Orchid Pharma Ltd (ORCHPHARMA) Q4 FY23 Earnings Concall Transcript

Orchid Pharma Ltd (NSE:ORCHPHARMA) Q4 FY23 Earnings Concall dated May. 11, 2023.

Corporate Participants:

Manish Dhanuka — Managing Director

Mridul Dhanuka — Director

Analysts:

Himanshu Upadhyay — O3 BMS — Analyst

Rupesh Thapliyal — — Analyst

Nitesh Dutt — Burman Capital — Analyst

Sajal Kapoor — Individual Investor

Nikhil — SIMPL — Analyst

Aditya Sen — Robocapital — Analyst

Tarang Agrawal — Old Bridge Capital — Analyst

Agastya Dave — CAO Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Orchid Pharma Limited Q4 FY23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Manish Dhanuka. Managing Director. Thank you and over to you sir.

Manish Dhanuka — Managing Director

Thank you. Thank you very much. Good evening, and welcome all of you to the Annual Results Call of Orchid Pharma Limited. I have with me my co directors Mridul Dhanuka. We are happy to share the results for the financial year 2022-2023. The fourth-quarter continues to be the largest quarter for the financial year as we have seen over the last three years. We achieved a growth of 31% over the last quarter and a growth of 16% over the corresponding quarter last year.

With respect to the financial year, the year-on year-growth is 20% in revenue and the growth on EBITDA is 55%. Although, we were able to turn-around Orchid within the first year itself, from the takeover on 31st March 2020 and turn the EBITDA-positive. I’m happy to report that this year we are having a positive PAT also. The PAT for the full-year before exceptional items is INR16 crore rupees. It gives me lot of satisfaction to announce that our conceived plan as the acquisition to hive off the non-core assets are complete now, with the sale of corporate office and the term debt, which was INR427 crores taken for the acquisition of the company is now reduced to INR81 crores despite an additional investment of INR31 crores for capacity expansion.

This capacity expansion includes commissioning of a new sterile plant, which will add the fifth plant or maybe at 20% of the sterile capacity would be added. And we hope this will give a significant boost to the sales this year. With the reduction of debt and consolidation of the acquired business, we will now move towards our future in a more confident way. The most important step in this direction is the setting up of the 7 ACA plant, a step towards backward integration.

We have signed a technology agreement with an international biotech company having expertise in fermentation technology. And this company is basically supplying technology to even the Chinese manufacturers. So we feel that we’ve got access to the state of art technology. We are making good progress in developing ANDAs to be filed in the U.S. for the products that are getting off-patent in the next three years.

We will now take in [Technical Issues].

Questions and Answers:

Operator

Thank you. [Operator Instructions]. The first question is from the line of Himanshu Upadhyay from O3 BMS. Please go-ahead.

Himanshu Upadhyay — O3 BMS — Analyst

Yeah, hi, good afternoon. Am I audible?

Manish Dhanuka — Managing Director

Yes, Himanshu, we can hear you.

Himanshu Upadhyay — O3 BMS — Analyst

Yeah, congratulations on good set of numbers. And it seems that on the cost side, we have done pretty, but we are through the difficult phase, okay. Now the focus will be more on revenue growth. And so, my first question is on the revenue side, okay. See, this whole traction of nearly INR450 crores to INR700 crores of revenue what we have achieved, which is quite remarkable, initially, we had three areas to focus on to get revenue. One was to get newer clients. The second was new products. And the third was more from the existing products, okay. Can you elaborate on where are we in that trajectory and how many newer clients you would have added from FY21 to now.

And similarly, new products, and how much would be from existing clients, let’ say.

Manish Dhanuka — Managing Director

Yeah, Himanshu, it’s complicated question to answer. Unfortunately, customer numbers, we will not be able to comment. Also what also happened is a lot of the customers who would be the end-user of our products get their product contract manufactured at various sites. So, I’ll give an example of an Indian company, let’s say, Cipla wants to buy our end-product. They might use three different custom manufacturing sites to actually procure the product in and then buy the product. So our end customer remains Cipla, but that never reflects in our sales numbers. So it’s — but the CDMO who bought our product might change every year. So it’s difficult to say how many we have gained in numbers, but we’ve added significant amount of — number of customers in various markets.

And when I mean customers, even same product addition to the same customer is also the same amount of work in pharmaceuticals as you would understand. So I can’t talk about numbers specifically, but definitely more than 50.

Himanshu Upadhyay — O3 BMS — Analyst

More than.

Mridul Dhanuka — Director

More than 50.

Himanshu Upadhyay — O3 BMS — Analyst

And in the product basket, have we significantly changed or the scope on that side, where are we? Newer products and what revenue contribution can be there from those new products?

Manish Dhanuka — Managing Director

Yeah, Himanshu. I must compliment you. It’s a very-very intelligent question. I think, I mean, I did not think it like this. Yeah, so Mridul has answered about the number of customers. And so I now question regarding the products. So what we have done is we have definitely realigned our product mix and we have gone towards the products which are giving a better value addition. And we have tried to reduce the products which are less value-added. So there are three to four products, which we have added in our basket and where I am happy to say that we have been able to completely stopped the Chinese imports also. So that definitely helped us in the bottom line.

Himanshu Upadhyay — O3 BMS — Analyst

Okay, and one thing in geographical aspect, U.S., there were certain challenges, okay. How to enter that market and because of historical reasons. Where are we in terms of negotiating and getting newer clients in America? Europe was already — always a strength for Orchid. But can you elaborate on where are we on our journey to get more business from America as a continent.

Manish Dhanuka — Managing Director

Yeah, so we hear a lot of news about the competition in the U.S. market now. I mean, there is stress on lot of pharma companies who have been traditionally making large profits in the U.S. market. But, fortunately, it is different in our case, with the injectable case and more so in the cephalosporins. As you can see better, there are hardly any USFDA approved injectable plant, not just the API, even the formulation. So we enjoy kind of. I would say, much less competition with only I believe towards the other players who can supply to U.S. market. So in that aspect. we’ve said in the last call also, we are gaining traction with new customers and one significant development is that we have got approval for one of the products, for which commercial supplies have also started for the U.S. market.

For European market also, I mean the competition is relatively less and Orchid enjoys good reputation. So, we are definitely getting a more share of the regulated market.

Mridul Dhanuka — Director

Just to give another color, which will tie up your question maybe able to answer it better. So when you look at our regulated market versus ROW comparison, earlier, in the first two years of our operation, this number had swung more toward ROW with the split going regulated versus ROW to 40%-60%. This year, with our increased efforts in various other regulated market, so this number has crept up slightly from this 40%, 41% to roughly 440%, 45%. So we are making progress on that side.

Manish Dhanuka — Managing Director

Once again, complements, Himanshu, you summarized our entire strategy in a single sentence. Much appreciate it.

Himanshu Upadhyay — O3 BMS — Analyst

Yeah, thanks. One more thing, how large is the market for ceftazidime-avibactam which we launched in this quarter. And what can be — so we launched with four people, okay, that API okay, formally. Is there anybody who has launched without us and what is the size of that market and how successful has it been and what complexity would be that product and some idea on that.

Mridul Dhanuka — Director

So it’s two things, it’s a very complex product, number one. Number two, see this is a life-saving drug and you know, when all other are bacteria-resistant, this only works. So we feel our Orchid is in leadership position in this product. In the Indian market, we launched on the first J and we hope we are planning now to file for the NDA in the U.S. market also, We hope to be leader in the U.S. as well.

Himanshu Upadhyay — O3 BMS — Analyst

What is the size of the Indian market.

Manish Dhanuka — Managing Director

So global market is roughly $500 million. And Indian market instead of value, the right way to look at it, because it’s nascent and price discovery to consumers still happening, so I’ll give you in terms of buyers. Roughly Pfizer just before the patent was selling roughly 25,000 vials or so. We believe the market total will expand four to five times in the next year or two.

Himanshu Upadhyay — O3 BMS — Analyst

And really one lakh vials you are expecting?

Manish Dhanuka — Managing Director

Yeah, that is the minimum within the first year, yeah.

Himanshu Upadhyay — O3 BMS — Analyst

Okay and one last thing, the fifth-line of sterile, which we were to start in June, next Monday, are we ready with the plant or is there something is required for.

Mridul Dhanuka — Director

Yeah, we are on schedule on it.

Himanshu Upadhyay — O3 BMS — Analyst

Okay, thank you. I’ll join back for further queries. Yeah.

Operator

Thank you. The next question is from the line of Rupesh Thapliyal from [Technical Issues] Capital. Please go ahead. Hello, sir, can you hear me?

Mridul Dhanuka — Director

Yes we can.

Rupesh Thapliyal — — Analyst

Congratulations sir, on a fantastic set of numbers and significant margin improvement. My first set of questions around Enmetazobactum. So, sir. I mean, where are we on the commercialization in India and also in the global oil market? How is, I mean, do we have finalized some visibility of what Allecra is doing.

Manish Dhanuka — Managing Director

Yeah, so for the European market, we can see on the EMEA website that the new drug application has been filed with them sometime in the month of January or February. So in Europe, it should be about a six to eight months kind of approval. So earlier, last-time when we were talking, we were saying that, you know, we don’t know when the product might be launched because Allecra doesn’t share much information with us. But looking at the filing, which has been accepted by the European Medicine Agency, we believe definitely for Europe, the product will be launched this year.

And similarly, our thoughts around Chinese and U.S. launch should also happen this year, but unfortunately, we don’t have much information on those. For the Indian market, actually, we were hoping that we might come with announcements, but unfortunately it’s not happened, but maybe within this week, we will be filing for clinical trials, our application. And then maybe another year for the product to launch. Okay, okay, and we are expecting some royalty from China, right. So is that linked to this kind of like approval or. No, so Chinese royalty will come when sales in China start. That has nothing to do with our clinical trial. That is only for the Indian market.

Rupesh Thapliyal — — Analyst

No, no, no, so in Chinese market, is there only sales-related royalty or is there some milestone you know like payment.

Manish Dhanuka — Managing Director

Orchid for all the markets is only — yeah sorry — Orchid for all the market is only entitled to sales-related royalties. We don’t have any milestone payments, etc. Those will go to Allecra.

Rupesh Thapliyal — — Analyst

Even for Chinese market?

Manish Dhanuka — Managing Director

For all the markets.

Rupesh Thapliyal — — Analyst

Okay, okay and maybe slightly more kind of technical question, so how do you think the performance of Enmetazobactum is versus let’s avibactam or I see soe five or six innovators were also trying in this field. Most of them are in Phase three. So, how do you feel — is the performance of Enmetazobactum versus Avibactam and all the new products.

Mridul Dhanuka — Director

So, for Phase three products, it would be difficult to comment unless the trial results are published. I can talk about Ceftazidime and Avibactam. So it’s a completely different segment. Ceftazidime-Avibactam, a very large product like. I just shared 500 million global size. But Ceftazidime-Avibactam is not the first-line of treatment. So once an infection happens, they don’t give this product as the first choice. It is only given when with the normal antibiotic, the infection is not cured. While Enmetazobactam is positioned to be the first-line treatment in case you are suffering from UTIs instead of piperacillin tazobactam, which is the current standard-of-care. It is advised that Cefepime-Enmetazobactam should be administered. So they are completely different segments, therefore non-comparable With respect to Piptaz, which is a very large product and the standard-of-care against 59% efficacy, Cefepime-Enmetazobactam has 79% efficacy.

Rupesh Thapliyal — — Analyst

Okay, okay, and, sir can you also talk about what indications it is approved for because somewhere I read that you also want to do Phase three trials for complicated UTI I and Pyelonephritis.

Mridul Dhanuka — Director

Yeah, both those indications, it’s approved for. Cefepime as a drug for Europe market is also approved for intra-abdominal infections and IAI but for Cefepime-Enmetazobactam combination for Europe market, the EMEA said that once you get approval as a new drug, it will be auto-approved for hospital-acquired and community-acquired pneumonia as well. In India, we have to see what the approval comes. The clinical trials will be only on UTIs, but basically since the drug Cefepime works on all three largest indications, which is abdominal, pneumonia and UTIS. So we believe at the end, the usage might be triggered by all these factors.

Rupesh Thapliyal — — Analyst

Okay, final question, sir. So this, I mean, based on whatever I have read, this is the only product, which has Phase 3 cleared and we are very close to getting an ANDA. And in one of your older presentation, you had indicated a really large market size. So and obviously, I mean, you didn’t start this product, old management started this product, but due to filing, how confident are you that Allecra is the right partner, your Chinese partner is the right partner, they have the right focus, they have the right kind of like velocity to commercialize this product and make it successful.

Mridul Dhanuka — Director

So all this, the first thing to see is Allecra is a private-equity funded company, largely by — [Indecipherable] player. They are large global players. One of the partners is Boehringer Ingelheim, the large German pharmaceutical company and there are the Rothschild and people like that. So they are very smart people to actually choose the right partners in various countries.

Secondly, coming to Shanghai Haini pharmaceutical, again, it’s very large — I think top five pharma companies of China. Now they have paid INR80 million upfront. I don’t think without looking at the potential of the product and the possibility to generate profits out of that, they would have invested in it. So all these things give us the right indications, but at the end, the proof of the pudding is in eating it. So once the royalty flow starts, we’ll have more information and validation of our thoughts.

Rupesh Thapliyal — — Analyst

So do you feel that there is enough focus and velocity to make things happen in Enmetazobactam?

Mridul Dhanuka — Director

Yeah, one thing which has moved from the last call forward is the filing of the European application. The U.S. application, unfortunately we can’t see in public domain. But my belief is that it should also have been filed. But we don’t have information.

Manish Dhanuka — Managing Director

You see antimicrobial resistance is a very big menace right now that mannKind is facing. And if you go to WHO website, they mentioned that antimicrobial resistance could be the next pandemic. So, unfortunately, not many new molecules in antibiotics are coming. So we feel that an antibiotic which can work on different bacterial strains — resistance strains — is very much need of the hour and we feel having this molecule is not just going to be financially good for Orchid, but it is very much required for the healthcare safety of the world.

Rupesh Thapliyal — — Analyst

Sir, I have read all the literature of the WHO, truly exciting and I mean we are really close to commercialization also. It’s really remarkable.

Manish Dhanuka — Managing Director

Yeah, so we have actually requested DCGI for a waiver of clinical trial also. In case, we are able to get the waiver, then the launch could be earlier also. But we have made the protocol as well. So we will go as per the advice of drug controller.

Rupesh Thapliyal — — Analyst

Okay, okay, sir my next area of question is in new products. So, I mean, can you give some indication about what was the contribution of Ceftazidime plus Avibactam in Q4 and was that primary driver for margin improvement?

Manish Dhanuka — Managing Director

Unfortunately, we can’t give product-wise information. Sorry for that. [Speech Overlap]. Yeah, from 0 to the number is significantly high. And the gross margins, I can share. The gross margins are also better than the overall blended gross margins.

Rupesh Thapliyal — — Analyst

Okay, okay and sir.

Operator

Sorry to interrupt Mr. Rupesh, may I request that you return to the question for the participants waiting for their turn.

Rupesh Thapliyal — — Analyst

Sure, sure.

Operator

Thank you. The next question is from the line of Nitesh Dutt from Burman Capital. Please go ahead.

Nitesh Dutt — Burman Capital — Analyst

Hi, good evening. Thanks for the opportunity. I have three-four quetions. The first one is, can you break revenue growth in Q4 into various components, maybe price, volume, by geography, new customers, new products, etc. And also, is this sustainable or does it include any one-off supplies, any one-off contracts that will taper off in the future quarters?

Mridul Dhanuka — Director

Yeah, thanks for that. Unfortunately quarter-wise breakup, I won’t be able to provide. Our annual breakup continues to remain same on oral versus sterile, which is one third, two third. One third towards sterile and two thirds towards oral. This long-term trend would continue. In terms of regulated versus ROW, last financial year ending regulated was roughly 40%, 41%, and ROW was roughly 59%, 60%. This year ending is roughly regulated 45% and ROW business is roughly 55%. And so, that also led to some of the margin improvement that is there. Going-forward when you look at EBITDA margins, if you see what is going to happen and we have talked about it earlier, our sales will increase more and expenses will increase as a percentage less because we’ll be setting and leveraging our assets more. Like this year, the sales have overall increased by roughly 20%, while the expenses have increased by low-double digit. So that’s what margin expansion is going to contribute going-forward.

Nitesh Dutt — Burman Capital — Analyst

Got it. Can you breakup the sales growth into price and volume. So if you go down Q3, the 31% jump, we’ll be able to break it up by volume and size.

Mridul Dhanuka — Director

No, that wouldn’t make sense with the wide range of product Orchid makes. We make almost 35 products and some of the capacity fungible specifically in sterile products. So to ensure that we are fully utilized in terms of capacity, we change based on orders from a product b product. So suddenly — volume comparison is also not possible. One product is $100. The other is, let’s say, $2000 a kilogram. So there cannot be any comparison with respect to that.

Nitesh Dutt — Burman Capital — Analyst

Understood. My next question is on Enmetazobactam. So, value of royalties is estimated at $16 million to $25 million in previous presentations. So assuming filing happen within the next year, can we assume that this will start flowing by FY25 or at least partly by FY 5?. Any color on that.

Mridul Dhanuka — Director

So unfortunately, due to the QIP process starting, I can’t make many forward-looking statements. But if the filing happens, immediately the customer launched should happen. That is what my assumption would be. And d every quarter. we are due that royalty. So as soon as the sales start happening, the royalty would start flowing in and it’s. Looking at the trends after filing in Europe, we believe definitely the royalty should start flowing in within this year.

Nitesh Dutt — Burman Capital — Analyst

Understood. My last question is on price erosion. This is both for your existing set of molecules plus, as well as ACA the PLI. So are you facing — still facing steep price competition especially from Chinese players — this is for AAC molecules. And for 7 ACA also, would it be competitive with the current suppliers in the market?

Mridul Dhanuka — Director

I’ll answer the second question first, which is about 7 ACA. So like Manish alluded in his opening speech, our technology partner is the same person who supplies company technology to other Chinese companies. So we believe we are going to get assets to the best technology in the world. So, I don’t see any disadvantage with respect to China on that front. The PLI related benefits and our choice location of Jammu are going to help us only in ensuring that the initial hiccups of scale up at that time, we are able to sell and still make some money. So on 7 ACA, we are fairly confident that we won’t have any disadvantage against is China.

On the first part, when you said you know price competition from China, that will always be there in emerging markets. But like I said, Orchid large part of the business, a significantly large chunk is regulated market where price does not play the primary role, the quality and approvals play the prime. Yet, at the same time, the pricing pressure is always there, but fortunately cephalosporin technology, India is much ahead than China and specifically for the oral product, if you look, India should be two or three times the capacity of the Chinese company.

For sterile products, ceftriaxone is the largest sterile product in cephalosporins in the world where China has much larger capacity but Orchid. contribution largely comes from other sterile products, which are very niche small volume products. Orchid is probably the only one or maybe the only two players of the world who are making these products. So that’s where the price competition is lesser.

Nitesh Dutt — Burman Capital — Analyst

Thanks, understood. Just one more question. So I understand you have two important new molecules, Ceftaroline and Ceftazidime-Avibactam, which you talked about slightly earlier. So these two molecules, how much can they contribute, let’s say, three years, five years down the line? What percentage of your topline might come from these two molecules, any ballpark figures on that?

Mridul Dhanuka — Director

Unfortunately, this is a forward-looking statements. But I can give you some color with respect to market size and our thoughts around that. So, Ceftaroline largest contribution will come from U.S., which is a $150 million, $160 million kind of market. So with generics product coming in the market, the price would slightly fall, the volume would increase and we should be able to get being the two or three players in the market at 20%, 25% kind of market share. So that’s our thought around Ceftaroline.

And on Ceftazidime-Avibactam, like I said for India, this product has the potential to be a very large product like India has shown and a similar kind of market size of — the overall market, specifically for the U.S. where we are targeting a para 4 filing. Those benefits would accrue to us.

Operator

Thank you. The next question is from the line of Sajal Kapoor, an individual investor.

Sajal Kapoor — Individual Investor

Yeah, hi, thanks for taking my questions. Congratulations on good results, solid execution, well done. I have a couple of questions. First, culture and chemistry go hand-in-hand, right. So how is the culture being transferred since Dhanuka group took over? What concrete steps have been taken? That’s one.

And then, the second question would be don’t you think that many generic antibiotics are kind of sunset sector due to older therapies and drug resistance etc. And then within antibiotic, the cephalosporins space is small. So opportunity size is perhaps not great if we look five years out. So, what steps are we taking on the R&D capability [Indecipherable] side today so that we can be you know worthwhile and relevant in five years out? Thank you.

Manish Dhanuka — Managing Director

Yeah, interesting question. So, first, I’d like to compliment Orchid team with respect to the culture what you mentioned. I think we — Orchid Pharma had an excellent team, very capable. And I mean, it’s been a good experience working with them. The scientists out there are quite extraordinary. All we needed to do was infuse some energy and motivation. And we hope we have been able to do that.

And your next question regarding antibiotics, it gives a general impression, in Pharma industry that antibiotics is an old molecule base and there is not much of a growth, but on the contrary, antibiotics are one class of molecules, which is always continue to grow because whatever happens, infections are going to be there. And not just infections, any surgery, any procedure, you need an antibiotic whether you have an infection or not as a prophylactic itself.

And particularly, more particularly cephalosporin is the largest class of antibiotics. So cephalosporins is not going anywhere. And in cephalosporins also, Orchid is the only company which commercially manufactures 25 out of 30 approved antibiotics, be it oral or sterile. So that then, I think Orchid has the largest range of cephalosporin antibiotics, not just in India, probably in the world.

So I think Orchid has a good opportunity to grow. And with respect to our growth plans, we are trying to cover the foundation by going for backward integration and increasing our capacity so we can leverage the overall strength of Orchid in a better way and at the same time, we are going up the value chain by filing ANDAs in the U.S. market, where we can get a better valuation, better realization as well. I hope I could answer your question.

Sajal Kapoor — Individual Investor

That’s helpful. And how fungible are our capacities across both oral and sterile?

Manish Dhanuka — Managing Director

Yeah, Sajal, for sterile, the capacities are pretty fungible. We can divide the product into two broad categories of crystalline and lyophilized product. So between these two, it is not fungible, but bulk, maybe 90% of the products or even 95% of the products are cystalline. And out of our now five blocks, four are for crystalline, one is for lyophilized our products. So between those four blocks, it is pretty fungible.

At the same time, some customers are very specific with respect to which plant they would buy from. They would come in audit only in that plant. So with respect to that particular customer, it may not be that fungible. But in general, for products market, it is pretty fungible.

On the oral side, because the volumes are very-very large, now what we are making, we have set up dedicated capacity for the largest product, which theoretically fungible but don’t — we don’t need to change. We are practically using them fully. There are some blocks which are more multipurpose where we make smaller niche products.

Sajal Kapoor — Individual Investor

Absolutely. And some of the Japanese customers, they are very stringent, not just at the plant level, but the block level. And they just go at the reactor level and you cannot even the reactors. I fully appreciate that. What really needs to happen to generate a lot of cash this year and next because I see there is some debt on our books as well. So. I would like to see us to be reducing that debt, it is not completely debt-free. So what really needs to happen to generate a lot of cash this year and next, please?. Thank you.

Mridul Dhanuka — Director

Yeah, our trajectory should continue the way it has and what will happen next year is our depreciation would go down significantly. And we have plans of raising primary capital. Once that comes in, a lot of the debt would be settled by that. But at the same time, the company has a lot of capex plan. So, to fund that capex, for example, the 7 ACA project is of roughly INR500 crores to INR600 crores investment. So to fund that, we are going to have to take place a fresh debt as well.

So, what positive you will be able to see is, the debt would continue to be retired. And for the new capacity, fresh debt would be taken, just like when we had acquired Orchid, we had taken a debt of INR427 crores. That debt is down to INR50 crores now. And for the new sterile block, which we are commissioning, we had taken a debt of — that number stands today at INR32 crores, maybe INR10 odd crores, we will need more to finish that before we start. So, that trend will continue to happen. We will make best investment, take some fresh debt for that. Old will get continue to revolve.

Sajal Kapoor — Individual Investor

Sure, so growth. So, with that, the growth capex is actually fine as well as our returns

Operator

Sir, may we request that you return.

Sajal Kapoor — Individual Investor

Last question. This was the last question.

Operator

Okay, sir.

Sajal Kapoor — Individual Investor

So, yeah, debt is for growth capex as well as our return on the targeted return on capital is far superior than the cost of capital. So do we work with and I am sure you must be having a framework and what sort of target return on capital do we say, let’s say, three to five years out when these capacities are fully up and running because there is always a gestation period in our business. Do you guys mostly some sort of a framework, I’m sure you do, right.

Manish Dhanuka — Managing Director

So, there are two kinds of return on capital when you say, we can talk about. One is the typical ROCE number that you look at. The problem with the Orchid numbers are because of the past things that we carry in our balance sheet, when you calculate the ROCE just like that, that doesn’t give a right number because of the large asset-base and low capacity utilization. But going-forward, obviously, our intention for acquiring the businesses is that the numbers should match the best-in class or at least the median numbers, maybe not the best-in class. So it should be a profitable business and if we are able to generate, like you said, cash like we have been generating now and we have paid the loans by some of the non-core assets and by cash as well. So both these things will contribute to happen in the forward as well. If we don’t see a payback period, normally whenever we invest within the next three to four years, then we don’t invest the capital. That’s the thought process behind the management. Wonderful. Thank you. All the best. Thanks.

Operator

Thank you. The next question is from the line of Nikhil from SIMPL. Please go-ahead.

Nikhil — SIMPL — Analyst

Yeah, hi, good evening and congratulations on a good set of numbers and all appreciations to the team for a great since 2018. Just two-three questions, one is, Mridul, you mentioned that the improvement in the profitability is more driven by the mix of business moving towards regulated versus non reg. But on the secondary side, if you look at the last whole of year, most API companies were facing issues with higher RM prices and freight cost and power and fuel. How much of it is still in the P&L at a higher base where you would believe that the costs are going down or on the cost side, you believe largely whatever normalization has to happen, has happened.

Mridul Dhanuka — Director

Yeah, thanks for the compliment. There are two, three factors that are playing here, I talked about that the regulated market business has improved, but if you look at the gross margin level overall, in spite of that improving a little, we have fallen from roughly 44% to 42%. So the pricing pressure and the raw-material cost increase factors are there. What we have done to manage that is specifically you know, you remember, earlier calls, we talked about the large energy cost, which is on our book. So for that, the investment in solar plant has worked well for us. That investment has paid-off already for itself and the INR35 crores we had invested. So these kind of things on energy conservation and other ideas and changing of product mix, this is what is going to continue to drive it going-forward despite the price increase. Whatever price increase happens. especially in emerging markets, it’s quickly passed on to the customers, maybe with a smaller lag. It is more difficult to pass it on to a regulated market customer, but at the same time, the converts also works well with them. When the price falls, that much more money we make at that time.

So now the prices are rationalizing in China where we source a lot of our raw materials. Those will benefit. The benefit will come to us going-forward.

Nikhil — SIMPL — Analyst

Okay, and just adding to that, if you remember last two, three call and our utilization in sterile and oral dosage, on sterile, I think we were up at optimum utilization and that’s why we were putting the capacities. But in oral, the utilization was still low. So where by year end so far for this financial year, what would be the utilization on the oral dosage side and how has it moved over FY22?

Mridul Dhanuka — Director

Yeah, so last year we were roughly at 60%. This year, we would see be roughly at 70%. You understand a lot of this also depends on what product we make in the plant. So this will again improve by a few percentage points next year and so on the sterile side, we were at roughly 90%. 95% and with the new plant added and commissioned, we would endeavor to run it at full utilization from the word go.

Nikhil — SIMPL — Analyst

And this sterile new plant is adding 25% more to the capacity, right?, if I am not wrong.

Mridul Dhanuka — Director

25% on the sterile side, yes.

Nikhil — SIMPL — Analyst

Okay and last question on the U.S. ANDA. So in our previous calls, we had mentioned that there were 11 ANDAs in the name of Orchid, which we were looking at commercializing or — and we had shared also the market sizes. So, are those opportunities still relevant or would you say that they are no more relevant and only new filing would be meaningful?

Mridul Dhanuka — Director

Yes, so the challenge with the old ANDAs is finding FDA size which is USFDA approved. Like as Manish explained earlier, there are not many sites which are USFDA approved to make the product. Orchid is still looking for oral sides. All those ANDAs are on oral space to make these products. Some of the products are still relevant. So we have retained out of those 11, five ANDAs. And we have sold a few of the ANDAs as well, which we thought were not relevant for our portfolio.

The new filings, all our the patents which are going off are all in the sterile space. So first, the revenue should start coming from there. We are still looking for contract manufacturing companies who can — USFDA approved who can make this product for us. So, for five ANDAs still relevant. But first sales will come from the new sterile product.

Nikhil — SIMPL — Analyst

Sure, I’ll come back-in the queue.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Ruchitha Kharge from [Indecipherable]. Please go ahead. Ruchitha your line is in the talk mode. Please go ahead. As there’s no response from the current participant, we’ll move onto the next that is in the line of Aditya Sen from RoboCapital. Please go ahead.

Aditya Sen — Robocapital — Analyst

Hi, am I audible?

Operator

Yes, sir. Please proced..

Aditya Sen — Robocapital — Analyst

Yeah, so I just wanted to understand if the –this could be a basic question, but I just wanted to understand is the present revenue and EBITDA is sustainable for the coming year and since we are bringing the capex, can you please let me know what’s the scale of capex that you’re doing.

Manish Dhanuka — Managing Director

Yeah, so in terms of scale, you asked scale of capex, right.

Aditya Sen — Robocapital — Analyst

Yeah.

Mridul Dhanuka — Director

Yeah, so roughly INR30 odd crores, we have already spent and before the plant is commissioned, INR10 crores will need to be spent. This will add roughly 25% capacity to our sterile products. The sterile products are today roughly one third of the revenue and we expect a good growth coming from this within this year after commissioning. So the trajectory of revenue, I can’t make a forward-looking statement. But whatever we have said in the past, that should continue.

Aditya Sen — Robocapital — Analyst

Okay, so if I can ask any aspirational figure that we are aiming towards in the coming three, four, five years.

Mridul Dhanuka — Director

Sorry, any what.

Aditya Sen — Robocapital — Analyst

Any aspirational target that we might have.

Mridul Dhanuka — Director

No, unfortunately, I can’t make forward-looking statements due to the QIP process going on, sorry.

Aditya Sen — Robocapital — Analyst

Okay, okay. No issues. Thank you.

Operator

Thank you. The next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go-ahead.

Tarang Agrawal — Old Bridge Capital — Analyst

Hi, good evening and congratulations for an extremely strong set of numbers. Couple of questions from me, sir. One, If I look at the NCE, right, which product is the NCE likely to replace if it were to come through.

Mridul Dhanuka — Director

You’re talking about Enmetazobactam?

Tarang Agrawal — Old Bridge Capital — Analyst

Yes.

Mridul Dhanuka — Director

So, replacement, it will take-away market share from three different type of products. I’ll give a color on the Indian market and the numbers are available on our presentation earlier. So first is piperacillin tazobactam, that is the standard-of-care of UTI today. So it will take share from that. That’s roughly INR1,000 crores. And second product is ceftizone, which is the largest selling antibiotic in India, the first product to be administered generally. It will take away share from that. And because of resistance against these two existing products, carbapenems are used largely, meropenem, again, a very large product for the country. So during this — this will take-away share from that as well.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay, what was the second product is Ceftazidime sulfate, is it. No, so, ceftizone, second product is ceftizone. Ceftizone, okay. So the same trend would perhaps follow in the regulated markets as well as and when you get approvals there, correct?

Mridul Dhanuka — Director

So regulated markets, yes, every country has a different antibiogram, which means they have a different profile of which bacteria affects for a particular disease. So it would depend on market-to-market but piperacillin tazobactam, especially in areas where the doctor decides more judiciously like in India, typically, let’s say, a daily wage worker goes to a doctor and says. I want to go to my job tomorrow, you give me a short. So doctor might do that. Iin U.S. or something they might first search which bacteria you are suffering from, only then they will give the antibiotic. So there, the replacement antibiotic could be different, but piperacillin tazobactam is definitely going to be the primary product of prescription.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay, got it. Second, sir, [Indecipherable] my sense is, it’s currently at about INR5,000 rupees per injection. So, how does it work? I mean when you said 25,000 vials would perhaps go to one lakh vials. It’s, this particular each injection or If you could just give us some color and how would the API value be your — a broad-brush, i am not looking at exact numbers.

Mridul Dhanuka — Director

Yeah, sure. So, I am not sure of the market price of the product, it should have fallen after genericization, but. I don’t think there are generic companies because it’s just three months since the generic product in January. So 25,000 vials when I meant per month, I meant each individual vial only. And I will not be able to disclose the API price in this particular product right, now.

Tarang Agrawal — Old Bridge Capital — Analyst

Understand, Understand. And the third question is. If you could just give us a broad-brush on how your GCs would differ between regulated and other markets and how your GCs would be between a sterile product and an order product.

Mridul Dhanuka — Director

Great question, Tarang, but again a complicated one. Sorry for a convoluted answer you’re going to get. It depends on — in general, if I say sterile products have higher gross margins than oral product, right. But the oral products, some of the product in regulated market have a very different kind of margin profiles, largely due to who is the end-customer. So in one oral product where we have tie-up with the innovator there, the gross margins are at very-very high, but some of the other products where we are one of the two or three people selling, there is no exclusivity deal, the gross margins are lower.

So the similar pattern continues in sterile products. So some of the products like one of the new products we are making will be priced at let’s say $40,000 per kilogram, Here, gross margins will be very-very high, but at the end, if you look at product-wise net margin, the quantity would be so small that the overheads loaded on this product would be higher. Have I been able to answer your question.

Tarang Agrawal — Old Bridge Capital — Analyst

I mean quite convoluted, but I understand the limitations of the forum. Thank you. Thank you so much.

Mridul Dhanuka — Director

Yeah, Thanks.

Operator

Thank you. The next question is from the line of Agastya Dave from CAO Capital, please go-ahead.

Agastya Dave — CAO Capital — Analyst

Am I audible?

Operator

Yes, sir.

Agastya Dave — CAO Capital — Analyst

Thank you for the opportunity, sir, most of my questions have been answered. They were around capacity utilizations and products. Some of them you have answered. Some I understand you can’t answer openly, Sir I have a basic question on how this company will move forward. So as of now, you’re operating close to full utilization and you have a new plant planned with respect to the backward integration for 7 ACA and your are raising money, right. So, is this the model that will be following that every time we need, we’ll go for large projection, raise a lot of capital or this is a one-off thing. How often do you think you need to dilute.

Mridul Dhanuka — Director

So I wish I have so many projects of investment of INR500 crore, INR600 crore in the near futures and if that is there, definitely, we will have to come to the market. But once the 7ACA see project will come into play, that will generate a lot of cash for the company. And small business as usual expansions will be internally funded. And we won’t need to come to the market for that.

Agastya Dave — CAO Capital — Analyst

Great. And sir this 7 ACA plant, what is the concrete capex that you will be undertaking. And can I apply the usual rule of thumb of water fermentation plant looks like with respect to asset turnovers and margins to 7 ACA or is it something different?

Mridul Dhanuka — Director

Yeah, so the capex is INR500 crores to INR600 crores. But, about the margins,. I wouldn’t be able to talk right now because of the limitations of QIP process. Sorry on that.

Agastya Dave — CAO Capital — Analyst

No problem, sir. Is it very similar to other fermentation products or is it completely, is the economics very-very different.

Mridul Dhanuka — Director

No, it’s normal fermentation product if you talk about other pharmaceutical companies, which they make. They are niche products and smaller volume, Our product will get 1000 metric ton scale and margins would that not be, I’m assuming those margins, the margins of let’s say biosimilars are very-very high. This will not be towards that number.

Agastya Dave — CAO Capital — Analyst

No I’m not comparing it with biosimilars. I’m looking at just let’s say any other non-biosimilar fermentation plant that we see in China, right. That would be power intensive at full utilization, probably two times as the turnovers, and at best case, without government support 17% to 18% margins. Those are the kind of projects that I have seen, I’m pretty sure there will be others, but ballpark, sir, are we looking at a significantly different economics in this plant or will it be similar?

Mridul Dhanuka — Director

So our assumption is, since if you’re comparing to China, our supplier of technology is the same percent. We believe economics should be similar.

Agastya Dave — CAO Capital — Analyst

Okay and sir this backward integration, so this will help you in making all the 24, 25 odd cephalosporins that you make, right. This is not meant for just one or two? This is like 7 ACA goes in everything, right.

Mridul Dhanuka — Director

Yeah, so all cephalosporin antibiotics are made from two key starting materials, penicillin and 7 ACA. All our sterile products. I think maybe except two, all the sterile products are made from 7 ACA. And two oral products were also made from 7 ACA. Some of our products are starting from the penicillin route as well. So, yes, more than 50% are 7 ACA.

Agastya Dave — CAO Capital — Analyst

This will, can you give us some ballpark understanding of what percentage requirement of your 7 ACA will be catered by this project.

Mridul Dhanuka — Director

Yeah, so 100% of our requirement to be catered by this project and the idea of setting-up was, one, backward integration. And second, a lot import replacement also of products, which are currently coming from China. So yeah.

Agastya Dave — CAO Capital — Analyst

Great. And one final question, sir, in terms of capacity additions, future capacity additions excluding large projects like 7 ACA. will you need a new plant down the line or there will be incremental capex you will keep on adding blocks. To what extent can you add capacity at your current location?

Mridul Dhanuka — Director

Yeah, so at our current location, we roughly hav3 60 acres of land. Out the it, roughly 20 acres of land is free. So, there is significant headroom to grow within the facility.

Agastya Dave — CAO Capital — Analyst

And sir, how much are the utilities taking out of this 40 acres, which is getting used. So production blocks are occupying what? Half the space.

Mridul Dhanuka — Director

30% utility, 30% recovery, 40% manufacturing. I never thought something like that.

Agastya Dave — CAO Capital — Analyst

Sure, the basically, the 20 acre can probably give you not double but very close to like 70% additional production blocks. I’m not sure how you’re doing your math, but, yeah, I would say for the next five years definitely, we don’t need another site.

Mridul Dhanuka — Director

Okay, yeah,. I got my answer sir. Thank you very much, sir. All the best. Thanks. Thank you so much. Thank you.

Operator

The next question is from the line of Rupesh Thapliyal from [Indecipherable] Capital. Please go-ahead.

Rupesh Thapliyal — — Analyst

Hello, sir, and thank you for the follow-up. My first question sir, if you can give the status of whether DMF is filer and is filed for and cefovecin and ceftaroline.

Manish Dhanuka — Managing Director

Yeah, so cefovecin ANDA, we won’t be filing. It could be filed by other customers. DMF filing paper work is going on, it is not filed. Similarly for ceftaroline DMF filing, documents preparation is going on and we won’t be filing the ANDA, the customer would be.

Rupesh Thapliyal — — Analyst

Okay, for Ceftazidime Avibactam, we will file ANDA.

Manish Dhanuka — Managing Director

Yes, correct. Okay, okay. And then, sir, in capex, you had talked about reconfiguring the oral capacity, phasing out of [Indecipherable] Gen to some low-margin products. Can you please update some progress on that.

Mridul Dhanuka — Director

Yeah, that’s at design stage right now. Once the sterile product black is finished, that’s when we will take up the execution of that. Our target to commission that is within last quarter of this financial year. So it will start generating money from next year.

Rupesh Thapliyal — — Analyst

So I mean roughly what, I mean, can you give maybe 30% of the capacity is used for low-margin products. And then it will be reconfigured to use new better generation products. I mean, can you give.

Mridul Dhanuka — Director

Yeah yeah, so basically roughly there was Orchid had 300 to 400 tons capacity making the Cephalexin that is Gen one product. So that could be decommissioned, And roughly 100 to 200 tons of various products capacities would come up, which would be Gen three products, largely.

Rupesh Thapliyal — — Analyst

Okay, okay, and this which you think will be commissioned in Q4, okay.

Mridul Dhanuka — Director

Yeah.

Rupesh Thapliyal — — Analyst

Okay, can you give some capex number for FY24, how much you spend other than 7 ACA and then maybe also FY25 if see it obviously [Technical Issues].

Mridul Dhanuka — Director

Yeah. So, far this year, the number should be short of INR50 crores only. This includes our maintenance capex and this re-configuration. And for next year, unless we announced some plans and share in public domain, I don’t see a large number coming forward. Once our plans are more crystallized, we will be able to share a number.

Rupesh Thapliyal — — Analyst

Okay, okay and then, sir. We see a really large inventory number in March ’23 balance sheet. Can you split it into raw-material inventory and finished goods inventory.

Mridul Dhanuka — Director

Yeah, can you give me a second to get that number out. So, in terms of increase, I can probably say faster. So what has happened is due to various factors, China having their New Year, etc.. etc. What is happening is, if I see my numbers correctly, our finished good number is roughly INR65 crore and WIP is roughly INR70 crores to INR80 crores. And raw-material is up INR70 crores to INR80 crores, again. Largest increase is actually in raw materials. So this is largely because of price increase of some of the materials. And second is some segments will have some just before 31st March, which are intended for April. Maybe they arrived earlier, I am not sure, but that is may be a one-off number for increase in raw materials.

Rupesh Thapliyal — — Analyst

Okay, okay, my final one question is on industry structure. So, let us say whatever Cephalosporins gets sold in India plus exported out of India. my understanding is, there are Kind of like three large players you and then Dhanuka group company, Nectar Life Sciences. And then there is a Hyderabad-based one company. And then there are big pharma like Lupin and Aurobindo. So, between, let’s say five of you, maybe 70%, 80% of the market is covered. Would that be a fair understanding? You mean exports out of India.

Mridul Dhanuka — Director

Total, total whatever is sold. I mean products, let us say, whatever is produced in India, India products, whether it’s for domestic or exports. Yeah. I think these companies that you mentioned is 95% of the product.

Rupesh Thapliyal — — Analyst

Okay, and then I also see some small, small companies knd of like putting this cephalosporin capacity. So would it be fair that maybe all of you guys are kind of moving to newer generation products and the Gen one Gen two kind of like products some smaller players are looking at that as an opportunity.

Mridul Dhanuka — Director

No I think once you are a cephalosporins facility, you can’t make any other product in that. I don’t think personally, and it’s my personal opinion that setting up a facility — small facility for just small Gen one product, I think it’s going to be very-very difficult to make any money.

Rupesh Thapliyal — — Analyst

Okay, okay, I see. And then sir, this last question.

Operator

Sorry to interrupt, Mr. Rupesh, may we request that you return to the question queue. There are participants waiting.

Rupesh Thapliyal — — Analyst

Yeah, okay, okay.

Operator

Thank you. We will move on to the next question that is from the line of Nitesh Dutt from, Burman Capital, please go-ahead.

Nitesh Dutt — Burman Capital — Analyst

Hello, I have a question on your existing set of products. So, the 28 to 30 existing products, can you just give some color on how you see market growth. So. I just want to understand how will growth come from — will it be because of market expansion, market size increase or are you planning to capture market-share from existing other players.

Mridul Dhanuka — Director

Yeah, good question actually. So. I think both the things will work in our favor. If you look at international reports of market research, you would see cephalosporins market overall increases by about 3% to 4% every year. But if you look at — what happens is, there is a price erosion in the most expensive product in the regulated market slightly, but more than that, there is a high-volume increase in markets which are under served, largely Asia and Africa where population is increasing and also incomes are increasing, where they can have access to medicine.

So in terms of if you look at large-volume growth that’s going to come from these markets and that growth, everybody would like to capture. When it comes specifically to Orchid, our growth will be driven by these. At the same time, it will be driven by our availability of capacity because Orchid is the company of choice because of its quality credentials, USFDA, Europe, Japan, approvals from everywhere in the world. So customers trust capacity and would like to buy from us. So we will be able to take some share also away from other customers. Both these things will work in our favor.

Nitesh Dutt — Burman Capital — Analyst

Understood. Sir, one more question is on the PLI for 7 ACA. When do you see topline impact happening. So, if I’m not wrong, the total market estimated for 1,000 metric ton was roughly $65 million. So can we expect by FY26. that the entire utilization of the plant will happen and roughly $65 million, $70 million, whatever the number is, will start flowing into the topline.

Mridul Dhanuka — Director

That’s what our intention is.

Nitesh Dutt — Burman Capital — Analyst

Understood.

Operator

Thank you. Ladies and gentlemen, we will be taking the last question, that is from the line of Nikhil from SIMPL. Please go-ahead.

Nikhil — SIMPL — Analyst

Yeah, hi, good evening and thanks for giving the opportunity. Just two questions, one is on the USFDA plant inspection. So is there anything because I think our plants were last inspected in 2019. So, have you heard anything or has there been any inspection being done?

Mridul Dhanuka — Director

No, no inspection has happened, but we are ready. They can come any time. Orchid always has one or two inspections, almost every week from some customer or the other. So they can come any time. We are fully ready. That’s not a problem we see.

Nikhil — SIMPL — Analyst

Okay and last question is that if you look at this 30 products under the cephalosporin family, if you have to understand our focus incrementally, would it be that we would aim to move ourselves in the higher pricing of probably higher-value low-volume kind of products. Incrementally, the capacity would be diverted towards that or would you say that even the volume products are necessary to fulfill the basket. So, how should we understand over next three, five years, our investments in the plants and all.

Mridul Dhanuka — Director

Yeah, so my answer would be both. On the sterile product, the intention would be to go for, because we are already at 100% capacity, so, the intention would be to grab more of the higher-value products, but maybe, lower-volume. But on the overall side, since we have spare capacity available, there is no need to give up the existing products, which are may be contributing lesser in terms of value-add but still contributing overall to the bottom-line to phase them out. So that’s what I would say.

Nikhil — SIMPL — Analyst

Sir, my question was mainly on the oral side, because there the margins are lower as compared to sterile. So currently we are at 70, but in a year or two, if we reach something like 80, 90, would you say we would be looking for a new block or we would be looking for more of reorganization. In future.

Mridul Dhanuka — Director

Yeah, so 80, 90 would be the existing blocks that would happen. And I answered a previous question, which was about repurposing the capacity of Gen one product. So that is already in plan and that should be finished within this year. So that would allow us to run for another few years with the oral products, but reduced capacity on Gen one and more capacity in Gen three in oral products.

Nitesh Dutt — Burman Capital — Analyst

Okay, fine, thanks.

Mridul Dhanuka — Director

Thank you. Thank you.

Operator

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Manish Dhanuka for this closing comments.

Manish Dhanuka — Managing Director

Thank you, gentlemen for your interest in our company. We got some really Interesting questions, and we look-forward to your pertinence. Thanks a lot.

Mridul Dhanuka — Director

Thank you. Have a good evening everyone. Bye, bye.

Operator

[Operator Closing Remarks]