Alkem Laboratories Ltd. (ALKEM) Q4 FY22 Earnings Concall Transcript

Alkem Laboratories Ltd. (NSE: ALKEM) Q4 FY22 Earnings Concall dated May. 13, 2022

Corporate Participants:

Gagan Borana — Investor Relations

Sandeep Singh — Managing Director

Rajesh Dubey — Chief Finanacial Officer

Amit Ghare — President, International Business

Corporate Participants:

Tushar Manudhane — Analyst

Saion Mukherjee — Nomura — Analyst

Chirag Dagli — DSP Mutual Fund — Analyst

Prakash Agarwal — Axis Capital — Analyst

Rashmi Sancheti — Dolat Capital — Analyst

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Nithya Balasubramanian — Bernstein — Analyst

Kunal Randeria — Edelweiss — Analyst

Yash Tanna — ithought PMS — Analyst

Bino Pathiparampil — Incred Capital — Analyst

Nimish Mehta — Research Delta Advisor — Analyst

Nikhil Mathur — HDFC — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q4 FY ’22 Earnings Conference Call of Alkem Laboratories hosted by Motilal Oswal Financial Services. [Operator Instructions]

I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services. Thank you, and over to you, sir.

Tushar Manudhane — Analyst

Welcome to 4Q FY ’22 earnings call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director; Mr. Rajesh Dubey, Chief Financial Officer; Mr. Amit Ghare, President, International Business; Mr. Yogesh Kaushal, President, Chronic Division; and Gagan Borana from Investor Relations. Over to you Gagan for opening remarks.

Gagan Borana — Investor Relations

Thank you Tushar. Good evening, everyone, and thank you for joining us today for our Q4 FY ’22 and full year FY ’22 earnings call. Earlier during the day we have released our financial results and investor presentation and the same are also posted on our website. Hope you have a had a chance to look at it. To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem.

Before I proceed this call, I would like to remind everyone that is call is being recorded and the call transcript will be made available on our website as well. I would also like to add that today’s discussion may include forward-looking statements and the same must be viewed in conjunction with the risks that our business faces. After the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me.

With this I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter and the year gone by and strategy going forward. Over to you, sir.

Sandeep Singh — Managing Director

Thank you, Gagan. Good afternoon, everyone. Starting with the financial performance for the quarter, revenues from operation grew by 13.3% year-on-year, driven by healthy performance in India business, which registered year-on-year growth of 16.7%. US business was almost flat year-on-year as we try to offset the significant pricing pressure through our new product launches. Other International business did well during the quarter, with year-on-year growth of 35.3%, with our key markets leading the growth. EBITDA margin for the quarter was 13.6% impacted by higher raw material prices, increase in freight cost and additional manpower as we expand in new therapies. During the quarter, we had an exceptional item of INR50 crore debit on account of fair value of investment and income tax of earlier years INR91 crore due to disallowance of marketing expenses in light of the recent legal pronouncement, which suppressed our net profit for the quarter.

Talking about the India business, registered a secondary sales growth of about 15% year-on-year during the quarter and about 28% for the full year. This was about 1.5 times the IPM growth. This outperformance was majorly driven by strong volume growth partially helped by COVID-19 tailwinds in acute therapy areas of anti-infectives, Vitamin, Minerals, Nutrients, pain management and gastrointestinal. Most of our mega brands continue to outperform in the respective markets, thereby maintaining the lead positions. Our chronic portfolio also delivered a market-beating performance for the financial year, growing at almost 2 times the market growth rate. Our trade generic business, despite the high base of last year, posted a strong performance. Our recently launched Pulmocare division catering to respiratory segment saw an encouraging start with growth rate higher than the therapy growth rate.

Moving on to International business. Our US business ended the financial year with sales off $318 [Phonetic] million, which was down 4% year-on-year. While we had good number of new product launch — launches during the year, some of which had limited competition but significant pricing pressure completely offset the impact of new product launches. During the year we filed 14 ANDAs with the US FDA and received 21 approvals. We now have over 160 ANDAs filed with the US FDA with nearly half of them yet to be commercialized. Apart from the US, our Other International markets delivered a robust year-on-year growth of 35% during the year with healthy performance in the markets of Australia and Chile.

Talking about Enzene our biotech subsidiary, it has been a good year for them with three product launches in India and on boarding of multiple companies for the CDMO services. Also during the year Enzene signed several out licensed agreement with some of the leading international companies to develop and commercialize products in key markets across the globe. The company has also started global clinical trials on selected products to launch them in regulated markets starting 2025.

In terms of regulatory inspections all our manufacturing facilities supplying to the US are having an EIR as on date. Our manufacturing facility at Indore is awaiting pre-approval inspection by US FDA.

With this I would like to open the floor for Q&A. Thank you.

Questions and Answers:

Operator

Thank you. Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Saion Mukherjee with Nomura. Please go ahead.

Saion Mukherjee — Nomura — Analyst

Yes, thanks, and good evening. Sir, my one question on the cost pressure that you have mentioned, so raw material as a percentage of sales increased materially, you had talked about it earlier also. It’s on a higher side. So how should be think about freight and raw material costs going into the next couple of quarters? And what is driving them and any trend that you would like to highlight at this point? Are things coming down or still going up from the current levels?

Rajesh Dubey — Chief Finanacial Officer

Yes, Saion, Rajesh Dubey here. In fact in our last earnings call also we discussed on this, definitely enhanced cost procurement whatever we have done, as I said in my last call also, partially it was consumed earlier in quarter three but mainly consumption and sale of those consume item. It has happened not completely for this quarter also, but definitely, for next quarter it is going to be. So, one good thing now procure — this material prices, it has started showing softening trend and that’s a good thing happening, but whatever material we have procured, ultimately we are going to consume it. So — and freight also, as you rightly said, both domestically, as well as for our international freight, we are — we can witness sharp increases there and particularly in rates for our international freight. So both of these is going to have impact going forward and as we indicated last time also, we have taken so many measures to address this issue because you rightly said, it’s a substantial increase, but we feel somewhere around 150 basis point to 170 basis points it will be having the impact on our gross margin.

Saion Mukherjee — Nomura — Analyst

Sir, just to be clear, you already have an impact in Q, top of it you think there can be 150 basis points, 170 basis points more you think which we’ll see in the subsequent quarters in Q1 and Q2?

Rajesh Dubey — Chief Finanacial Officer

Yes, exactly, Saion, I wanted to communicate that only. In fact, whatever procurement it has happened, partially we consume in quarter four. And — but major portion, we are going to consume in quarter one of this year. It may be initial period of quarter two also and…

Sandeep Singh — Managing Director

Compared to last year from Q4.

Rajesh Dubey — Chief Finanacial Officer

Yes, so, in fact if you recollect October onward material prices started showing upward indication and November again, December, it was on it’s peak and then scarcity of our availability was also concerned. So we accumulated some higher inventory and most of the pharma company they did, so whatever consumed this high cost material consume, wherever sale is happening it will be having impact on gross margin. See material prices, it has not come to it’s normal, it has started showing indications coming down.

Saion Mukherjee — Nomura — Analyst

Sir very sorry. So if I can say and please, this 150 basis point is impact compared to last year quarter one and going forward in the year.

Sandeep Singh — Managing Director

Yes.

Saion Mukherjee — Nomura — Analyst

So this is quarter on quarter — sorry, year-on-year is what you are indicating [Speech Overlap] last year.

Rajesh Dubey — Chief Finanacial Officer

Yes. Yes.

Sandeep Singh — Managing Director

Yes, Saion, yes.

Saion Mukherjee — Nomura — Analyst

Okay. Okay, understood. And the other question on the International business especially non-US we have seen some good traction, if you can throw some light you mentioned Australia, Chile, doing well. So what is exactly happening? Why we are seeing the step jump this year and how should we think about this business going forward?

Amit Ghare — President, International Business

Yes. Saion, Amit here. Yes, we talked about it in the last couple of calls and in fact you were one of the ones who said that we’ve seen a business increase and also regularity. So it’s not really a change in strategy. It is very much the same market that we’ve been doing for few years now. We’ve not really added anything material. I guess the performance, higher performance is directly proportional to some new launches that we did in these markets and the price erosion in these markets has not been as high as has been in the US. There is deflation, of course, in every market, but not at the same levels. So those two combined things, now that we’ve also generated some scale has resulted into this kind of a growth. We will continue — looking at these markets, we will continue focusing on them for future and we are obviously hoping that we will continue doing this performance.

Saion Mukherjee — Nomura — Analyst

So you expect double-digit kind of growth to sustain in these markets?

Amit Ghare — President, International Business

That’s correct.

Saion Mukherjee — Nomura — Analyst

Okay, thank you. And I’ll join back the queue.

Amit Ghare — President, International Business

Thank you Saion.

Operator

Thank you. The next question is from Chirag Dagli. Please go ahead.

Chirag Dagli — DSP Mutual Fund — Analyst

Yes, sir. Thank you for the opportunity. Sir, how many products are we selling currently in the US market and how many of these are yet to reach peak potential?

Amit Ghare — President, International Business

We currently sell about 85 ANDAs. The only ones where — which haven’t reached its full potential will probably be about 15, 1-5 and the reason for that is some of those, we may not be competitive. So we have not reached the levels that we are expected to reach and some of them maybe recent launches. So it takes time, couple of quarters at least if not more, before we reach the desired market share levels.

Chirag Dagli — DSP Mutual Fund — Analyst

Understood, sir. And sir, given that we had very poor profitability in the US at a PBT level before FY ’22 as well. In FY ’22, would it be fair to say that at the PBT level, US is not contributing probably at losses at a PBT level?

Amit Ghare — President, International Business

So we don’t split by our profits by market. So I’m not sure Chirag, where you picked up your question. But all I can tell you is several quarters back we had clearly guided that we are well beyond the breakeven point for US, and we are certainly — we’ve not slipped back into red.

Chirag Dagli — DSP Mutual Fund — Analyst

At the PBT level, sir?

Amit Ghare — President, International Business

At the PBT level, that’s correct.

Chirag Dagli — DSP Mutual Fund — Analyst

Understood. So we are still profitable in the US at the PBT?

Amit Ghare — President, International Business

Very much, very much. US contributes to more than 25% of our revenues. We cannot have — afford a market with losses at that level.

Chirag Dagli — DSP Mutual Fund — Analyst

Understood, sir. Understood. And just one more question, if I can. Can you split the India business into acute branded chronic and trade generics for the full year?

Rajesh Dubey — Chief Finanacial Officer

So if you split the India bucket, the first 22% is trade generic, remaining 78% — 85% is acute and 15% is chronic.

Chirag Dagli — DSP Mutual Fund — Analyst

Understood, already. Thank you, sir.

Operator

Thank you. Next question is from Prakash Agarwal with Axis Capital. Please go ahead.

Prakash Agarwal — Axis Capital — Analyst

Yes, hi, good evening. My question is on the India business. So I don’t know if you already shared, but given that we are heading on a strong base of last year, are we giving any guidance on the India growth so that we have clarity?

Rajesh Dubey — Chief Finanacial Officer

Yes, Prakash. So I think we maintained what we always said. I think we will have double-digit growth this year in spite of coming on a strong base. And if you want to throw some — I mean, you want me to like be specific thing Prakash…

Prakash Agarwal — Axis Capital — Analyst

Sir that will do. Yes, sir. So the growth, you had a very high growth especially in the first half due to the second wave, so acute was very heavy and we have acute heavy portfolio. How do we plan to have double-digit growth? I know if you could split volume, pricing, I understand there will be some pricing gain also. But [ Speech Overlap ] you want to highlight?

Rajesh Dubey — Chief Finanacial Officer

Got it. So before the split of how the growth would come, I’d just like to add that we have added 500 people in quarter four of last year to rebalance our portfolio and apart from that, the price increase would be higher this year compared to the previous year, 7% — 6% to 7% will be price rise, new introduction would be around 3% and volume growth is between 3% to 4% to 5%. That’s how the spread would be. So we feel confident that we will cross double-digit growth this year as well.

Prakash Agarwal — Axis Capital — Analyst

Okay. So one is, I understand additional people. And secondly, so which will also lead to some volume growth. And the second lever is the price.

Rajesh Dubey — Chief Finanacial Officer

Price is a big lever this year, yes, around 7%.

Prakash Agarwal — Axis Capital — Analyst

Yes. Got it. And with 12%, 13% India growth and you are guiding for a margin cut due to the cost increase. But wouldn’t it be operating leverage should play out because India being more profitable, etc., it should flow down to EBITDA also isn’t it?

Rajesh Dubey — Chief Finanacial Officer

So, I think, see, you have to understand that RM price have really gone up, Prakash. And we are kind of investing in biosimilars and things like that. So [Indecipherable] come in, but did not offset all the price increases which we have had this year.

Prakash Agarwal — Axis Capital — Analyst

Understood. And R&D run rate for the quarter is exceptionally high? Is this the new quarter base given that you are going into the biosimilar, etc., or how should we think about a full year run rate?

Rajesh Dubey — Chief Finanacial Officer

Whatever guidance we have given, we stick to that. From this quarter, I don’t think so it’s exceptionally high. We have hit around 6.4%, okay. No. So we’ll stick to around 5.5% to between 6% next year.

Prakash Agarwal — Axis Capital — Analyst

Okay. 5.5% to 6%. And last one is on the cash. So we are continuing to see good cash generation. In the past we have been very conservative or conscious of any acquisitions. What is the thought process now on that?

Rajesh Dubey — Chief Finanacial Officer

So we continue to see the same, DNA has not changed. We are conservative. We’ll do what we know to do best. And so no large acquisition plans, Prakash bhai.

Prakash Agarwal — Axis Capital — Analyst

Okay, sir. Thank you.

Rajesh Dubey — Chief Finanacial Officer

Thank you, sir.

Operator

Thank you. Next question comes from the line of Rashmi Sancheti with Dolat Capital. Please go ahead.

Rashmi Sancheti — Dolat Capital — Analyst

Yes, thank you for the opportunity. Sir, again, on the gross margin front, can you break it up, like how much impact was just from the high input cost and also from the US price erosion?

Rajesh Dubey — Chief Finanacial Officer

Yes. So if we talk on — I think, Rashmi, you are talking for ’21-’22. So in ’21-’22 right now, in quarter four particularly. So NRV, it has impacted by 1.6%, 1.7% and equivalent was the impact of cost also, enhanced material costs.

Rashmi Sancheti — Dolat Capital — Analyst

So you’re saying 1.6% to 1.7% from the higher raw mat cost and equivalent to that, at least around 1.7% from the price erosion?

Rajesh Dubey — Chief Finanacial Officer

Yes.

Rashmi Sancheti — Dolat Capital — Analyst

Okay. And what is the outlook on the US price duration at the company level? Are we seeing any normalization? I mean for full year, how much was it and how much are we expecting in FY ’23?

Rajesh Dubey — Chief Finanacial Officer

Full year last year, price erosion in US for us, for our portfolio was lower double-digits, about 11% to 12%. We’re not expecting it to be at that level. We are expecting it to be in single-digits but higher single-digits.

Rashmi Sancheti — Dolat Capital — Analyst

Okay. And sir, on R&D, like you mentioned that we would be spending 5.5% to 6%. Can you let us know like how much would be catering to the US? And how much it would be catering to the International markets or Indian market?

Rajesh Dubey — Chief Finanacial Officer

I think 90% is for the US, ma’am.

Rashmi Sancheti — Dolat Capital — Analyst

90% is for the US only, okay. And that would be more into biosimilars and on?

Rajesh Dubey — Chief Finanacial Officer

No, no, no. I mean, not more into biosimilars. Biosimilars have started like this year and going forward. But no, large part is not into biosimilar. Biosimilars is certainly a part of it.

Rashmi Sancheti — Dolat Capital — Analyst

Okay. And sir, my last question, again on India. Sir, in Trade Generics segment, which therapies are you focusing? Is it similar to branded generic space, the products are similar or it’s a complete different product set that we are selling it in the trade generic segment.

Rajesh Dubey — Chief Finanacial Officer

So trade generics, we are not focusing on any therapy just by strength and Alkem brand name, we get a large push in acute and semi-chronic and things like that. So we’re not focusing on any therapy areas, ma’am, because it’s a different ball game.

Rashmi Sancheti — Dolat Capital — Analyst

Okay, you mean to say that we are more, again, acute focused and some part comes from the sub-chronic. That is what I wanted to know. Okay, okay. Thank you so much. Thanks for the opportunity.

Rajesh Dubey — Chief Finanacial Officer

Thank you, Ma’am.

Operator

Thank you. Next question comes from the line of Damayanti Kerai with HSBC Securities and Capital Markets India Private Limited. Please go ahead.

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Hi, good evening. Thank you for the opportunity. My first question is again on margins. So you mentioned we obviously are seeing impact of higher input costs on gross margins and all. So going ahead, how should we look at margin at the EBITDA level for FY ’23?

Rajesh Dubey — Chief Finanacial Officer

Whatever hit we are going to have in gross margin level is going to pass on to EBITDA also. We estimate somewhere between 150 to 175 basis points for yearly basis, that’s our estimate. And going to give [Technical Issues] impacting our EBITDA.

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Okay. So around 150, 170 basis points hit on EBITDA level also. But on a steady state, what margin we should be looking at around 21%, 22%?

Rajesh Dubey — Chief Finanacial Officer

EBITDA margin your are referring?

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Yes. Yes. So I’m saying this year obviously we’ll have some impact of this higher input costs. But in a steady level, what should be the EBITDA margin we should consider?

Rajesh Dubey — Chief Finanacial Officer

This time we have [Technical Issues] 19.3%. So [Technical Issues] 150 basis points here, so I think we will be somewhere close to 18% kind of.

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Okay.

Rajesh Dubey — Chief Finanacial Officer

So we stabilize it FY ’23, thereafter, we look to improve for FY ’24 onwards. So hopefully, the environment — inflationary environment it is off a little bit.

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Okay, sure. My next question is on India business. So you said you added around 500 people for the new division. So can you update us on the current MR headcount? And what is the productivity level across acute and chronic segments?

Sandeep Singh — Managing Director

Yes. So our total MR count is around 10,000. Out of this…

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Sorry, sir, how much?

Sandeep Singh — Managing Director

10,000. And the split is of 17% in chronic and rest in acute.

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Okay. And how about the productivity levels sir, in terms of PCPM?

Sandeep Singh — Managing Director

So broadly I would say, acute is around 6 lakhs, chronic is 3 to 3.25.

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Okay. And my last question will be your thoughts on biosimilar business. How do you see it scaling over the next three to five years? And what kind of further investment you are looking here?

Sandeep Singh — Managing Director

We are this is the first month, so I think next years we could hit a revenue of say around INR250 crores. But the big rows [Phonetic] will come when we launch it in international regulated markets like US and Europe, and that is still like three to four years away. We have invested already say INR700 crores and every year we might invest another say INR100 crores, R&D and things like that.

Damayanti Kerai — HSBC Securities and Capital Markets India Private Limited — Analyst

Okay. So around INR100 crores kind of investment every year you are emphasizing at this point of time. Okay. Thank you. I’ll get back in the queue.

Operator

Thank you. The next question is from the line of Nithya Balasubramanian with Bernstein. Please go ahead.

Nithya Balasubramanian — Bernstein — Analyst

Thank you. So on trade generics, I think in the last year alone we have seen several companies join the trade, some of the other large — your peers and other large pharma companies. So given that there is now increased competition, how do you see this impacting your market share and rank? And a related question around, is this likely to open up new markets? Or is it more likely to cannibalize existing branded generics?

Rajesh Dubey — Chief Finanacial Officer

So see, competitors will enter, but as I remember, a couple of meetings before our MD answered, Sandeep Singh very clearly, it’s not that simple. Generic also has a very strong connect and relationship building with supply chain network, right, from your production unit till your depot and distribution network, stock as to all that takes time. So I think that over a period of last decade or so, Alkem has built a very strong equity on that front. So while competitors will come and they will find some way to get some share, but Alkem has a very strong presence there. So what’s the next question?

Nithya Balasubramanian — Bernstein — Analyst

Second one was has you see more players enter, do you see the market itself expanding or cannibalizing existing branded generic markets?

Rajesh Dubey — Chief Finanacial Officer

Chances are less likely because India still has a reach of medicine is still not beyond 40% to 45% population. So any and every one has a space to create their own market. So it won’t disturb the current flow of Alkem or anyone, everyone can make a space here.

Nithya Balasubramanian — Bernstein — Analyst

Got it. My next one is actually on the US. So if you see — if this high single-digit kind of price erosion sustains and based on your outlook for how much new launches could add, what sort of growth are you envisaging maybe in the next two, three years?

Amit Ghare — President, International Business

For the immediate year, we had talked about a double-digit growth, a lower double-digit growth. Sitting only in the second month of the fiscal year, we are very much sticking to that. It’s a challenge, but we certainly are — that’s the kind of growth that we are estimating. Going forward, obviously, we’ll continue to look to remain on that growth trajectory. Our base will increase, obviously, so that will bring its own set of challenges, but that’s what we are looking at. So around 10% to 12% is what we are looking at.

Nithya Balasubramanian — Bernstein — Analyst

Okay. Thank you so much.

Operator

Thank you. Next question is from the line of Kunal Randeria with Edelweiss. Please go ahead, sir.

Kunal Randeria — Edelweiss — Analyst

Good evening, and thanks for giving me the opportunity. Sandeep, can you maybe share with us what are some of the volume growth levers in the India market because on the outside it seems that out of your four biggest territories, the big ones gastro and vitamins, there could be some volume pressure this year, because obviously you have a phenomenal FY ’22. So I’m just wondering which other therapies or brands in your view will pick up the slack?

Sandeep Singh — Managing Director

Yes. So I mean I would add anti-infects to that as well because that also had a high base last year. But we will have — the volume growth is around 3% to 4% or 5% at best. So it’s not unreachable because we have added people in the last few years, and we will be getting market share, which we have always got. So even if you look at our market share of last year, there has been a 0.3% increase in the market share if you look at us as vis-a-vis IPM. So I think it’s just good, aggressive manpower addition we have done. We have entered the respiratory therapy, which is a new area. There itself we see some growth. And so the new areas for us are firing up. The chronic segment is not as big as acute, but that’s also not small now. So there we’ll continue to grow by good double-digit volume. So therefore we feel confident that those volume levers will work.

Kunal Randeria — Edelweiss — Analyst

Sure. Thank for this. My second question is on the US business. So while I understand you had double-digit price erosion in the US this year. You also had a couple of interesting launches [Indecipherable] and so on. So I just want to understand how the US margins have moved in FY ’22? And how do you see the margins moving in FY ’23, maybe qualitatively if you can just give some comments?

Amit Ghare — President, International Business

Kunal, we don’t disclose our business segment margins. Unfortunately, so I won’t be able to answer that question. But we did answer several quarters back, several years back, actually, and I answered earlier today that we are well beyond the breakeven point many years ago, and we have no intention of going into red.

Kunal Randeria — Edelweiss — Analyst

Sure. But qualitatively, whether you expect the margins to be [ Technical Issues ] or you go up or maybe even go down before this can go up?

Amit Ghare — President, International Business

Right. So year-on-year our margins have remained fairly steady is what I would say. Our base business has obviously has seen a large price erosion last year, but some new launches exactly the ones that you mentioned and even otherwise, has certainly helped us. Our new business contribution last year was one of the highest in all the fiscals because of which we could actually sustain a small de-growth instead of a larger de-growth in the business. The base business certainly de-grew by a lot because of price erosion and in some cases even loss of market share. So that certainly helped. And going forward, we are hopeful with more contribution coming from new launches. New launches traditionally come at a better margin profile. So that certainly will help us to improve our margins.

Kunal Randeria — Edelweiss — Analyst

Thanks. And if I can just squeeze in one more. So while I understand that below the COGS line you may not have a lot of room this year because of increase in sale cost and all. But in general, maybe over a two or three year period, what kind of cost optimization can we expect?

Rajesh Dubey — Chief Finanacial Officer

So I think our margin, it was — and it is in the range of — somewhere between 60% to 62% kind of. This year because of — so below gross margin I think, more or less, whatever trend we had, we are going to have, operating leverage is going to flow. But there are a few things, having inflation impact also, and that is bound to happen. For example, distribution cost, freight. But we do have some levers and cost optimization, all across wherever we see opportunity we are working on that, including manufacturing and others, including optimization at our R&D facilities, distribution, all of those. So we have some levers and we have identified those. We’ll be working towards it. Otherwise, it is very difficult to have objective of adding to EBITDA margin even though 50 to 100 basis points, but that’s a tough task we have taken and we’ll be working towards it.

Kunal Randeria — Edelweiss — Analyst

Thank you and all the best.

Operator

Thank you. Next question is from the line of Yash Tanna with ithought PMS. Please go ahead.

Yash Tanna — ithought PMS — Analyst

Hello. Am I audible?

Sandeep Singh — Managing Director

Yes, you are.

Yash Tanna — ithought PMS — Analyst

Good evening, team, So my first question is I wanted to understand more on Alkem’s long to medium-term strategy on the chronic side of the business. So we’ve outperformed on the acute side, we have also outperformed on the chronic side, but I wanted to understand more on how do we see a chronic franchise three to five years down the line since intensity, competitive intensity might be a little higher on this side. So how are we planning to execute consistently on the chronic side?

Sandeep Singh — Managing Director

I think two, three areas which are clearly defined by chronic. One is our productivity is still average. So compared to within company, we are at 3 lakhs. So we should be looking at how do we complete within the organization and raise the productivity because our prescriber base is still around at average level. So we even I double the subscriber base in the next three to four years, two to three years, I should be able to increase my productivity. So first is productivity. Second, of course, is the main therapies, which dominate chronic is cardiac and diabetes. So on a Diabetes front, we have — I’m sorry, I slightly sore throat. So on the diabetic front, we have a very rich pipeline of new products, and these can be blockbusters, we have launched combinations for [Indecipherable], we are doing very good on dapagliflozin, [Indecipherable], so all these are molecules which are worth around INR300 cores to INR500 crores in two to three years’ time. So right now we should be around close to INR1,000 crores in next year and we look at that around 4 times can we double the base and reach around INR2,000 crores.

Yash Tanna — ithought PMS — Analyst

So you said INR1,000 or INR2,000 crores in three to four years’ time right?

Sandeep Singh — Managing Director

Four years time.

Yash Tanna — ithought PMS — Analyst

Yes. Okay. Got it. That was helpful. And second was actually again on the margin. So we — I mean, we — before just the understanding was that we would improve the margin by 50 to 100 basis points year-over-year. But now FY ’23 was guided for 18%. So post that, should we expect 100 basis points consistent improvement in the margin?

Rajesh Dubey — Chief Finanacial Officer

We said that, yes. So, we chose the higher end, but we maintain 50 to 100. Yes.

Yash Tanna — ithought PMS — Analyst

Okay, So 50 to 100 decline this year, I mean, the coming year and then we would be going up?

Rajesh Dubey — Chief Finanacial Officer

Hopefully, yes.

Yash Tanna — ithought PMS — Analyst

Okay. Okay. That’s helpful. And one last question, if I may. So I just wanted to understand from a medium to long-term time frame, capital allocation priorities, like which geographies or where are we planning to invest a lot of money?

Sandeep Singh — Managing Director

I think so in the medium term — short and medium term, nothing is changing. So the geographies are going to be India and US and some key other ROW markets. And where you want to allocate, I think biosimilars is a new frontier, nothing other than that right now.

Yash Tanna — ithought PMS — Analyst

Okay. Got it. So no major capex lined up?

Sandeep Singh — Managing Director

No, capex. No.

Yash Tanna — ithought PMS — Analyst

Sure. Thanks. Thanks a lot.

Sandeep Singh — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Bino Pathiparampil with Incred Capital. Please go ahead, sir.

Bino Pathiparampil — Incred Capital — Analyst

Hi.

Sandeep Singh — Managing Director

Go ahead Bino.

Bino Pathiparampil — Incred Capital — Analyst

Hello, sorry. Most of my questions have been answered, thanks. Just a clarification on tax rate, if you could give some guidance for FY ’23 and if not exact at least some directional guidance over next three to five years, how is the tax rate is likely to move?

Rajesh Dubey — Chief Finanacial Officer

For the next two years, as per our estimate, tax is going to be somewhere between 11% to 14% kind of. Going forward, I think since our plants, they will come out of ADI. And then this I’m talking for ’26-’27 onwards. At that time, we’ll give a fresh guidance. But for next two years we will be in between 11% to 13% or 14% kind of.

Bino Pathiparampil — Incred Capital — Analyst

Okay. So the facilities are broadly coming out of the expansion around ’26-’27 time frame?

Rajesh Dubey — Chief Finanacial Officer

Sorry, I did not get you.

Bino Pathiparampil — Incred Capital — Analyst

If I heard correctly, the facilities are coming out of the expansion in the ’26-’27 year?

Rajesh Dubey — Chief Finanacial Officer

Yes, yes. You’re right.

Bino Pathiparampil — Incred Capital — Analyst

Okay, great. Thank you.

Operator

Thank you. Next question is from the line of Saion Mukherjee with Nomura. Please go ahead.

Saion Mukherjee — Nomura — Analyst

Yes, thanks for the follow-up. Sir, one question on biosimilars. You mentioned INR100 crore investment every year. So this is all operating expenses I would assume. So how much — so Enzene currently is contributing negatively to your EBITDA by around INR100 crores or there are…

Sandeep Singh — Managing Director

Yes, around about that much this year — last year, yes.

Saion Mukherjee — Nomura — Analyst

Okay. And so what are the key milestones on these we need to sort of watch out for in terms of clinical studies, etc. And this number would remain at INR100 crores over the next few years you think? Or it can go up also?

Sandeep Singh — Managing Director

No, I think it can go up. This is just for the next, let’s say, a couple of years. And so yes, if ambition level goes up and we’ll obviously update you all, talk to you all, this number would be going up. So sorry, what was the question? I’m sorry, your first question.

Saion Mukherjee — Nomura — Analyst

So what are the key milestone?

Sandeep Singh — Managing Director

I think see, one of the key milestone is that launching in India. So we have launched three products, and we will be launching a few more. We have already out licensed some products to European players who have given us good upfront payment. So I think that’s a milestone. These milestones already happened. Now going forward, I think what we need to track is how does the clinical trials progresses in the US, which is already initiated for a map for the US market. So there we need to be on time and file it on time.

Saion Mukherjee — Nomura — Analyst

So this is for the US filing. So when — have you disclosed the product, if you can give some size and like when do you expect the trials to be completed and filing to happen?

Sandeep Singh — Managing Director

Yes, I think filing would happen around ’24 end, 2024 end, filing would happen around that time. Yes, and the molecule, I think we can let you know it is denosumab.

Saion Mukherjee — Nomura — Analyst

Okay. And the other question I had on V-4 [Phonetic] so I think you mentioned about 500 people added last quarter. If I remember historically, you have added like 1,100 every year. So this is very high. So are we sort of stepping up MR addition going forward? And if that is the case, is there any strategic rationale for doing that?

Sandeep Singh — Managing Director

No. So we are not stepping up. I think we have already added. There’s always strategic ration [Phonetic] when we do it. So I think, see, it’s the portfolio alignment and how do you make large brands focus and grow and also give space to medium-sized brands to grow. So that’s the reason we have done this hire.

Saion Mukherjee — Nomura — Analyst

Okay. So I mean your addition would remain on an average, 1,100…

Sandeep Singh — Managing Director

No, no, no. We cannot do it like perpetually. We’ll reach 100,000. So of course, we can’t do that. But we’re also conscious sign of the fact that we do have a lot of people. But at the same time, we had to do it because it was important. So it’s very strategic. The chronic portfolio is still around, let’s say one-third of acute. So we don’t see adding like that much even close to that number for the next few years every year. I think we are almost saturated. But yes, there are strategic calls, we might add 200, 300 people in the next few years.

Saion Mukherjee — Nomura — Analyst

Okay. Okay. Understood. And just one question on acquisitions in India. You have restrained from doing deals in India. But given the kind of base you have, don’t you think Alkem can add value by acquiring brands even if it is somewhat expensive?

Sandeep Singh — Managing Director

No. Great. So Saion, you’re right, the issue is, see, first off, they are expensive and we are not of the mindset that we’ll overpay. Second, a lot of times companies are available for acquisition, not just brands, and that leads to some other complications of field force and different culture and things like that. So very rarely is an opportunity where you can acquire only brands. And then however that happens, some — most of the time we see that is expensive. So I do see your point Saion, but I’m not very sure whether it will work out in our favor in terms of where we already have 9,000 people, 10,000 medical reps. If you’re going to acquire businesses on the whole, it comes with it own sets of medical reps and different cultures and all. It become a challenge, Saion. So we’ll be cautious. And I’m not sure whether we’ll do large deals over there.

Saion Mukherjee — Nomura — Analyst

Okay, thank you.

Sandeep Singh — Managing Director

Thank you, Saion.

Operator

Thank you. The next question comes from the line of Nimish Mehta with Research Delta Advisor. Please go ahead.

Nimish Mehta — Research Delta Advisor — Analyst

Yes, thanks for the opportunity. My question is regarding the gross margin. I’m very confused. When I look at the full year gross margin that we discussed so far, more or less we are in line with what we had last year. And last year also you mentioned about the input cost prices are going up and something like that. So like, what exactly — I mean, how exactly is the impact coming on the gross margin. I’m still not able to understand, I know the gross margin remains the same.

Rajesh Dubey — Chief Finanacial Officer

Yes. So Nimish, you are very right. In fact, in this year we have a positive of 20 basis points in gross margin. So it’s a plus. So let me just give you component and this supply deflation mainly in US. It has impacted and on overall basis, on annual basis, we don’t have any significant contribution on account of increase in material costs. And I’m talking raw material cost or tech material. Yes, in quarter four, if you go, you can see, because whatever procurement we have — we did in the month of November and December, we consumed it partially in quarter four, and we are going to consume going forward in quarter one or quarter two going forward. So it is going to have impact in ’22-’23. But as far as ’22 is concerned, you are very right, the input cost increase is not having any significant impact. And then by way of a better product mix and better gross margin, in fact there is addition of 20 basis points in that.

Nimish Mehta — Research Delta Advisor — Analyst

So, even if you compare the fourth quarter and I’m comparing Y-o-Y, I think that should be the right way. You can correct me if I’m wrong. I don’t see — in fact there is an increase in the gross margin. So what I’m trying to see is that every Q4 you have a lower gross margin. So what has changed even in this quarter or we need to compare it Q-o-Q?

Sandeep Singh — Managing Director

So Nimish, if you remember, Q4 of last year there was an inventory write-off, which has pulled down the gross margin. If you adjust for that, there is a Y-o-Y dip in the gross margin Y-o-Y. Even if you adjust that, compared or full year basis also there is small dip, okay? What has helped us this year is the product business mix has improved. So last year FY ’21, India was around percentage 65%, it has gone up to 70%. So helped by mix and last year there was this inventory write-off. So we adjust both then there is a marginal dip in gross margin because of the raw material cost. And when we are saying 100 to 150 basis point impact, that is on Y-o-Y level FY ’23 compared to FY ’22. So it ended the year at 60.7%, we’re seeing about 100 to 150 basis point impact on that number on a full year basis. There’s a seasonality across the quarter and the seasonality is going to remain and after normalizing the seasonality on Y-o-Y basis it is going to be 150 basis points.

Nimish Mehta — Research Delta Advisor — Analyst

Okay. And this 150 basis points that we are talking about does not consider into — I mean, it does not take into consideration the fact that we might have better product mix and better — we also are likely to see good amount of price increase in the domestic market and all of those things, right? And that is…

Sandeep Singh — Managing Director

No we are factoring all those things. We are factoring. So what Dubey sir was saying was, our normal gross margin is around 61%, 62%, okay? So it will come down to close to 60%. So 59%, 60% is where we may end in FY ’23 because of the higher raw material costs. And say FY ’24 onwards, this should go back to 60%, 61% levels again.

Nimish Mehta — Research Delta Advisor — Analyst

Okay. Got it. And lastly, once again on the same thing. Does it also include some — I mean, last year I think you mentioned that you might be launching a few low competition products in US. So are we likely to do that? And this margin guidance is net of that as well?

Amit Ghare — President, International Business

We always hope to launch product with less competition. Ultimately, competition dictates whatever comes through.

Nimish Mehta — Research Delta Advisor — Analyst

Okay. And the margin is net of all those factors, right? Like…

Amit Ghare — President, International Business

Yes, it is business as usual.

Nimish Mehta — Research Delta Advisor — Analyst

Okay, fine. Thank you very much.

Operator

Thank you. The next question comes from the line of Nikhil Mathur with HDFC. Please go ahead sir.

Nikhil Mathur — HDFC — Analyst

Hi, good evening. I just wanted one clarification. Did I get it right that your US growth guidance for FY ’23 is 10% to 12%?

Amit Ghare — President, International Business

Yes, that’s right, revenue.

Nikhil Mathur — HDFC — Analyst

Okay. So [Indecipherable] has done $320 million in FY ’22, if I take into account high single-digit erosion but it is also US guided too, the net addition works out to be somewhere around 64%, 65% — $64 million, $65 million to arrive at a 10% growth. So I’m just trying to understand, I mean there’s a bit of [Indecipherable] which kind of says that this seems a bit stretched this particular guidance. So can you share some key [Indecipherable] why this update guidance is infinitive?

Sandeep Singh — Managing Director

Sorry, what is the last part, I missed that.

Nikhil Mathur — HDFC — Analyst

So one thing is that this guidance seems a bit aggressive. I mean, 10% growth on erosion of 8%, 9%. Are there any specific features or why are you so update on the US outlook for FY ’23?

Amit Ghare — President, International Business

For the entire FY ’22 was depressed compared to FY ’21. So as you can see, we’ve degrown by 5% in the current year. So now if I’m basically guiding 10% to 12% increase over FY ’22, in fact we are only guiding for a 7% increase over FY ’21. So we are confident because, number one, as I said, the price deflation is reduced compared to what we have seen in FY ’22 as we sit right now. And then number two, of course, we will always hope to do better with our new launches. And as I mentioned earlier, in FY ’22, we actually did very well compared with our new launches, compared to our own performance in the previous fiscals before FY ’22. We were not able to demonstrate it because of a higher price erosion during the last year.

Nikhil Mathur — HDFC — Analyst

Okay. And then to achieve this full year number, roughly $80 million to $90 million is the quarterly [Indecipherable] Would that be visible for first quarter itself? Or do you think that it’s going to be — second half is going to be much better than what we deliver in first half of FY ’23?

Sandeep Singh — Managing Director

Yes. So no, look, we obviously expect our performance to grow up quarter-on-quarter. So first quarter if we are comparing year-on-year compared to quarter one, yes, I would expect a 10% to 12% increase. And we need to obviously see that coming through before we update our guidance or we update our numbers.

Nikhil Mathur — HDFC — Analyst

Okay. Okay. Sure. And one slightly larger picture question on India. I mean, it’s more than two years now since the pandemics. So any thoughts you can share on your expectations on the acute and chronic growth business what it was prior to COVID? And developments in trade generics and sales force efficiencies. If you can share some of your updated thoughts on these four segments and key variables for the domestic market versus pre-COVID what your expectations would be now?

Rajesh Dubey — Chief Finanacial Officer

Yes. So we think this year the things would almost be normal to pre-COVID level. So growth in acute will sustain. That’s what we just said earlier that this year the growth of acute maybe in the range of around 10% to 11% and chronic, those markets will grow at around 10% to 11%, and we should aim for double the growth of market in chronic. So around, roughly we can say that 10% to 11% growth in acute and around 20-odd percent growth in chronic. So averaging out around 13% for the domestic business. And trade generic, traditionally we have seen good growth. So we hope they will continue similar trends in the coming year as well.

Nikhil Mathur — HDFC — Analyst

Sir I think this helps. But if I may just rephrase my question. Has there been any structural change in how you perceive growth for different segments and also how you approach doctors. Things might be a bit more clear now since the last wave had seen most of an effect. So I’m looking for a bit more structural thought process on how you’ve been able to kind of play out over a three to five year period?

Rajesh Dubey — Chief Finanacial Officer

So see, you just heard us saying that we have already added a lot of people, around 1,000 people every year last two years. So we don’t expect major structural change in our business approach. So pre-COVID, so one is structural change in the organization. So our focus areas will remain same. We are not going to value from them. And as far as meeting doctor is concerned, we expect that — we expect, almost now the meeting customers is to the pre-COVID levels. So there’s no major in that. I assume that you’re asking about utilization of those digitals and all. So, yes, there will be slight change towards — to reach market through digital media and that can be a little factor. But normally this will go to pre-COVID levels with some additional digital approach in our business.

Nikhil Mathur — HDFC — Analyst

Got it, sir. That’s helpful. Thanks a lot.

Operator

Thank you. The next question comes from the line of Saion Mukherjee with Nomura. Please go ahead.

Saion Mukherjee — Nomura — Analyst

Yes, thanks for the follow-up again. Just one clarification, Amit, in response to Nikhil question, which you mentioned a growth of 10% in quarter one. That would put our US revenues at around $90 million, which is almost $70 million higher than what we are in fourth quarter.

Amit Ghare — President, International Business

No. So that was compared to FY ’22. It was not compared to FY ’21. FY ’21 was a completely different quarter one. So that’s not in relation with that year.

Saion Mukherjee — Nomura — Analyst

No, I mean, in the first quarter, this quarter FY ’23, I thought you mentioned you will deliver a 10% growth on first quarter FY ’22, which was higher, right? It was around $80 million odd. So you should be closer to $90 million in this quarter if you have to grow 10% on Q1 of FY ’22. That would mean a Q-o-Q growth of almost $17 million, which is a big number, $73 million. So I mean at the mid of this quarter are you having that visibility of sort of getting close to $90 million in Q1 FY ’23.

Amit Ghare — President, International Business

Saion, rather than getting into absolute numbers, I think Nikhil’s question was essentially trying to ask me is there something during the year that we are depending upon for delivering this growth. That’s how I perceived and understood it. And what I wanted to answer there was and what I answered there was that we are not dependent on one event or one product or something, which will deliver this growth for us. So we need to deliver our growth, whatever that we’ve talked about, fairly evenly during the year. And therefore what I answered was that even in quarter one we are expecting to deliver some growth over last year’s numbers, FY ’22 numbers. So that’s what — please read it in relation with that. Specific for each quarter is there are ups and downs, some of it will get corrected. For example, the first quarter in FY ’21, if you remember, was a very high quarter. So obviously that is not a correct number or a correct base to look at.

Saion Mukherjee — Nomura — Analyst

Okay, okay, thank you.

Operator

Thank you. As there are no further questions, I would like to hand the conference over to Mr. Gagan for closing comments.

Gagan Borana — Investor Relations

Thank you, everyone, for attending this call. If any of your queries have remained unanswered, please feel free to get in touch with me. Thank you, once again.

Sandeep Singh — Managing Director

Thank you everyone.

Rajesh Dubey — Chief Finanacial Officer

Thank you.

Operator

[Operator Closing Remarks]