The first question is from the line of Chintan Sheth from Girik Capital.

Thank you for the opportunity and congratulations. One question on the EBITDA margin, which you disclosed adjusted EBITDA margin at 25.2%. Even if I adjust that our other opex line item seems to be a little higher, both on a Y-o-Y and Q-on-Q basis, if you look at adjusting that non- recurring expenses, our other opex as a percentage of sales comes to around 24.8 % versus previous quarter, it was around 21.8% and 21.4%, respectively, Y -o-Y and Q-on-Q. So if you can just point out anything which led to a slight sharper increase in other opex, because it's kind of matched whatever gross margin benefit, which we got during the quarter?

You are absolutely right in your assessment that the benefit of gross margin is getting absorbed by the EBITDA drop. And in this quarter, if we compare it to the previous quarter, the expenses are high because there is a spike in this quarter as we have launched 4 new divisions and a certain degree of investment has gone into the same. So that's why there is a bulge in the expenses, which is getting reflected in this quarter expenses.

Okay. But do we see this recurring over the fiscal FY'25 or whether it will normalize over the course of FY'25 in the coming quarters?

So this will normalize over the coming quarters. The good part is that in spite of opening up of these 4 new divisions if you see the PCPM of the company that has not dropped. That has increased by INR30,000, which is at INR6.8 lakhs ; which was INR6.5 lakhs earlier. So we expect it to normalize in the coming quarters.

Sure. And second question was on the BSV. I know we clarified around that. I just had a question on the ROCE, which you spoke during our previous interaction of the BSV division at around 15% to 16% in FY'24. If you can just clarify one part is that given the reported margins at 23%. Is this the reported ROCE profile or adjusted ROCE profile at the 28% EBITDA margin which the business, at the core, generated?

So thanks, Chintan, for your question. That one is on the adjusted EBITDA margin, 15% to 18%. The way to look at it is that we are at 30% plus ROCE . You have to look at it when we consolidate with this asset, you have to look at the c onsolidated ROCE how it pans out. So it would be upwards of 20%. And both the assets, we are expecting margin expansion and more so with BSV since we believe that it is not fully penetrated; not fully optimized. So we see a lot of juice there. So when we see EBITDA margin and cash flow operations improving, your ROCE is bound to improve by 100 to 200 basis points at the basic level.

And lastly, if I may, and I'll jump back in queue. On the BSV deal as well, the enterprise value of INR13,630 crores, if you can provide what is the net debt or net cash on BSV at the time of acquisition or FY'24?

So it is a very neutralized position. We will come back to you with more details when the closing happens as we have just signed the agreement. The details will come out when the closing happens.

The next question is from the line of Kunal Dhamesha from Macquarie.

Just continuing on the BSV debt, I think FY'23 that the finance expense for them was really high. So I think it will be good if you can provide some detail as to what is sitting on their balance sheet? And how is the PAT for BSV for FY'24?

So I'll give you some color on the fiscal '24 numbers. So if you see, we have given a number of around 28% adjusted, if you see the slide where we had added Mankind plus BSV, so INR488 odd crores, leading to 28%, plus/minus margins. So assuming 70% plus will be the cash flow conversion, you can do the maths.

So let me clarify, Kunal, okay. It's basically from the transaction structure beca use Advent has done - it was a CCD structure, which was there. So because of that, this interest is getting reflected. But as the transaction will get consummated, everything is going to get converted into it. So that was more of internal debt repayment to the parent. That's why this interest spike is getting reflected.

Sure, so that will reverse once we kind of do it. And I think that was mentioned, right, the callable bonds, etcetera, what is given in the balance sheet at some point, would it...

Kunal, can you speak louder, please?

That structure has it changed drastically in FY'24? Or whatever we see in FY'23 is what kind of continued and we will change it once we acquire it?

So once we acquire the whole structure is going to get converted into equity and those equi ty will be acquired by us. It will be plain, simple, vanilla buyout.

Sure. And one more question I had, since we have seen good traction in chronic therapies now, we are almost at par with the market level penetration in terms of chro nic, right, market is at 38%, we are at 37%. Would you be able to quantify the kind of EBITDA margin difference between our chronic business versus the acute business stuff?

No. So it's basically mixed up , Kunal, we don't track EBITDA. We only track it at a particular level, but not at the EBITDA level, the acute versus chronic because in some of the divisions, MR is promoting both the products. So it's difficult to do a segmentation at that level.

But it's fair to assume that obviously the gross margins are much higher in chronic?

Correct. And what s that difference would be in the gross margin between chronic and acute probably ?

So it has increased up to 15% now, yes.

Despite we launching the DMF-grade APIs, etcetera?

Yes.

Sure. And on the DMF-grade API, I think we had a plan to launch around 1,200 SKUs and we had done some 325 maybe till last quarter. So where are we on that now?

So last quarter, we have announced that we have done approximately 150 DMF filings. This quarter, we are close to 160.

Okay. And sir, in terms of SKUs how would it mean because there will be multiple SKUs?

We are not splitting by SKUs.

See the first one happened in '22, '23. So the contribution has just started. The idea is to get the foot in the door of the specialty doctors. While the sales are growing at 30%, 40% or even more, but it is on a small base. But it gives a lot of synergy benefits of our core portfolio also. So you have to see that in entirety. But coming back to your question, on a small base, it is still growing at 30%, 40% plus.

Okay. But it is fair to assume it will be single-digit contribution as of now?

Not even 1%.

It is fairly less at the moment , and it will not be a correct reflection of that because these in - licensing deals have been done at a different point of time. So they have not been for the whole year, so that the real basis can be drawn from or inference can be drawn from the same. So maybe after a year or so, we would be in a position to disclose. But at this stage, it will not give the correct reflection of things.

Major reason of the in-licensing deals; what advantage to Mankind is, we get an intangible hike in reputation of Mankind, one. And basically our endeavor were to really enter those high -end doctors, high-end hospitals, we get welcomed over there, foot in the door, that's a major thing. That's the reason. And we basically want to enter difficult to make or high -entry barrier market or in-license products, where instead of 30, 40 competitors, we have 2, 3 competitors. So we just want to enter that market and attain some kind of a position over there because tomorrow, more products will come. So it's like acclimatizing yourself, your field for that kind of an environment.

Sure. So that then you can cross-sell your existing portfolio, which is anyway high margin and can bring that synergy side?

Yes.

The next question is from the line of Neha Manpuria from Bank of America.

Ashutosh sir, on the gross margin, most of the factors that you mentioned, sales mix can change seemed very sticky. Obviously, I understand there is seasonality in the business. Adjusted for that, is it fair to assume that this level of gross margin is sustainable for Mankind?

That's a good question, Neha. So we would say that 70% would be the fair assumption to assume it around 70% level because 1.6%, which is coming from the input cost savings, that's a timing difference, which is not in our control, to be honest. And because of the capacity utilization and all, this time, the margin is higher. But from the sustainability point of view, we are more confident or comfortable with 70% gross margin level.

No, no. That is understood. I was just trying to get clarification because the margins had improved so much. So I just wanted to get a sense there. My second question, on the BSV deal, the 16% growth that we had mentioned, right, adjusted for their acquisition and COVID. If you were to break that up between international business and domestic, what would be the growth, let's say, in the domestic business and international? Because I think the international growth that you've mentioned is in constant currency, but on a reported basis, what would that growth be?

Yes. So we have given a growth of around 17%. That would be India, 16% to 17% and around 25% in constant currency growth for international business.

So the reported is also in the same range?

Reported is actually a tad better...

Oh, it's tad better.

Because of the TTK acquisition, it is a tad better.

No, no. Sir, the 16% growth is excluding TTK, right?

It's actually 17% pro forma. So on that, there's about 9% volume, 6%, 7% price, 1% here in there. So new product is about 1% to 2%. So it's not 16%, it's 17% . And pro forma growth that we had given in the presentation pack is 21%.

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

Rajeev sir, first at the industry level. We are seeing this volume growth remaining quite muted, even FY'23, hardly 0% even FY'24, 0.9% or even 1Q FY'25 to be like 0.9%. So this shift towards trade generics. So will that sort of further reduce overall industry growth for next, let's say, 3 to 4 years, if you could share some comment on this?

See, I mean it's a mixture of things. One basic ally is that seasonality also plays a role because whatever unit growth comes, there is always a contribution of antibiotics or acute side of the business as well. Yes, you're right as well. I mean some kind of stress is there from generic kind of players as well. It's a mixture of things.

Just to add, there is one more issue which we need to take into account that 6% contribution of modern trade is not being captured by IQVIA. That is why there is under reflection of volume growth as per IQVIA is concerned.

No, no. So I mean to refer the prescription side of the overall market. So there, we will see growth is getting much more moderated to the way it seems over the next 3 to 4 years, it could go down to 6% or so.

Try to understand one more thing that a prescription comes from the hospital, it is maybe not being tracked. And one more thing is there that hospital side, patients are more than general practitioners. I mean whenever you see, you go to a hospital, you find more patients. Otherwise, in normal clinics, when season comes, then you see a good number of patients. That is also an impact.

Understood, sir. Secondly, as far as the metro Tier 1 share is concerned for Mankind, despite a good number of niche products being added, the chronic share being rising, the metro Tier 1 share still remains stable for last 2, 3 years. So just to understand if I'm missing anything.

See, our metro and Class 1 share is around 53% . So there is still scope for improvement. The good thing is that both metro and town 1, we are growing at much better pace as compared to IPM growth. So we are bridging the gap between IPM, contribution of metro and Class I and Mankind.

And Tushar, if you see last 4 years growth of metro, IPM is close to 10% to 12%, but growth is somewhere in the range of 11% to 20% for Mankind metro.

How much is it for Mankind?

For Mankind it is in the range of 11% to 20%, you can refer last quarter presentation where we have highlighted that our metro share has increased from 51% to 55% in the last 4 years, chronic metro share.

The next question is from the line of Sumit Joshi from SK Finance.

Yes. Sir, I'm just asking a very high-level question, maybe from a 2 to 3 years the way we want to grow a product strategy right after the acquisition. Is there something big picture, which we are planning that we can give some guidance that will help me to understand better?

See, I mean, the big picture basically is , look at the history of Mankind, 5 points were there always in our head. First was a bottom-up approach. Second was our OTC business. Third was making mankind brand a household brand. Next was chronic side. After that, we entered into specialty and then now super specialty. So it's like I mean completing the pyramid , coming to the high end of the pyramid. And ensuring that we are in every side of the pharma market and growing in the fastest pace. And hopefully, I mean, we'll do fantastic. Because going forward, as a number of times, these questions keep coming that there is a stress because of generic, because what we basically see generally, whenever you bring some product or one product which basically comes out of patent, 40, 50, 100 competitors come immediately. And our intentions of taking this BSV is that we should be in complex business. We should be in difficult to make products, we should make the high-entry barrier products, where advantage is - either you are alone, either you have some kind of a monopoly or 1 or 2 competitors, that's plus side. You can command the prices. You have more EBITDA margin. That basically is our hope. Keeping those planning in mind, we have just acquired this company. And we hope, we have said a number of times, this business will multiply in coming future.

Okay.

We are very, happy and confident that this is a fantastic buying of Mankind. I mean, nothing can be better than this one because everything fits very, very well in Mankind. Look from any angle, every corner whether the consumer side, I mean, Ossopan or Lactare, whether it's a patent product, AntiD - high-entry barrier, whether you look at this Thymogam, again, 100% market share, in some animal bites with 98% share, infertility we have 1 or 2 competitors. It's amazing and we've done a fantastic job by acquiring this. Absolutely confident and pretty sure about this business.

The next question is from the line of Nikunj Doshi from Bay Capital.

Just one question. Are we expecting any more merger-related costs in the next quarters?

Yes. So the transaction has started in a way at the end of the last quarter. So there will be certain merger-related costs, which will be coming in this Q2 as well.

So just to be clear, Nikunj, the cost that you are seeing in Q1 is related to the transaction that we saw in Q1.

Okay. Okay. So this larger transaction, what we are doing, that will be further in...

That will be in Q2.

The next question is a follow-up question from the line of Kunal Dhamesha from Macquarie.

Just on this, the BSV growth split between India and international, I probably misunderstood it. Total growth is 16% adjusted for the acquisition. And then you are saying India grew at 16% and international was better than 25%.

So Kunal, if you should see the presentation, we have given a 21% CAGR growth. We are giving a split of India and international, which is - India is 17% and international is 25% dollar -term growth.

Okay. So 21% is not adjusted for TTK. So TTK is more in the international...

No, no. TTK is a domestic business. So what has happened is, why we have given pro forma numbers, there is a volatility due to the COVID-related products and the TTK related products. So we have neutralized that. If you see on a reported like -to-like basis, growth is actually 24%, but we wanted to give a pro forma numbers for the right reflection for future. Does that help?

No, but the COVID would have also positively impacted during the initial phase?

No. But then there are spikes and there are peaks and valleys, right? So 1 year, you will see a spike, then other years, it will go down. So we have removed the volatility.

So FY'21 was higher, right, because of the COVID year?

Correct. FY'21 also, there were lockdowns. So yes, difficult to understand. Can you help us with a slightly larger -- longer-term growth rate for the BSV?

So we have called out that the growth will be in the region of 15% to 20% is what we believe, it can be even better. I mean this is our initial assessment. And we have also called out that we look at margins around 30% plus and to improve year-on-year.

So i f you look at the audited reported CAGR, that is 23% and the adjusted is 21% with adjustment for COVID.

Okay. And one question on the overall market in response to the previous answer. So you said the 6% of the modern trade is not getti ng reflected in IQVIA. My question is how fast that 6% is growing. And since it is not getting reflected, what are we missing from the IPM growth? And what is our exposure to that modern trade channel now? I think we had a good quarter, a couple of quarters back or something. So are we like now under -index, over-index or we are properly indexed with respect to that 6% of the market.

So as per my understanding, 6% contribution comes in IPM from modern trade that is having growth, there is no channel to give us the correct growth number, but as per different sources, the growth comes to around 15%. As per Mankind is concerned, our contribution from modern trade is around 4%.

4%. So still there is scope for us to kind of penetrate more in this channel. Sure. And one question on the Panacea acquisition that you had done, right? It is some time that we have been with this business, how has that kind of grown - what we have seen in terms of the improvement in terms of profitability, any synergies that you have seen? If you can provide some update there, it would be good.

So Panacea business has already panned very, very well. On one side, again, super specialty business when we acquired Panacea, the thoughts were same, absolutely same kind of thoughts. Transplant business, super specialty - difficult to enter, one, that is being very good, Glizid anti- diabetics, more than INR100 crores brand now. And apart from this Sitcom is a patented product that we acquired. So all in all, the Panacea business must be growing at a pace of 20% - 25% right now.

33%.

33%.

And if you extrapolate Panacea, by many times, then this would be Bharat Serums - even better. And if you remember very well when Panacea was acquired, I mean, people were saying it's expensive this and that, but we knew our business.

Okay. Sure, sir. And one for Ashutoshji. On the R&D expense, it seems lower for this quarter, right? So do we expect to ramp up? Or do we see that R&D expense overall would be more or less flat for FY'25 over FY'24.

So we would like to retain the guidance of close to 2% because R&D is mainly driven from some of the project related and the testing related expenses. So there are sometimes some spikes here and there, but by and large, as a rule of thumb, expected to be around 2% level.

So it should see similar growth as to our top line more or less in FY'25. Last year was 2.2%, I guess.

So this time also, it will be in that vicinity only.

The next question is from the line of Prashant Kothari from Pictet AMC.

The first question is on the BSV acquisition itself. In terms of funding for it, I understand you have not kind of properly finalized. But just looking at the overall numbers, it seems that if you were to apply that discipline of 2x net debt -to-EBITDA, if you could just kind of wait until the FY'26 end then you would already be kind of in that limit even if you don't dilute. So just wanting to understand how you're kind of thinking about the need for equity dilution versus maybe waiting a bit so that it's not needed actually?

Yes. So the rough broad math s could be thought like this, that we are looking to fund this, as Rajeevji mentioned on the Friday call, that around INR4,000 crores could be used approximately from the internal accruals. For the remaining, the majority would be a mix of debt and equity and the majority would be debt. But we believe since we've always been a conservative company, there will be a requirement of equity, which could be in the region of about 30%.

Right. So INR4,000 crores internal accruals we'll have in the next 2 years, plus, we have INR3,500 crores of net cash.

No, no Prashant. So around closing, we would be having that kind of cash. So we will be using that cash to pay upfront, that's one. The remaining that we are required to pay, which will be a mix of debt and equity, majority will be by debt given the cash flows that we have. We believe that we'll be able to take a majority of it as debt. But since we want to have a lighter balance sheet, we don't want to leverage significantly. And as per our guidance, of debt-to-EBITDA of not exceeding 2x, we think that we would be looking at plus/minus 30% of equity and that would be around closing.

Okay. So the EBITDA you're looking for that calculation is of FY'25 itself?

On a combined basis -- the EBITDA that you're using for that calculating...

Yes, FY'25 and FY'26. And on a conservative basis, we have calculated. So obviously, the business could give a bit better returns. But these assumptions are based on conservative estimates of mankind as well as BSV.

Understood. And sir, the second question was on market growth differe ntial between the kind of metro and Tier 1 versus the rest more rural semi -urban, how much is the differential these days? Has it changed versus the past?

If we talk about IPM versus Mankind , Q1 basis, IPM rural has grown by 6.7%, Mankind is growing by 10.3%. And town 1 is growing by 10.4% as per IPM is concerned, and Mankind growing by 12.7%. Metro and town 1, in total, is growing by 9.3% as per IPM is concerned and Mankind is growing by 10.6%.

So rural, as per IPM is growing the slowest, why is that happening? And is that just recent or that has been the trend in the last few quarters also?

So FY'24 as well, rural has shown a growth of 5.9%. This quarter has been better as per FY'24 is concerned.

Yes. But it is growing slower versus the overall market. So just trying to understand what is happening there in terms of the overall pharma sales, not for you, but for the industry?

So rural, usually, the growth you see, there is a seasonal impact because rural market is all about acute segment rather than chronic. Last year, the acute season came very late in the month of October only. That is why we had muted performance of acute segment overall in the year and it impacted the rural growth.

Prashant, if I can add. So if you see the nu mber of doctors who are available, the number of chronic diseases, which are growing faster than the market and acute , is happening more so in the metro and Tier 1 cities. So the growth share in metros and Tier 1 is higher versus rural.

Okay. Which is what I was trying to kind of think of whether it is that the companies are not making enough efforts? Or is it just about the doctor population, wherever they grow the market grows, how should I kind of...

Again, Prashant, India is a land of many cities, towns, rural is like rural and then above rural, it would be again segmented into 3 sub -buckets. So the first bucket is metro and town 1. The second bucket is town 1 and town 2, which is Tier 1 and Tier 2 cities. And then the re's a third bucket above rural, which is town 2 to town 4. So this is split again into 4 big buckets and rural is a part of it. So metro and Tier 1 is totally where everybody is really focused on. And I think, as Rajeevji mentioned, we have always gone bottoms up. So we started with actually not rural, but town 2 to town 4. And then we have picked to Tier 1 cities and now metro and Tier 1. So it is bottoms up for us.

And to add to Prakash point because of the lifestyle changes, the chr onic diseases are more prevalent. And because of hygene, people in rural area, people are more aware about hygiene, cleanliness drives. So that's why acute is growing less and that's where you see the growth of chronic more, even in IPM also.

Interesting. And sir, just the last question of our growth, how much is pricing?

Because of pricing is 5.8%. Our volume growth is 1.9%, and growth because of price increases 5.8% and growth because of new products is 2.7%.

The next question is from the line of Gagan Thareja from ASK Investment Managers.

Sir, I have one question pertaining to the split of the acquired asset value of BSV into fixed tangible assets, intangibles and goodwill. If you could give a broad rough split, that would be very helpful.

Yes, Gagan, this is an extensive exercise, which w ill be carried out at the time of closing and after closing. But just to give you a sense , since it's a high -entry barrier and a niche asset, the majority of the allocation will be towards the intangible side. Close to around 60% to 70% would be the portion which may get allocated towards the intangibles.

And when you say intangibles, I mean, because intangibles would include patents, trademarks plus goodwill life. I'm presuming that is how it is. So from the perspective of depreci ation and amortization, it's is going to be trademarks and patents which will be amortized, goodwill will not figure there. So I'm just trying to understand that split further down.

Correct. So goodwill will not be getting amortized but in tangibles in terms of technical know - how, trade, brands which are coming with this and plus some other intangibles will also come, customer relationship, etc. so all those things will be getting amortized over a period. So how much will that period will be and the exact quantum of that intangible that is subject to exp ert valuation. But from the broad indicative point of view, it will be closer to 60% odd - the intangibles and the balance would be towards the goodwill. But this number is highly likely to get changed once the proper PPE exercise is carried out by the experts.

Right. And Rajeev, sir, I think in your interview to Business Standard have indicated that BSV sales could touch INR5,000 crores sort of mark in the next 3 to 4 years. To whatever degree possible, would you be able to explain how you think you can bring this about what could be the broad contours of the strategy here?

Sometimes, I mean, journalists are also very enthusiastic. They basically add some kind of flavor. I mean the expectations are very high from this company. I said basically in 4, 5 years, maybe he rolled down to 3, 4 years. Understand the point, in some of the categories, there is no competition. Example, AntiD is one product, which in India, approximately 5% to 7% ladies who want to be mother are Rh negative, right? That is approximately 90 lakh to 1.2 crores. But how many injections are being sold right now? 9 lakh. So right now the penetration is only 10%. If we increase the penetration to 20%, the market can grow double, 30% - more. It's a matter of just propagating it, matter of just making sure that people have this kind of a knowledge, just example. And they have patent on this product till 2028. And also, within a number of countries, other countries as well, same is the situation. So this company comes with a very high-entry barrier products, one. The second basically is what, just look around yourself, which particular segment is growing fastest - infertility. You go in bigger towns, smaller towns, every place, every gynaecologist wants to open a fertility clinic. That is one area which is growing very, very fast because of urbanization, because of women empowerment, because of late marriages, a lot of reasons are there, right? You see from any angle, I mean, this company has all their plus s ides. Tailwinds are also -- complexities are there, difficult -to-make products are there, patent products are the re. So this way, we expect this company can grow a lot, very, very optimistic.

The next question is a follow-up question from the line of Chintan Sheth from Girik Capital.

On the export side, if you look at the growth has been great as well on a high base, do you see the run rate of the current quarter can sustain or do you see as quarter progresses, we will see some softness at least the rate of growth can taper a bit low going forward? How do you see the exports panning out?

See, because of the low base last year quarter, so growth is high in this quarter. But as always, mentioned in the commentary that Mankind business will mostly focus in domestic, almost 90% plus business of domestic.

Okay. But at the 15% - mid-teen growth, which we gave, that is what we should work with...

No, I think that the growth will continue. For an export side, the growth of quarter -on-quarter will continue, that's what has been guided so far.

On the BSV deal side, you mentioned something around a 30% figure for the equity part , the fresh equity part. Is that correct understanding?

No, somebody had asked the question around how would the funding look like? Because everything is subject to closing. So we have received many calls and emails from analysts trying to understand for modeling purposes, how to think about it - of the asset. We are just a little bit modeling ourselves that around approximately INR4,000 crores would be funded through internal accruals. That is the cash that we would have in the books by the time the closing happens. The remaining would be a mix of debt and equity. Out of that, the majority will be debt and the remaining, which we believe could be done with around 30%. Again, this could be changed subject to closing, but this is our initial assessment.

That was the last question for the day. I now hand the conference over to the management for closing comments.

Thank you. And please feel free to write to us for any further clarification or information. Have a nice day.

On behalf of Mankind Pharma, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. This transcript has some minor edits to enhance the understanding and readability and does not purport to be a verbatim record of the proceedings. Since it is a transcription, it may contain transcription errors. The Company takes no responsibility of such errors, although an effort has been made to ensure a high level of accuracy