Aurobindo Pharma Limited (AUROPHARMA) Q2 FY23 Earnings Concall Transcript

Aurobindo Pharma Limited (NSE: AUROPHARMA) Q2 FY23 Earnings Concall dated Nov. 13, 2022

Corporate Participants:

Deepti Thakur — Investor Relations

Santhanam Subramanian — Chief Financial Officer

Swami Iyer — Chief Financial Officer, Aurobindo Pharma USA

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

Sanjeev Dani — COO & Head Formulations

Analysts:

Damayanti Kerai — HSBC — Analyst

Alankar Garude — Kotak Securities — Analyst

Neha Manpuria — Bank of America — Analyst

Surya Patra — PhillipCapital — Analyst

Kunal Damesha — Macquarie Capital — Analyst

Prashant Poddar — Invesco — Analyst

Rahul Jeewani — IIFL Securities — Analyst

Tarang Agarwal — Old Bridge Capital — Analyst

Presentation:

Operator

Hello, and good morning. Welcome to Aurobindo Pharma Quarter Two FY ’23 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Deepti Thakur for the opening remarks. Thank you, and over to you.

Deepti Thakur — Investor Relations

Thank you, Adithya. Good morning and a warm welcome to our second quarter FY ’23 earnings call. I’m Deepti Thakur from the Investor Relations team. I would like to introduce my senior management team today on the call with us, represented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptide businesses; Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialities Limited; Mr. Sanjeev Dani, COO and Head, Formualtions Aurobindo Pharma Limited; Mr. S. Subramanian, CFO; and Mr. Swami Iyer, CEO of Aurobindo Pharma USA.

We will begin the call with summary highlights from the management followed by an interactive Q&A session. Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic actions and other affirmations on our future business, business development and commercial performance. While these forward-looking statements exemplify our adjustment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors may cause actual developments and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligations to publicly revise any forward-looking statements to reflect in future events or circumstances.

With that, I will hand over the call to Mr. S. Subramanian for the highlights. Over to you, sir.

Santhanam Subramanian — Chief Financial Officer

Good morning, everyone. We are here to discuss the results for the second quarter of the fiscal year FY ’23 declared by the company. For Q2 FY ’23, the company registered a revenue of INR5,739 crores, a decrease of 3.4% over last year. The EBITDA before forex and other income was INR836.9 crores, EBITDA margin for the quarter was 14.6%, the net profit decrease for the quarter stood at INR409.4 crores.

In terms of the business breakdown, the formulation business in Q2 FY ’23 witnessed sales of INR4,770 crores and contributed around 83.1% of the total revenue. API business contributed around 16.9% and clocked a revenue of INR969.4 crores for the year. For the quarter, the revenue from US market declined by 11% year-on-year to INR2,637.6 crores. We have received final approval for nine ANDAs and launched six products in the quarter under review. We have filed 14 ANDAs, including two injectables during the quarter.

Revenue for Aurobindo Pharma USA, the company making the overall products in the US, has decreased by 19% year-on-year for the quarter in US dollar terms. Revenue for Eugia US, formerly known as AuroMedics, the injectable business decreased by 27.6% year-on-year to $49 million for the quarter. The company as on September 30, ’22 has filed 756 ANDAs and on cumulative basis, of which 527 as a final approval and 36 having tentative approval, including eight ANDAs, which are tentatively approved under PEPFAR and the balance 193 ANDAs under review.

For the quarter, the European formulation clocked INR1,516.2 crores, a decrease of 8.8% yearly — year-on-year, mainly due to Euro currency depreciation. On base currency business, the revenue was EUR189 million against EUR191 million on a year-on-year basis. For the quarter, the growth market has witnessed a growth of 17% year-on-year to INR451.9 crores. The quarter performance was led by strong growth in Canada. Also, this includes domestic Indian sales of INR65 crores. For the quarter, ARV business stood at INR164.3 crores, a growth of 13.3% year-on-year.

R&D expenditure is at INR276 crores during the quarter, which is 4.8% of the revenue. Net organic capex during the quarter is around $82 million. The average forex rate was INR79.6123 in September ’22 and INR76.9795 in June ’22.

Net cash, including investment, at the end of September ’22 was $337 million. The average finance cost is 1.9%, mainly due to availing multiple currency loans. The business generated a free cash flow before capex and other items of $82 million during this quarter. This was spent towards capex, including $31 million for PLA penicillin project. With this offer, the investment in PLA Penicillin G project around $63 million against the budget of $235 million.

This is all from our end, and we are very happy to take your questions now. Thank you.

Questions and Answers:

Operator

[Operator Instructions] First question is from Damayanti.

Damayanti Kerai — HSBC — Analyst

I hope I’m audible.

Santhanam Subramanian — Chief Financial Officer

Yes.

Damayanti Kerai — HSBC — Analyst

Okay. Thank you for the opportunity. Sir, my first question is on the US business. So, what has happened, like this quarter was obviously much lower than what we have seen in the previous quarter. And especially if you can comment on the Eugia performance and how do we see sales moving in coming quarters?

And my second question will be, do you maintain your guidance for global generic injectable sales, what you have provided earlier, $650 million to $700 million by FY ’24?

Santhanam Subramanian — Chief Financial Officer

Swami?

Swami Iyer — Chief Financial Officer, Aurobindo Pharma USA

I think, first, we want to take injectables?

Damayanti Kerai — HSBC — Analyst

No, sir. First, please comment on the US like what has happened and how do we see things moving.

Swami Iyer — Chief Financial Officer, Aurobindo Pharma USA

Okay. So, thank you, Damayanti for the question. Now, there are two components to this, obviously the oral solids and injectables. I’ll talk about the oral solids. We have seen a lot of competition, and then this led to price erosion during the quarter and shelf stock adjustment. So we also saw some drop in volume or demand for certain key products, which could be seasonal because we don’t think this is long term. This was the main reason for the shortfall in the revenue for the quarter.

Damayanti Kerai — HSBC — Analyst

Okay. So that’s on the oral solid portfolio specific or same is true for injectable business also?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

I think I’ll comment on this, Damayanti. I think you asked two questions. One is on quarter performance for injectables. Let me put it as specialties — overall specialty business, and also the future guidance. Let me address both of the things. Number one, yes, quarter two is a bad quarter. And in fact, we have seen two, three effects. Number one, we have seen volume drop to the tune of around 20%. And also, we have seen price erosion, it’s single digits. But we also had to take some SSA adjustments, shelf stock adjustments on Vasopressin from quarter one to quarter two. That has actually decreased the revenue. But in general, we don’t see this as a trend going forward, but this is one-off quarter. That’s what we feel, and it should come back to the normal run rate.

Number two, going forward, our future guidance, I think, going by the current events what’s happening, we are still observing what’s going on in terms of — because the overall — if you see the elective surgeries, everything, hospitals are full. And what we are seeing is, there is a significant volume drop not only for us in quarter one and quarter two, and it is — we have seen that for multiple competitors. So, probably it has to do with some inventory adjustment and it should come back. But our guidance, based on current events, we feel it might get delayed by a year, unless something substantial and some big upside happens. But going by the current events, we feel like it might go into FY ’25.

Damayanti Kerai — HSBC — Analyst

Okay, sir. I think that’s very helpful. And my last question is, if you can update on the Vizag plant in terms of where the plant is currently funding, whether it’s [Technical Issues]?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

No. In fact, like the construction is complete and we are doing the line qualifications. And as I mentioned in the last quarter, we will be taking executive access in this year and we will start filing in H1 of FY ’24. And we still are confident that by end of FY ’24, it should start generating some revenues. We will be filing it for all markets by US, Europe, by an emerging market from this plant, but the plant construction is complete and lines are under qualification right now.

Damayanti Kerai — HSBC — Analyst

Okay, Doctor. Thank you very much for your answers.

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Thank you.

Operator

Thank you. Next question is from Alankar.

Alankar Garude — Kotak Securities — Analyst

Hi. Good morning, everyone. Sir, my first question is on the recent promoter development. Given that Mr. Sarath has been renewed from his executive responsibilities, can you please explain what were his exactly the goals and responsibilities in the first place? And who will be taking charge of his responsibilities?

Santhanam Subramanian — Chief Financial Officer

Yeah, Mr. Sarath has been looking after the IT engineering purchases as well as the logistics. So that is being allocated between the Whole Time Directors, and that will be continued.

Alankar Garude — Kotak Securities — Analyst

And sir, any particular reason for retaining him as a director, sir, considering that his ability to discharge those responsibilities as well would be limited now?

Santhanam Subramanian — Chief Financial Officer

No, he is not going to be an Executive Director. And so he will be a Non-Executive Director on the Board as a promoter director only.

Alankar Garude — Kotak Securities — Analyst

All right. Okay. And maybe one other question on this plant, sir. Any other members from the promoter family who is involved in some of the non-Aurobindo businesses wherein Mr. Sarath was involved? Because we have been getting those questions from investors. Any clarity on this would be really helpful, sir.

Santhanam Subramanian — Chief Financial Officer

See, first of all, let’s put it like that, the matter is under sub judice. We don’t want to talk about this matter. And to the best of our knowledge, no other directors were involved in this — in that business.

Alankar Garude — Kotak Securities — Analyst

All right, sir. And my second question is, given that shareholder wealth creation has been an issue for the last five, six years now, how are we thinking about this as well as capital allocation? Now considering that we have been generating good cash over the last few years, is the Board incrementally open to buybacks?

Santhanam Subramanian — Chief Financial Officer

Sir, let me put it like that. See, as on date, we are having around $337 million net cash. And if you really see that we have embarked on a couple of projects, which are very, very important from both from the company point of view as well as from the national point of view, especially the Pen G project, which we announced a capital outlay of INR2,000 crores, right? Probably we are thinking of, can we able to accelerate that we are thinking. So at this stage, probably unless that some clarity comes on that and then move forward, this issue relating to the capital allocation like buyback, etc, will not be taken up.

Alankar Garude — Kotak Securities — Analyst

Understood, Subbu sir. That’s all from my side. Thank you.

Santhanam Subramanian — Chief Financial Officer

Probably maybe in another six months, we’ll get some better clarity on the Penicillin project.

Alankar Garude — Kotak Securities — Analyst

Understood, sir. That’s all. Thank you.

Operator

Thank you. Next question is from Neha Manpuria.

Neha Manpuria — Bank of America — Analyst

Thanks for taking my question. Sir, when you say clarity on the Pen G project, I mean, the $235 million is already earmarked for that, right? So, do you mean additional capex on the Pen G project over and above what is the amount?

Santhanam Subramanian — Chief Financial Officer

I mean, the $235 million is the budget based on the currency exchange rates, etc. And what we mean is, we have not taken any bank loan, etc., as on date. So what we are saying is, if you’re able to accelerate, etc, probably the $337 million net cash we are carrying in the books will come down, right? Going forward in the next two quarters, the major outflow will happen. So, based on that outlook and what is the new cash generation, etc, will be known. We also committed if you’ve really seen some — we are going to put additional biosimilar plant, around $300 million crore. So keeping in mind various things, it will be deferred and it will be reviewed only in the May Board meeting in my view.

Neha Manpuria — Bank of America — Analyst

Okay. So basically, any additional buyback or dividend, etc, will be considered only in the May Board meeting?

Santhanam Subramanian — Chief Financial Officer

I’m not saying it will be considered, it will not be taken till that time.

Neha Manpuria — Bank of America — Analyst

All right. Understood. Thank you so much. Sir, on the US business, given there was a fair bit of shelf stock adjustment in both the oral solid and injectable business, would it be possible to quantify that number for the entire US business? I know you can’t mention product-specific, hence I’m asking — just wanted to understand how much of the impact that we’ve seen quarter-on-quarter is actually one-off and what’s the new base for the US business?

Swami Iyer — Chief Financial Officer, Aurobindo Pharma USA

So, first, let me take the oral solids, Neha. After that, Yugandhar can talk about the injectable. So, the oral solid shelf stock adjustment has been pretty normal, the way it happens. The only thing is, since we had the price erosion, which is a little higher. So, the shelf stock adjustment would be proportionately higher. Otherwise, I would think that there’s no abnormal increase in shelf stock as far as oral solids are concerned.

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Yeah. I think it is the same, Neha. It is a one-off product, which we had to take the shelf stock adjustment, it is not a general phenomenon. And as I said, it is driven by the three factors. One is the volume drop, and which we feel with the way things are going and all the business back to normal in all the hospitals, we feel volume should go up going forward. And two is related to the price decline what we have seen in single digits. Third is one-off shelf stock adjustment. And I can say that it is on Vasopressin, so like we had to take that. That’s why I said this quarter is bad, but we are very, very positive going forward.

Neha Manpuria — Bank of America — Analyst

Sir, sorry to talk about this. But in that case, is it fair to assume that the $330 million that we have reported this quarter becomes the base for the US business? And I’m just trying to understand our ability to regain the volume that we have lost is this market share loss, both in the oral solid and the injectable business, or how much of it is actually something that we can get back in the subsequent quarters?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Neha, like I just said, number one is, we haven’t lost market share. We have seen a significant volume drop across various categories. It has nothing to do with the market share loss. We haven’t lost the market share. What we are seeing is a general lesser offtake in this quarter both in oral solids as well as injectable, and which has nothing to do with the market share loss. That’s why we feel it will come back.

Neha Manpuria — Bank of America — Analyst

Understood. Okay. And my second question is on the injectable, you mentioned that the specialty guidance has been delayed by the prior year. But in terms of more one-year outlook, do you see injectable momentum, we’ve not even gone back to pre-COVID levels, so how confident are we of our pipeline coming through to go back to the $70 million run rate that we were doing pre-COVID?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Yeah. Neha, like number one is from a perspective of future outlook. We have been like launching significant number of products, and I expect to launch roughly around 20-odd products in this financial year. And we are filing 20-odd products every year. So from a pipeline point of view, we have been very, very robust and substantial in terms of the filings.

Number two is, we are expecting some limited competition product approvals hopefully starting from next week. And I’m sure that, that should give us a significant impact going forward. And third is, and as you know, like we do have a settlement on lenalidomide and that will give us the impetus which is required for us to take — go towards FY ’25 and our delayed guidance, because some of the upsides, what I thought would pan out, didn’t pan out the way they were supposed to. That’s why I am just saying that it might get delayed by an year.

Neha Manpuria — Bank of America — Analyst

Understood, sir. Thank you so much.

Operator

Thank you. [Operator Instructions] Next question is from Surya Patra. Yes, Mr. Surya, you can unmute yourself and ask the question.

Surya Patra — PhillipCapital — Analyst

Yeah, okay. Thank you for this opportunity, sir. Sir, when you say about across board volume decline in the US, is it an industry-wide phenomenon, sir?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Yeah. Go ahead, Swami. Go ahead.

Swami Iyer — Chief Financial Officer, Aurobindo Pharma USA

Yeah. So I’ll say this for the oral solid side. What we have seen, we catered to a certain portfolio of products. Among the top 20 products, we have seen overall volume decline. I don’t want to comment on industry, but we’re talking about the products that we are dealing with. We have seen some decline there.

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Yeah. Surya, it is similar, because as we are not — we don’t want to comment on the overall industry. But what we are seeing is the category of products what we are dealing with have seen a decline in volumes, which is in general, it has nothing to do with, again, it can be one-off here and there some market share loss, but mainly driven by the — I think, at the juncture, our guess is, it’s a lower offtake and probably related to inventory adjustments at the wholesalers and distributors. But the way things are going, we feel the volumes will come back.

Surya Patra — PhillipCapital — Analyst

Okay. Sir, my second question is on the branded oncology business. So, trend-wise, what we are witnessing, there is a slippage — gradual drag, although it is not very significant from the time of acquisition. So, this portfolio, how should we think going ahead whether our specialty product will be complementing this one or we will continue to see a kind of a drag still sometime when our specialty possibly will start contributing beyond, let’s say, FY ’24 or so?

Swami Iyer — Chief Financial Officer, Aurobindo Pharma USA

Yeah, thank you. I’ll take that question. We are talking about the oncology brand product, correct?

Surya Patra — PhillipCapital — Analyst

Yes.

Swami Iyer — Chief Financial Officer, Aurobindo Pharma USA

Yeah, okay. So, the oncology brand product has been steady. That’s what I would say, and it continues to be steady. We have been looking for business development opportunities outside and we have been successful in tying up a few of them. And we expect some of these products to start generating business sometime in late ’24, early ’25, I would say, for the fiscal year ’25, we expect some business to be generated in other products. We are very optimistic about the branded product. We have a few other things which is under development. So we feel very optimistic about it.

Surya Patra — PhillipCapital — Analyst

Okay. With regards to the US injectable plant and its filing momentum, sir, can you update us what is the status there? And also, if you can provide some update about your specialty project, let’s say, biosimilars, peptides, vaccines, like that?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Yeah. So, I think I’ll just talk about US plan, then I’ll ask my colleague, Satakarni, to talk on the Biologics part. US plant, as you know, like we have completed the project and we already done exhibit batches. And we expect to start filing from quarter one of next financial year. And we have a pipeline of roughly around 20-odd products, which we have identified. We will start filing. Every quarter, our target is, we wanted to do three products. And I think the first product we will start filing from May ’23, and after that, it will keep going on. That’s on the US plant. So, both Vizag plant and US plant, the time lines will be similar in terms of filing products.

Satakarni, would you like to comment on Biologics?

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

Yeah. Thanks, Yugandhar. Thanks for the question on the Biosimilars. I would answer your question in two parts, one for the Biosimilars and one of the Vaccines. Between biosimilars in Phase III efficacy trials are progressing as desired. If you remember my last update, I talked about the oncology biosimilar and the large trial that we have been doing in metastatic breast cancer patients even during the COVID headwinds period. Now, I’m pleased to inform that we have completed randomization of all 690 metastatic breast cancer subjects in our Phase III efficacy trial comparing CuraTeQ’s version of biosimilar to the innovator’s [Phonetic] product.

We plan to unblind the clinical trial data starting end of Q3 this financial year with a series of filings to begin from Q1, Q2 the next fiscal year, starting with India emerging markets before June 2023 and the big filings of EMEA, which we expect to close by August, September 2023 and FDA filing by October, November 2023. So that’s a big filing that we are looking at in the next year.

The other two biosimilars in Phase III clinical trials are also progressing really well. What is important to note is also that from an oncology therapeutic segment focus, we are now advancing also our immunology pipeline. And one of our immunology products, which we think we are one of the first three or four to be filing in ’24, ’25 has now — is now closing on its Phase I trial in Australia and New Zealand. This is a product which serves both in respiratory as well as in dermatology segments, but the pathology segment is very important to my portfolio of products for Aurobindo differentiation.

We will be entering into Phase III first-patient injection milestone by Q4 of this fiscal year with the immunology program. So this is a large trial which will be carried out in around 15 countries and 85 sites, and we are excited at the prospect that we’ll be able to close this trial somewhere by the Q1 of 2024, that leads to the filing process in Europe and US. So that’s about Biosimilars.

With respect to the Vaccines quesion, in the area of Vaccines, I’m also happy to inform that our PCV-15 vaccine comprising of the 15 serotypes conjugated to the carrier protein, CRM-197, had shown to be immunogenic and induced functional antibodies on all vaccine serotypes in the 3+0 trial that we conducted in pediatric population.

The 13 serotypes that we were evaluating versus the Pfizer’s PREVNAR 13 showed similar or slightly higher immune response, and the clinical endpoints have been met. The two other serotypes, which we additionally have are the — those in PREVNAR 13 have also shown [Indecipherable]. We have submitted this filing last week for Market Authorization Approval to the Indian regulator. I expect the regulatory process for approval to unfold in the next two to four months’ time. Meanwhile, as part of the regulatory requirement, and as part of our aspirations to make this a double genetual [Phonetic] program. We have also initiated on the October 7, a 2 + 1 resumen [Phonetic] pediatric trial in India.

At this time, I think we are well on track to get this product approved in India, followed by a continued impetus to make this product better and increase the safety database by conducting an additional 2 + 1 trial and building on another trial for the WHO markets. And I believe that we will have a WHO filing in 2024. We’ll provide guidance on this product as the regulatory tubing procedure evolves the Indian regulator. Probably in the next earnings call, I’ll be able to provide you good news on this product.

The other early-stage vaccine programs are progressing as expected. I hope I have answered your question.

Surya Patra — PhillipCapital — Analyst

So, sir, is it fair to believe that the contribution of these specialty projects from the advanced market is likely only in, let’s say, FY ’26 or so?

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

Can you elaborate your question a bit more? FY ’26…

Surya Patra — PhillipCapital — Analyst

From the advanced market, let’s say, Europe and US, that is a target market just to consider, then those are like — the incremental business from those advanced markets from these specialty products is likely only to ’26 or ’27 or beyond ’25 — FY ’25. Is it so?

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

So, in the area of biosimilars, we are expecting our product approval next year with the filings that we have in Europe. So we expect the revenues to kick in sometime in Q3, Q4 of the next year. So that’s when we will see the commercialization to begin for biosimilars in certain regulated markets. With the ongoing clinical trials, the three large antibody clinical trials that we’re doing globally, ’24, ’25 is a fair assessment for the revenues to kick in because the regulatory process takes anywhere between nine to 15 months in Europe and with FDA.

Surya Patra — PhillipCapital — Analyst

Okay, sir just last one question from my side, so here about the European market and generally about the margin profile of the consolidated operation, so the Europe — see, obviously generally the cost pressure what we are witnessing, it is common for all the market and our key market which is key earnings contributor that is U.S. is facing obviously the pricing pressure as well as the cost pressure, so same should be there even in the European market I believe, we should have to some extent pressurized overall margin, so here if you could share some idea about what is the current situation or current challenges that you’re facing in the European market and how long that can have similar kind of impact on the overall margin profile and having seen a kind of marked correction in the gross margin level from last year, for the consolidated operation, how should one really build in the gross margin scenario for Aurobindo going ahead for this year and next year?

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

Yeah, so on European business, I will answer and then CFO will answer on the overall on Aurobindo. So during the quarter, we have not seen a margin compression, in fact, our margins have strengthened because of the various opportunities, which are thrown up, because of the supply-chain disruption in Europe with other competitors. So if you really see, our business or top line has been rock steady at about 190 million Euro terms and we discontinued two loss-making countries business in the first six months, so actually if you discount for the last year’s base of these two companies, we have grown by 3% in the top line and our EBITDA has strengthened actually to 13% to sales — net sales. So I do agree that there a pressure on gross margin and also maybe expenses but we are better positioned versus competition.

Surya Patra — PhillipCapital — Analyst

On the margin profile front sir.

Santhanam Subramanian — Chief Financial Officer

Surya, as Sanjiv said, we have been if you really collect last year, we have been telling about the low-teens etc, then the position has slightly improved. And going forward with the euro is started appreciating. I mean hopefully it will get appreciated. I think we can see some improvements only right and in terms of the overall company, the percentage of the euro remains at — European business remains at around 26% and it continues to remain the same position, so overall if you really see Aurobindo as a whole, the gross margin as well as EBITDA margins slightly improved based on performance of the European business.

Surya Patra — PhillipCapital — Analyst

Okay, thank you, thanks a lot —

Santhanam Subramanian — Chief Financial Officer

But it may not be very significant at least in bps maybe around 10, 20, 30 bps like that you can start moving up only.

Surya Patra — PhillipCapital — Analyst

But next year should be meaningfully different, sir?

Santhanam Subramanian — Chief Financial Officer

See, at this stage. we may not like to comment on the European because the global —

Surya Patra — PhillipCapital — Analyst

No, generally for the consolidated operations.

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

Consolidated operations, quite a significant upgrade certain manufacturing in India if you recollect in the last three-four years they have really taken around — if I’m like Sanjeev, you can confirm we have already moved around 50% of the products to India and —

Sanjeev Dani — COO & Head Formulations

Yeah, it is about 55% —

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

55% in cost-effective manner and this process is being continued and also I don’t know, Sanjeev, do you like to talk about European business about injectables moving to biosimilars you’re thinking, can you like to elaborate on it?

Sanjeev Dani — COO & Head Formulations

Yeah, so actually going forward. I mean we have seen that our business has been growing double the market growth rate, so we expect 5% to 7% growth to continue. Secondly, we are developing more than 200 products, which include of course injectable biosimilars, but mainly broadening the product portfolio of oral solid also, so over next two years we will be launching these products and also we see that there are lot of opportunities which are coming up because of competition is not able to maintain the steady stocks in the market.

Surya Patra — PhillipCapital — Analyst

Okay, sure sir. Thank you. Wish you all the best.

Operator

Thank you. Next question is from Kunal Damesha.

Kunal Damesha — Macquarie Capital — Analyst

Good morning. Thank you for the opportunity. First, on the Pen G project where we are planning to invest $235 million, can you provide — of some kind of color on what are the major parts to that $235 million including let’s say equipment, the outer infra, the land cost etc.

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

The overall project $235 million, the major it will be the — we are planning to put desalination plant and we are also planning fermentation process, right, power blocks, like that multiple things are being done and those are all — purchase orders have been issued and work is being done by the respective suppliers etc which is expected to come in this quarter and the next quarter. A significant portion of the buildings have been done for the — of the blocks, it has been done. So we believe by next say September-October the installation should be over, right, and after that, the trial and other things — pilot project — I mean, pilot batches etc will take place starting October next year onwards. So our target is to complete the project by March ’24 and It’s our endeavor always to advance it.

Kunal Damesha — Macquarie Capital — Analyst

Okay. And then capacities of production, how much would be the production capacity with this —

Santhanam Subramanian — Chief Financial Officer

The production capacity is around 15,000 metric ton.

Kunal Damesha — Macquarie Capital — Analyst

15,000 metric ton, okay. Sure. Coming to the R&D expense, it seems to be kind of — I see we have guided between 5% and 6% of the revenue and this quarter I heard it’s 4.8%. So do we expect it to go up given that we now have previously tasked for biosimilars running or would you say the majority of costs were those Phase 3 trial are already baked in and you would see similar run rate?

Santhanam Subramanian — Chief Financial Officer

Kunal, you are absolutely right. Coming quarter. I think the December quarter and the March quarter, some of the Phase 3 trials are being conducted as Satakarni explained very clearly, so we expect the overall percentage should go up and probably it may go up to 6% level. I mean this quarter 5% because of the timing of the expenditures and other things, right, but certainly we’ll be hitting around 6%.

Kunal Damesha — Macquarie Capital — Analyst

Sure. And then one follow-up — okay, one follow-up on the profitability of the biosimilar business especially in Europe where the price erosion seems very strong, so what are your views, currently we are doing low-double-digits in the Europe, once the biosimilar business comes in, could that have been a material delta or how should we think about it?

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

Sanjeev?

Sanjeev Dani — COO & Head Formulations

Yeah, Europe business even without these [indecipherable] products will strengthen the EBITDA margin that is what our endeavors are with the launch of more new products but biosimilar and oncology and injectable will definitely help to improve the margins. However, I mean it depends on the expectations but we think that it should reach beyond 15% in the coming quarters.

Kunal Damesha — Macquarie Capital — Analyst

And the last one on the biosimilar, we have said again we are investing another INR300 crores. What kind of bioreactor capacity here looking at with that investment?

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

So, Kunal, we are looking at about 15 Kl manufacturing by reactor footprint. That probably makes it the largest monoclonal antibody manufacturing capacities when it becomes fully operational in the country. And we also think 15 Kl manufacturing footprint would provide the foundation for our company’s contract manufacturing aspirations and also adding additional capacities for our own products. We look at this plant becoming operational and ready for commercial supplies in ’25, ’26.

Kunal Damesha — Macquarie Capital — Analyst

And what would be our current capacity for biosimilars — current gross block?

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

At present, we are having 140,000 square feet manufacturing footprint with around 4 x 2,500 liter that is around 10 Kl capacities for our internal programs. So we are for the first two or three monoclonal antibodies that will come out of our CuraTeQ’s facility. We are well aligned to capture up to 5% to 10% of the market share without any hiccups. If you can go through the press release that we have made about this INR300 crore investment, this is primarily to stretch our aspirations into contract manufacturing, creating a huge manufacturing footprint that allows us to make solid foundation to interact contract manufacturing opportunities in the segment.

Kunal Damesha — Macquarie Capital — Analyst

Sure. Thank you. I’ll move back in the queue.

Satakarni Makkapati — Chief Executive Officer, Aurobindo Biosimilars, Vaccines and Peptides Businesses

Thank you.

Operator

Thank you. Next question is from Prashant Poddar.

Prashant Poddar — Invesco — Analyst

Hi guys, thank you very much for the opportunity. Subbu, first of all, there are two concerns. I will point out. First one if on the governance standards given the. experience of the Chairman in compliance. Investors who have been with you for more than five years, a decade etc would expect better governance standards wherein the side businesses of Directors should also be reported and should be public rather than we coming to know about it much later.

The second one is on your use of cash. I just could not understand your response honestly, we don’t want a buyback or anything to be announced immediately obviously, the use of cash is something that the Board of Directors have to decide, but your confidence in saying that this money will be needed before — till May, you do not have any clarity on that and the response that the capital expenditure will suddenly be increased. I just could not understand that a bit, $337 million cash and INR800 crores a quarter EBITDA. It just does not — I mean, we can’t understand how this cash can be so quickly utilized and we don’t want it to be used for buybacks or anything but your lack of clarity on what it will be used for, you just could not add numbers for me, so honestly, this is a disappointment from our perspective, we just want a candid feedback and we need better communication from Aurobindo on all these things.

Santhanam Subramanian — Chief Financial Officer

Yeah, Prashant, your point is taken. In terms of the Pen G plan, we are already putting around INR2,000 crores and out of that we have spent around INR500 crores, INR1,500 crores is going to be spent in the coming year, right. We’d like to accelerate as much as possible. Second point, if you really see, we are — once we get a clarity, we are already having a gross debt of something like $400 million, right, we will likely use cash and reduce it as much as possible, that’s what we are trying to do there. It is not the entire cash — cash is kept in as a reserve and there is a debt of around — gross debt of nearly INR4,000 crores, which translates to nearly — which had been forming part of the earnings presentation also, we will likely use it and reduce debt, so that is also we are working on that, right. In this quarter, we could not do because of the so much of volatility, we do not know when do we need to bring it and whether the rupee will touch [indecipherable] rupees or not, we don’t want to bring it at a low price and then later rupees getting depreciated. The third point which I want to say is we talked about these INR300 crores which has already been announced and secondly as I explained to that, right, plus apart from that, certain [indecipherable] are there, which is expected to complete in that and we have already guided in the past really we will be doing a capex of around one $150 million — at least USD125 million to USD150 million every year and the because of — we are having — already having around 23 plants and some more plants will come into operations in the coming year also, so because of these reasons, we are little bit conservative and we like to look at it in the month of May, that is what I said. When I say May, it is the March results.

Prashant Poddar — Invesco — Analyst

Yeah, we understand that Subbu, only that at the beginning of every year, you know, when the Board of Directors meet like any large company needs to do, you need to be very, very clear about the use of cash rather than thinking it through as it happens, the capex is not — it’s not easy to just increase the capex speeds — as you said as much as we can. So the use of cash, large shareholders would only want it to be more stable — to get a more stable outlook on that rather than very quick change in once, and last one on the corporate governance, serious works needs to be done there about what directors are doing etc, I mean, just because some of them are promoters, they cannot do anything that they want, right. I mean, such a responsible position that of a Director of a large company which is making more than $400 million EBITDA a year and such large responsibility as an exporter — the largest exporter of pharma from the country, largest manufacturer or supplier to the drug industry — drug consuming industry of the U.S., it is disappointing to — because this does not — this would not even work well with your buyers, I mean they would also want you to abide by certain corporate governance, I would believe. That’s all from my side. Thank you, very much.

Operator

Thank you. Next question is from Rahul Jeewani. Yeah, hope I am audible, sir?

Santhanam Subramanian — Chief Financial Officer

Yes.

Rahul Jeewani — IIFL Securities — Analyst

Yeah. Sir, I just wanted one clarification, your Injectables or Specialty revenue guidance of USD650 million to USD700 million, does that factor in contribution from Revlimid as well?

Santhanam Subramanian — Chief Financial Officer

Yes, it does.

Rahul Jeewani — IIFL Securities — Analyst

Okay sir, so then how do you see the revenue momentum on the Injectables business to sustain given that Revlimid will be a short-term opportunity for most of the players, so that opportunity might last only two- to three-year period but beyond that how do you then see the growth on the Injectables business?

Santhanam Subramanian — Chief Financial Officer

What we have actually done, Rahul, is it’s actually we — what we feel is based on our filings and approvals what we are getting. We feel double-digit growth on a regular nasis even if I take out Revlimid will continue to happen quarter-on-quarter, that is what we have baked in and we have good enough pipeline to take care of that. And also we have added significant capacities looking at the future growth of this business higher double-digit growth.

Rahul Jeewani — IIFL Securities — Analyst

Sure sir.

Santhanam Subramanian — Chief Financial Officer

I’m also keeping Revlimid as it will start for FY’24 and it will remain till FY ’26-’27, so like that. I am just keeping that three, four years of opportunity. I’m keeping that aside going forward whatever it is, it’s a regular normal trending of business should happen in double-digits.

Rahul Jeewani — IIFL Securities — Analyst

Sure sir, so if you can just comment what was the global Injectables revenue for the quarter, I missed that number.

Santhanam Subramanian — Chief Financial Officer

In fact, we don’t actually put it as segment-wise results, but it is in the range of around $100 millions.

Rahul Jeewani — IIFL Securities — Analyst

Okay sure sir, and At least the thought process, which I was working with was that given Revlimid at the end of the day is an oral product, although I know you classify specialty or onco as part of your global specialty business but my sense was that the USD650 million, USD700 million growth will be driven by the injectables portfolio rather than Revlimid being such a large contributor to the growth which you are talking about.

Santhanam Subramanian — Chief Financial Officer

Yeah. I appreciate that Rahul, but that’s why like if you see Revlimid initially we were like based on our settlement, we were supposed to launch only in October 2023, so in FY’24 revenue, Revlimid would have been insignificant portion from an overall numbers perspective. But — And most of the numbers were supposed to come from the regular portfolio of products, but the guidance I’m giving as I said like it is going into FY’25 is mainly that regular portfolio also should go to that level but we need to see wait and watch; at this juncture, it is too early for me to comment based on the last two quarters events.

Rahul Jeewani — IIFL Securities — Analyst

Sure sir, so then that implies that your contribution assumption from Revlimid would have been very negligible given that you were launching only in second half of FY’24.

Santhanam Subramanian — Chief Financial Officer

That’s right.

Rahul Jeewani — IIFL Securities — Analyst

Okay, sure sir, and thank you, that’s it from my side.

Operator

Thank you. Next question is from Tarang Agarwal. Tarang, please unmute yourself.

Tarang Agarwal — Old Bridge Capital — Analyst

Hi good morning, am I audible?

Operator

Yes.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay, just a couple of follow-ups, one, did — Yugandhar, did you suggest that you’re going to be probably launching 20 products in this financial year.

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

That’s right, Tarang.

Tarang Agarwal — Old Bridge Capital — Analyst

So in the next half year, we should see 20 products, is that how I should look at it?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Yeah overall this year we should have around 20 launches.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay, that’s one. Second, if you could give us a sense on what’s happening on the DEPO business, is it status quo from your earlier update or has there been any developments there?

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

It is status quo, Tarang, as I mentioned last time, we have finished one product and that is on stability and the other two products also we should complete it in this year and post that we expect the filings to happen from 2024 onwards and status quo, literally. And everything is going as per what I updated last time.

Tarang Agarwal — Old Bridge Capital — Analyst

Thank you. Dr. [indecipherable], just wanted to get a sense on. I mean. I think the three biosim products that have been filed, they’ve been filed somewhere in September and January. Any status on product approval inspection from the regulator.

Unidentified Speaker —

That’s a good question, Tarang, so we had two filings with the European Medicines Agency in the oncology space with an abbreviated clinical path. We have — the EMA had suggested clock [Phonetic] stop for seven months, we have completed all the procedures and responses leading up to day 120, but because of the paucity of auditors to come and do a GMP inspection, the clock has been stopped by EMA, so that’s something which is not under control. The clock stop will be until June of 2023, if the situation changes, the inspectors are available ahead of time, then EMA will give us a notice in months time for the GMP inspection.

With respect to our filing of our non-squamous small cell lung cancer drug biosimilar with MHRA in the U.K., where we file this product with only Phase 1 — 3-arm Phase 1 data of our test biosimilar versus U.S. and EU registered reference products. This is the first time ever that a monoclonal antibody has been filed with only Phase 1 and not the Phase 3 efficacy trial, so you should understand that we are pushing the regulatory barriers here, but I’m pleased to inform that the day 80 which is an equivalent to day 180. the EMA, the day 80 procedure has been adopted by MHRA and it is very highly likely and now this is a forward-looking statement, it is very highly likely that this may become the world’s first monoclonal antibody biosimilar that may be approved by a developed regulated market — regulated agency without the need for a Phase 3 efficacy trial, but I’ll keep you posted on it, you should understand that this is a forward-looking statement and then we are pushing the regulatory barriers, but day 80, the only point that is left after day 80 is the GMP inspection. So we are waiting for the GMP inspection for all the EMA as well as the MHRA filings. We’ll keep you posted as and when things evolve.

Tarang Agarwal — Old Bridge Capital — Analyst

Correct. Just a follow-up, so on the Europe filings, would it therefore given that the regulator there is a paucity of inspectors or impediments from the regulator’s end, would that — would it therefore mean that your product approval inspection might perhaps been pushed to June 2023?

Unidentified Speaker —

No, what we have been told, what we have been communicated by them is to take a clock-stop until June 2023, they are expecting the regulator scheduled to be available starting Q1 of the next calendar year. If the situation changes, they will keep us informed and carry out the inspection with one month’s notice but based on the formal letter, we expect inspection to only happen now in June but an inspection between January to June cannot be ruled out, Tarang.

Tarang Agarwal — Old Bridge Capital — Analyst

Got it. That’s helpful. And sir, just wanted to check. I mean this is again to an earlier question. Does the base which is the U.S. base between OSDs, injectables, OPCs [indecipherable] just come down to about $330 million. would it be fair to presume that this 330 would be the new base going forward or a different number as it’s just for us to understand how if you were to ignore the one-offs this quarter, how should this new number or how should this business look like going forward from Q3 onwards? That’s it.

Santhanam Subramanian — Chief Financial Officer

Yeah, thanks Tarang. So actually we need to split this into two, one is the injectable side and then the other one is others specialties and others. Because as you know injectable business we are considering separately, for UGR, specialty, but with regard to the other business, as far as oral solids are concerned, the generic market would continue to remain competitive in the next, few quarters. We believe that this could be the word capacity number of [indecipherable] coming in, but you know we have a very broad and strong base portfolio and we have a fairly robust pipeline. And recently we got the Unit seven clearance, we also have other ANDAs which are ready to be launched, so we have — looking at the potential launch of around 40 products for the next 12 months, so we think that we should be able to regain some of the market in terms of value and then we also seeing we have such a broad portfolio of products, we also see some time surge in demand, right now, we are doing — we are seeing good surge in demand as far as antibiotics are concerned with the onset of flu season. And. I think overall our base should be better. I mean it should go back to close to earlier base or at least to that level. That’s what we think.

And with regard to the the OTC product, they are doing well. They continue to do well, so we have no issues at this point. Yes, that’s it from my side — I think Yugandhar you already answered on the injectable part.

Yugandhar Puvvala — Chief Executive Officer, Eugia Pharma Specialities Limited

Yes, that’s been answered.

Tarang Agarwal — Old Bridge Capital — Analyst

Yes. thank you.

Operator

Thank you. That was the last question. I now hand the conference over to the management for the closing comments.

Deepti Thakur — Investor Relations

Thank you all for joining us on the call today. If you have any of your questions unanswered, please feel free to keep in touch with the Investor Relations team, the transcript of this call will be uploaded on our website www.aurobindo.com in due course, thank you and have a great day.

Operator

[Operator Closing Remarks]