Alkem Laboratories Ltd (ALKEM) Q4 FY23 Earnings Concall Transcript

Alkem Laboratories Ltd (NSE:ALKEM) Q4 FY23 Earnings Concall dated May. 19, 2023.

Corporate Participants:

Amit Khandelia — Associate Vice President, Finance

Sandeep Singh — Managing Director

Rajesh Dubey — Chief Financial Officer

Amit Ghare — President, International Business

Yogesh Kaushal — Vice President

Analysts:

Sumit Gupta — Motilal Oswal Financial Services Limited — Analyst

Mitesh Shah — Nirmal Bang — Analyst

Rashmi Shetty — Dolat Capital — Analyst

Kunal Dhamesha — Macquarie — Analyst

Prakash Agarwal — Axis Capital — Analyst

Damayanti Kerai — HSBC — Analyst

Kunal Randeria — Nuvama — Analyst

Madhav Marda — Fidelity Investments — Analyst

Saion Mukherjee — Nomura Securities — Analyst

Abdulkader Puranwala — ICICI Securities — Analyst

Punit Pujara — Helios Capital — Analyst

Saad Sheikh — BOB Capital Markets Limited — Analyst

Nitin Agarwal — DAM Capital — Analyst

Rahul Veera — Abakkus — Analyst

Gagan Thareja — ASK — Analyst

Harith Ahamed — Avendus Spark — Analyst

Tushar Manudhane — Motilal Oswal — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Alkem Laboratories Limited Q4 FY ’23 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sumit Gupta from Motilal Oswal Financial Services Limited. Thank you, and over to you.

Sumit Gupta — Motilal Oswal Financial Services Limited — Analyst

Thank you. Welcome to the 4Q FY ’23 earnings call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director; Mr. Rajesh Dubey, CFO; Mr. Amit Ghare, President, International Business; Mr. Yogesh Kaushal, President, Chronic Division; and Mr. Amit Khandelia from the Finance team.

So, over to you, Amit, for the opening remarks.

Amit Khandelia — Associate Vice President, Finance

Thank you, Sumit. Good afternoon, everyone, and thank you for joining us today for Alkem Laboratories’ Q4 FY ’23 and full year FY ’23 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 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 with this call, I’d like to remind everyone that this call is being recorded and that 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 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 Sandeep Singh to present the key highlights of the quarter gone by and strategy going forward. Over to you, Sandeep.

Sandeep Singh — Managing Director

Thank you, Amit. Good afternoon, everyone. I will talk about key operations and strategic highlights and then leave the floor open for Q&A. On the domestic front, during the year, we had done exceptionally well on launch of new products. Contribution of new introductions to our growth was 3.1%, significantly surpassing the industry, which is at 2.3%.

We had some very encouraging new launches during the year. We launched Dapanorm Trio in anti-diabetic therapy and are ranked number one in this molecule. We had one of the most successful launches of Sitagliptin in this year in an extremely crowded market, where there are more than 50 players. We rank among the top five in this molecule. We also launched Sacuval in January of this year, which came after Vymada went off-patent. We are among the top players in this molecule as well. And when you consider this fact against the background of we not being among the top 25 in cardiac, this is a good achievement.

We look forward to carry this momentum of market-beating performance in the domestic franchisee in the following year as well. During the quarter, there was an exceptional item on account of impairment of assets, which has impacted profit before tax to the tune of INR103 crores. We have taken a call to discontinue our St. Louis plant, which was meant for controlled substances due to the structural changes happening in the US market. We understand that our EBITDA margin for the quarter and year is subdued and we are working towards that.

With this, I would like to open the floor for questions and answers. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from the line of Mitesh Shah from Nirmal Bang. Please go ahead.

Mitesh Shah — Nirmal Bang — Analyst

Thanks for taking my question. My first question is regarding the discontinue of this plant. What would be the operational benefit because of the information we have done in the discontinued [Indecipherable]?

Sandeep Singh — Managing Director

I think there are some financial benefits, I will let our CFO answer that. Mr. Dubey?

Rajesh Dubey — Chief Financial Officer

Yeah. We expect to save our operating expense to the tune of INR100 crores to INR110 crores. But just having you — this year, entire INR100 crores or INR110 crores is not going to come because we may continue this plant for another month or two.

Mitesh Shah — Nirmal Bang — Analyst

Okay. So it would be like 10 months of benefit we will there in this particular area?

Rajesh Dubey — Chief Financial Officer

Around eight, nine months, you can say.

Mitesh Shah — Nirmal Bang — Analyst

Got it. With this restructuring, how would we see the margins going forward? Because this was one of the tough year for margins definitely.

Sandeep Singh — Managing Director

Mr. Dubey, you can.

Rajesh Dubey — Chief Financial Officer

Yeah. So, margin actually — in fact in our last call, our MD, he has already given guidance on margin front. So, we’ll stick to our commitment and we’ll definitely add 200 basis points to what we have right now. So, I think we are going to be — and we have to be somewhere close to 16% kind of situation.

Mitesh Shah — Nirmal Bang — Analyst

Got it. Got it. Sandeep, our other international markets growth are remained strong, what would be the reason in this quarter? And how would we look at going forward other international market growth?

Sandeep Singh — Managing Director

Mr. Amit Ghare, if you can take that, please.

Amit Ghare — President, International Business

Sure. Thank you. We’ve been focusing on a few key geographies over the last few years, and that’s now kind of paying dividends, actually has been paying dividends for last several quarters. So we’ll continue on that pathway. As our business reaches a certain size and scale, the percentage growth may come down. And overall as a company, in any case, we are focusing on quality business and margin business rather than chasing revenue. You’ll notice the business continuing to grow, the rate of growth may come down going forward.

Mitesh Shah — Nirmal Bang — Analyst

Got it. And Sandeep, about the US, what about the pricing scenario over there? It would be reduced to a single-digit or still it would be a double-digit [Indecipherable]?

Sandeep Singh — Managing Director

Amit, you could answer that, Amit.

Amit Ghare — President, International Business

Sandeep, do you want me to take? Yes, yes. Okay, thank you. During the entire fiscal year, the deflation was in double-digits for us. And I understand your question is whether it will come down to single-digits. In Q4, we saw a bit of a ease on the pricing side, but we continue to have a pricing deflation. Going forward, will we end up with single-digits? I think we are definitely hopeful that it will be in single-digits for FY ’24.

Mitesh Shah — Nirmal Bang — Analyst

Got it. And then, just last bookkeeping question. What would be the tax rate for ’24-’25?

Sandeep Singh — Managing Director

We’ll be somewhere around 14% kind of effective tax.

Mitesh Shah — Nirmal Bang — Analyst

So, this particular year, we close with the higher tax rate. What would be the reason for that, around, I think, effective tax rate is 21%?

Sandeep Singh — Managing Director

In fact, we talked about one exceptional item. There is another exceptional item in that, and that is in tax. So, deferred tax assets to the tune of INR100 crores, we reversed in this quarter four and YTD March ’23. So, that is the reason why you see our effective tax rate on higher side. But for next year, we’ll will be 14% or 14.5%.

Mitesh Shah — Nirmal Bang — Analyst

Got it. Thanks. That’s it from my end.

Operator

Thank you. [Operator Instructions] Next question comes from the line of Rashmi Shetty from Dolat Capital. Please go ahead.

Rashmi Shetty — Dolat Capital — Analyst

Yeah. Thank you for the opportunity. So, one question on other expenses. If you exclude R&D expenses, your SG&A expenses is pretty high quarter-on-quarter as well as year-on-year. So any specific reason for it, and how do you see ahead in FY ’24?

Sandeep Singh — Managing Director

So, Rashmi, you are very right. Your observation is very correct. And especially quarter four, it was on a higher side because just immediately previous year to this year, our marketing expense, it was muted to a certain extent. And we kept on engaging around 1,000 franchise every year in last five years. So, our sales and marketing expense, definitely it was on a higher side, particularly conference expense, actually first time we got opportunity to have conference in a bigger way. That was the reason. But going forward on other expenses front, we expect somewhere around 23.5% to 24% kind of situation. And that is really normal situation in our case. Obviously this time, it is on a higher side.

Rashmi Shetty — Dolat Capital — Analyst

So you mean to say that other expenses, including R&D, would be in the range of 23%, 24%?

Sandeep Singh — Managing Director

You are right.

Rashmi Shetty — Dolat Capital — Analyst

Okay, for FY ’24. And then, when you are saying that there would be a 400 bps improvement in the EBITDA margin, I understand that we might be seeing some softening in the input cost and freight has also come down. But what are the other factors that would lead to this kind of expansion in FY ’24? I mean, if you can just give us like 200 basis point where all we can achieve?

Sandeep Singh — Managing Director

Yes. Dubey ji, you can go.

Rajesh Dubey — Chief Financial Officer

Yeah. So, when we talk 200 basis points, we talk consolidated. Of course, it’s not any single lever of addition to ultimate EBITDA margin. Definitely, softening of heavier price [Phonetic] is one of it. And in last call also, our Managing Director, he hinted we are working on so many cost optimization drives. So, we believe we’ll be able to achieve our expectation. Then operating leverage is another thing. So, manpower what we have added, that is going to pay us going forward. And our internal working it shows us, we will be able to achieve 200 basis points.

Rashmi Shetty — Dolat Capital — Analyst

Okay. And that includes by saving the expenses to nearly INR80 crores, INR90 crores from this plant, right?

Rajesh Dubey — Chief Financial Officer

Yes. Yes. You’re right.

Rashmi Shetty — Dolat Capital — Analyst

Okay. Okay. And my second question is on India business. What was our trade-generic contribution as on FY ’23? And what was the growth for the entire year and how do we see ahead in FY ’24 and ’25?

Sandeep Singh — Managing Director

So, trade generic contribution to the business is 21% for the entire year.

Rashmi Shetty — Dolat Capital — Analyst

Okay. And what was the growth in FY ’23 [Technical Issues] in trade generics?

Sandeep Singh — Managing Director

It’s around 5%.

Rashmi Shetty — Dolat Capital — Analyst

5%. Well, then how do we see ahead in FY ’24-’25?

Sandeep Singh — Managing Director

You are talking only trade generics or talking about…

Rashmi Shetty — Dolat Capital — Analyst

Only trade generics.

Sandeep Singh — Managing Director

Almost on a similar range.

Rashmi Shetty — Dolat Capital — Analyst

Similarly. Okay, sir. I have more questions. I’ll get back in the queue.

Sandeep Singh — Managing Director

Excuse me. Let me correct myself. Trade generic will be close to double-digit.

Rashmi Shetty — Dolat Capital — Analyst

Close to double-digit. Okay, low double-digit you mean?

Sandeep Singh — Managing Director

Yeah, low double-digit.

Rashmi Shetty — Dolat Capital — Analyst

Okay. And that would continue to grow in that range only?

Sandeep Singh — Managing Director

Yeah, we are hoping so. That will continue to grow at that range.

Rashmi Shetty — Dolat Capital — Analyst

Okay, sir. I have more questions. I’ll get back in the queue.

Rajesh Dubey — Chief Financial Officer

So, Rashmi, just to clarify, you said 400-basis-point improvement on EBITDA margin. So it’s not 400 basis point, it’s 200 basis point improvement over FY ’23.

Rashmi Shetty — Dolat Capital — Analyst

Yeah, sir, 200 basis point only I asked, from 14% to 16%.

Rajesh Dubey — Chief Financial Officer

Yeah, understand. Wonderful.

Rashmi Shetty — Dolat Capital — Analyst

Yeah. Got it, sir.

Operator

Thank you. Next question comes from the line of Kunal Dhamesha from Macquarie. Please go ahead.

Kunal Dhamesha — Macquarie — Analyst

Hi. Thank you for the opportunity. So, the first one on the plant saving that we have done. Would you be able to provide some color as to which line item is INR80 crores, INR90 crores [Indecipherable]? And secondly, is there any severance-related costs, etc, which is there in this quarter or expected in quarter one?

Rajesh Dubey — Chief Financial Officer

Yeah. When we say opex, actually it will go line by line, so something will go in personnel cost, something will go in other expenses. And it has to be all across because we — as per reporting norm, whatever hits we have, it is going to go all across. So, let me just correct our understanding. This INR100 crores kind of saving is annualized. So this year, we expect we’ll be able to save at least for seven, eight months. So, accordingly, it will come down. So, whether it is INR60 crores or INR70 crores time will say, but our estimate is for seven to eight months.

Kunal Dhamesha — Macquarie — Analyst

Correct. And then, will there be any cost — one-time costs associated with it, like severance, etc, because I think in US, we have to pay?

Sandeep Singh — Managing Director

Yes. Answering without factoring that, we are telling you net.

Kunal Dhamesha — Macquarie — Analyst

Okay. INR100 crores, INR110 crores is net on an annual basis, and then we are expecting INR70 crores, INR80 crores.

Rajesh Dubey — Chief Financial Officer

Yeah.

Kunal Dhamesha — Macquarie — Analyst

Perfect. And I think, our employee expense on a quarter-on-quarter basis, I think, has come down a little bit. So, is it more, because of the accounting where we would have provided more bonus, etc, incentives earlier or something or is it something that the base is, so this is a new base of INR500 crores, earlier we were around INR525 crores and before that INR517 crores.

Sandeep Singh — Managing Director

So there was some rationalization in manpower, in R&D and manufacturing, because of business pressures we have.

Kunal Dhamesha — Macquarie — Analyst

Okay. So, basically INR20 crores is the quarterly saving, and which should continue going forward in your view?

Sandeep Singh — Managing Director

No, no, it’s not that much at all. It must be like lopsided this quarter because there was severance pay in the last quarter. So, therefore, you’re seeing lumpiness over here. You could see a INR10 crores saving because of this every quarter, or more.

Kunal Dhamesha — Macquarie — Analyst

Okay, okay. Perfect. And lastly, on the trade generics, I think [Indecipherable] said that trade generic is around 21. I think as far as I remember, last year it was around 22, and we have trade generic has grown at double-digit, and versus our India business has grown at around has grown at around 7.8%.

Rajesh Dubey — Chief Financial Officer

[Speech Overlap] region has grew by double-digits. We said for next year, for this year that is. The question the lady asked was on last year. We grew by high single-digits over there in trade generics.

Kunal Dhamesha — Macquarie — Analyst

Okay. Single-digits?

Rajesh Dubey — Chief Financial Officer

Yes.

Kunal Dhamesha — Macquarie — Analyst

Perfect. And then, now we would be more or less in the Rx like whatever prescription business, India business growth, more or less in line with that. Is that a fair assumption?

Rajesh Dubey — Chief Financial Officer

Yeah, maybe even more, but yeah, round about that.

Kunal Dhamesha — Macquarie — Analyst

Okay, perfect. I have more questions. I’ll get back in the queue.

Rajesh Dubey — Chief Financial Officer

Yes. Thank you.

Operator

Thank you. Next question comes from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal — Axis Capital — Analyst

Yeah. Good evening. Thanks for the opportunity. First question on gross margin. So last few quarters, we’ve talked about US pricing pressure, etc. And so, this quarter, the US contribution is also lower, but still the gross margin is still muted. So, it got to do with the high raw material prices which has still not come down or there is more to read into it?

Sandeep Singh — Managing Director

You’re right, Prakash, actually material needs to be procured earlier. Ultimately we consumed in this quarter. So in short, I want to say whatever we sold in this quarter, it was manufactured against material which we procured in earlier quarter when prices were on higher side. And then, the second, let’s have in our mind, this NLEM came in quarter four and NLEM is also having impact on this gross margin, if you’re referring quarter only. So, when you see annual for the year, yes, pricing pressure in US market and the deflation in prices there, that is a major contributor. But when you see quarter closely, DPCO and then higher material cost which we procured in the earlier quarter we consumed in this quarter.

Prakash Agarwal — Axis Capital — Analyst

So, are we done with using old high cost inventory and from first quarter, we will be with the low cost inventory or how do we think about it?

Sandeep Singh — Managing Director

See, even today also we don’t see material prices coming in line with pre-COVID level, but PG kind of material, they’ve started showing positive trend. So — but I think it takes normally three to four months, because you procure and then you manufacture and then use it, and then impact is going to come.

Prakash Agarwal — Axis Capital — Analyst

So, maybe second quarter onwards, we will see the raw material price benefits?

Sandeep Singh — Managing Director

Yes, I believe so. Second quarter onwards, it will be getting softening a little bit.

Prakash Agarwal — Axis Capital — Analyst

And second piece, you said NLEM impact. So we must have taken price hike in April. So that offset should be seen in Q1 or that also we will see from Q2 onwards?

Sandeep Singh — Managing Director

Again, when you have material, normally even finished goods also we keep for 1.5 or two months. So, even though you implement NLEM or you take fresh batches in the month of April or May, it takes a little bit time to get consumed, earlier manufacture and then your new product is going to go in market. So, approximately around three months it takes in this entire process. So I think by June, we’ll be starting of taking advantage of price increase, but again it will be second quarter when everything is going to come.

Prakash Agarwal — Axis Capital — Analyst

Okay, perfect. Understood. And one clarification on the comment made. So earlier we were looking at 15% EBITDA margin. We came in around 14% and we have talked about 200 basis points. So, we are talking about 17% EBITDA margin for ’24 or 16% EBITDA margin?

Rajesh Dubey — Chief Financial Officer

16%, Prakash, 16%.

Prakash Agarwal — Axis Capital — Analyst

Okay, okay. Understood. And lastly, on the US sales, so how should we think about it? Do we see the impact due to the closure or the products which we had manufactured already outsourced to CROs or how should we think about US going forward from here?

Amit Ghare — President, International Business

Sorry. Prakash, I didn’t get your question. On what parameter like do you mean, Prakash?

Prakash Agarwal — Axis Capital — Analyst

In terms of sales, so you had the exit run rate of say $70 million. So, with the plant shutting down, do we see some impact of…

Sandeep Singh — Managing Director

No, Prakash, because — and I’ll let Mr. Amit Ghare elaborate. But this plant was not contributing more than 2%, 3% to US anyways. And going forward also, it should not impact. Yeah, Amit, you have comments, please go ahead, Amit?

Amit Ghare — President, International Business

No, you’re right. And in fact, the contribution was less than 2% on the revenue side. So, the revenue loss is very marginal. And overall, we are expecting a small growth in the US business in dollar terms.

Prakash Agarwal — Axis Capital — Analyst

So, growth on a base of fiscal ’23?

Amit Ghare — President, International Business

That’s correct. Overall.

Prakash Agarwal — Axis Capital — Analyst

What’s the MR count as on fiscal ’23, sir?

Sandeep Singh — Managing Director

Okay. Yogesh, MR count? MR count as on date.

Yogesh Kaushal — Vice President

As a company, we are around 12,000 overall as an organization.

Prakash Agarwal — Axis Capital — Analyst

12,000 MRs, this is with the managers or just the…

Yogesh Kaushal — Vice President

This is without managers. This is only representatives.

Prakash Agarwal — Axis Capital — Analyst

And with the managers, sir?

Yogesh Kaushal — Vice President

So around 45%-odd is the managers to the representative, all managers put together, right from area managers to the sales heads.

Prakash Agarwal — Axis Capital — Analyst

The low-45% on 12,000?

Yogesh Kaushal — Vice President

[Speech Overlap] managers, yeah.

Prakash Agarwal — Axis Capital — Analyst

Okay. That would be a big number.

Yogesh Kaushal — Vice President

Sorry? It is a big number, yeah.

Prakash Agarwal — Axis Capital — Analyst

So 5,000 people, so about 17,000 people you have on the field plus managers.

Yogesh Kaushal — Vice President

Absolutely, yeah. At a group level.

Prakash Agarwal — Axis Capital — Analyst

At a group level. Okay. I have more questions. I’ll join the queue. Thank you.

Operator

Thank you. [Operator Instructions] Next question comes from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai — HSBC — Analyst

Hi. Good afternoon. Thanks for the opportunity. My question is on specialty business — specialty portfolio in India. So, obviously you have done very well in anti-diabetic space, but cardiac is something I believe where you are lagging versus the market growth. And if I remember correctly, you mentioned you are planning for some change in strategy, etc. So can you update on a cardiac part because that again is a big market? And how do you see specialty portfolio going as part of your India business in, say, next three to five years?

Rajesh Dubey — Chief Financial Officer

So you have two questions. One is about cardiac, and second is overall specialty. Am I right?

Damayanti Kerai — HSBC — Analyst

Yes. Yes.

Rajesh Dubey — Chief Financial Officer

Yeah. So, see, let me answer first cardiac. I mentioned about slight change in our strategic approach towards cardiology. So we — initially we are focusing on niche products, I repeat again, because we were focusing too much on anticoagulants and anti-platelets, which are little difficult in niche market. So what we have done in the last quarter is, we are focusing more on mass-based cardiologic products which are antihypertensives and lipid regulators. So we are focusing more and we are seeing results there. Last quarter, the cardiac growth was close to 1.8% and this quarter it has reached almost 5.5% when the market is growing at 8.5%. So we are almost touching the market growth in cardiology and this will take a little time, but the strategic approach has started yielding results. So this is how the cardiology will be placed. That doesn’t mean that we will not focused on niche, but the larger focus will remain on mass products — mass usage molecule.

Overall, with specialty, yes, Diabeto almost all newer molecules which are being off-patent, we are targeting. So we have launched Dapa, Vilda, Sita, so all these are launched, various combinations are will be launched, and we are currently leading — we are among the top five in all these categories. So, Diabetology we are strengthening and we are going strong. We are currently 15th, and we hope that in another two, three years, we should be amongst the top 10.

In CNS, we are already ranked seventh and for the month, we are among the top five. So, my expectation is, we should consolidate and CNS, in a year or two, we should be on an annual basis also we should be amongst the top five. Dermatology and urology, we are consolidating. We are going 2x to 2.5x faster than the market. And fifth is our cardiology where we are almost touching the market growth, and assume maybe two quarter more, we should be able to surpass the market.

Damayanti Kerai — HSBC — Analyst

Okay. So compared to your anti-infective growth, which is a major part of your India business right now, once you sort out some of these issues in cardio part, we should assume that specialty will be growing much faster than the acute portfolio?

Rajesh Dubey — Chief Financial Officer

Yeah. So that is currently also happening. Chronic is currently growing at around 21% to 22%, while acute is growing at around 7% to 8%. So, chronic is sustaining a growth level of around 21% versus market of around 10%.

Damayanti Kerai — HSBC — Analyst

Okay, sir. Understood. Related question, in the overall, this year obviously Sandeep mentioned in his remark that contribution from new launches were much better versus your own historical performance and against the market. So, say for ’24, how much we — or how should we look at growth drivers, say volume, price, and new launches for the overall India business?

Rajesh Dubey — Chief Financial Officer

Yeah. See, while the industry still shows a muted growth of unit, but however we are still very bullish that as a company we should be able to drive a double-digit unit growth. So we will have — major growth driver this year will be unit and marginal contribution will come from NRV and from the new products. So larger will be volume-driven growth.

Damayanti Kerai — HSBC — Analyst

Thanks. And my last question is on your R&D. So, R&D, obviously, we continue to see upturn in recent quarters because if you are progressing five, 10 products etc, so, how should we look at this number in say ’24 and beyond as a percentage of sales?

Rajesh Dubey — Chief Financial Officer

5 to 5.5, we have always maintained that. That should be what it is, it will be.

Damayanti Kerai — HSBC — Analyst

Okay. So it will stay within that?

Rajesh Dubey — Chief Financial Officer

It will stay within that range, yes.

Damayanti Kerai — HSBC — Analyst

Okay. Thank you. I’ll get back in the queue.

Operator

Thank you. Next question comes from the line of Kunal Randeria from Nuvama. Please go ahead.

Kunal Randeria — Nuvama — Analyst

Hi, good evening. So, I think you mentioned double-digit growth for India in FY ’24. So I’m just wondering which therapy do you expect because unlikely the gastro or pain could repeat the kind of high-teens growth that you reported this year. So just wondering where the growth would be coming from?

Sandeep Singh — Managing Director

Yeah. Especially our acute, we said, as a company will grow at double-digit, right — at early double-digit, which means around 11 types, 10% to 11%. So, we still expect acute to continue to grow at around 8% to 9% growth and chronic will sustain a growth level of 22% types. So as a company, we will continue to grow at around 10% to 11%.

Kunal Randeria — Nuvama — Analyst

Okay. Fair enough. And secondly, I still don’t completely understand your margin guidance. So I understand the 200 bps and you expect 16% margin. Last time around you guided with 17%. Now, see, in the last three months, I guess you’ve had some tailwinds from lower input costs that will benefit you in the coming year, the freight costs also would have come down, plus the St. Louis plant where you — is INR50 crores, INR60 crores savings coming this year. So there have been more tailwinds than headwinds, but still the absolute margins coming from 17% to 16%. So, is the cost of business actually going up, and maybe a normal cost, the savings are really not there?

Sandeep Singh — Managing Director

No. I think, see, first thing, these things would have an overnight. So obviously, we had anticipated St. Louis closure, even when we spoke to you last time, though we were not sure when we will do it, but we obviously knew. So all that was factored in when we said it will be a 200 basis point increase. Our RM going down, the stuff you said obviously Mr. Dubey answered that previously. For it to kick, it takes time. So, those benefits will only come going forward. We were a little aggressive on the marketing side this quarter on sales and marketing. So, SG&A expense was like still up by what we thought we would be by INR30 crores, INR40 crores. But, yeah, so I mean what specifically do you think is kind of not very clear to you?

Kunal Randeria — Nuvama — Analyst

So my question, Sandeep bhai, is this that, see, I mean prior to COVID, you were doing somewhere around, let’s say, 18% kind of margin, right — 17%, 18% kind of steady state margins, right. So, the fact is that maybe next year you’ll do 16%, year after that, maybe 17%, 17.5%. So it seems that to generate every INR100 of sale, the opex has actually gone up significantly. So is that understanding correct?

Sandeep Singh — Managing Director

I’m not sure. I tell you is the gross margins have come down if you compare to pre-COVID. Look at the cost of Seplospore [Phonetic] is like 10G China, we all keep hearing. You have to look at us differently. We are one of the few companies who have very high acute portfolio. So when you compare to others and all, it might not be apple to apple. It’s basically was RM cost has gone up. I think we have lost 200 basis point there, but Mr. Dubey can guide me better there. So it’s mainly because of that. So cost of business has gone up, in a way it’s right, but only because of gross margins, not that we’re having operation challenges and things like that.

Kunal Randeria — Nuvama — Analyst

Got it. And just one more if I can squeeze in. I think, the St. Louis plant closing down seems like a welcome step, but in terms of — I think it’s always to improve the US margins, I think the product launch quality also plays a very important role. So, would you like to maybe point out with the kind of launches that we should expect in the next couple of years that can really improve our US gross margins?

Sandeep Singh — Managing Director

I’ll let Mr. Amit Ghare answer that.

Amit Ghare — President, International Business

Kunal, we’ve always focused on quality than quantity. We’ve never launched more than 15 products in a year. So, our focus going forward will remain launching better products — filing better products, and obviously launching better products, and launching on time, that is also very important. That we are focusing on that.

Kunal Randeria — Nuvama — Analyst

Okay. Fair enough. Okay. Thank you very much.

Operator

Thank you. Next question comes from the line of Madhav Marda from Fidelity Investments. Please go ahead.

Madhav Marda — Fidelity Investments — Analyst

Hi, good evening. Thank you so much for your time. I have two questions. First is just asked by the earlier participant, I think this year, especially towards the end of the year, there was very good benefit for anti-infectives and respiratory from very strong flu season, I think, in large parts of the country. So do you think given we have a recently launched anti-infectives. Does that create a tough base for us as we go into [Speech Overlap]?

Sandeep Singh — Managing Director

Your voice is not clear, but whatever I understood you are saying that last quarter, the anti-infective growth was very good. And do we expect similar trend for the next year? Is this your question?

Madhav Marda — Fidelity Investments — Analyst

No, does that create a tougher base for us next year, given I’m not sure if such a strong flu season to repeat again?

Sandeep Singh — Managing Director

So this year was a bad year I think for anti-infectives.

Madhav Marda — Fidelity Investments — Analyst

No, I’m just looking at the quarter four growth, it seems to be 20%-plus then?

Sandeep Singh — Managing Director

Yeah. No, the quarter four is unlikely to continue because particularly respiratory pain, these benefited because of flu. So that certainly will not continue in the next year unlikely because even those kind of predictions is very, very difficult to make but, true benefits will surely not be there next year. That’s what we foresee.

Madhav Marda — Fidelity Investments — Analyst

Got it. And just secondly, our tax rate is quite low at 14%, 15% like when do we expect that to normalize like the tax benefits that we have maybe at some facilities? When does that normalize for us? And what does it normalize to and by when?

Rajesh Dubey — Chief Financial Officer

So, Madhav, that is good thing, our effective tax rate is on lower side. And actually — yeah. So we have this tax advantage for our secured facility till March ’26. So, after that definitely effective tax is going to be normal. We’ll see whether to go with old regime or new regime that is our point of discussion, but it will become normal. Yes, of course, we do have lot of MAT available with us which we’ll be using going forward. So, on cash front, still we’ll be having advantage after that also. Am I able to clarify you?

Madhav Marda — Fidelity Investments — Analyst

Understood. So the P&L actually would move to the normal 25%, most likely FY ’27 onwards?

Rajesh Dubey — Chief Financial Officer

Yeah, I said we will evaluate whether to remain with old regime or new, it will depend. But yes, till March ’26 we’ll be having this takes advantage for [Indecipherable]. So till that time our effective tax rate is going to be lower. It may be lower than 20% also, but definitely, it will be lower than normal tax.

Madhav Marda — Fidelity Investments — Analyst

Okay, sir. Thank you.

Operator

Thank you. Next question comes from the line of Saion Mukherjee from Nomura Securities. Please go ahead.

Saion Mukherjee — Nomura Securities — Analyst

Yeah. Hi, good evening. Thanks for taking my question. Sir, can you — so when you mentioned about margin expansion, you talked about three, four levers softening of API prices, cost optimization, and operating leverage. But the discussion that we had after that appears that a lot depends on the way the API prices move. Is that a right assessment? And what is the kind of gross margin expansion that we are factoring in for next year?

Rajesh Dubey — Chief Financial Officer

So we have in our mind, our margins somewhere to be closer to 59%, 59.5%, that kind of expectation we have, yes, but going forward we have considered this gross margin in normal scenario. If something happens, and our raw material prices, API prices or any excipient of packing material prices if increasing abnormally then we need to see what impact is coming on account of that. That much we need to see. But in normal situation, we expect we’ll be somewhere 59%, 59.5% for coming year.

Saion Mukherjee — Nomura Securities — Analyst

Okay. And sir, because there are a lot of moving parts due to the US business, the price erosion that we’ve seen. I’m just wondering if you can state what kind of profitability is there for your domestic business, let’s say, for FY ’23 and how does that compare to, say, FY ’20, which was a pre-COVID year?

Rajesh Dubey — Chief Financial Officer

Saion, actually we never segregate and give different, different margins for our different, different segments, but you also know domestic is enjoying better gross margin and better profitability. I think as far as comparison is concerned. that we may take offline also.

Saion Mukherjee — Nomura Securities — Analyst

Okay. But like next year, you’re guiding for 200 basis points, which would take it closer to 16%. I mean, as things normalize going forward, you sort of focus less on US, India grows, you push higher volumes may be marketing expenses are higher. So overall, if you put all that together, where should this EBITDA margin stabilize with your business model, let’s say, three, four years down the line?

Sandeep Singh — Managing Director

In four years down the line?

Saion Mukherjee — Nomura Securities — Analyst

Yeah.

Sandeep Singh — Managing Director

Yeah, four years down the line maybe close to 18%, 19% around that time, Saion. But there’s a lot of moving parts and so let’s take it year-by-year honestly. But yeah…

Saion Mukherjee — Nomura Securities — Analyst

Okay. That’s helpful.

Sandeep Singh — Managing Director

Thank you.

Operator

Thank you. Next question comes from the line of Abdulkader Puranwala from ICICI Securities. Please go ahead.

Abdulkader Puranwala — ICICI Securities — Analyst

Yeah. Hi, sir. Sir, just a couple of clarities. So, I mean, did you mention that in Q1 you would be taking some hit on account of the severance payment for the St. Louis plant closure?

Rajesh Dubey — Chief Financial Officer

No, no, no, we did not say that. We said that whatever is taken care in the past because some people have already been kind of laid out. Yeah, we did allude to that in Q1 there would be some severance.

Abdulkader Puranwala — ICICI Securities — Analyst

All right. Got it. And secondly, if we refer to your cash flow statement, it refers to an issuance of preference shares, which has led to an inflow of close to INR161 crores, where does this reflect on the balance sheet?

Rajesh Dubey — Chief Financial Officer

Abdul, you are talking about this fee investment in Enzene. And you want to know where it is appearing in balance sheet?

Abdulkader Puranwala — ICICI Securities — Analyst

Okay, okay, okay.

Rajesh Dubey — Chief Financial Officer

No, no, no, I have not replied. I was just asking whether I’m understanding your question properly or not. So actually it is classified as equity instrument, it is just below equity…

Abdulkader Puranwala — ICICI Securities — Analyst

Under the non-controlling interest.

Rajesh Dubey — Chief Financial Officer

And appearing under debt, but considering other obligation aligned with it, but is — when you see our balance sheet it will get reflected under other financial liability.

Abdulkader Puranwala — ICICI Securities — Analyst

Okay, sir. Got it. Thank you.

Rajesh Dubey — Chief Financial Officer

You must not be having our detailed grouping-wise balance sheet. When you refer our consolidated balance sheet, it will appear under other financial liability.

Abdulkader Puranwala — ICICI Securities — Analyst

Sure, sir. Understood. Thank you.

Operator

Thank you. Next question comes from the line of Punit Pujara from Helios Capital. Please go ahead.

Punit Pujara — Helios Capital — Analyst

Yeah, hi. Thanks for taking my question. So, my question was on Enzene Bio. What was the revenue and EBITDA we generated for the full year?

Sandeep Singh — Managing Director

Sorry. Okay. For Enzene?

Rajesh Dubey — Chief Financial Officer

Yeah. So, for the year ’22-’23 on biosimilars, total revenue we have somewhere around INR160 crores kind of.

Punit Pujara — Helios Capital — Analyst

And sir, absolute EBITDA?

Rajesh Dubey — Chief Financial Officer

EBITDA, we are still because R&D spending is sizable. But when we see on business level, it is breakeven. Right now, after taking R&D spending, there will be still losses in that. So we are not talking on EBITDA right now. We’ll be talking from ’24 onwards.

Punit Pujara — Helios Capital — Analyst

Sure, sir. Sir, in past, we have said that we’ll be incurring close to INR100 crores investment in Enzene. So, is that run rate likely to continue going forward?

Rajesh Dubey — Chief Financial Officer

Yeah.

Punit Pujara — Helios Capital — Analyst

Sure. Can you update on Denosumab and Tocilizumab clinical trials? I think you have guided for Denosumab filing by calendar ’24 end. So are we on track for that?

Sandeep Singh — Managing Director

Yeah, we are on track for that for Denosumab.

Punit Pujara — Helios Capital — Analyst

Sure, sir. And what would be the current stake in Enzene after this fund raise on fully diluted basis and what’s the use of the funds that we have raised?

Rajesh Dubey — Chief Financial Officer

We have given option to them to get converted to 8%. So remaining 92%, a small portion it may be under — funds, but the rest of shareholding is with Alkem only.

Punit Pujara — Helios Capital — Analyst

Sure sir. And the use of the funds?

Sandeep Singh — Managing Director

Sorry?

Punit Pujara — Helios Capital — Analyst

Use of the funds?

Rajesh Dubey — Chief Financial Officer

Enzene is going to use this fund for the US requirement because for biosimilar, we have a US plan as well. So capex is going to start from this year and mainly, it will be used for business and more particularly for US business,.

Punit Pujara — Helios Capital — Analyst

Sure sir. That answers my question. I’ll join back the queue. Thanks for taking my questions.

Operator

Thank you. Next question comes from the line of Saad Sheikh [Phonetic] from BOB Capital Markets Limited. Please go ahead.

Saad Sheikh — BOB Capital Markets Limited — Analyst

Yeah, thank you for the opportunity. My first question is, do we have any direct sales to hospitals? And if yes, what would be the percentage? And related question with recent federal government order of curtailing MR activities at the hospital, do you envisage any impact, because we are acute-heavy. So with that have any impact? Also with our recent MR addition will we be relooking at after this? Thanks.

Sandeep Singh — Managing Director

A lot of echo in your voice. So, the question was not clear. What I understood was you’re asking about our hospital business and what is the percentage? So normally, our hospital business are more of a corporate in nature. So we don’t participate much in public hospitals. So corporate hospitals yes, we have, and this is around in a range of around 6%, 7% to 8%. Yeah, that’s a corporate hospital. But we don’t really participate much in government tenders.

Saad Sheikh — BOB Capital Markets Limited — Analyst

Okay. Thanks.

Operator

Thank you. Next question comes from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Thanks for taking question, sir. On the raw material cost, is the pressure during the year largely on account of the higher PenG prices? And if there is any sense you can give us in terms of what proportion of our raw material is around PenG and derivatives?

Sandeep Singh — Managing Director

PenG…

Amit Ghare — President, International Business

PenG. He’s asking how much your raw material is PenG impacted.

Sandeep Singh — Managing Director

Yeah, PenG is used in so many anti-infective APIs, and our anti-infective, as you know, we are the leader in that. So around 40% of our portfolio is for anti-infectives. So you can understand PenG is a major contributor to overall API costing that. As far as movement is concerned, yes, we saw prices getting a little bit softened. I think nowadays it’s going somewhere close to $32, $34 kind of situation, earlier it was quite high and that was pinpoint.

Nitin Agarwal — DAM Capital — Analyst

And sir what is been normalizing pricing you’ve seen in PenG versus $32, $34 right now versus say maybe a couple of years back in a more sort of when things are more normal on the PenG pricing front?

Amit Ghare — President, International Business

Question is asking what is the normal?

Sandeep Singh — Managing Director

It was like $8 even two, three years back. So difficult to say now, what would it will go back, when will it go back, we don’t know.

Nitin Agarwal — DAM Capital — Analyst

And generally when you’re looking at this PenG as a product for us, I mean, what is — you given what is just picking up in the market, what is the realistic level you see this probably settles at a more normalized level?

Sandeep Singh — Managing Director

We don’t know, honestly, that’s what we just said. We cannot predict very difficult to say that.

Nitin Agarwal — DAM Capital — Analyst

So, typically how does Alkem go about handling, because large components of a raw material. So, I’m just curious if you can give us any sense on how does — how are we looking to handle this normality on the PenG side?

Sandeep Singh — Managing Director

So, obviously PenG is — from PenG — we buy the API, we don’t buy PenG, point number one. So PenG is an input for all of our API suppliers. Now, obviously, we have some laws where we think the price will either go up or go down. And we kind of be stock up, but if prices are going up. Right now, our stock operations or inventory positions maintain more of a neutrality. We are not predicting stocks, I mean price going up or going down. We are following the norm right now, not anticipating any upward movement.

Nitin Agarwal — DAM Capital — Analyst

[Indecipherable] the plan expire commercialization of our domestic PenG capacity, do you see some of these things situation can ease for us, maybe in a few quarters down the line on this account?

Sandeep Singh — Managing Director

Sorry, your question is, what if domestic guys make it? That’s what you’re saying?

Nitin Agarwal — DAM Capital — Analyst

Yeah, because a large domestic capacity expected to come through on PenG…

Sandeep Singh — Managing Director

But we don’t know what price they will supply to us. We really don’t know how China will react. There are lot of moving parts. So, we hope it does. But do we know it will, the answer is no. We don’t know right now.

Nitin Agarwal — DAM Capital — Analyst

Okay. Thank you.

Operator

Thank you. Next question comes from the line of Rahul Veera from Abakkus. Please go ahead.

Rahul Veera — Abakkus — Analyst

Hi, sir. Just wanted to understand the capital allocation policy going forward.

Sandeep Singh — Managing Director

Can you speak a little bit louder, please?

Rahul Veera — Abakkus — Analyst

Hi, sir. Can you hear me now?

Sandeep Singh — Managing Director

Yeah.

Rahul Veera — Abakkus — Analyst

Yeah, I wanted to understand the capital question policy going forward. Like, what will be the capex? And what is the investment that you are looking for the biosimilar assets from hereon?

Sandeep Singh — Managing Director

So, I think you’re asking for our capex for ’24. So, our estimate is somewhere close to INR300 crores to INR350 crores.

Rahul Veera — Abakkus — Analyst

Okay.

Sandeep Singh — Managing Director

And what was your next question?

Rahul Veera — Abakkus — Analyst

What will be the proportion of the capex going towards for Biosimilars assets?

Sandeep Singh — Managing Director

So out of this INR350 crores, substantial is going to be biosimilars only.

Rahul Veera — Abakkus — Analyst

Okay. Fine, sir. And what are you thinking about capital allocation in terms of dividends or anything beyond because the kind of balance sheet that we have as of now, plus the generation over the next two years? What are the plans for that, sir?

Rajesh Dubey — Chief Financial Officer

Actually declaring dividend is not in our authority, sir. And it has to be Board and ultimately shareholders, But yes, our dividend policy is there. Yeah. So our dividend guidelines is around 25% of profit.

Rahul Veera — Abakkus — Analyst

Sure. Fair point, sir.

Operator

Thank you. Next question comes from the line of Gagan Thareja from ASK. Please go ahead.

Gagan Thareja — ASK — Analyst

Hello, am I audible?

Rajesh Dubey — Chief Financial Officer

Yeah. Gagan, go ahead. Yeah.

Gagan Thareja — ASK — Analyst

Yeah. Sir, first question is on the R&D cost pertaining to Enzene. Could you enumerate the number?

Rajesh Dubey — Chief Financial Officer

Yeah. R&D of Enzene Biosimilars for ’24 is going to be somewhere close to INR150 crores.

Sandeep Singh — Managing Director

But this does not include the CT costs of Denosumab. It includes — I mean, it includes it also.

Gagan Thareja — ASK — Analyst

Okay, okay. The second one. Does it does the quarter show the full impact of the revised NLEM pricing on whatever bits of your portfolio has been impacted or it will come through in the next quarter?

Rajesh Dubey — Chief Financial Officer

So actually, different, different period NLEM notification it came. So when we talk of substantial amount say INR40 crores impacting our quarter four. So we talk entire NLEM our covered products having impact in quarter four. However, as we discussed from April onwards even though we have opportunity to increase prices based on wholesale price in that. So, then major portion is going to be neutralized, once we implement price of DPCO covered products, but still yeah, a small portion is going to remain in next year also.

Gagan Thareja — ASK — Analyst

Right. And if I refer back to the third quarter call transcript, you had talked about a INR250 crores cost saving program. You also indicated that a large part of that would be realized in FY ’24 itself. Just wanted your thoughts on that. You’ve talked about INR70 crores, INR80 crores of savings from the St. Louis plant, but can you bridge from there to the INR250 crores both in terms of when that will happen? And through what will that happen?

Sandeep Singh — Managing Director

So, Dubey, you want to take that?

Rajesh Dubey — Chief Financial Officer

Yeah. So, St. Louis is one of the lever of our overall cost-saving initiative which we still lost. Yes, you are very, right, our objective is to have cost saving to the tune of INR200 crores to INR250 crores going forward. In ’24, I think we’ll be able to launch most of the exercises and we are very optimistic sizable amount is going to come, but in different, different phases it is going to come. So, ultimately, on an annualized basis, it is going to be around INR250 crores, but we need to see our timing and all this, but still our expectation for ’24, out of this INR250 crores, a sizable amount is going to flow.

Gagan Thareja — ASK — Analyst

So then, the final question is that if a sizable amount this is going to flow through, I mean what sort of changed in the last three months that you’re now saying that your operating margin, which you sort of inferred or surmised could reach 17% in ’24 now you indicate will probably be closer to 16%. I understand Q4 had its ups and downs, but that doesn’t have any bearing on the cost programs that you had in this. So, just your thoughts on why that guidance is being shifted from 17%?

Sandeep Singh — Managing Director

I think guidance was also 200 basis points more than where we land. So that we are sticking to achieve.

Gagan Thareja — ASK — Analyst

Yeah. But — I mean, I’m just trying to work the math there because the cost programs remain what they are. You have a softening of the APIs as well. So how does that, because the absolute amount of savings is what it is going to be, it’s got nothing to do with percentages, right. So in that sense, it should therefore actually lead to a 17% margin irrespective of what you generated in FY ’23?

Sandeep Singh — Managing Director

No, see, your RM prices, as I said, we in our acute portfolio, it’s not fallen as rapidly whilst we think to. We also want to be cautious on the RM prices. We were just discussing with PenG, etc. So I would really say that, yes, I mean, say 17% would be great, but 16% is something which we think is more realistically which we could achieve, because there are lot of non-moving parts.

Gagan Thareja — ASK — Analyst

Okay. Thanks. I’ll get back in the queue. Thank you.

Operator

Thank you. Next question comes from the line of Harith Ahamed from Avendus Spark. Please go ahead.

Harith Ahamed — Avendus Spark — Analyst

Hi. Thanks for the opportunity. On Enzene, you shared the revenue number of INR160 crores for FY ’23. Could you give some color on the traction that you’re seeing on the CDMO side of the business? Is it a meaningful contributor in this INR160 crores number?

Sandeep Singh — Managing Director

It’s not a meaningful one, but it’s kind of growing. So, close to — maybe close to 40% of it could be — no, 30% of it could be that, 30% to 40% is CDMO.

Harith Ahamed — Avendus Spark — Analyst

And these are for innovator customers or biosimilars?

Sandeep Singh — Managing Director

Not all of them are innovators, but these are small biopharma. These are not big innovators.

Harith Ahamed — Avendus Spark — Analyst

Okay. And the fundraise that we’ve done with Enzene, can you help us understand the thought process, especially given that we have a net cash position of around INR2,000 crores and we continued to see strong cash generation. What’s the rationale here?

Sandeep Singh — Managing Director

The rationale is, once we wanted to kind of set a benchmark for their valuations to some extent. Second, it validates our strategy because anybody who comes in does a thorough DD, that’s number two. Third, these guys, they are Fidelity [Phonetic]. So they have a huge network of other biopharmaceutical that they have invested in. So we get to learn from them. We could do business with a lot of them and it helps us kind of make as the company truly independent, but is run by its own Board and the investors sitting on the Board ask us the right questions. And eventually kind of in five to six years, we could listed. So we see Enzene as a full-fledged substantial independent company driving a lot of value in the next five to six years.

Harith Ahamed — Avendus Spark — Analyst

Okay. That’s helpful. And last one, on the margin decline that we’ve seen in FY ’23 versus FY ’22 around 500 basis points, is it correct to assume that almost this entire decline has come from the domestic business and the RM cost pressures in the acute portfolio in the domestic business? I’m trying to understand if we are profitable at the EBITDA level in the US business? So, some color on that would also be helpful.

Sandeep Singh — Managing Director

I think Mr. Dubey can give details, but I would say last too, last year was a COVID here. We had lot of tailwinds. So therefore your EBITDA all looks substantially great. So the comparison itself is I think not the best, and 500% that basis points is on EBITDA led by gross margin. And Mr. Dubey, you could throw some light there.

Rajesh Dubey — Chief Financial Officer

Yeah. So, out of this 500%, definitely the gross level and expenditure is equally divided. So, in this year spending, it was on a higher side, even we had a pressure on gross margin also mainly API cost and price deflation in US market, here I’m talking for entire year. So in that case these are the two contributors to pressure on gross margin level. So putting both these together around 500 basis point compromise has happened at EBITDA level.

Harith Ahamed — Avendus Spark — Analyst

Okay. And will you be able to share the margin range for the US business, at least whether it’s profitable at the EBITDA level?

Rajesh Dubey — Chief Financial Officer

No individual business-wise margin discussion we are not doing.

Harith Ahamed — Avendus Spark — Analyst

All right. Thank you, sir, for taking my questions.

Operator

Thank you. Next question comes from the line of Tushar Manudhane. Please go ahead. Mr. Tushar, please go ahead with your question. Mr. Tushar, please go ahead with your question.

Tushar Manudhane — Motilal Oswal — Analyst

Am I audible?

Operator

Yes, you are.

Tushar Manudhane — Motilal Oswal — Analyst

Okay. Sir, just one other expenses excluding R&D even. If I leave aside INR30 crores, INR40 crores of higher marketing expenses. Still, the quarter-over-quarter other expenses is higher. So, how do we think about it for full year, and particularly for fourth quarter FY ’23?

Rajesh Dubey — Chief Financial Officer

So, Tushar, your question is, after taking out INR30 crores, INR40 crores from marketing spend, still we are not in normal kind of situation and the additional spending is there. I think if I see quarter, and compare with last year’s quarter four, I think INR30 crores, INR40 crores is not that amount, that is higher amount.

Tushar Manudhane — Motilal Oswal — Analyst

Sir, quarter-over-quarter, not previous — not the last year quarter, 3Q FY ’23?

Rajesh Dubey — Chief Financial Officer

Yeah. So, on a quarter-on-quarter basis, in fact, it was INR670 crores vis-a-vis INR790 crores. So actually just give me a minute, and let me just have…

Tushar Manudhane — Motilal Oswal — Analyst

Yeah. On the similar line, so INR670 crores to INR790 crores. So, even if I remove INR30 crores, INR40 crores still increase is good another INR70 crores, INR80 crores.

Rajesh Dubey — Chief Financial Officer

Yeah. So, total INR123 crores. So, if I take out INR40 crores, INR50 crores from marketing, so another contributor is forex. Actually, in quarter three, there was forex gain of higher amount, which is — still we have gain only in quarter four, but that amount is not that big. So, in quarter three it was bigger amount. And then, on rates and taxes front also, a reasonably sizable amount, debt it has come in quarter four. So these two, three factors are there in that. So marketing spend around INR40 crores to INR50 crores. Second forex gain in quarter three vis-a-vis quarter four and then rates and taxes. forex gain, the forex gain and forex loss it is getting neutralized. So, when you have more gains than your debit means your other expenses on lower side.

Tushar Manudhane — Motilal Oswal — Analyst

Okay. So, INR700 crores, INR720 crores per quarter or roughly INR2,800 crores can be the assumption for next year, right, in terms of other expenses including R&D?

Rajesh Dubey — Chief Financial Officer

Yeah. So around 24% kind of situation we expect.

Tushar Manudhane — Motilal Oswal — Analyst

Okay, sir. Thanks.

Operator

Thank you. The last question comes from the line of Kunal Dhamesha from Macquarie. Please go ahead.

Kunal Dhamesha — Macquarie — Analyst

Thank you for the opportunity again. Just two questions. So we have seen sales and marketing expense going up in this quarter, but let’s say on a full year basis, would you say that now the sales and marketing expense as a percentage of revenue has normalized for FY ’23 which will be more in line with pre-COVID level or we had some earlier quarters where it was low, and that could again normalize in FY ’24, some normalization?

Rajesh Dubey — Chief Financial Officer

So, Kunal, exactly, I was talking same thing. So, our normal other expenses where marketing expenses is reported, that has to be in the range of 23.5%, 24%, or 23.5% to 24.5%. So, if you see for this year, it is more than 25%. And in quarter, if you see it is more than 27%. We believe going forward it has to be somewhere in the range of 23.5% to 24%.

Kunal Dhamesha — Macquarie — Analyst

So that assumes that our sales and marketing expenses now normalized and would not see any significant growth in the way we have seen in a sequential basis?

Rajesh Dubey — Chief Financial Officer

That’s our expectation.

Kunal Dhamesha — Macquarie — Analyst

Okay. Perfect. And before, let’s say, our field force expansion and right now it’s around 17,500, what would have that been in FY ’22?

Rajesh Dubey — Chief Financial Officer

Sorry. Yeah, yeah, Yogesh?

Yogesh Kaushal — Vice President

We are adding roughly around 1,000 every year. So retrospectively, you can count for…

Kunal Dhamesha — Macquarie — Analyst

Okay, sir. 1,000 MR and then roughly 40% additional manpower [Phonetic]. Okay. Perfect. And incrementally where these people are being deployed, maybe in particular geographies, we are focusing or particular therapies divisions that we are creating? Any color would be helpful.

Yogesh Kaushal — Vice President

This is largely focused on therapies. So two years before it was kind of acute and sub-chronic and last year we expanded more in chronic. So it depends on our therapy requirement and these by and large covers all the potential geographies.

Kunal Dhamesha — Macquarie — Analyst

Sure. And then, I would say, then when would you expect whatever I think currently you have 4 lakh productivity per month per member. Were would be the five-year goal and how fast you can improve that?

Yogesh Kaushal — Vice President

So, see, generally, this is not a fixed number, but if you go by the history of pharmaceuticals, generally a productive increased from a new person on a yearly basis depending on what kind of products you are promoting it ranges somewhere around 70,000 to 80,000 on an annualized basis. So if you have to, let’s say, reach a 4 lakh, 4.5 lakhs, so you think on adding 70,000 every year will take around four to five years to reach that level.

Kunal Dhamesha — Macquarie — Analyst

Okay. Sure. That’s helpful. Thanks and all the best. Thank you.

Yogesh Kaushal — Vice President

Sure.

Operator

Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Sandeep Singh — Managing Director

Thank you, everyone, for joining the call. If any of your queries are unanswered, please feel free to get in touch with me. Thank you, and have a great weekend.

Operator

[Operator Closing Remarks]