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [38]

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Okay. As far as formulation capacities are concerned, we have -- ample of capacities are there. And our highest utilized plant is our Silvassa akhal plant, which supplies to all the kind of regulated markets like Europe, Australia, New Zealand, South Africa, a lot of supply also going from there to Russia. We're currently building almost around the 6 crore unit per month there and their capacity is almost around 10 crore. So significant capacities are still available there. And we have plant at the people core, which is -- currently utilize around 20%, 25% kind of thing. And another plant, which is FDA -- which was earlier FDA-approved, and it's a [Piparia] plant, which is also in the Silvassa. Their CapEx utilization number is almost around 10%, 15%. So hardly, it's -- currently, it started doing business for Canada. The Canada productions are coming from there. So overall, on formulation side, we have a good amount of capacity, no much of CapEx is required in -- as far as domestic capacities are concerned, we have sufficient capacities at Sikkim last financial year, we have installed some additional machines there to take care of future, for next 2, 3 years kind of production requirement for oral tablets and other things. So we are not really looking for any kind of -- much of CapEx as far as the formulation business are concerned, sufficient capacities are available.

But there could be some kind of debottlenecking, and those may happen maybe in some of the plants. So that may continue to happen. As far as API is concerned, Ratlam practically utilize around 90% or so. We will definitely need the capacities on the API side and we have bought land at Devas, which is in the industrial area. Last quarter, we have bought almost around 25 acres of land. And we added around 7,8 acres of more land in this quarter. So it will be -- almost around 30, 35 acres of land will be there. And the process of environmental clearance is on, hopefully, by June or so, we should be able to get the environment clearance from the government -- because [store] is already issued and those data compilations and everything is happening, presentations are happening. So hopefully, guiding -- the next financial year. But initially, 6, 8 months, it's only -- we are civil constructions and site buildings and probably those kind of capacities would be operating only -- not in 2021, but years thereafter. So next financial year will be -- because we will get only 9 months to set up all those capacities in -- but we may not add any kind of turnover in next financial year, year after, then those KPI capacities would be available. Yes.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [39]

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Okay. And CapEx outlook?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [40]

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CapEx would be close to around -- because the Duhara's facility will be taking up. It depends on how -- when we get the environment clearance. If we get early, then probably CapEx may be around INR 200 crore to INR 250 crore also, on that facility. But if environment clearance is in June or is thereafter, then it will be more of a civil constructions and some kind of thing. So then CapEx will not be there to an extent. But hopefully, around next financial year, around INR 250 crore to INR 300 crore CapEx will be there in next financial year.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [41]

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Okay, okay. And my second question is on the 8 to 10 products that you have talked about that where you have dependence on intermediates from China. So what would be the size of those 8 to 10 products? Is there a percentage?

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

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Normally, we don't talk of each intermediate wise, but the overall business-wise, I can talk -- because a lot of key starting materials come from China. And that dependence is there because practically everything comes from China. So the -- that dependence is there, and we like to release those kind of dependence in time to come and R&D is working currently, and we will this -- Nagpur wardha site will be, one where we will start currently but it's almost around 2 years away. As far as this coronavirus issue is concerned, we have -- currently, the available intermediates with us, which can take care up to April of the next financial year. But supply has to start coming somewhere between mid-march, so that your main production is not hampered. So we are continuously in touch with wherever we could establish contact. So somewhere the production factories were, again, restarted and all. But logistic issues, supply issues, still we have to get the answer. But hopefully, maybe I think maybe around next 15, 20 days, a lot of -- more clarity will emerge on that side. And I don't think so that too much of disturbance will be there as far as supply lines are concerned.

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Operator [43]

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[Operators Instructions) The next question is from the line of Damayanti Kerai from HSBC.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [44]

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Sir, can you update us on the supply of antimalarial products to Global Fund. Earlier you mentioned that we have a purchase commitment of around $900 million from the fund. So how much of that has been supplied so far? And do we have a visibility of supply opportunities with any other agencies or any other bodies?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [45]

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We have never mentioned about $900 million, Damayanti. I never dreamed of that kind of figure on extradition business. So that number may not be the correct one. In current year, we have done institutional business of around INR 127 crore till now as against INR 124 crore in last financial year. There is a growth of 10%. In Q3, we have done business of around INR 48 crore as against INR 39 crore in last year. So around 23% growth is there on institutional side. Yes, Global Funds supplies are regular, our injectable supplies also, we have, I think, orders for up to June, July. So that pipeline is also building up. And hopefully, that's more or less it's going to be a business around INR 15 crore to INR 55 crore each quarter. So next quarter, maybe more or less in that line.

And next financial year because of injectables getting added and whole year production would be there. It can add around the INR 30 crore, INR 40 crore kind of additional turnover. So institutional business, which we are aiming at around INR 175 crore, crore 180 crore in current financial year, may go to around INR 250 crore or so. We are yet to work out budgets and numbers. So I think in first quarter of current year, when we have a conference call, we will give you the exact guidelines on that.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [46]

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Okay. And sir, are we supplying to some other agencies also at this point of time?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [47]

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We have also supplied to around -- a good number of agencies are there. It's not only the -- but the main name is your Global Fund and also U.S. donations to the emerging markets.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [48]

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Okay. Sir, any update on the FDA pending issues for the plants? Anything incremental from last time?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [49]

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It's basically around -- currently, we didn't heard anything from them, but it's a status quo, but we are continuously engaging with them. Yes.

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Operator [50]

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The next question is from the line of Ravi Naredi from Naredi Investments.

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Ravi Naredi, [51]

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Sir, what is the problem about the delayed FDA inspection? Anything you can tell about such thing?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [52]

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As I have said, so currently, it's a status quo that -- after the inspection, we have replied and whatever details were required and all the remedial actions further, required to be done, that is already done, and we are engaging with them on a continuous basis. But currently, I would say that this is status quo because we didn't heard anything from them.

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Ravi Naredi, [53]

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And what about the (inaudible) plant in FDA inspection?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [54]

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We have done all the remedial actions and now it's FDA to decide that which date they will come and when and how. So difficult to say when they will come.

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Operator [55]

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the next question is from the line of Amal Maria from AlfAccurate Advisors.

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Unidentified Analyst, [56]

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Two bookkeeping questions. Number one, on a 9-month basis, your other expenditures, manufacturing and other expenditures, has declined by almost around INR 90 crore. But around INR 13 crore is only the U.S. remedial. So what explains the INR 77 crores additional reduction in the expenditures?

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

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I'll just come on that one. One minute.

If you look at overall numbers, which is appearing on...

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Unidentified Analyst, [58]

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So around 9 months...

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [59]

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It's a 9-month expenditure, last year was around INR 814 crore, and it is INR 843 crore now. So there is no decrease as such. But if you are looking for, let's say, Q2 versus Q3 numbers, Q2 was almost around INR 321 crore as against -- where it's around us INR 274 crore. So that reduction may be on account of largely, if you look at -- there was a onetime cost which are there on -- last quarter was almost around INR 11.5 crore on biotech side. Then your FDA fees and your -- the ANDA maintenance fees that figure was also around INR 10 crore, INR 12 crore overall. And normally, we have a lot of the domestic marketing, your achievers. Although their celebrations and their events in the second quarter of the year. So our travel and other costs were higher by -- in the second quarter by almost around INR 8 crores. So these are the major reasons for the overall, let's say -- we are -- cost on second quarter was higher by almost around INR 221 crore. And if you look at December '19, there was a ForEx gain of almost around INR 28 crore. So that figure is getting depressed figure because it's around INR 230 crore to INR 240 crore. What are -- around INR 28 crore to this result to arrive at the actual expenditure. And this quarter, there's hardly any kind of ForEx, very small number. If you look at the comparable figure, I would say that there is hardly very, very small marginal growth in expenditure on other expenditure sizing.

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Unidentified Analyst, [60]

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Yes. Basically, what I was trying to understand, there is a reduction. So is the reduction like sustainable, both on the other expenditure and the staff cost?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [61]

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No. No, there is no reduction there. Q2 was exceptional. Some kind of figures were there because of the fact Q2 numbers are higher. Because every quarter when we pay the FBSE fees, we are charging too in that particular quarter.

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Unidentified Analyst, [62]

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Sir, I'm talking about 9 months to 9 months?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [63]

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9 months to 9 months is INR 843 crore versus INR 814 crore. So there is no reduction.

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Unidentified Analyst, [64]

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Okay. And in the staff cost, what explain this INR 96 crores on a 9-month basis?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [65]

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Staff cost is overall growing by almost around 12% or so. But if you look at the December number, which was on the December '18 number, which was INR 176 crore compared to that, currently, it's INR 217 crore. Last year, as you will recall that around that time conference call, we said that our budgets were much higher for domestic and our achievements were far less. So a lot of the incentive provisions which were there that got reversed around that time. And therefore, it's not in our normalized number of INR 176 crore. On an average, the number was around INR 190 crore, INR 195 crores. So because of that, it's appearing to be in higher side, and this quarter, this year, appearing -- overall personnel cost growth is appearing to be around INR 24 crore -- 24%. But for the current year, it's going to be remain around 12% to 13% kind of overall number on personnel cost side.

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Operator [66]

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[Operators Instructions) The next question is from the line of Charulata from Dalal & Broacha.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [67]

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Congrats on the good set of numbers. My -- I have 2 questions. One about the breakup of generics, the growth of 39% has come from, yes, has come from Europe. How is the demand and pricing scenario for starters? And my second question relates to the expansion of your Losartan facility.

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [68]

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As far as the generic businesses are concerned, I think in this quarter, we did around INR 191 crore as against INR 139 crore in Q3 last year. And overall -- so there is a growth of almost around 37% in generic business. And 9-months number, if you look at is around generic businesses around -- exceeding distributions. So is INR 495 crore as against INR 403 crore. So there is a growth of around 23%. And if you look at the numbers, Europe has grown in this quarter by around 12%, which is -- a significant growth has come from EU, 32%. And for 9 months also, EU is growing by 37%. And EU, our margins are very comfortable compared, much higher than the overall company EBITDA as far as generic business is concerned. Similar is the case with Australia and New Zealand, we did almost around 46 crore business as against INR 33 crore in last financial year. And overall, in the first 9 months of INR 105 crore as against INR 96 crore.

Canada, we have added significant business in current third quarter, is around INR 26 crore as against INR 8 crore. So -- and overall, in the first 9 months of the current year also is around INR 56 crore versus INR 34 crore, so around 67% kind of growth is there.

And South Africa, first 9 months is around 10% growth. But this quarter, shipments were very high, almost around INR 23 crore business is there as against INR 30 crore that we had last year, so 47% kind of growth is there on that. So generic business is continuously improving. If you see the second quarter of current financial, it was around INR 178 crore, it has grown to around INR 191 crore. First quarter, the generic business was around INR 125 crore. So businesses are -- on generics are continuously improving. As far as the certain prices are concerned, we are in -- some softening is happening. But again, because of this China differences, we are hearing that these prices are again moving up a little bit. So how it overall comes out, it's too early. And maybe I think the whole picture will become clear once China supply chain issues are maybe corrected by April or so that becomes absolutely clear that what kind of supplies are coming. So currently, it will look early to give that what kind of pricing scenario will be there. But generally, we see that, yes, market prices are of intermediates and also on API side has started moving up and by 10%, 15% in the market. So absolutely some cost pressure would be there, yes.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [69]

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Okay. About the Losartan facility?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [70]

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The Losartan facility, there is currently no expansion. It's only the some kind of de-bottlenecking, which is currently happening at one site, but the -- right now, we don't have environmental clearance to expand the capacity currently.

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Operator [71]

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

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [72]

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Congrats on a good set of numbers, sir. Just to understand a little bit more about the pain management side of your formulation -- domestic formulation business. Have we seen any price increase in the 9 months? And I understand, and please correct me that Zerodol brand has actually given a good impetus to overall growth. So have we kind of added any more features to the brand? How do you explain the growth there?

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

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Overall pain management consists of 2 parts. One is rheumatoid arthritis and another is osteoarthritis. So rheumatoid arthritis, we have very significant market share in the market and almost -- most of the product we market, we have the leadership there.

And significant higher compared to -- no competitor is near about us as far as rheumatoid arthritis is concerned. It's also very high kind of productivity division for us. It has been almost around close to [10 lakhs] plus that kind of business per rep per month. So -- and most of the product here is in price control. So there are price rises depending on the -- your wholesale price index. And I think current year there was around 2%, 3.5% kind of price rise there. So that is the only price rise we have done in rheumatoid arthritis kind of segment.

As far as the -- overall company average price rise is around 4%. So there could be little 4%, 4.5% maybe in the other category as far as your Osteoarthritis segment is concerned. And there, the major branch is Zerodol which is there. And Zerodol is purely a business is on the focus on the brand. The division has only 2 brands to promote. And they are continuously focusing on Zerodol. And it's a long way to grow. We will be able to continuously out beat and we'll be able to show the kind of growth which we currently have of almost around 19%, 20% and -- for a long time.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [74]

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Sir, that's very interesting. But sir, is it fair to understand that we are able to grow pain management largely because we have made it from a let's say, acute therapy, via a chronic (inaudible) osteoarthritis something like that. Is that a fair understanding or -- because what I'm perplexed is that there are so many brands in the pain management that is, looking at it, they're not a new molecule. So what is the solution about advanced category, which has grown in the past?

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

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The advantage here is basically -- it doesn't create that kind of acidity because with every 10 product doctor prescribes your -- all Proton-pump inhibitor. This brand doesn't require any kind of co-prescription of Proton-pump. So overall treatment cost for the patient is also low. And he doesn't have discomfort of acidity. And we have a number of -- a good amount of clinical work, which we have done in India. And that's the concept we are continuously selling.

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Operator [76]

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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 [77]

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Sir, what is the remedial cost for the 9 months? And what are we expecting for the current year and for the full year next year?

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

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The current year is around -- up to 9 months is around INR 13 crore. This quarter, we have spent around INR 2.5 crore. And I think for the whole year here, it's maybe around INR 16 crore, INR 17 crore number, which is overall, for the whole of the year will be there. And next year, I think these numbers will again come down from these levels.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [79]

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Okay. So should we factor around INR 5 odd crores, INR 5 crore to INR 10 crores, sir?

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

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I think that it's insignificant compared to the size of our company. Yes.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [81]

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Okay. And sir, could you please share how much you did in EU for the 9 months and on the branded segment for the 9 month figures, sir?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [82]

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Okay. EU, 9 months is around INR 245 crore as against INR 193 crore in 9 months last year, so 27% kind of growth. And on branded side, 9 months business is around INR 305 crores as against INR 266 crore. So around 14% kind of growth in branded.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [83]

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Okay. What is CIS and the other key geographies, sir, there?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [84]

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CIS has grown by around 18%. West Africa by around

41% and LatAm by around 3%, 4%. And similarly, the growth in Southeast Asia is around 4%, 5%, yes.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [85]

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4% to 5%. So could I have the numbers for at least for CIS?

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Ajit Kumar Bhanwarlal Jain, Ipca Laboratories Limited - CFO, Joint MD & Executive Director [86]

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CIS is INR 144 crores as against INR 121 crore.

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Operator [87]

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Thank you. As there are no further questions, I would now like to 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 [88]

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I think overall, we feel that, yes, whatever business trend which is there will continue, and we are continuously committed to resolving the issue with U.S. and currently, we are not factoring any number in our projections on that, but our -- U.S. is a large market, and we never would like to ignore that. And we are continuously working to resolve that issues.

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Operator [89]

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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.