We will now begin the question & answer session. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We will take the first question from the line of Kunal Dhamesha from Macquarie. Please go ahead.

First one on the other expenses which have increased meaningfully on a QoQ and year-on-year basis. And you also alluded that there were some advertisement campaign expenses. But h ow should we look at for future quarters? Are this level of expenses going to sustain or the campaigns are going to be seasonal and should come down?

As we mentioned that the spike in the other expenses on a quarter-on-quarter basis as well as if we compare it to last year is primarily driven on account of the advertisement campaign which we carried out, especially in this quarter. We expect these campa igns and these expenses to normalize in the H2. And we would also like to draw your attention that we have given the guidance of having the EBITDA margin in the range of 24% to 26%. Currently, if we look at H1 our EBITDA margins, they are at 25.5%.

Sir, shouldn’t then the margin guidance be a little bit higher? Because even with the higher cost, we are running about 25% and if the other expenses go down in the second half, shouldn ’t the margin guidance be more or should be higher?

You have a point. If we look at the H2, it is normally softer as compared to H1. If we look at our H2 of FY23, we reported the EBITDA margin close to 21% or so. Currently in H1, we are at 25.5 and if we take a base of 21 which we reported last year H2 and our gross margin has improved by 2.3%, on the 21 %, that 2.3% plus some rationalization on the other expenses, we expect it to be in the range of 24% to 26%.

Sir, one more question on trade receivables which have almost kind of doubled from the March level in September. Any particular reason for that?

Trade receivable is the factor of what is that particular month’s sale has been. If you look at our March month’s sale, that is lower as compared to the sale which has been registered in the current September month.

Did exports also play a role here?

Yes, exports also have a bit higher trade receivable if we compare it to the domestic sales. That has also marginally contributed towards an increase in the trade receivables.

Basically, what has happened is, if you see the last quarter ’s numbers of the previous year, always the 4th quarter numbers in terms of sales are softer. Once you see the trade receivables of that quarter, they always tend to be on the lower side whereas Q2 numbers are much higher than the Q4 numbers of last year. That’s why there is a jump in the trade receivables. However, there is an increase in export sales, but that has contributed very marginally to these increased receivables.

And the last question is probably for Rajeevji. Now that we have almost around Rs. 2,200 crores cash, what is our capital deployment priorities, and have we given a thought to the dividend policy? Where are we on that?

The point is we just want to preserve cash keeping future opportunities in mind. We feel that we are in the process of having something in the near future, I mean long -term future. If we are unable, then we will think of going for dividends. However, at any given point in time, we are always very optimistic because being a cash rich Company, we would like to have a mindset bent towards the acquisition side. Apart from that, whatever other expenses are required for expansion in terms of office and factories and R&D, that is there.

We will take the next question from the line of Neha Manpuria from Bank of America. Please go ahead.

My first question is on the OTC business. Sheetalji, I think you mentioned that there is obviously optimization of inventory and certain IT tools that we have implemented. Is that all done? Should we start assuming the growth improved from the next quarter onwards? Also in the OTC, is there some seasonality? Because, if I look at your numbers last year, it seems like the first half seems to do much better than the second half or is that not the case?

First of all, OTC is very very dear to us. This is one particular division which has given a lot of name and fame to Mankind. Whatever people know about Mankind; even yesterday, somebody said that Mankind has given this much of extra profit. We have built this Company from scratch. And if you look at the last 3 years, ‘21 to ‘23, our growth CAGR is 17%. We have always grown very fast. One more thin g I just want to add here. The efficiency and productivity of our sales force in the last 3 years has increased by 30%. So, we are in the process of adding a few more products, adding a few more people. For example, one product we acquired from Panacea, Nimulid, we are in the process of launching that next month. HealthOK has come from Rx to OTx to OTC. We want to just work more on that. So, we want to have one more division in this OTC side. When you start doing something like this, you just go to recheck everything. When Sheetal talked about a number of things, being a modern Company, certain IT systems have been put, certain stockists consolidation has taken place. Apart from this, we are going for premiumization of products to increase the margins on this side and we want to maintain market hygiene in that. Going forward, we expect around a single digit growth this year. And hopefully from January onwards, the process of making it 2 divisions and launching more aggressively , OTC Mankind will yield better growth in future next year.

And on the domestic formulation business chronic we are doing pretty well from the numbers that you have indicated. The acute part, from the commentary it seems that part of the acute season which wasn’t captured in the 2nd Quarter will probably come through in the third quarter. Therefore, on a full-year basis, we won’t be as weak as we have seen the quarter to be. Is that a fair assessment or do you think this season is a lost season and therefore now th e focus is in terms of maintaining the chronic growth momentum that we are seeing?

If you have watched the last 3-4 years, we are living in a very different world. Even the season has become very dynamic. Look at during COVID times, acute segments sold more. Second time, chronic sold more. One year, it was a better growth in acute. Second year, it was better on the chronic side. We are absolutely right when we say that there is a shift in the seasons. Even right now, the last month the grow th is fantastic, around 25%. That really gives us confidence that we will do what we basically projected in our initial commentary.

When you talk about acute segment, it majorly involves anti-infectives, antiallergics, and cough syrups. We should see a spurt during this season when we have a season of viral infections. What has happened is if you look at the growth of these 3 segments consolidated, in July over last year – I am talking about last year July – growth was 11%. This year July growth was -5%. Last year August growth was 12%. This year August growth was -2%. Last year September growth was 1%. This year September growth was 12%. This clearly shows that the season came late in the month of September. And one more thing we need to unders tand when you talk about anti- infectives, antiallergics, and cough syrups, along with these, there are allied therapies which also get prescribed on the same prescription. These include vitamins, minerals, and nutrients as well as GI drugs. Overall, there was an impact on the acute segment, more so in Mankind ’s case because anti- infectives, antiallergics, and cough syrups contribute 24% of our overall sales versus 17% of industry.

And if I can add to it, if you see our MAT performance of September ‘23, we have registered a growth of 13.7% versus IPM growth of 10.3%.

Ashutosh sir, on the gross margin expansion that we have seen, let ’s say, the export benefit which you have mentioned several times, that is only probably for a few quarters and therefore goes away and also the fact that acute was weak. Should this be at a more normalized level of what we saw in the first quarter or is the 69.5% to 70% that we are seeing sort of sustainable?

As per the earlier guidance, which was given, it should be upward of 68%. And if you look at the expansion in gross margin year-on-year of 2.8%, broadly, it is a factor of increase in the price element which is the combi nation of sale price increase as well as rationalization of the API costs. Both put together has given us a benefit of close to 2% or so and the balance has been towards the favorable sales mix which has contributed to the balance difference.

So, we are still maintaining the 68 plus percent growth….?

It is basically not one-off because of the export business. This is mostly because of the domestic business and because of the price increases and the reduction in COGS.

The next question is from the line of Chintan Sheth from Girik Capital. Please go ahead.

A couple of questions. If you can, talk about the discontinuation of a few products. What is the impact on our sales during the quarter? And to ad d to it, what are our plans in terms of new product launches going forward? You mentioned one of the products in the OTC you are planning from the Panacea basket. If you can talk about that in terms of what is the pipeline, we are expected to see over the next 12 months or so?

Are you talking about the product which was discontinued because of restrictions?

Yes. The press release mentioned that softness in acute is also one of the reasons because a few products are being discontinued. If you can talk about what is the impact and what is the reason? Whether those products will come back on our table or not?

What we have done is as such, if you ask me, we started having the sales of those products captured in the month of September only, which was the first month, we reached to 50% of what we were doing. And since I have the data for October as well, we are 80% of what we were doing with the earlier composition because we expanded by launching different SKUs which are not restricted and we have reached at par in terms of the number of bottles sold and 80% in terms of value concerned of what we were doing earlier. Having said that, there will be some price erosion.

Let me explain this. There is one product, it was cough syrup; we have changed the formula of that. And we hope that by the end of the year, we will reach around 70% of what we were doing. That’s the No. 1 answer of the product. When you say discontinuation, it ’s not discontinuation. Because certain restrictions came, we changed the formula. And we will reach to, this year only, 70% of what we were doing last year. What was your second question?

New launches.

You are talking about the Nimulid side. We will be launching th e Nimulid in the month of November only. We were just finalizing whatever is to be required to bring some kind of a USP in our product; we have done so. Again I can reiterate that OTC is a dear kind of division to us. We are just working on this component, expanding on this in such a manner that we maintain the same kind of aggression and more dominance in more new products; like HealthOK, we shifted from our Rx to OTx to OTC. We want to just work on it. We want to launch this Nimulid. Also, why this infrastructure we are developing is because in future we feel if some acquisition happens, which will happen hopefully, then we have everything ready for that. That’s the reason.

And the question on the competition you highlighted during the earli er comment in the dydrogesterone formulation. If you can speak about what we are sensing in that segment and elaborate on it?

We have a leadership position in dydrogesterone as per prescriptions are concerned. Of course, because of competition, we have lost a little bit of share, but we already have plans in place where we will be coming up with some very innovative, basically, line extensions first time in India that is going to give us edge and which will be very difficult to replicate by othe r players in the market. So, we believe that in the coming 6 months to 1 year, we will be doing much better ahead of the competition because of those new SKUs which will be first time in India.

We will move on to the next question which is from the line of Rashmi Shetty from Dolat Capital. Please go ahead.

First question is related to other expenses. What I want to understand is that all your new expenses which are coming from the Udaipur plant have already been expended in Q2 or i t is going to be increased from Q3-Q4 onwards?

Rashmi, if I have understood your question correctly, you want to understand what will be the impact of Udaipur plant expenses. Yes?

In this quarter, Udaipur plant, the capitalization was done. During the quarter, that impact is not there. But in the overall EBITDA, it will be value accretive because there will be reclassification from the COGS to the other expenses with regard to the Udaipur plant expenses.

And related to the consumer health segment, you mentioned that you will be doing some launches from Jan month. If you can just give more color on it whether there would be a line extension of our major brands , or you will be launching a completely new category to cater it? And related to the consumer segment only if you can also give more color on what is our rural and urban split.

Whenever we think of OTC, we are very careful. 1) We will be launching, as I men tioned, Nimulid which we acquired from Panacea. It’s quite a known name and that’s one reason we are coming with a rubefacient in this. 2) We have one product, HealthOK, which we shifted from our Rx to OTx to OTC division. We want to just launch a few more variants in that, more line extension to that, and aggressively want to promote that. 3) We said that we just want to create this infrastructure in advance so that in future, acquisition will happen because we have time and again said that we are looking for chronic side and consumer OTC side products to acquire. For that sake, we are doing it.

Sir, for this year, I understand that the growth will be impacted in FY24, but in FY25 and FY26, how should we look at this consumer segment growth? Will it come back to the mid-teen sort of growth?

We feel the kind of growth we were doing in the past, we will reach to that, if I say, double digit and onwards.

Sir, on the exp orts side, how many quarters more we will see this one -off opportunity coming in? And whether this one-off opportunity is coming from 1 product or several products? And is it arising from the shortage of opportunities? If you can give some color on these things.

We feel that this one-off opportunity will last for about 1-2 quarters. It’s very difficult to predict when will others launch this product but it is coming from one single product. However, we have other new launches in the pipeline to compensate for last quarter’s one-off opportunity.

Sir, overall, how do we see export market growth?

The overall export market growth would be double digits, mid-teens.

This you are saying excluding one-off opportunity.

And lastly one question related to the US market. If you can give the total number of products that has been commercialized till date.

The total number of products that have been commercialized so far are around 25 products.

The next question is from the line of Dheeresh Pathak from White Oak Capital. Please go ahead.

Sir, I am referring to slide #14 and slide #15 of the deck. If I look at slide #15, what you are showing is that in acute for Q2, market grew at 7 and we grew at 4.9 due to underperformance in gastro and VMN. I don ’t know if you have already explained it, but please explain that why in acute it is lower than the market, and even in chronic, slide #14, you are showing only 1.1x growth of the chronic outperformance versus if you see, we have had much higher multiplier growth versus the market chronic growth rate. Why this quarter both on the chronic side, the outperformance is lower and on the acute side in g astro and VMN and in overall, why have we done lower than the market?

When we talked about the acute segment where there is tremendous impact of seasonality, we were referring to anti-infectives, antiallergics, and cough syrups. We generally depend upon the season; when I say season, it is viral infection. 1) The issue with acute segment in Mankind is the contribution of these 3 therapy areas is around 24% versus 17% of IPM. Having said that, the season came in September only. And I explained just 15 minutes back only. It is very well explained if you look at the last year growth pattern of these 3 segments in July -August- September versus this year July -August-September. Last year growth was 11%, 12%, and 1% respectively for July -August-September. I am talking about IPM. This year, it was -5%, -2%, and 12%. That clearly shows that there was a very strong season in the month of September, but July and August were not having the same seasonal impact where anti-infectives, antiallergics, and cough syrups shall move. 2) There are some allied therapies which also get prescribed along with these 3 therapies such as GI, vitamins, minerals, and nutrients. These segments also got affected because of the delayed season.

That explanation I understood, but what I am not able to understand here is that this delay of the season or the seasonal impact is going to impact the market also, right? But if you are showing this data correctly – maybe there is some is sue with the data because here we are showing the market in gastro grew 8.4 and we grew only 5.3. VMN market grew 6.9 and we grew 2.3 whereas in anti-infectives we have done better, more than 2x the growth of the market. So, either we are not showing like to like or this is maybe not the covered market growth is what you are trying to show. Is that the right interpretation? Because, the season impact would have impacted the market also, right.

Absolutely. But you have to take into cognizance the fact that contribution of these 3 therapy areas for Mankind is 24% whereas for IPM it is 17%. So, it will have less impact on IPM vis-a- vis Mankind. That is what I was trying to convey. For Mankind, these 3 segments contribute 24% of total sales. For IPM, these 3 segments contribute 17%. That is why the impact is more in Mankind in comparison to IPM. There is one more part which you need to take into consideration is when we compare with IPM, IPM anti-infectives include injectable brands. Injectables contribute 40% of the total anti-infective portfolio in IPM. For Mankind, it is less than 1%. So, injectables saw a good growth. If I look at the CVM growth, then in anti-infective orals, we are having 2% growth whereas CVM of anti-infective is having a degrowth.

And if you see the chart on the same page, anti-infective IPM growth is 1.7% versus Mankind growth of anti-infective is 3.5%.

That’s why I am saying , my feedback would be that in this slide, next time when you show, instead of showing the IPM, if you show the covered market growth rate of the IPM where you will make like-to-like adjustments like you just explained, there will be a better representation to understand how you have done versus the market. And if you can also explain, sir, on Slide #14 thats why the outperformance on chronic side is not what we are typically used to seeing. We are used to seeing 1.4x to 1.5x growth of the market.

For chronic also, let me take you through from Q1. Please look at chronic from Q1 lens, then Q2 and H1. In Q1, IPM has grown by 10.4% and Mankind has by 17.3%. In Q2, IPM has grown by 9.1% and Mankind has grown by 9.8%. Now, please make a note of consideration last year. Last year also, IPM was 11.3% and Mankind was 11. 3%, the same growth. I am talking about last year’s Q2. This year Q2, Mankind is 9.8% and IPM is 9.1%. Last year in the 2nd Quarter, IPM grew by 11.3% and Mankind grew by 11.3%. Having said that, the chronic share in case of Mankind increased in the 2nd Quarter by 1.5% versus 0.6% in the case of IPM. And if you look at H1, then, IPM grew by 9.8% and Mankind grew by 13.4%. So, 1 quarter cannot give basically a complete picture. We have to look at H1, we have to look at 12 months. That gives a better understanding and picture of the performance. I showed you the quarter this year of chronic versus quarter last years are pretty similar. Last year also, IPM and Mankind behaved similarly. This year also, IPM and Mankind in Q2 behaved similarly.

One last clarification. This dydrogesterone molecule you include in chronic or you include in acute?

Acute.

The next question is from the line of Rahul Jeewani from IIFL Securities Limited. Please go ahead.

Sir, can you please explain this quarter -on-quarter improvement which we have seen in gross margins? And particularly given the fact that our chronic revenue share declined during the quarter sequentially – 1Q of chronic revenue share was 36 % which came down to 34% – but despite that, we have seen expansion in gross margins on a sequential basis. Are price increases largely a contributor to that quarter-on-quarter gross margin improvement?

Rahul, as you mentioned, yes, there is an increase of 2.7% in gross margin quarter on quarter. And if you look at the breakup of this 2.7%, around 2% is the factor of price. Price is the combination of the sale price increase that we had taken in the previous quarter and some rationalization on the cost front as well, and the balance is towards the favorable mix which has driven that portion. And chronic is one factor and in the acute also some of the products have a good margin. There the mix has been better, which has given us the sales mix beneficial of around 0.7% or so.

Sir, this 2.7% which you are referring to is on a YoY basis. I am asking on a sequential basis that sequentially also our gross margins have improved despite a lower chronic share. So, what is the driver of that sequential gross margin improvement?

Basically, the main driver of the gross margin quarter on quarter is the price increases and the rationalization of API prices. We have taken price increases in certain products and mix sequentially come as per what the regul atory system allows us. That has increased these gross margins quarter on quarter.

In Q1, it was not a full reflection; in Q2, there is a full reflection. That ’s one. And also in anti- infectives, a little softer growth versus chronic. If you see chronic, it is 34%. That also gives you a little extra gross margin. So, it’s a factor of both.

Can you call out the rep number for the quarter and our productivity?

What number?

The sales rep number.

It largely remains the same. Around 12,000 is the field rep, around 3,000 is the managers; around 15,000 is the total number.

15,563 is the precise number which comprises both the field force as well as the managers, the consolidated number. And if you compare it to the last quarter, there is hardly any increase. The last quarter was also 15,350.

As I said before, there are several products which we have filed. Those products will get approval in due course. And we have already launched these products in different quarters in the past. So, we see a mid-teen kind of growth going forward.

So, on a reported basis, you are pointing to a mid-teens growth next year?

Correct.

We will take the next question from the line of Kunal Dhamesha from Macquarie. Please go ahead.

On the M&A front, let’s say if we do some deal, what would be our comfort in terms of leverage? While we have strong cash flow, but are we kind of looking for bigger targets or would it be more tuck-in, then what would be our comfort level with deleverage?

We are a very conservative Company. Leveraging, we basically try to not go for, honestly. Not very big we will ever go. Major would be the kind of a Company we can chew and swallow. Again, on the lines of chronic and on the lines of consumer side, that ’s also a point plus they should really add some kind of a value in Mankind. That’s also very important. Why to just bring something which duplicates your products? We cannibalize our own products. So, we just try to keep everything, keeping future opportunities in mind as well.

And second one on the prescriber penetration which has increased for us on a year-on-year basis to now 82.7%. Within that increase, what type of doctors it is coming from? Is it general physicians, specialists, or super specialists?

If you look at the increase in prescriber concentration, we launched single specialty divisions in the last 1.5 years. We have 10 single specialty divisions. It is because of these single specialty divisions, we have been able to add more consultants in the areas of oncology, cardiology, diabetology, neurology, and respiratory. The prescriber base increasing is skewed towards consultant’s ex GPs, not family physicians but other than family physicians.

And the last one on the advertisement campaign that we are running for the DMF grade API quality. What are some of the internal metrics that we are tracking for the succe ss of that campaign and what are the benefits that we have realized till now and what are we expecting?

These are very intangible and long -term strategies. Somehow it is to bring world -class kind of products to India at Indian prices. That ’s the point. We always believed in long -term things as well as short-term things and it’s quite important for us. And we will see in the future we assume good traction in the products we have brought in the DMF side.

We will take the next question f rom the line of Madhu Prashant, an individual investor. Please go ahead.

My question is the acquisition you are taking, is it on debt or is it fully cash?

We are not taking on any acquisition right now. There are various opportu nities that we are evaluating. Once something fructifies, we will go forward with it. It will be mostly our own funding.

If I say you believe in debt-free. Is it okay to say that?

Debt-free, yes. We are a net cash Company with about Rs. 2,000+ crores of cash balance.

In the future, is there anything that you believe to take a debt in long term as well as in short term?

These are futuristic statements. If we take any acquisition, we will come back to you.

Recently, I saw in The Hindu newspaper, that there is an increase in non-communicable diseases. Is there any focus of Mankind Pharma on that?

Focus is on increasing the chronic share. As we already have a large acute share, so increasing focus in chronic and consumer business.

My last question is, as Pfizer has Viagra kind of a thing, is Mankind Pharma also focusing on that?

We already have MANFORCE, a similar composition like Viagra.

Any new segment for a future perspective?

We will come back to you.

Ladies and gentlemen, due to time constraints, that was the last question. On behalf of Kotak Institutional Equities, that concludes this conference. We thank you for joining us. And you may now disconnect your lines. Thank you, members of the management.