Hi, so thank you for taking my question, I just wanted, like a basic overview, for the next two, three years, what are the plans, how are we moving forward with them, and if there are any key drivers, or if you can give some idea, on revenue and margins,

Darshit as, I already shared that, all businesses are at growth path, but certainly, we are very positive and bullish, that the current growth, of CAGR of 15% to 20% will continue, so of course, within each segment, some segment may be up one quarter, or may be down next quarter, or depending on the market season, and availability of materials, because there is a lot of, dependence on imports earlier, so I would say, outside 20%, 15% bare minimum, CAGR. We would expect to clock continuously, and as we keep on growing, so our margins, are certainly will go up, as you have seen that last year, it was around 6.5%, now it is 8 point something, so on an average, 2% or 2% margins have gone up, net EBITDA margins. So since the expenses are already there, of course we are -- rolled out expanding the teams also. But the basic things are covered, so any increase in the revenue, is going to add up to the bottom line also, and as we go forward, from an overall perspective, the growth drivers, if we say, the API will continue growing separately, medical devices is already growing fast, it will grow faster, and finished usage is one of our other areas, we are going to focus, OTC is going to remain, quiet, because it needs a lot of investments. So we are expanding the capacities of API, and the finished usage.

Okay, so do we see the margins, the biggest margins of say, 11% to 12% anytime soon, or probably in one or two years?

Yes, I would say it is a slow process, and actually we have seen last year, that if you have any aggressive growth, in any particular area, that is not good for anybody. So we are going very slow and steady, and we are actually not making any, so called fast moves, to get fast bucks, because we are very traditional brick-and-mortar company, so we have to set up plants, machinery, R&D, regulatory, environment, so we will keep on doing that, and we certainly expect EBITDA margins, to be in two digits, in the next financial year.

Okay, in the next financial year?

Yes.

Thank you. The next question is from the line of Saurav Bhutra from IIFL Securities. Please go ahead.

Good afternoon, sir. Thank you for taking the question. I just want a color on the API businesses. What you see in the API businesses, in the upcoming, say one to two years, and what will be the margin, in the API businesses? Can you give the color on this?

Yes, Saurav, as we have shared multiple times, that our core is API, our DNA is API, so we are certainly pretty strong, and very bullish on the API. Yes, there are basically two main things. One is the regulatory part, which is the regulatory skills, like FDA approval, and filing of DMFs and patents, which we proudly say we are good at, and we shared in the forums, that FDA approval, we have a hat-rick of NIL 483, so we are pretty good on that. Now the second part, other than the regulatory and compliance part is the capacity. So the companies with large capacities, and huge capacities, and infrastructure, certainly they will be able to compete better, because the whole world is looking at India as a resource center, as a sourcing hub, and that is against China, I would say. So China has got huge capacities, but they are very weak in the regulatory. That's why I mentioned regulatory setup as the first thing. So as an India market, we are very strong in regulatory, but certainly we have low capital base, and we do not have large capacity, so that is, as a company, our strategy would remain that we keep investing in the capacity, and we are investing as we go. So we see that API to be very bullish, and the manufacturing hub, China has already crossed that hub, and they have become the manufacturing center, but naturally now the world is looking at an alternative. So India is the second alternative. So certainly API has got certain challenges with the environment factor, and that is the polluting industries, so we are going for zero liquid discharge. So we are hopeful that once we are able to handle those things, so API would remain very bullish, and we continue growing at 15%-20% CAGR.

Okay.

Then API, we have to talk about the new molecules. So when we say as Morepen, when we say API, we are not talking of traditional APIs, we are not talking of paracetamol, and ceflexane, and amoxicillin in the world. We are talking new molecules, with high-gross molecules.

41 products, which are already currently live. Around 7-8 products are being regularly sold, and around 30 products are the new products. Within around that, maybe 5-6 products are, I would say, off and on, some countries are expired, in some countries they are not expired while there are 20 products, which is like a pipeline. So the total size of the pipeline, the products that we already have in hand, is $67 billion, formulation market. As you would appreciate, formulation market is actually highly priced. So even if the market discounts at 70%-80%, even 90%, we expect $6 billion, $7 billion dollars as the residual market size. And even if we get 10% market shares we are home, for the other products that we sell now, for example, Loratadine we have 70% market share. For Montelukast we have 48% market share. So on the same scale, 10% market share, so $500 million to $600 million we can easily get in the coming years. Most of the products expire after 2025. By 2025, there are $67 billion market.

Okay. Number three question is on the OTC. Sir, from the last few years, if you see the business of OTC, your bottom line and top line has been very stable and has been rapidly growing at a very slow pace. Can you throw the color on this? What is the reason behind that?

Saurav, OTC, as I said earlier, OTC basically is a branding business. And branding business, you would appreciate that we have very high tariff as per the newspapers and TV channels. And of course now, all these e-commerce players are competing for the space even in the social media. So we had certainly planned that, okay, maybe online is the way to go. But we have seen that even in the online market, the cost of customer acquisition is very high. So we are purposely keeping ourselves a little shy of the market because its need in all digit high spends, but doctor Morepen is brand we are getting a priority in the medical devices. There we are getting a business of, say, INR400- INR500 crores without much investment. There are nominal investments, but without much investment. It's a strategic call. It's easy to burn money and throw money, but naturally we don't have our so called investor's money to burn like our other startups are doing. We are a bit conservative, but certainly there is a brand. So we are looking for some tie-ups in there also, where we can get, we just share our so- called logistics hitch is that our main brand like Burnol, they have got a very good reach and thing, but they are very, I would say, focused only for the burns. So we can't grow that category. Burns is not a big category. So we are doing some strategic calls, but another two to three years' time, so we are planning that Dr. Morepen has to go big. It's an independent company, and it is an IPO candidate. But certainly we need some good volumes. We are almost at, like you said, stable business at INR100 crores. Till it goes to INR200 to INR300 crores, we can't go to the market. So we'll keep investing, and keep, I would say, putting house, in order, and once we see that, okay, there's a big game, so we can always say that. There are a lot of tie-ups available, people who want to sell products under Dr. Morepen brand and actually we don’t have to invest in the branding part, they would invest in the brand also. There are certain foreign companies who want to tie-up with Dr. Morepen. But we are a bit slow in that, because we are evaluating what is our growth path for us.

Thank you. The next question is from the line of Madhur Rathi from Counter Cyclical Investments. Please go ahead.

Yes, thank you for the opportunity. Sir, with so many new drugs and APIs in our pipeline, what kind of capex in both our API as well as medical devices division are we looking for in the next two to three years?

I must say, in the API division, so without the corporate expenses, without head office expenses, API is giving us EBITDA of 14% to 15%, and medical devices around 12% to 13%. But after adding corporate expenses and other things, going forward, we are expecting between 10% to 12% EBITDA in the coming two to three years' time. But on the whole, corporate expenses are doing very good and make good money.

Sir, what kind of capex are we looking for in these two -- what type of topics? Our Capital expenditure, are we looking to expand?

In capex, certainly we have a capex plan of INR125 crores for API's business which we certainly have to go for funding, either through debt or through equity. We are preferring debt because our equity is already very high. And on the medical devices side, there is another capex requirement of INR50 to INR75 crores. So that we are not going out and we have internal cash flows which we will be using for the medical devices. For the API, as of today, we are spending between INR3 to INR4 crores from internal cash accruals. That is why there is a shortage of working capital also. And since we have not borrowed any money for the past 25 years, we are generating –capital, capex only from the internal cash flows. So there is -- actually, there is a slow investment but we have huge plans for the capex. So maybe once we have a better capex in hand, so we can grow much faster.

And sir, what kind of asset turnover are you looking from the investment going forward?

Asset turnover, if we look at today, it is very high. It is five to six times. On an asset block of INR200 to INR250 crores, we have INR1500 crores top line. So going forward, I would say three to four times the bare minimum we look at. Because now these assets are old assets which are depreciated. But going forward, if you buy a new asset, between three to four times asset turnover that is expected.

Okay, sir. And your final question would be in our API, Glucoses Monitor business, what kind of precenting revenue is recurring in the form of strips -- from the strips segment?

In the Glucometer end, what is that?

So what kind of revenue is recurring in the form of strips that we sell on a recurring basis? Since we sell 10 million meter, so what kind of strips revenue can be generated from that? That’s what I am asking.

Yes, Glucometer, our half yearly sale is INR195 crores, almost INR200 crores. And INR103 crores is the revenue for the quarter. And last year, full year was INR250 crores. Now in half year, we have done INR195 crores. So this is Glucometer. Like I said, we have 11 million customer base. So that is the recurring revenue that’s we kept. Of course we keep on selling new meters also, but we keep on selling the strips also.

Look, we actually do not distinguish, but meters of course we keep selling and keep placing. Usually meters are placed at a discount to the customers so that they keep buying strips. But strips is the regular business, so we can't distinguish which are old customers, which are new customers because chemists do not share that data.

Okay, fine. Thank you, sir and all the best.

Thank you, Madhur. Thank you.

Thank you. The next question is from the line of Kunal Prakash Shah from SS Bharat. Please go ahead.

Sir, we have some questions. First of all, I was looking at your balance sheet, sir. Constantly, your OPMs are increasing, but they are increasing at a very slow pace. And against that, your products are such that you are saying that your sales are growing very fast, but the revenue generated, or the final net profit conversion is not visible. Can you tell us about that, sir?

I will tell you one by one. Like we said in API, for example, in API, 13% of our revenue is down, sales are down. But despite that, half year, there is no extraordinary thing. In diagnostics, it has increased by 41%. In formulation, 16% is yours. If we go to the category, like we said in API, our tax sales growth is plus or minus. We have growth in four products and negative in USA, India, South America, Europe, Asia, and it will be go down in MENA Market and Arabian Market.so obviously there is going in some part of plus and some part of minus. The number what we have giving as a whole. And if we talk about medical devices, there is growth in revenue and also in total, there is a growth in medical devices, and glucometer. Formulation is very stable. 4% quarter-on-quarter, 12% CAGR. If you see year as a whole, CAGR is If you specify, I can see it. So any specifics so I can share with you.

I am able to understand in your presentation, it is the same. It was just that where your growth is increasing, if you count in these dollar terms, then there is no appreciation in this quarter, it has been a week in rupee dollar terms, so according to your opening, it seems a little less, so I am making this specific second time point out. Your OPM is less in this quarter. That is why in December 2020 to September 2021, your OPM is above 10. After that, it drastically OPMs came down. That is why there is difference in EPS. Specifically, that is why I asked. Second one is, employee cost is increasing. Can you tell me about it? You have already said, employee cost is nearly INR74 crores on quarter. If you have 3,000 employees, it is INR2,40,000 expenses for three months. On those expenses, the returns we see are not up to that level. I asked you, where the problem is. We have heard the previous forecast from Sushil sir…

Our CFO Ajay Sharma sir, he will tell you. Let me shift the phone

This is Ajay. What we are talking about API. In API, what our Chairman had discussed, our Loratadine is less selling. Loratadine, in last year first half, the top line was INR130 crores. This time, it is at INR69 crores. It was giving us 60% plus margin. In return, as compare to it, the rest of the products have sold more but their margin is only 40%. So this the reason for API's top line getting affected and it getting impacted on bottom line. So, if we look at the margin of API, then the average margin is 40%. So, this time because of the change in the margin, the margin has decreased. So, it has an impact on the top line and bottom line. If we talk about the other divisions, in the formulation, let's talk about devices first. In devices, our averagely EBITDA level is 10% to 11%. So even today it is maintained. And formulation, because we don't have a top line, so in the three segments of the formulation, like the Rx business, the branded generic business, which doesn't have a top line, so, we have a branded generated business, which is not at the top. So, we generally face losses. So, the API generated, the devices generated at the lower level, the formulation, because it has some losses, the impact of the API plus devices generated is not fully effected. So maybe in the next year when our formulation revenue will increase, so the formulation revenue which has hit INR4 crores- INR5 crores in this quarter, so that will take care that next financial year onwards, you will have better bottom lines. As far as you are saying, employee cost. Employee cost, if you see last year, overall basis was 10.9%. If you see H1 basis, it was 10.5%. So, employee cost as revenue will grow, it will come down because number of people will generate more. And though in API business we are adding more sales teams who has to increase this revenue because that we are focusing. Same way in the formulation business, we have added new teams in the formulation business as well. So, I think maybe next year will be a transition year where top line will also grow, expenses will also grow but it will take shape. Like financial year 2021- 22 was a great year. 22- 23 was not that good, but 24- 25 will be better. So, you will see this growth and bottom line getting improved.

I wanted to ask you one question for that reason. Can we see your double digit growth in the next year?

Yes, definitely.

And all your companies will contribute in a positive way?

All will be positive but the formulation business is giving us a little hit. The formulation business will be also get stabilized. So, all your businesses, the double digit you are talking about, we have complete faith in it and you will see in near future.

Okay. And would you like to give any specific number on that or in which range you will see in near future?

Okay. As we grow, we want to give you confidence that the number we are giving today, tomorrow we will give you a better number.

Yes. But in double digit, your peers are doing very good. Actually, sir. I mean, they are already in double digit and they are far ahead. In API also, they are doing very good. I can understand that because of the remaining companies, you are facing problems but I want to know, when will all the guns start firing and when will we get a good bottom effect and when will it be converted into the result. I want to know this from you?

This financial year will be very much improved from last year and next financial year will be more improved than that. So, this year, as you have seen the improvement in the second quarter, in the third quarter, the improvement will be even better and next financial year, it will be even better. So, now you were saying, what to put in the numbers. So, we will see in the next two quarters and we will be in a better position to put the exact number as well.

So, in the next two quarters, are you expecting double digit growth, sir?

Yes, granular growth is -- definitely we are expecting double digit growth.

Okay, sir. Thank you very much, sir.

Thank you.

Thank you, kunal. Thank you very much.

The next question is from the line of Chinmay Rane from Kojin, Finvest. Please go ahead.

Yes. Just wanted to understand, do we have any presence in the contract manufacturing by any chance?

We have.

Yes, so how much is that proportion, in terms of revenues and how are the margins over there?

Contract manufacturing for which products?

For which products we have the contract manufacturing, do we have a segment in each per se and if it is yes, then which segment we are doing the contract manufacturing?

In contract manufacturing, we do some contract manufacturing for the finished processes. So basically, there are two types, one of course is the institutional business, which is actually done under the company's label, but there are a few companies who get contract manufacturing done from us. So there we do under their brand name and of course third division is our own generic division, so technically we count that also from a factory point of view contract manufacturing because it is a separate division, but otherwise other than formulation we do not have any contract manufacturing. The formulation business, if we say, it is hardly 5%, 5% formulation sale, and total it is not less, not more than 1%.

And how, in total, sir?

On the total, it is not more than 1% of the total sale of the company, in the formulation sales it is around 10% is for contract manufacturing.

Okay, and so do we have any product launches in the next one year?

Product for?

Product launches in the next one year?

Yes, we have many new drug launches, API also, in the formulation also, in the API of course there is a strong pipeline, it is there in our last quarter presentation, it is there on the website also, and I can share those things, and in the formulation also, there are many new products which are coming up. Particularly we are working on some products where in, this is the first time in the country for API approval, but certainly first broad base our team. Our team now is very small on the formulation, so we have to first expand the team and then talk of those big products, and certainly there has to be a balancing act. So we keep the growth momentum right, and keep on expanding the team, and then slowly keep on adding the new products. So, there is a three way balance which we have to do, production, team and the new products. R&D center has been developed, and of course formulation export facility is also coming up, so next 18 months the new export facility would also be up and running. So lot of efforts going on and on, so investors have been very patient.

Okay, and what will be the timeline for this? Like add new people, team, production, what will be the timeline for this, or this is a continuous process?

This is a continuous process, this is not a one particular project, we have a full- fledged R&D department, they keep on working on new products, new patents, NDDS, and certainly new capacities expansion we recently did in the last quarter. And some things are still going, and you would see the formulation sales going up from next quarter onward, Q4 or I would say next quarter, this is already in Q3, but next quarter onward formulation sales would also start going up. Basically I would say lot happening in the capacity side, we still have to work on the market side, adding teams. We have to work on the ground level, a lot of work has to be done on the formulation side, and the API of course, we have very strong backend and R&D, frontend we have added as you have seen in the presentation, so frontend is being expanded.

Okay, so how many number of scientists are working currently?

How many?

The scientists working with us currently?

We have around 36 people in the R&D team.

36 people. Okay sir, that's it from my side, I will come back in a queue.

Thank you, Chinmayee.

Yes, all the best.

Thank you. Participants who wish to ask questions may press star and one. As there are no further questions from the participants, I now hand the conference over to Mr. Gopal Chandak for closing comments.

Thank you. Thank you everyone for joining the conference call of Morepen Laboratories Limited. If you have any query, you can write us at info@kirinadvisors.com. Once more, thank you everyone for joining the conference.

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

Thank you, guys, thank you everybody. See you next quarter.