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Edited Transcript of NATCOPHARM.NSE earnings conference call or presentation 9-Aug-19 10:00am GMT

Q1 2020 Natco Pharma Ltd Earnings Call

Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Natco Pharma Ltd earnings conference call or presentation Friday, August 9, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Rajeev Nannapaneni

NATCO Pharma Limited - Vice Chairman & CEO

* Rajesh Chebiyam

NATCO Pharma Limited - VP of Acquisitions, Institutional Investor Management & Corporate Communications

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Conference Call Participants

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* Deepak Malik

Edelweiss Securities Ltd., Research Division - Analyst

* Kunal Randeria

Antique Stockbroking Ltd., Research Division - Research Analyst

* Nimish Nagindas Mehta

Research Delta Advisors, Research Division - Research Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Ravindra R. Dharamshi

Valuequest Investment Advisors Private Limited - Founder & CIO

* Sameer Shah

Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management

* Srihari Chintalapudy

PCS Securities Ltd., Research Division - Equity Fundamental Analyst

* Sriraam Rathi

ICICI Securities Limited, Research Division - Research Analyst

* Suraj Subramaniam;Airavat Capital Advisors LLP;Co-Founder & Managing Partner

* Tanush Mehta

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

* Vishal Manchanda

Nirmal Bang Securities Pvt. Ltd., 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 NATCO Pharma Limited Q1 FY '20 earnings conference call hosted by Edelweiss Securities Ltd. (Operator Instructions) I would now like to hand the conference over to Mr. Deepak Malik from Edelweiss Securities Ltd. Thank you, and over to you, sir.

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Deepak Malik, Edelweiss Securities Ltd., Research Division - Analyst [2]

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Thank you, and good evening, everyone. On behalf of Edelweiss, I welcome you all for NATCO Pharma's First Quarter FY '20 earnings call. Today, we have with us the senior management of the company represented by Mr. Rajeev Nannapaneni, Vice Chairman and CEO; and Mr. Rajesh Chebiyam, Vice President, Acquisitions, Institutional Investor Management and Corporate Communications.

I would like to hand over the conference to Mr. Rajesh for the opening remarks. Over to you, Rajesh.

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Rajesh Chebiyam, NATCO Pharma Limited - VP of Acquisitions, Institutional Investor Management & Corporate Communications [3]

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Sure. Thank you, Deepak. Again, welcome, everyone, to NATCO's conference call discussing our earnings for the first quarter FY '20, which ended June 30, 2019.

Standard disclaimer. During this call, we may be making certain forward-looking statements, which are predictions, projections, statements about future events. Because forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements.

And we also state that the material in the call, with the exception of the participants' questions, is the property of NATCO and cannot be recorded or rebroadcast without NATCO's expressed written permission.

Regarding the earnings details, NATCO has recorded consolidated total revenue of INR 513 crores for the first quarter, which ended 30 June 2019. This is against INR 574 crores for the same period last year, reflecting a decline of about 10.6%. The net profit for the period on a consolidated basis was about INR 143 crores as against INR 181 crores same period last year, also showing a decline of

(technical difficulty)

percent.

Despite this periodic decline in profitability, the company remains confident on its outlook for the year and beyond. However, the amount of about INR 47 crores that was received as an upside sharing incentive from our investor CX securities, which is recognized as an increase in equity and not considered as an income in the P&L as for the applicable accounting framework. Okay.

We've also shared the segmental breakdown, and we'll take questions now and to clarify any of those information that we supplied. Thanks.

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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 Ravi Dharamshi from Valuequest Investment Advisors.

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Ravindra R. Dharamshi, Valuequest Investment Advisors Private Limited - Founder & CIO [2]

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Congratulations on clearing the USFDA inspection at Kothur. Just wanted to check, was that a product-specific inspection? And does that mean that now Revlimid approval should be around the corner?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [3]

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That was general inspection. And development, we have answered all the queries. So we're hopeful, I think, we've answered everything else, some minor questions. I think we're in the last round really. I think my sense is that we should get -- the approval is imminent. I think, in the next few months, we're expecting the approval.

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Ravindra R. Dharamshi, Valuequest Investment Advisors Private Limited - Founder & CIO [4]

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Right. And this quarter, we had a substantial decline in the domestic business. If you can just proclaim the reasons, what happened exactly?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [5]

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Just give me a moment, Ravi. So domestic decline is timely driven by -- because of the hep C portfolio. We compare the hep C portfolio -- let's see, give me 1 minute. If you take a sequential -- if you take a year-on-year calculation, Q1 of last year, we reached INR 74 crores in the hep C portfolio. Now it declined to INR 31 crores. That explains why there is substantial drop if you take a year-to-year comparison. And sequentially also, and this has dropped from INR 42 crores to INR 31 crores, okay, compared from hep C. So -- and then some general stock adjustments. So basically, on the onco side, we had some old receivables -- some receivables that starts from this or a little difficult about waiting for the payments. We'll just clear 2 things up. Otherwise, it's been a slight drop; and otherwise, the business is doing well.

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Ravindra R. Dharamshi, Valuequest Investment Advisors Private Limited - Founder & CIO [6]

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Last question on Copaxone. Since we have substantially -- I mean, Mylan has substantially improved the market share from 17%, 18% to now close to 33%. So are we actually seeing higher revenue and margins as compared to those levels because there has been a substantial price drop as well? So just wanted to understand, has our revenue and profit pool grown because of this? Or has it remained stagnant? Or is it down?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [7]

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We have done better than what we have done, Ravi. I think when you look at the earnings, these previous years, the core earnings were substantially driven by flu. And this is the first year -- I mean the first quarter where we just don't have any flu at all. So in the last few quarters especially, we have no flu. In spite of the fact that we have lost something that was making supernormal profit, we're able to replace significant part of it not only with Copaxone but also the other niche launches that we have in the U.S. So I think short answer is, yes, I think we have -- Copaxone has done well but also the other portfolio also had done well.

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Operator [8]

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The next question is from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [9]

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Sir, on the first statement you made, Kothur general inspection, so it, what I understand, has nothing to do with the Revlimid approval, right? I mean -- so Revlimid had it -- some issues around -- or some requirements by the FDA, which you are on the works. Is that right understanding?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [10]

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So it's -- the question was specific. Was there a product that they wanted to ask for? No, that was not the product that they asked for.

And the second question was whether -- are there any -- the pending -- the approvals pending. So I said it to the last bit of questions that we got. I think it was very simple query that we answered. Okay?

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [11]

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Okay. No, on the Revlimid, sir, then what exactly is pending from our side? And what gives us confidence, by next few months, we should get Revlimid approval?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [12]

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Well, there were a couple of Revlimid questions we had and one minor label question we had. So otherwise, I think we are home. I think -- we think we'll get it in the next few months. I think, otherwise, all the substantial queries on the ANDA have been answered. These are only last 2, 3 smaller queries were there. I don't normally agree, but yes, they were just all very minor queries. So I think we should be home. I think in the next few months, we are expecting to get the approval.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [13]

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Understood. And sir, on the gross margin front and EBITDA margin front substantially, especially EBITDA margin improved quarter-on-quarter and gross margin's also very healthy, so -- and this is despite the India business going down. So what should we understand, like export formulations, profitability has improved?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [14]

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There's couple of things which have done well. I think we had 2, 3 good things have happened. One is Copaxone numbers have contributed more because there...

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [15]

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Quarter-on-quarter?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [16]

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Yes, because sometimes we just give more raw material to them; and then sometimes, your profit tends to be higher. Then you have less than 1 quarter. So the cash flow was -- I think we had good cash flow from Copaxone this quarter. The second thing was we benefited from some very good domestic launches. In spite of the fact that we lost hep C., we launched 2, 3 good products in domestic. And I think both of them are in public domain. One product that we launched was apixaban, which is the international brand name called Eliquis. And another one, we launched for the (inaudible) as well. So -- and we sold some products in June. So that also has helped.

And we are the first generic on both of these products in the India market. And we have challenged the patent. We got [injuncted] but fortunately, we could undo the injunction and (inaudible). So I think -- domestic and the U.S. Copaxone business were probably the reasons why the EBITDA is higher.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [17]

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Understood. And sir, lastly on the SG&A side, if we see -- I mean the number has come off quarter-on-quarter. So is there a cost optimization program we are doing? The Q1, normally spends are a little higher, right?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [18]

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As a company, we are doing some cost optimization. You've seen that the business is -- as a generic business, we are all going through some very difficult time. I mean, fortunately, we're able to hold up. But however, I think the SG&A expenditure itself, I mean it depends on the issue. I think it's not -- we're not -- what do you call it? We have a very expensive [bio sales], and they get expensed in 1 particular quarter. So I don't think there's any -- but let's say, sales expenses. I think it's fairly, I mean, in line with what we are doing until now.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [19]

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Normalize, I mean, there is no cost-saving initiative, optimization initiative.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [20]

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We're doing some initiatives. I'm not saying we are not doing initiatives. But I -- there's nothing -- I mean if you -- if you ask us specifically is there anything that comes to our mind, nothing comes to our mind I think. And I've just given you a general commentary on how expenses are. I mean sometimes -- you made a point that Q1 should have lower than the other quarters. It doesn't work like that. [If you have bio study and then get it done 7 times], then you have expenses more in a particular quarter. So it's -- but we are doing general cost optimization. Yes, we've done some rationalization of the basket, but nothing that's doesn't dissolve any of our largest term goals clearly.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [21]

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Okay. And are we seeing some -- the niche filings as we speak, I mean you maintained that we usually do 5 to 7 filing orders, [1 2 2 1] niche.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [22]

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We'll do them. I think we are expecting to do them in the next few weeks. I'll -- once we do them, we'll make an announcement. I think our strategy, we always try to pull out something -- we look at all niche filings, hard to do filings and where our strategy continues in that direction, R&D expenditures in that direction, and we are sticking to that strategy.

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Operator [23]

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The next question is from the line of Sriraam Rathi from ICICI Securities.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [24]

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Basically, one thing I want to know. How much was the domestic oncology sales this quarter?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [25]

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The total domestic sales, I think Rajesh will answer that. What is the total sale Rajesh in [domestic]?

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Rajesh Chebiyam, NATCO Pharma Limited - VP of Acquisitions, Institutional Investor Management & Corporate Communications [26]

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Yes. The total domestic that we have is about INR 164 crores for the quarter. And Sriraam, oncology is about INR 80 crores. And the non-onco brand pharma, which we talk -- as Rajeev alluded to earlier, was about INR 31 crores. And CnD did about INR 30 crores. Third party did INR 23 crores.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [27]

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Okay. CnD is INR 30 crores.

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Rajesh Chebiyam, NATCO Pharma Limited - VP of Acquisitions, Institutional Investor Management & Corporate Communications [28]

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Yes.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [29]

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Okay. Okay. Perfect. Got it. And one thing [that] in Q4, it was mentioned that some profit share has been deferred, which was not recognized in Q4 because of certain reasons. So has that been recognized in this quarter? Or it is...

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [30]

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They are very small amount, Sriraam, nothing large, nothing large.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [31]

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Oh, they're very small.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [32]

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Yes, yes.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [33]

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Okay. Okay. Perfect. And lastly, on the SG&A cost last -- I mean is there see any benefit of Ind AS 116, which has resulted in lower SG&A this quarter?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [34]

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I have no idea, Sriraam. It's a question I don't know. I'll check with my CFO. I can't answer that question. I'm not aware.

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Operator [35]

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

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [36]

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So Rajeev, firstly on the domestic oncology, so I mean I think there's a sharp decline year-on-year. So is there any particular reason behind it? Are we seeing a slowdown in this business?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [37]

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Not really, one brand has slowed a bit, but otherwise, this portfolio is doing well. We had some adjustments because we had some long-pending receivables from a few distributors. So we held up billing. I just want to clear things up. So we did some, what we call, holding of, what I call, billing so that we can clear up some outstanding [dollars. These outstanding I think will dissolve]. And that's the reason we -- it has dropped slightly. But overall, the business is doing well. I'm confident that the oncology will grow as we projected. I don't see an issue. It's just like a onetime trade issue. Otherwise, it's -- I don't think it's an impact in the slowdown.

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [38]

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That's right. Secondly, Rajeev what's happening in the Copaxone market? Are you seeing more price erosion there? Because there are so sharp quarter-on-quarter increase in Copaxone sales, and you also mentioned that they're increasing rebates to hold onto their market share. So just wondering, is there any more pricing pressure here?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [39]

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I mean the pressure is there. I mean I'm not going to lay -- lately I've not gotten an update from Mylan. But I think there's -- obviously, there's been pressure. And I think we have got higher market share, so obviously, maybe that's -- there was commentary probably revolving around that. I don't have an update to speak about, but I think based on our -- what our [contractual margin], I think things are looking good. I think Copaxone is doing well. And I think we should do well this year.

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [40]

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Okay. Can you put a number -- is it more than 70%, more than 75%?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [41]

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Top of my head, I don't know. I can't answer that question. For competitive reasons, we generally don't give away what's happening. But if it is a general commentary available, I'll probably speak about it, but I don't want to give you a specific number that is what the erosion is. I don't want to answer the question.

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [42]

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Right, right. And my last question before I get back. Does your guidance for the year bake in competition to Doxil and FOSALAN?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [43]

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See, guidance is based on certain assumptions we have made. Actually, we've been conservative that we'll launch the competition in all 3 of them. So I think that's the assumption that we made on the year. Again, the assumptions are all in really how the year ends, but I can't really tell anything else. [Without this skill set], we only make optimistic statements based on the assumptions. It doesn't mean that everything that we play out will play out because of -- there are hundreds of other factors at play. But to answer your question, yes, I've assumed less competition on these items. I have not assumed for the competitive launches.

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Operator [44]

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The next question is from the line of Sameer Shah from Valuequest.

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [45]

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These international subsidiaries, I think in Q1, there is a loss. So if you can give some color on what are the launches expected and whether we expect to break even in this year.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [46]

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The international subsidiaries themselves, all of them together, did about INR 28 crores. We lost [about] INR 4 crores, INR 4.5 crores. I think things are turning around. I think as -- if you remove the R&D expenditure for [some of it], I think we're breaking even all the spots. I think we'll get some extra [lot of bio studies], which were expensed in the balance sheet. That's the reason why we are having an operational loss.

Overall, I'm happy with how the subs are going. I think we want to reach a stage where we make enough surplus even in spite of expensing our R&D, R&D like samples and bio cell, we should be still making money. So not reached that stage of the subs yet. But our commitment to sort of build our RoW business is there, and we believe that this business will become substantially larger over a period of time. So we continue to invest, and we're very optimistic. And I think we'll see some value in the next few months in -- from this also.

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Sameer Shah, Valuequest Investment Advisors Private Limited - Director of Research & Portfolio Management [47]

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Okay. And any update on the agrochem side?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [48]

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Agro is going well. I think the facilities are getting ready. So the facilities should be ready by end of the year. So -- and I think, again, it's early stage now. So I think I don't want to say anything about where we will get revenue from agro, but doing well. As I said, we need about 2, 3 years' time to give you some perspective and to make substantial contribution in agro. But as of now, it's doing well. I'm happy with -- we have a good [stellar] products and its formula.

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Operator [49]

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The next question is from the line of Rohan Gandhi from [Nesti Only].

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Unidentified Analyst, [50]

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(inaudible) I have couple of questions. One on the dependence on the U.S. market. So what other markets we're looking apart from U.S.? And the second question is on the scientist count. You have significantly increased your scientist count from 271 to 442. Sir, any ballpark number for FY '20? How may additions of scientists you will be doing in the current year?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [51]

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I'll start with the second question. I don't think we want to -- we want to see the employee base at the same number that we are. I think we have also been having a program where we can rationalize our employee headcount and also get a fix on the expenses. I don't see a substantial increase in the scientist count.

The other question was our contribution from the U.S. market. I mean we have been trying very hard to diversify from the U.S. market. We've been stating that the last 1.5, 2 years. I think if you've seen our segmental revenue mix, you'll see that nearly INR 200 crores comes from U.S. and export formulation. So our U.S. contribution today, my sense is about 35%, so 35% to 36%. So we would like to bring that down. Clearly, I think we'd like to bring it down. If the question is how much is it contributing, it is contributing that much. I think it's at a good healthy ratio. I think now API has done really well. It has represented 15%, 16%. The domestic formulation is also doing well. So foreign subsidiaries are also doing well. We are actually diversifying. And so I think, over a period of next 2 years, I think you'll see the benefit of the diversification.

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Operator [52]

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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 [53]

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Yes. Most of the questions have been answered. Just [to represent better] for the R&D expense this quarter (inaudible) on the guidance.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [54]

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R&D expenses for the year, you are saying? Just typically like...

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [55]

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Total, on a quarter and yes, [for the year].

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [56]

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Quarter [supplemental], I've not come prepared, Nimish. But roughly, during the year, we spent about 6% to 8%. Last year was a little higher than that, just over 9%, but the target was around 8% -- 6% to 8%.

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Operator [57]

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The next question is from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [58]

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Yes. So Rajeev, you mentioned that the CnD revenues were INR 30 crores for the quarter, the domestic business. Is this now a sustainable run rate for the business? Or there is an element of channel stocking or product launches happening?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [59]

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It's a bit of both. Yes. It's not -- it's a bit of both.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [60]

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So I mean, as we stand now, with the position that you have on this business, how should we look at the business for the year?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [61]

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The segment should do well. We have other launches we have planned during the year. The segment should do extremely well. I don't want to say any number or give you ideas about which product because a lot of them are [niches] as we know, right? So we don't want to give away our strategy. But I think, as I said, we maintain the [1, 1.5] years this is the area that we want to focus. I mean we had couple of good successes in the last couple of months. So I think I'm looking good. I mean, for example, we won a case yesterday. We have not launched the product, but we won the case. It was a product called BRILINTA, called ticagrelor. That is the name of this product. So we got injunction last year on this. So yesterday, we got the judgment. We won the case.

But the judge has given them 1 week for appealing to get a case. So I think that 1 week is ongoing right now. In about a week, we will know whether we have a good position, so we can launch the product in the States. So this way, we're getting victory. Slowly, I think we're getting breakthroughs. It would be a good launch again. So I'm very bullish about domestic, and I think we have a good pipeline and I think should do well.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [62]

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And secondly, on the oncology business, what were the external write-offs you took this quarter?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [63]

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Oncology business, we took a write-off? No, we didn't take a write-off. We took a...

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [64]

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Bad debts [and all lead] that you've provisioned off.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [65]

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Some small amounts, we have provisioned. I think we had some [sale levers] which we took -- I think that will be reflected in the hep C sale that has been what we call this is a substantial drop in the sales in hep C. and I think we already spoke about. But otherwise, here, all normal course of business with write-offs. We have some inventory that is writing -- every year we write off -- every quarter we write off, so it's fairly standard stuff.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [66]

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And secondly, on the U.S. revenues. Now is it fair -- is it -- this -- whatever profit share that you book in Copaxone this quarter reflects essentially pretty much the full impact of the current market share? Or there is probably some more catching up in the market in your assessment?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [67]

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No, I think it reflects more or less, I think, how well we're doing.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [68]

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Okay. And lastly, I think we just got disconnected when you were discussing. And maybe what's the progress on Brazil and Canada?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [69]

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Brazil is doing well. I think Canada is also doing well. I think I brought it up when the other gentleman asked me. I think we did nearly INR 30 crores in the subs, and I think it's doing well. We have some very good launches planned up in the next few years -- in a few months rather and few years.

And I was saying that at the operation level, all these subs are making money except for the R&D expenditure that we're incurring -- which we're expensing. Otherwise, the subs -- operational wise, we're making money. And I think our objective is that we reach a scale of surplus where we are able to expense the R&D and still be substantially profitable. So I'll be very close to [expense these things]. It's going to happen in the next 12 months for sure.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [70]

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And lastly, any -- what is the outlook for any incremental launch in the U.S. this year?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [71]

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These launches in the U.S., we have some smaller launches. I think we did -- Nitroglycerin, we launched. We launched with one part, and we launched tetrabenazine. But we launched Glivec a few months ago. But there's nothing exciting. Listen, I mean they're all fairly competitive in the United States. It's very difficult to say that we have had a big launch. So I don't have anything big. I mean we have erlotinib coming up in November. So again, I'm -- I feel I'll be very competitive.

I mean I -- I mean we've spoke about this many times in the past. U.S., where there many generics, it's a tough market to do. Only if you have something unique or special, where you have -- there's a technology advantage or you're like the only one there for some reason because of a patent position or a supply situation; otherwise, it's very difficult to make money in the U.S. And that's still the main policy, still continues happening.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [72]

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And essentially, my last one. I wondered, that quarter number that you've done for this quarter, I mean is there any element of one-offs? This largely should be recurring base numbers as they are, right, assuming no more competition comes in any of the incremental products, in your current products in the U.S.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [73]

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But we also come out with new -- we'll have some new launches in domestic soon. And then there's always pressure all the time (inaudible). We can't say that there will not be pressure in the future. There's a base business for now. I think all your special items like flu and all has gone. So I think -- so that answers that part of the question. But see, to say that this business will not see any further decline is unfair. We always see some competition, but I think we'll definitely substantiate, whatever you lose on something, you make it up with a new domestic launch or a new launch in RoW. But we are -- I think, this looks like a fairly comfortable run rate. Yes, that should be accurate.

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Operator [74]

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The next question is from the line of Vishal Manchanda from Nirmal Bang.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [75]

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With regard to your launches in the domestic market, like apixaban and the other one is rivaroxaban, right?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [76]

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No, no (inaudible) rivaroxaban.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [77]

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Rivaroxaban. And so you are the only one marketing these products among the Indian companies? Or there will be other Indian companies, too?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [78]

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There will definitely come. But as of today, yes, we're the only one. As of now, if you ask me the question right now, yes.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [79]

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So are [these exclusive] patents in India? Or the patents have expired for these?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [80]

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We have taken -- I mean these cases are pending in the court. We have challenged the patent.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [81]

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You challenged the patent. (inaudible) on these. They will apply corrections.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [82]

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There's a pending litigation against it. And as of today, we don't have [listing] on marketing this time.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [83]

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And when did these launches happen? Kind of have you been able to ramp up to some respectable numbers?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [84]

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We launched them in June.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [85]

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Okay. So there are very recent launches, so the numbers will not be reflecting.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [86]

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As Nitin mentioned, there is some channel stocking. So we just launched, and we're thinking. So we'll see how it plays out. But good news is that we are the first generic. Like in everything and in any business, being the first generic makes a lot of difference. So -- and we're doing well. And these are all very good molecules. So we are happy with these launches.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [87]

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Okay. And just one more on China. Lately, there's a [news] that China had published their (inaudible). Copaxone was one of those they applied on the firm]. So how does this -- so can you like -- what could be the timeline which you want to launch Copaxone in China?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [88]

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We're working with Mylan on this. I think we're working with Mylan on this. We'll come up with a strategy very soon. We are working with Mylan.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [89]

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Okay. And -- but would you need to a trial here since (inaudible)? Will this require [advisories] trial? Or it can happen with the U.S. data alone?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [90]

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Good question. I have no answer. I think -- let me -- let's do the filing and -- I think I can't answer that question really. Let's go through the process, and I'll have -- we'll have some idea what goes on. But I'll give you a general view. I think I understand that for certain products, there are [the given basis] in China.

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Operator [91]

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The next question is from the line of Tanush Mehta from Dalal & Broacha.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [92]

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Sir, I had a question that now with Mylan and Pfizer's generic business coming up together, are there any change in your agreement terms? Or are you having any changes with the way things are going under the Mylan merger now?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [93]

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No, I don't think there will be any change. I think I don't see any challenge. I think the same -- more or less the same management team is going to continue for what I've seen. And I think our relationships are -- the agreement protects us from any issues in the event of a merger. But I don't see any events, but that's a very complementing merger. I don't think there will be conflict between our portfolio and Pfizer's portfolio. So I think we're -- this time, it's business as usual. I don't see any changes.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [94]

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Okay. Sir, next, I wanted to ask that you have around 20-odd products in your Para IV filings, which are of high potential. So which of those you find having benefits in the U.S. market? Because still, I guess, some of them we are yet to have approvals and some of them are still patented right now. So we actually don't know when we'll able to give them (inaudible).

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [95]

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If I would -- I'll give you -- I mean, again, obviously, we have multiple filings, but all filings are not as valuable as they are -- all of them are not equally valuable as you understand because some of them are shared exclusivity. If you were to ask the arrangement of filings, I mean I would say Revlimid is one. Imbruvica would be my #2. Sorafenib, would be #3. Everolimus would be up there. And then we have lapatinib is up there. I'm talking about numbers, which are substantial, not small numbers. And carfilzomib, we have exclusivity one particular [strength]. So that's a reasonably good filing. We have a settlement with that as well. But if you were to say the [arrangement] of filings, these are my filing in the next few years. These are my top fillings.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [96]

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Just understanding the way you just said, sir, we can assume them, some of them coming soon and towards financial like in the next 2, 3 years.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [97]

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Yes, I think some of them are expected to come the next 2, 3 years and some are -- I think we have already. But yes, most of them are in the next 2 to 3 years overall.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [98]

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And do we expect any one of them to be first to file or...

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [99]

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They are first to file. That's what I'm trying to tell you. They are first to file. What I've mentioned to you are sole first to files, so sole -- expect for, what do you call, (inaudible) is shared. And (inaudible) is not first to file but relatively less competition. And carfil [one strength] is first to file. Otherwise, all of them are sole first to file.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [100]

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Okay. And all the other questions have been answered. So just another clarification. So you said that the [topping] that we've done in this quarter would rationally be the base for the coming quarter as well.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [101]

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I had a caveat. I think we are broadly here. But again, a lot of things can change over a period of time because we would see competition on some of our niche items and some products. So we always try to launch new products that are domestic and RoW portfolio or other launches in other business that we're attracted to. We'll try to -- but for now this is a base, yes. I think, yes, that's it.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [102]

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Sir, I just had one last question. Sir, are you seeing any competition from Genosity because they've recently reached around 4,000 plus branches in a very short span of time. So are we seeing any competition from them in terms of price erosion?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [103]

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No, Genosity don't affect our business at all because the base of our business is very different. It's a very specialty doctor and niche segment. Genosity in fact has absolutely no impact. [Naropali], I think we have an FTF on also but (inaudible) suspension, 32 milligram (inaudible).

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Operator [104]

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The next question is from the line of Suraj Subramaniam from Airavat Capital.

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Suraj Subramaniam;Airavat Capital Advisors LLP;Co-Founder & Managing Partner, [105]

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Rajeev, obviously, you guys have done a fantastic job of cracking blockbusters, Tamiflu, Copaxone. You just outlined a few products that are coming up. And as I juxtapose this with the fact that U.S. also got more competitive. As you said before, where there are 4, 5 players, not much money to be made. At both first and present levels, how do you see the next decade? Is it -- is the difficulty level of cracking more of these blockbusters going to get higher? At some point, is [one sort of] opportunity set versus your own R&D, sales. And how do you philosophically sort of think about the long-range opportunity in the U.S.?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [106]

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I just -- I don't -- I'm still bullish about our generics business. I'm not one of those who feel that it's actually a bad business. I feel that you need to be very careful on where you spend your R&D money. I think you need to go after really hard to do generics, difficult to do generics. I think you alluded to the point of Copaxone that it took about 8 years for the outcome to happen. You need to have patience with things to happen, and really good things take 5 to 7 years. And I think you need to have perspective that I'm willing to do something and forget about and wait 7, 8 years for things. If you do that set of products, I think there are enough opportunities. And as long as you're in the first day of launch or you're the only one, there's enough money to be made. And when you do special launches like this, if you get like 2, 3 big ones and 4 medium ones right, your whole decade is taken care of. You don't have to deliver like hundred [islands]. We delivered 10 really smart products. I think [we are better this way].

This is my philosophy, and everybody might not subscribe to what I said. But this is my philosophy. I think I've outlined, let's say, the gentleman asked me what are your top 6 fillings or 7 fillings. I've listed all my top 6 filings. And I'll be very happy if I deliver -- if I can double the list, I think the decade is done.

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Suraj Subramaniam;Airavat Capital Advisors LLP;Co-Founder & Managing Partner, [107]

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Understood. And just one follow-up. What did you do better than your competitors in your view?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [108]

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You think I'm doing better than my competitors?

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Suraj Subramaniam;Airavat Capital Advisors LLP;Co-Founder & Managing Partner, [109]

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I think you've delivered relative to your size cracking some of this. So just when you look at the playfield, when you're picking molecules, how do you size up competition? How do you -- what do you think you guys are doing differently from the others?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [110]

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No, I don't think we're doing anything differently. I think we do substantially same things what the others are. I think there's not much difference between any of us in terms of skill set. I think what you've heard, I would say about NATCO and others is the fact that we only do this. I don't spoil my head with trying to do -- I don't believe -- I mean, again, it's my personal view. Again, different things work for different people. I don't believe in this whole concept of base business of doing things at very low margin because I think it takes a lot of time and your resources and in the end, takes you away from the larger picture. And I generally don't like doing things which are commodities. So I think that's probably the biggest difference. So that allows us to focus on only the niche items.

Because I focus only on niche items, we come up looking that we're getting all of them back. But if you look at any of the competitors, they have -- everybody has a philosophy of doing 5 niche items, [5 me toos] and 5 commodities. And so you know what I mean. Then we put up a little bit.

So [this has driven us and the others]. I don't do anything below. I only do -- I only keep to the top. That's all, which also creates a challenge because it doesn't bring predictability of revenue, right? So I think that's -- but that's risk that we take, and that's the difference between others.

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Operator [111]

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The next question is from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [112]

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Yes. Couple of clarifications. One is on the Copaxone. Somebody mentioned 33% market share. I think Bloomberg's showing 28%. What would be the correct number, sir?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [113]

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Around that 33% number, but really, I can't tell. But about -- based on my -- what supply commitment, it's around that region. I think it depends on how you measure. I think there's one measure when people say all the new prescriptions are getting X higher this much, then that number tends to be higher. But you take the whole market, then it tends to bring on the lower side. So in that region, I suspect. (inaudible)

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [114]

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And on oncology, what I understood was there is a onetime inventory correction, and we should be back on track for the 15% kind of growth, which you've been doing in the past. Would that be fair to assume going ahead?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [115]

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I think so. I think we have some very good launches. Yes, I feel confident that we're able to do it, yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [116]

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Okay. And the CnD, you said there is a mix of both, right? I mean this number might not be sustainable. Is there some stocking already given the launch that you plan?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [117]

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Yes, absolutely. Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [118]

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Perfect. And so just on oncology, again, wanted to understand, would -- could there be an impact given there's been change of trade margins, there's been caps? So there can be some readjustment there. Would that be the right way to think?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [119]

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It has not substantially affected us. I think what has happened is, as you know, that, few months ago, they have reduced some margins on the trade. But they are [selling on the] function of the billing price. Let's say your billing price was X but then [your current] trade margin is greater than, let's say, 35% of that, so to speak. There is an impact but not substantially. It's been all right. We're able to deal with it.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [120]

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Okay. And lastly, sir, I mean, obviously, hep C, you explained a number of times that the new number of patients won't come. But to look at this number, which is also declining Q-on-Q now, when do we see the rest in decline? When do we see this INR 30 crore or INR 20 crore number kind of stabilizing? Or is it a structural down cycle for this kind of business?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [121]

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It's a little bit of both. I think we had some expiries and some returns that we had. Problems of selling these products is because it's cure, right? You don't really know when you actually get your plateau. And we're trying to open up new markets in exports, so maybe the revenue might stabilize.

But honestly, no, I'm not [into that]. I think my sense is if we do about INR 150 crores, INR 170 crores, I'll be very happy with it. Just I can only give you a range for it. I mean we hope to do INR 150 crore, INR 160 crore, but we might end up with INR 120 crore, INR 130 crore. So we don't know what to expect. It's very hard to tell. So -- but that's the nature of the beast.

I mean it is very unusual molecule. It's not like the -- not as predictable as regular business, you know what I mean, because this all -- in regular, onco and cardio and all that, always recurring business because of all the new diagnoses happening, right? [Any view], somebody's falling off, you always get mutations. It doesn't happen here because of the complete cures for instance, strictly [comparable].

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [122]

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Okay. And sir, lastly on the CapEx, on the cash position that we have.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [123]

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The cash position, I think, Rajesh will update you. You have to speak with him. Just give him 1 minute because he's pulling up.

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Rajesh Chebiyam, NATCO Pharma Limited - VP of Acquisitions, Institutional Investor Management & Corporate Communications [124]

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Yes. Total cash and cash equivalent, about level INR 1,100 crores, Prakash. And [net still] is about INR 289 crore, but foreign [bill] discounting if you take out INR 50 crores off that. Okay.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [125]

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And what was last question now? The CapEx...

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [126]

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CapEx, sir, CapEx for the quarter and for the year planned.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [127]

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INR 60 crores was what we've spent for the quarter.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [128]

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INR 50 crores?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [129]

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INR 60 crores.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [130]

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Okay, INR 60 crores. We plan to do how much for the year, sir?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [131]

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About INR 375 crores to INR 400 crores is what we have planned.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [132]

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Okay. And this is INR 100 crores for the agri, 1 for the VALSAC plant?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [133]

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I think [next up], I -- agri is about INR 100 crore, yes. [And what was the one you've asked]?

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [134]

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VALSAC plant?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [135]

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VALSAC is almost (inaudible) [INR 15 crores, 20 crores] is for VALSAC.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [136]

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So where we are planning remaining, sir, [INR 200 crore]?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [137]

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(inaudible) we're doing in -- one, we're completing our oncology expansion in the Kothur city because we've seen substantial take up on oncology. And we're also preparing for Revlimid launch in Kothur. So we've spent on CapEx there. And our [API plant], that also is substantial. And we're also expanding our (inaudible) line in Kothur because that also has done extremely well for us. So we're building another line, so that line is also getting ready. And so that's pretty much it. And then -- so now we're also doing our API [low] type of application. General maintenance CapEx and general CapEx just to maintain all the orders, we'll be expecting in the next 3 years.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [138]

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Maintenance would be how much, sir, you said?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [139]

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No, this -- that CapEx includes maintenance CapEx and address the opportunities in the next 3 financial years that we are anticipating for launch. It's a combination of our [next launches].

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [140]

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Okay. Understood. And 5 to 7 filings is what we usually plan yearly, right?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [141]

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Yes, we are on track.

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Operator [142]

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The next question is from the line of [Rajesh Kathir], an individual investor.

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Unidentified Participant, [143]

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I had 3 questions. First question is on the incentive of INR 48 crores, which you received from CX securities. What kind of arrangement was it with CX securities? And was it disclosed to shareholders at the time of entering into agreements? Because I could not find any such disclosure in the year of [2018].

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [144]

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So what we've done there [as I told] we signed this agreement with what you call the CX, saying that they'll achieve a return greater than a certain percentage. They'll return back some money to us. I think that was the arrangement. And as I said, there was no regulatory required to disclose to shareholders. And because it was contingent on achieving a certain IRR, I think we didn't see the need to disclose. And also it was contingent on getting all regulatory approvals also, so that's why we didn't disclose.

The law change, I think, few years ago, I'm just working from memory, that they said that if promoters entered into a deal with, what we call, the private equity players, they had to disclose. The deal was not done with someone who [is done] with the company. So there was no -- even when that rule changed, we were not required to disclose. So once we got all the regulatory permission, only then we disclose.

And also, this only happens when we actually made that return because -- so we actually made the return and we asked the regulatory permission that can we take this money, and once we got all clearances is when we disclose. [And to that sense], the part of the agreement was that all regulatory clearance have to come through before we take the money. So that's the reason why it's being disclosed.

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Unidentified Participant, [145]

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Okay. Your penalty clause [with the customers] will not happen as per the agreement. Then was there also a penalty clause?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [146]

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No, there was no penalty clause.

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Unidentified Participant, [147]

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Okay. Fine. So my -- I have 2 more questions. So in the last quarter's con call, you said that rest of world business should do really well based on launches in next season and you said, India, you are expecting 8 to 10 launches this year; in Brazil, 3 to 4 launches; in Canada, around 3 to 4 launches. So out of all these plans, like how many have happened so far and how they have been doing? And from these launches, like what is the incremental profit you are expecting in this financial year?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [148]

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I mean, broadly, the India launches we've spoke about a few minutes ago, I think I brought it up in the earlier conversation. The big India launches we already spoke about. Canada and Brazil, the launches are expected end of this financial year. So for competitive reasons, we don't generally disclose what products we're launching; but generally, this is our expectation.

In substantial profits-wise, I think we've -- we don't do a profit-by-profit split, but I think one gentleman asked me why is the EBITDA higher even though there's a drop in hep C. I think we've mentioned that because we have launches. But they are fairly profitable and contributing substantially.

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Unidentified Participant, [149]

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Okay. And my last question is, in the last quarter's con call, you said that in this financial year, you expect profit of close to INR 700 crores [this year]. So now that 1 quarter has passed, will you maintain your guidance?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [150]

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I think in that region. I think we've made certain assumptions in that guidance. Yes, I think assuming that there are not any unexpected business events and we don't get much competition in the portfolio that we have, yes, I think in that region, we should be able to reach.

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Operator [151]

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

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Kunal Randeria, Antique Stockbroking Ltd., Research Division - Research Analyst [152]

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So just a good clarification on Benetor. I believe it may be going generic this year. So are you launching it this year?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [153]

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In the U.S. market, no? It's all going generic. Our settlement is not around that. It's later. It's going generic in some other market. It's going generic in Europe now. It's gone generic in some Eastern European markets. Our launch date is in the future, not...

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Operator [154]

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The next question is from the line of [Hiren Dedhia] from PM Securities.

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Unidentified Analyst, [155]

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I would like to ask that in their documents here show that we have invested INR 5 crore to OMRV Hospital Private Limited and $250,000 in AACP U.S.A. So what -- so is that the equity investment or something else?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [156]

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Both are equity investments. As per the regulatory requirement, if you're investing more than 5%, you need to inform the stock exchange. So as part of the regulatory requirement, we are disclosing. There are very small investments and I think we have a philosophy that if -- about 3% to 4% of our profit we invest in related -- to pharmaceutical business, anything that's related to pharmaceutical businesses, we invest in both companies. So one is a hospital. Another one is a (inaudible), which allows us to sort of learn on what is going on in other related fields and [participants]. And when you put your money, you get access to information, which allows us to strategize on how -- what we do in the future. So -- and it's a mere regulatory requirement. And 1 of them, $250,000 is for the [drug discovery] company and INR 5 crore is in the hospital [which has a] gastro specialty in Hyderabad.

And again, at the same time, I want to reiterate that these are not substantial stakes. They're all single-digit stakes or low-teen stakes. And we're not intending to run any of these businesses. It's just a small investment.

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Operator [157]

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

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [158]

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Since you've indicated that there are quite a few launches scheduled in the subsidiaries, can you provide some guidance for next year's growth from that market? And secondly, you also indicated about some manpower rationalization program. So can you, too, come back on that as well?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [159]

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I think in terms of -- you said earnings guarantee. Is that for '21? Is that what you're saying? So subsidiaries should do well. I think subsidiaries are having a run rate of about INR 30 crores a quarter. We're hoping to double those numbers in the next few months. Overall guidance for the company is that we are in that INR 650 core, INR 700 crore band right now. So we are expecting to double it by '22 based on the [exclusive] launches that we have had -- that we are expecting. And in terms of the near term, I think '21, the subsidiaries -- your question was particularly on subsidiaries. I think we are hoping to double or even triple based on the launches that we've had.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [160]

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So anywhere between INR 250 crores to [INR 350 crores].

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [161]

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We're having a run rate of about INR 30 crores a quarter, so INR 30 crores, [4 quarters] is about INR 120 crore right now. We expect about INR 250 crore to INR 300 crores, yes.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [162]

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Okay. And I have a question regarding manpower rationalization.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [163]

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Manpower rationalization, I think we just -- we are -- we're not -- we're going with what we have. We're not hiring new people. I think we are trying to get more work done with the people that we have. As you know, [getting] business is going to a competitive place but not really manpower rationalization. I think we're just trying to get more but for the resources that we have. I think that will be it.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [164]

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It's more like a [pre].

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [165]

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Reallocation, yes.

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Srihari Chintalapudy, PCS Securities Ltd., Research Division - Equity Fundamental Analyst [166]

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So in terms of, let's say, annual income, so would that be an -- so certainly, I mean that's what you will be saving roughly?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [167]

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I think we have given -- usually, we give [an investment]. I think this year, we've kept it below 10%. I think it's like 9%, some number which came to that. So normally, you see over 15% to 20%. But I think we have brought it down slightly because of the environment in the business.

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Operator [168]

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The next question is from the line of Tanush Mehta from Dalal & Broacha.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [169]

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Sir, I wanted to ask about -- in U.S., through which branding partner we have the highest number of launches coming up or in the market right now?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [170]

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We use different partners. As we look at the portfolio today, the biggest part is coming from Mylan. The second biggest part is coming from Reddy's. Third biggest part is coming from Lupin and then (inaudible). These 4 guys make up for a substantial portion of our portfolio. [Allergan] in the past because at that time it's true but now it has dropped. But otherwise, these 4 are the big ones right now.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [171]

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And for Revlimid, we have Actavis or...

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [172]

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Teva.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [173]

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Teva is 4 then.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [174]

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Four is Teva, Teva. Teva is (inaudible) so Teva [is we have now].

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [175]

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Okay. And so for Dr. Reddy's, you were doing some contract manufacturing earlier or something?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [176]

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We had a relationship on (inaudible). That's the one we have.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [177]

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Okay. And so my last question would be that the molecule that you said that the one you have in your Para IV filing has any one of them been launched in India? Because [it's customer knowledge] like the molecules like isolates and...

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [178]

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Yes, some of them will launch in India, yes.

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Tanush Mehta, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Associate [179]

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And so how are they catching traction in India because they are of some niche segments?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [180]

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Specific to the Para IV you're asking, I mean all -- just because something works in the U.S. doesn't necessarily mean works in India. It's the list that you spoke about. Some of them are in India. I think development has been in India for a very long time. So carfil is in India. [Eficnor], we will not launch. Bosentan, we will not launch. Lapatinib, we have launched. So I mean, the different -- because each market requires different needs, so just because something does well in India, doesn't mean it will do well in U.S.; what does well in the U.S. doesn't necessarily do well in India. So we have different portfolio for different markets depending on the uniqueness of it. It's not one size fit all. Sometimes you try to do an R&D budget where you combine multiple markets, but it doesn't work all the time for all multitudes.

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Operator [181]

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The next question is from the line of [Afzal Mohammed], an individual investor.

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Unidentified Participant, [182]

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Rajeev, as a natural extension to your hepatology portfolio, do you plan to pursue OCALIVA of Intercept Pharma in the Indian market? Generic name is obviously cholic acid. It was approved by the FDA in 2016 for primary biliary cirrhosis.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [183]

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I know the product. I know the product, yes.

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Unidentified Participant, [184]

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So do you plan to pursue the...

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [185]

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I don't like to speak about my future portfolio. I refuse to answer that question. (inaudible) for competitive reasons, we don't generally speak about portfolio. Yes.

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Unidentified Participant, [186]

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Okay. Okay. It all right. Okay. Sorafenib [indication status have launched] (inaudible).

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [187]

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Sorafenib is settled in the U.S.

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Unidentified Participant, [188]

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Oh. Any timeline?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [189]

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No, it's already settled. We have a launch date. I'm not supposed to disclose launches because bound to confidentiality. But yes, it will happen in the next few years. But yes, already in place. And we have [next year on that for the report]. Yes.

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Unidentified Participant, [190]

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Okay. And for the emerging markets, I feel that a lot of generic forms are reporting [big growth, segment] growth in the sale, and you plan to expand your product portfolio in emerging markets, like Southeast Asia. You have Philippines and [Dabi], many South American and Eastern Europe countries. So what is the outlook for the competitive environment going forward, 1 to 2 years down the line?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [191]

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Again, it comes back to the same question. I mean, it's -- I mean the business is going through some hard time, but I think as long as you have something niche and unique because you're not present in all these markets, so there's an opportunity starting from a clean slate. So we have a lot of room to grow. And I always say you need -- if you have something unique and niche, you'd always make money in any market. But you need to have that special product where you see less competition, you're doing something unique on technology or there's a supply issue. If you're able to identify those opportunities, I think this business is still exciting. I think -- but you need to be very clear what your strategy is.

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Unidentified Participant, [192]

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Will you be starting with oncology and hepatology in these markets, emerging markets?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [193]

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I mean [we're not giving you] FY '20. I have a pipeline, which is unique, yes, which I believe shall be a differentiating factor (inaudible).

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Unidentified Participant, [194]

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Okay. One last question on crop [health] prices. So you plan to pursue any bio fertilizers or bio [science] or only clinically synthesized products?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [195]

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Right now we're looking at only organic [products]. I'm not looking at -- outside that portfolio. Right now we're only looking at organic.

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Unidentified Participant, [196]

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Okay. Guidance for 2 to 3 years down the line on EBITDA margins and the broad revenues.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [197]

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(inaudible) I think they're all getting to launch dates, but over a period of time, I think we want this business to contribute about 15% of our top line on EBITDA.

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Unidentified Participant, [198]

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And what kind of margins range, the EBITDA margins?

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [199]

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I think it's not as profitable as pharma, but it's reasonably profitable provided you have a niche, smart product. I think there's a lot of exceptions possible on the cost side of the business. Again, I don't want to get into the strategy, but there are some smart things that you could do like in [pharma] because it's always never think of this business as a commodity or look at things that everybody is doing. I think you always have to find a niche, safe product. I think we're able to do that and execute that properly, and there's a lot of value to be generated.

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Unidentified Participant, [200]

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And your competitors would be mostly multinational company or manufacturers of these products.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [201]

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The portfolio that we have, one, couple of multinationals and couple of them are unique portfolios where there's no Indian competitor at all or no material competitor also.

So yes, I mean, again, it's always under work, so I can't really say that it will work. But this is the plan. I think I do something unique and niche where there's not so much competition

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Unidentified Participant, [202]

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Just like in the pharma portfolio.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [203]

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It is like the way we do in pharma portfolio. (inaudible) absolutely, yes.

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Deepak Malik, Edelweiss Securities Ltd., Research Division - Analyst [204]

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Thanks, everyone. I think a fantastic set of questions. This concludes our call, and we will update the transcripts and presentations related to today's call. Thank you all.

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Rajeev Nannapaneni, NATCO Pharma Limited - Vice Chairman & CEO [205]

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Thank you. Buh-bye.

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Operator [206]

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