Aurobindo Pharma Ltd (AUROPHARMA) Q4 FY22 Earnings Concall Transcript

Aurobindo Pharma Ltd (NSE: AUROPHARMA) Q4 FY22 Earnings Concall dated May 30, 2022

Corporate Participants:

Deepthi Thakur — Investor Relations

Santhanam Subramanian — Chief Financial Officer

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Nithyananda Reddy — Vice Chairman & Managing Director

Satakarni Makkapati — CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses

Analysts:

Nimish Patel — — Analyst

Neha Manpuria — J.P. Morgan — Analyst

Tarang Agarwal — Old Bridge Capital — Analyst

Kunal Randeria — Edelweiss Securities Limited — Analyst

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

Nishid Shah — Ambika Fincap Consultants — Analyst

Nitin Agarwal — DAM Capital — Analyst

Kaushik Poddar — — Analyst

Tushar Manudhane — DAM Capital — Analyst

Shyam Sreenivasan — Goldman Sachs — Analyst

Vikas Sharda — — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to quarter four FY’22 Earnings Conference Call of Aurobindo Pharma Limited. [Operator Instructions] I now hand the conference over to Ms. Deepthi Thakur. Thank you, and over to you.

Deepthi Thakur — Investor Relations

Thank you, Adithya. Good morning, and a warm welcome to our fourth quarter FY ’22 earnings call. I am Deepti Thakur from the Investor Relations team. We hope you have received the quarter 4 FY ’22 financials and the press release that we sent out yesterday. These are also available on our website.

I would like to introduce my senior management team today on the call with us, represented by Mr. P.V. Ram Prasad Reddy, Chairman, Aurobindo, Pharma, USA; Mr. K. Nityananda Reddy, Vice Chairman and Managing Director of Aurobindo Pharma Limited; Mr. Santhanam Subramanian, CFO; Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialities Limited; and Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses.

We will begin the call with the 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 limitation, statements relating to the implementation of the strategic actions and other affirmations on our future business, business development and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties, and other important factors may cause actual development and results vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.

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

Santhanam Subramanian — Chief Financial Officer

Thank you, Deepthi, and good morning, and welcome to all of you for joining this earnings call. This year has been very challenging due to various factors, namely COVID, steep crude price increases, global inflation in second half, geopolitical issues, etc. Despite these issues, we have delivered a good set of results in this fiscal year.

We will now discuss the results for the fourth quarter of fiscal year FY ’22, declared by the company. We’ll be discussing ex-Natrol numbers throughout the call. For Q4, the company registered a revenue of INR5,809 crores, with a decrease of 3.2% quarter-on-quarter. The EBITDA before FOREX and other income declined by 23.6% year-on-year and declined by 4% quarter-on-quarter to I NR974.74 crores. EBITDA margin for the quarter was 16.8% and for the year 22% was — for FY ’22 was at 18.7%. However, EBITDA margin before R&D is 24.2% for the quarter, against 23.5% of last quarter. Net profit decreased by 28.1% year-on-year and 4.7% quarter-on-quarter to INR576 crores.

In terms of the business breakdown, Formulation business in Q4 FY ’22 witnessed a decline of 1.9% quarter-on-quarter to INR4,896 crores and contributed around 84% of the total revenue. API business contributed around 16% and clocked a revenue of INR915 crores for the quarter, registering a growth of 15% on a Y-on-Y basis, led improved demand for some of our key products and decline of 9.6% quarter-on-quarter. For the quarter, the revenue from the year Formulation decreased by 4.5% year-on-year to INR2,728 crores and 0.6% quarter-on-quarter. U.S revenue during the quarter is rupees — is $363 million in absolute terms.

We have received final approval for 3 ANDAs and launched four products in the quarter under review. We have filed 14 ANDAs, including three Injectables during the quarter. The total number of filings at the end of March 22 is 727. Revenue of Aurobindo USA, the company marketing overall products has decreased by 5% year-on-year for the quarter. Revenue of Auromedics, the injectable business increased by 4% year-on-year to US$70 million for the quarter. We are having a total 175 injectable ANDA filings as on 31st March ’22, out of which 119 have received final approval and the balance 56 are under review or have tentative approval.

The company as on 31st March ’22 has 727 ANDAs, with the U.S FDA on a cumulative basis, out of which 505 have final approval and 33 have tentative approval, including eight ANDAs which are on tentatively approved under PEPFAR, and the balance 189 ANDAs are under review. For the quarter, European Formulation revenues clocked INR1,541 crores, a decline — a decrease of 0.8% year-on-year growth. For the quarter, the growth market witnessed a growth of 28% year-on-year to INR391 crores. For the quarter, ARV business registered a 51.5 growth quarter-on-quarter at INR236 crores, a de-growth of 52% Y-on-Y on a high base of last year.

R&D expenditure is at INR431 crores during the quarter, which is 7.4% of the revenue. The average raw material cost increased by about 9% during the quarter and the freight costs are more than 10% on year-end quarter. The average raw material costs increased by about 18% year as a whole and the freight cost by 42%. Net organic capex for the quarter is around $65 million. The average FOREX rate is INR75.09 in Q4 FY ’22 and INR74.82 in Q3 FY ’22.

The average finance cost is at 0.8% mainly due to availing multiple currency loans. The business generated a free cash flow of $38 million during this quarter. The net working capital for the quarter has been reduced by about $98 million and $126 million for the year mainly due to reductions in inventory. Inventory alone we have reduced by $200 million for the year. As a result of the strong cash flow generated during the quarter, the net cash position including investments at the end March ’22, improved to 333 million. With this we are able — we will be funding the PLI project mostly out of internal approvals. Also we reduced the gross debt significantly, $330 million, from $499 million end December ’21. We have been reducing the gross debt quarter-on-quarter and we will continue to do so.

In [Indecipherable] despite the hostile global environment and peak R&D expenditure, we were able to maintain our margin and also generated significant cash for future projects. This is all from our end, and we are happy to take your questions now.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from Nimish Patel.

Nimish Patel — — Analyst

Hi. Can you hear my voice? Yes. Yeah, thank you for taking my question. Sir, my question is what is your guidance for the future? Does it remain intact? I mean — or is there any change or what is basically your guidance for the future?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Subbu?

Santhanam Subramanian — Chief Financial Officer

Yes. As a policy, we don’t give any guidance, Nimish. However, while the question — the detailed questions are being asked, we will try to give the direction as and when it is required.

Nimish Patel — — Analyst

Okay, sir. Thank you.

Operator

Next question is from Neha Manpuria.

Neha Manpuria — J.P. Morgan — Analyst

Yeah, thank you for taking my question. Sir, my first question is on the gross margins. We’ve seen quite a bit of improvement quarter-on-quarter despite the fact that some of the lower margin businesses have done well in this quarter and the overall solid businesses sort of deteriorated. So, if you could give us some color on the gross margin trends, and is the full impact of the cost inflation that we are seeing factored into this quarter, you expect this to moderate going forward?

Santhanam Subramanian — Chief Financial Officer

So, Neha, last quarter itself we have answered this query. When we had 54.3% last year gross margin, it is mainly on account of the business mix skewed towards EAP [Phonetic] in a significant manner by which around 1.25% is on account of the business mix basically on API. This quarter API business clocking around INR900 crores, so it comes to the normal position by which around 1.25% totally. The balance around 1% is on account of the product mix as well as the geographic mix between the various continent, right? That is the main reason. And we have factored in all the costs at whatever we have been buying, I mean, we believe these are all the peak and probably it may continue for a couple of quarters, and this is the position as of date. And we are trying to see how to improve upon it in a way internally as a process we work on that continuously.

Neha Manpuria — J.P. Morgan — Analyst

Okay. So basically from what I understand, the mix has changed back to its normal level and there has been some geographical mix in — which has helped margins.

Santhanam Subramanian — Chief Financial Officer

Absolutely, you are right.

Neha Manpuria — J.P. Morgan — Analyst

Sir, on the API front, have you been able to pass on the cost increases that we’ve seen in the last few months to our customers or API margins have come down over the last year?

Santhanam Subramanian — Chief Financial Officer

In terms of the domestic industry, we are able to pass it on, at least some significant portion of it. But for…

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

For total sale, 45% of the sale is in our Formulation sale — answer to Formulation, 5% is the outside. Whatever the 55% of the outside sale is we are able to do at least 60%, 70% of the price increases we pass around, still we pay amount. For the in-house one, everything we observed to the oral division.

Neha Manpuria — J.P. Morgan — Analyst

Got it, sir. And sir, on the second question on U.S., there has been some commentary from our peers about portfolio rationalization, you’ve seen moderation in the oral solid business even though Injectable is improved. So if you could; one, give us color on what we’re seeing on the oral solid business in terms of price erosion. Has it sort of — has been flattish, has it deteriorated from last quarter? And injectables, how should we look at growth from injectables given we are now getting closer to the pre-COVID levels?

Santhanam Subramanian — Chief Financial Officer

On the injectable part my colleague Yugandhar can explain. I can tell about the oral business and other businesses in U.S. And we saw the price erosion is continuing and little bit — we felt that the Q4 will become — there won’t be much price erosion, but to our surprise the Q4 price erosion is — average in the whole year it is 9% and Q3 suppose around 9.5% and Q4 it is 11.5%, another 2% was increased in Q4. And so the overall impact with either price erosion or a self-stock adjustment together it is around 11%, 11.5%. And only price erosion is in Q4 is around 10%. Between Q3 to Q4 around 2%, 2.5% was further erosion and we expect this may not stop here. But it may be in slow phase, it may be next to two quarters this situation will continue. That is what we are expecting. Okay?

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

And, Neha, in terms of the Injectables, as you can see like the price erosion continues. It is not that it is — injectable business doesn’t have a price erosion, it does have. But like we do have a good portfolio of launches, which is actually like will offset some sort of a price decline. And I do expect the growth momentum of Injectable business to continue, mainly the specialty business as overall. Both oncology, hormonal and the general injectables all put together. We do expect a double-digit growth going forward into the next year.

Neha Manpuria — J.P. Morgan — Analyst

And — sorry, sir.

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Also in the oral business, overall our volume has increased at around 6%. And we know that the price or the pricing pressure is continuing. There is no end for this and maybe another two quarters. And we have a good number of products. Even though it is a medium level products, we don’t tell it is [Indecipherable] or a exclusive products or something. We have 30, 40 products subject to some planned approvals also. So we hope in coming quarters after two — after one or two quarters, things will stabilize in the volume and the price.

Neha Manpuria — J.P. Morgan — Analyst

Got it. Thank you so much, sir.

Operator

Thank you. [Operator Instructions] Next question is from Tarang Agarwal.

Tarang Agarwal — Old Bridge Capital — Analyst

Hello, good morning. Thank you for taking my questions. Four from my side. First, between CWAP and intangibles under development, which translates to roughly about INR4,000 crores, about 40% of company’s net log seems to be on track to be capitalized. Over what period should we see this getting capitalized? And how is management’s revenue visibility on these assets?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Yeah, out of the INR3,000 crores which you’re seeing, Tarang, at least INR1,500 crore is pertaining to both inject — I mean injectable as well as the oral plant and derma plant in U.S. And oral and derma likely to be commissioned by before FY ’23 end, and injectable probably may spill over to next year. And in terms of the other things, it is more of a Brownfield — I mean, another big one is the Auro Cure. Auro Cure is the Vizag injectable facility, which the installation is more or less complete and the exhibit batches will take place and probably Yugandhar will explain it a little bit more. And other things are more of Brownfield expansion — I mean, Brownfield expansion, small, small expansions, etc., which it will get capitalized over the coure of of time, right? Yugandhar, do you need to talk about Auro Cure?

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Yes. Tarang, you want to ask something else?

Tarang Agarwal — Old Bridge Capital — Analyst

Yeah, so would it be fair to presume that over the next 15 to 18 months, we should see a large proportion of that getting capitalized?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Yeah.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay.

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Tarang, in terms of the injectable plants, we have two new injectable plants, one in Vizag and one in U.S. And we do expect the filing to start in FY ’23. And in case if everything goes well, FY ’24 onwards we will start generating some revenue from Vizag and New Jersey both. In worst case it might spill over to FY ’25 first quarter.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay. Well, the second question to you, Mr. Puvvala, what’s the global generic injectable sales for FY ’22 and the split between North America and otheINR? Second, do you still stick to your earlier guidance of about US$650 million by FY ’24? And if so, can you give us a more calibrated pathway in terms of number of launches that could help us get there over the next 2 years from this business?

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Yes. Tarang, let me again, I think I did correct last time as well and I will continue to correct till the time your questions start changing from injectables to specialty. Yes, it is a specialty business including oncology oral solids, hormonal oral solids as well as the entire sterile business. That is what it is. And we on a pro forma level, we closed around $438 million in FY ’22. And we expect the double-digit growth to continue into FY ’23 and ’24. And we stick to our guidance of $650 to $700 million by FY ’24 for the specialty business.

Tarang Agarwal — Old Bridge Capital — Analyst

Sure. In terms of number of launches that we could see in early…

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Yes, in fact this year in FY ’22, we had 11 launches and in FY ’23 I expect 15 to 20 launches. And from a filing and launches perspective, our target is 20 filings and 20 launches every year. Okay, that is what is going to be the trajectory.

Tarang Agarwal — Old Bridge Capital — Analyst

Got it. And so how should we see the capex intensity of Aurobindo as a whole going forward? I mean, reasonable amount of capacity is created, capital deployed. How should we see that going forward over the next 2, 3 years?

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Tarang, like I’ll just take on in terms of the injectable portion of it. I think in injectables, most of the capex has been spent, and as I said, we have four commercial clients. And two plants which are coming up and where already the capex has been spend. Other than the normal general capacity enhancements within the plant, I don’t expect significant investment in capacity for the specialty business. Subbu, would you like to take on the other side of the business, please?

Tarang Agarwal — Old Bridge Capital — Analyst

Yes, as Aurobindo as a whole including the specialty and injectable business, we expect around $125 million type of CapEx. See already we have got a commitment of around $400 million including the PLI project, which is a [Indecipherable] project. So we expect this to be spent over the period of 2 years, right? So we expect other than the [Indecipherable] product. I don’t think we will be beyond $100 million to $125 million. But, however, I like Mr. Ram Prasad Reddy garu or Mr. Nityananda Reddy garu to…

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

There is no much capex we are not seeing in this. And around $250 million — $230 million, $240 million is the PLI, balance is $120 million, $130 million is the other — one or two APA plants and the — in the oral formulation site, there is no much capex. Maybe in U.S., side in the Puerto Rico we may require some capex. Otherwise almost next 2 years other than the already approved capex not yet spend around $375 million or so. And we — it have maybe another $120 million in the capex side not more than that.

Tarang Agarwal — Old Bridge Capital — Analyst

Got it. Thank you.

Santhanam Subramanian — Chief Financial Officer

Now it includes the PLI also, around $250 million.

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Plus the PLI.

Tarang Agarwal — Old Bridge Capital — Analyst

Got it. Thank you.

Operator

Thank you. Next question is from Mr. Tushar. Yes, Tushar. Okay, we can’t hear you, Tushar. We’ll take you afterwards. Next question is from Kunal Randeria.

Kunal Randeria — Edelweiss Securities Limited — Analyst

Hi, good morning. Sir, just on the U.S. price erosion, you did share some numbeINR. Sir, could it be possible for you to share some trends on how you’re seeing price erosion in orals and injectables?

Santhanam Subramanian — Chief Financial Officer

What is that? Can you repeat?

Kunal Randeria — Edelweiss Securities Limited — Analyst

Sir, the price erosion trends, how do they differ between oral solids and injectable products?

Santhanam Subramanian — Chief Financial Officer

I can tell about the oral and my colleague Yugandhar will tell about the injectable. As we told, in the last four quarters, average is around 9% and last quarter is 11%. But 11% include the shelf-stock adjustment and price erosion together. Between the third quarter to last fourth quarter around to 2%, 2.25% is the price erosion. So, such we expect — maybe we expect in a lower terms in the next few quarters. And vice versa, the shelf-stock also will come along with the price erosion. And already the prices a lot of depression — not much is reduced, something now that we are not expecting there is a big, if at all, further price going down. So I don’t know how the market will react either some people will — some of us will drop some products or the — some price increases may happen. Anything can happen afterwards.

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

It is in the similar trajectory, it is in the high single digits. Not much different. But yes, we do have significant launches coming up. So that is what like will take care of the future growth. But in terms of the price erosion, it continues to be in the similar range like orals. It has 1% here and there, but it is in the similar levels.

Kunal Randeria — Edelweiss Securities Limited — Analyst

Got it, sir. Sir, just one more. So you’re starting to build up a nice cash pile now. But given the challenges in developed markets, does it make sense to keep acquiring there? Or are you sort of — you could say maybe build a bigger cash pile for some domestic acquisition in future?

Santhanam Subramanian — Chief Financial Officer

At present our — we’re not very much big acquisitions. We want to complete the existing projects. It is because the project completion is not the end, that is the beginning. Again, operationally it has to become breakeven and profitable that will take another 2, 3 yeaINR. So we have to protect the cash to the pending — existing approved pending projects as well as the completion of the existing projects as well as the projects completed operationally breakeven and profitable projects. There are almost 6, 7 projects at various stages are there. And like biosimilars, like vaccines and the China plant and where we are filing, in a big way we have a lot of hope in Puerto Rico plant like that. So we are not going to start any more new plants, that is what we wish in injectable two plants, those things.

Kunal Randeria — Edelweiss Securities Limited — Analyst

Sure, sir. So then we assume that there would be no big bang acquisition in the future, either in U.S or in India?

Santhanam Subramanian — Chief Financial Officer

Not at all. At least in the next 2 to 3 years that may not happen.

Kunal Randeria — Edelweiss Securities Limited — Analyst

Sure, sir. Perfect. Thank you very much.

Operator

Thank you. Next question is from Surya Patra. Please unmute yourself. Okay, we’ll take the next one from Kunal Dhamesha.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Good morning and thanks for taking the question. So the first one on, again on the U.S price erosion. Have we done any withdrawals from the market? And if we has, how many? If no, what are the some of the key metrics that we look at? And how frequently do we look at our product portfolio, whether to do withdrawals or not?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

We are very closely monitoring. As of today, we don’t have it on any product. And based on the situation over the next one or two quarters, we will keep you informed if anything is there. We hope that situation may not come, because nobody will sell the product under the loss. But we have seen few examples. Less than the cost of production means less than the plant costs. Also we are not able to cover in few products. So in such scenario drop may happen, but as on today such scenario is not there.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Sure. And second question, when we now say that our injectable business is basically specialty business, so even the biosimilar part will be included in that specialty business? Is that the way to think about it?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

No, it was — biosimilar is an independent business. Biosimilar and vaccine is independent business.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Okay, sure. Thank you.

Operator

Thank you. The next question is from Surya Patra. Yes, Mr. Surya, can you just unmute? Yes. I think there is an issue with your mic. We’ll take the next one. Next question is from Vishal Manchanda.

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

Thanks for the opportunity. Can you talk about the capacity utilization for your oral solid manufacturing units at a consolidated level?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Yes. We still in U.S plants, nothing was started production anyhow. U.S., we have — New Jersey, U Block, B Block is the oral plant, that is going to start production in the end of this year. And the — and dermatology and MDIs and patches is the plant which we are starting. We already started filing in few products and some more products we are filing before the — before 31st March and consequently. And the Puerto Rico 1 we are doing approximately in 2023 and we will start our products. Overall in the capacity utilization in the major, I can tell overall plants approximately 70% of the — in the Hydra — in the India side, 70% of the capacity we have achieved. I don’t know the injectable. Yugandhar, can tell, my colleague. Otherwise, overall it is 68% to 70% in the India formulation plants.

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

So the point is like unless we kind of reach to full capacity utilization, we won’t be thinking about dropping products which are unprofitable at the — including overhead. So basically, you would continue to manufacture as long as they cover the fixed costs, and that would keep the prices low basically?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

You see the question of dropping, there is no connection between the capacity and the dropping the products because still we have a good amount of capacity. Another 20%, we can — and we may not fill up at least the next 1, 2 years this in the capacity side because in the afterwards we are getting our Puerto Rico plant coming into the hand. So you don’t think once we lost, the margins have come down, then only we will take that extreme step. But we are not expecting that, anyhow we will continue wherever there is a positive contribution. As long as the past two contribution is there, we will continue. But we are losing, then definitely we will do — we will keep you informed every quarter. As on today that situation we’ve not come across. Maybe few strengths and few SKUs maybe. But in — but if it is the same way around 11% next year also, the 10%, 11% was the price erosion, then definitely will happen price drop, product drop, okay.

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

So, on R&D, do we — FY ’23 would this be around seven point — so we are at 7.5% ballpark of sales this quarter? Would we be at the same levels for FY ’23?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

I think FY ’23 going forward, no, because this quarter is a very big quarter in — I mean throughout Aurobindo’s career. I think going forward we may not be having this much a percentage, it will be anywhere between — we expect around 6% type is what we are expecting. Okay.

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

And any color on the ARV business? So will that some — bounce back to the FY ’21 levels?

Nithyananda Reddy — Vice Chairman & Managing Director

At this juncture, we expect the business to be maintained at the same level. We will strive towards the improvement. There’s no much — we will maintain the same level last quarter. The last quarter is there. Here and there we will maintain the same level.

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

And on the [Indecipherable] facility that you are putting up, so is this — would your customers need to kind of switch the supplier in their DMF files to procure from you or they can directly start procuring without any changes in their file?

Nithyananda Reddy — Vice Chairman & Managing Director

In the antibiotics, the DMF — the regulatory quantity very miniscule, not much. Maybe CEP Europe or something they mentioned. And we are not much — initially we are not going to file the DMF U.S DMF from that plant.

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

What I mean — so you won’t be looking at the U.S markets? No, that is very small. It is 2.5% or 3% of the capacity of the plant is U.S market. Okay. And so the customers who might be procuring from China, they can directly switch to your product without any lag basically? So would this require some regulatory process for someone to change their source?

Nithyananda Reddy — Vice Chairman & Managing Director

Very, very minimal regulatory changes. We are not expecting any big change. Any — there may not be a requirement.

Vishal Manchanda — Nirmal Bang Services Pvt Ltd — Analyst

Okay. Got it. Thank you. That’s all from us.

Nithyananda Reddy — Vice Chairman & Managing Director

Thank you.

Operator

Thank you. Next question is from Nishid Shah.

Nishid Shah — Ambika Fincap Consultants — Analyst

Hello. Can you hear me?

Operator

Yes.

Nishid Shah — Ambika Fincap Consultants — Analyst

Yes, congratulations on a very good set of number, when I compare with some of the peers, especially who are operating in the U.S market. So first of all, congratulations, Mr. Reedy and his team for a splendid set of numbers. My first question is, which I have been asking for almost last 2 years. What is the status on the [Indecipherable] injections? Are we now at the stage of filing or what is the status there?

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Nishid, we are at least 1 year away from filing. We will be doing the exhibits sometime in FY ’23 for all the [Indecipherable] products, and depending on biostudies and other stuff, it will be in FY ’24 filing in the best case.

Nishid Shah — Ambika Fincap Consultants — Analyst

So, I want to know the reasons for the delay, because this — actually I go back to the 2 year transcript also, it was supposed to be done in 1 year’s time. So, what has led to the delay and why we are every time talking about 1 year later?

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

Nishid, if it would have been so simple, we would have — everyone would have filed it. So, like, obviously, it is complex. When — Nishid, let me just finish. It is complex. When we take batches, we do see some issues and we redo the batches. And so, it is a journey of continuous improvement in [Indecipherable] products. It’s not a simple straightforward development and execution. We might have felt that like yes, we have cracked it and we are ready to take the batches and we have taken batches. When we see — find some issues, we do redo the batches. So, like now we feel more than 90% confident that whatever we will be taking in FY ’23 will give us good set of results, and that is when we will start the biostudies for these products and this is what is our best guesstimate at this point of time, Nishid. Again, I might have a different answer. 6 months down the line or 12 months down the line, okay? But these are complex products.

Nishid Shah — Ambika Fincap Consultants — Analyst

So, Yugandhar, why I’m again raising this issue is that some of the large peers in India have failed to do this product, that is why it is important to elaborate and explain if you are able to do it, then it is a very big milestone. So that is why I’m again asking that are we now closer and how confident we are on doing this?

Yugandhar Puvvala — CEO of Eugia Pharma Specialties Limited

See, I think we are closer than before and we are more than 80% confident at this point of time. But in these complex injectables unless you fully succeed, the success cannot be announced. The reason is they are complex.

Nishid Shah — Ambika Fincap Consultants — Analyst

Okay. Appreciate this. Now the second question is to the — to Mr. Reddy on the — we have heard it in the press and we have seen several reports that we are trying to restructure the injectable business and bring in partners in this business, what is the status on that if you can elaborate to the extent you can elaborate on the subject?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

At this point, my colleague Mr. Subbu Subramanian will — he will inform because he had a [Indecipherable] on this. He can — Subbu, can you explain?

Santhanam Subramanian — Chief Financial Officer

Yes. So, Nishid Bhai, this we at the COID has met and then evaluated options and then appointed advisors, so that we guiding them through the restructuring process. If and when we reach the requisite stage that deserves to be announced, we will certainly do that. Since the evaluation process in today’s context is very volatile environment and they are taking into consideration all the material aspects, and also taking cognizance of the current environment. So, it is being under process, Nishid Bhai, and the business is not looking — I mean the business irrespective of the restructuring or not the business is committed to achieve that and that’s what Yugandhar has just a few minutes back explained actually. Okay.

Nishid Shah — Ambika Fincap Consultants — Analyst

Thank you very much. Thanks a lot. That’s all from my side.

Neha Manpuria — J.P. Morgan — Analyst

Thank you, Nishid.

Operator

Next question is from Nitin Agarwal.

Nitin Agarwal — DAM Capital — Analyst

Hello. Sir, my question is on the margins. So the margins have come off a fair bit in this quarter. So how should we look at a margin improvement from these levels as we go through the next couple of years? I mean, what are the levers for margin improvement for us? And can we go back to the earlier levels that you’ve done in FY 2021?

Santhanam Subramanian — Chief Financial Officer

Cannot tell at least the next two quarters where we are and we want at least another two quarters to answer your question. Because margins are still in some areas, it is falling. Some areas it is stable and very few areas it is increasing. And we are waiting and see how the things will change in the next one or two quarters. So we can tell a better answer after two quarters. After a quarter or two quarters.

Nitin Agarwal — DAM Capital — Analyst

And sir, on that point, in the past you were expecting that the inventory liquidation process will get over by Q3. Obviously, this has not happened and pricing erosion will sort of reverse. But what has led to — has two things. One is, is inventory liquidation still going on and if it is stopped and what else is driving the price drops there?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

As far as the oral products, we are hearing from the distributors and all that, their inventory also come to the normal level and also the U.S manufacturer — U.S. companies where their inventory also came normal level because it is already 1 year — 1.5 year. So, either it will become normal level or it is expired and restricted. So, where the issue is there, the huge talks of ABA and intermediates in some products, so those things has to be become normal. In some areas because otherwise that will impact in the — especially those products, the basic API intermediates. Other than that, majority of the stock issue as the past that is what I feel. And we are hearing the same thing from wholesalers also.

Nitin Agarwal — DAM Capital — Analyst

Okay, sir. And sir lastly on the — can you probably just help us understand what is happening in the vaccine business and what’s outlook for the vaccine business, especially the pneumococcal vaccine, how should we look at that?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

[Indecipherable]

Nithyananda Reddy — Vice Chairman & Managing Director

So, Nitin, in terms of our vaccine business and the bacterial vaccine that you have spoken about, we have concluded Phase 3, 3 plus 0 trial in India, and we are in the process of analyzing the clinical samples. We will be able to provide more commentary on this program once we complete the clinical analysis and initiate the regulatory process in India. In all likelihood, the regulatory process in India will be initiated in Q3, Q4 of this year. In terms of the other vaccines, there are at least stage of development with one viral vaccine potentially, I would not say animal study, but potentially moving forward to a proof-of-concept stage, preclinical and then moving to a possible Phase 1 in the Q4 of this fiscal year.

Nitin Agarwal — DAM Capital — Analyst

Okay, thank you.

Operator

Thank you. Next question is from Kaushik Poddar.

Kaushik Poddar — — Analyst

Yes, I just — you just — you had announced your foray into the domestic formulation. I mean, what is the status of that and what are the future plans for the next three years — three to five years?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Now the domestic one, not only we are completing the transaction. Not only we are completing the transaction, the integration is just in last 1 or 2 days only the — what’s Subbu, the transaction has come…

Santhanam Subramanian — Chief Financial Officer

Yes, the transaction is in the closure and we have been integrating all the people etc.

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Yes, integrating this. Last week only we have closure and the integrating. First, let us stabilize the existing and study the whole thing, then we can take some decision what to do the next stage.

Kaushik Poddar — — Analyst

Okay, okay, okay. Thank you.

Operator

Thank you. Next question is from Tushar Manudhane.

Tushar Manudhane — DAM Capital — Analyst

Am I audible now?

Operator

Yes, yes.

Tushar Manudhane — DAM Capital — Analyst

Yes. Thanks for the opportunity. So, just on the inventory part, there has been significant reduction in the inventory for the past 6 months [Indecipherable]. And considering that the raw material prices have been on the rise at the same time, so how do you look at it for — on for next couple of quarters on the [Indecipherable] Tushar, I mean, we explained we have been focusing on the inventory in the — if you recollect, in the August call itself and we are significantly reduced in the last two years and given the nature of the prices going up and the availability of stocks, right, etc., etc., we may not be reducing anything significant going forward. Apart from that the value of the materials itself has gone up. So whatever we are maintaining is equivalent to at least a 1.1x or 1.2x of what we have been holding it previously. So we may not be doing anything significant reduction going forward. Okay, sir. That’s it. Thank you.

Operator

Next question is from Tarang Agarwal.

Tarang Agarwal — Old Bridge Capital — Analyst

Hi. Just wanted to get a sense on Dr. Satakarni on the biosimilars business is if there is an update — if you could give us an update there? And second on the bacterial vaccine, you said that the regulatory process submission should start from Q3, Q4. If it were to happen, how should we then anticipate the eventual launch of the vaccine in terms of timelines?

Satakarni Makkapati — CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses

It’s a good question. So, I will start with answering part one of your question related to the biosimilars. In the Q4 of the last fiscal, second oncology biosimilar has been filed with the EMEA, so which is as per expectation. We are having three more biosimilars out of which two of them are oncology biosimilars at different stages of our Phase 3 large licensure clinical trials. One of the oncology biosimilars, we should be completing our 600 plus metastatic cancer patient recruitment probably in a month or two, which positions us to evaluate the efficacy and safety of this product potentially by Q4, which then leads to a series of filings in regulated and semi regulated countries in the — in Q4 2023 or starting Q1 of the next fiscal year.

What is also important to note in terms of our biosimilars for some of you following the business closely, is that as you know that we are stronger in our pipeline with oncology and immunology biosimilars, an interesting update for all of you would be right now our focus has been on oncology, but we have advanced one of our very important immunology assets into Phase 1 clinical trial in Australia, New Zealand, in the Q4 of the last fiscal year with the potential of it moving into a global Phase 3 immunology trial by Q3, Q4 of this year, which means that we will be probably in the top three to take this product by 24, 25 with a $4 billion potential market opportunity when it opens up in Europe and U.S. So we remain on track with the development of other biosimilars in our pipeline. And I’m quite excited with the sort of development we are seeing and the progress we are seeing in the biosimilar space. Does that answer your first question?

Tarang Agarwal — Old Bridge Capital — Analyst

Yes, sir. Just a follow-up on that. As you said, three more biosims oncology in different stages of Phase 3, one of which you should probably get some evaluation done by Q3, Q4. What about the balance to in terms of how should we see you actually filing for these products in terms of timelines?

Satakarni Makkapati — CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses

So that’s — so out of the three biosimilars which are in global Phase 3 clinical trials, two of them are oncology assets. The first oncology assets I have given you guidance on when we are expecting the data review to happen and the filing procedure to begin with. The second oncology biosimilar is also in a global Phase 3 trial right now. We expect the filing to be towards Q4 of the next fiscal year, which essentially means that we expect a large trial to take some time to conclude. But having said that, we are discussing with certain regulatory agencies on the basis of our clinical data accumulated so far. We wanted to approach and push the regulatory barriers, and file it with the abridged clinical pathway. And when that happens, we will provide you guidance on what’s happening on that product. But expect it to be filed towards the late 2023 or early 2024 because the nature of these clinical trials are very extensive and take longer duration.

With respect to our third biosimilar, which is in a Phase 3 global trial, we have just began recruiting subjects and dosing them in the last quarter in the Q4 of the last fiscal. It’s a shorter clinical trial. We expect the clinical trial to conclude in ’23, ’24 with an expectation of filing either in Q4 ’23, ’24, or if things go well, maybe the filing procedures might start as early as Q3. But again as you know, the business of biosimilars, we had COVID headwinds over the last 1.5, 2 years, a major COVID had been dissolved the clinical recruitment rate and the site preparedness. So that caused delay not just to us, but across the clinical trials of biologics and biosimilars players.

Nitin Agarwal — DAM Capital — Analyst

Got it. This answers my first question.

Satakarni Makkapati — CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses

Can you take me through the second question one more time?

Nitin Agarwal — DAM Capital — Analyst

In case of your bacterial vaccine, you suggested that the regulatory filings should probably start by Q3, Q4 of FY ’23, depending on the analysis of Phase 3. If that were to happen, typically how much time would this process take and how should we see that product actually come into market if all goes well?

Satakarni Makkapati — CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses

Okay. So, we are currently in the final leg of analyzing Phase 3 licensor trial samples with the bacterial vaccine. So, we look forward to reporting the pivotal clinical data in Q3 of this fiscal leading to necessary submission requirements to the Indian authorities either Q3 or Q4of this fiscal year. Now what this means is there is a queuing procedure with the regulatory agencies and if the queuing procedure is three months leading to a review from the regulatory authority in India, then it would take another 3 months to have a final approval on this product. If the queuing procedure is, say four weeks or six weeks, then the review procedure is again 90 to 120 days. So, we are looking at a window of anywhere four to six — or four to seven months before the final approval happens. So in 2023 Q1, I expect if everything goes well, Q1 would be a potential launch into the Indian market, if all the procedures go well at the best possible speed that we expect it to.

Nitin Agarwal — DAM Capital — Analyst

Got it. Thank you.

Operator

Thank you. Next question is from Shyam Sreenivasan.

Shyam Sreenivasan — Goldman Sachs — Analyst

Yes. Hi, good morning and thank you for taking my question. Just wanted some update on the Europe business. We have seen it come off sequentially. So just — and what’s the kind of outlook here? How are we looking at the different markets even from a price erosion or a tender perspective, if you could share something on the Europe business, please?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Europe business is very stable, but in one or two countries where we bought the Apotex licenses, we took addition to write up those products. So that actually that made some provision, it became a little more prudent than normal. So, that is what it was. To some extent it went in some — this is the one or two Eastern European countries. They are not doing well from the beginning when we bought the Apotex — these all Apotex licenses. So finally we took the decision to write-off this — the stocks and all these things. We hope the businesses stability in the existing 11% is not an issue, but we are working very hard. There are many products we are going to file and we are hoping the reaching the 15% is our — a lot of people, we are all are working very hard to improve from 10%, 11% to 14%, 15% EBITDA.

Shyam Sreenivasan — Goldman Sachs — Analyst

Okay. So [Indecipherable] how much how many of our products have been moved to the Vizag plant if I recollect, and so — and do we think fiscal ’23 it’s possible to reach this mid-teens EBITDA margin.

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Yes, simply changing the — changing that we can change up to some extent only, we have to change another 20, 30 products. But still around 40 — 38% to 40 — 38% of the products will continue to be in Europe. That we don’t — there is no point in changing those products because of the volume and all these things. But the newer products where we filed around 60, 65 products, we expect some because each country there are — each product there are 2 to 4 countries. So those things it comes then the Vizag plant also — now Vizag plant we are doing around 350 — 325 million tablets or capsules per month and we will reach next year to another 100 million. Then we are confident that our EBITDA has to increase in the Europe.

Shyam Sreenivasan — Goldman Sachs — Analyst

Got it. Helpful. Second question is a little bit more philosophical. Aurobindo is always known to be a manufacturing powerhouse. So if I were to step back and look at your manufacturing footprint now, it’s quite well diversified. I’m unable to get a specific message. So, for example, when we close down a recent plant in the U.S., the New Jersey area, you’re talking about the Puerto Rico plant. So, is there some unified vision in terms of — will we continue to divest certain non-performing plants versus open new and are we optimum there? I know you give some sense about the utilization levels, but just from an overall perspective, are we done in terms of how our footprint should look or is there more divestments — stoppages?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

No, because we already covered India plants around 70% and because there are so many products is a — the way we bought some ANDAs and some of the [Indecipherable] products once the — so all these things comes as a safe side we kept the — recently we bought the Puerto Rico. Otherwise the New Jersey plant where we close down that we have not closed because of the leakage in the roof, where it is a 50 years old plant, and in the recent typhoon there is a — last year back. So this leakages are there in one or two places continuously are not able to control. So we are removing the floor and we are reflooring the thing, that is the reason we stopped this one because that will take around 8, 9 months. So in the same area, we have a B block that will be ready in December. There we will do around our 21 products of C2 products that we are going to manufacture one after other something. Other than that we don’t have any intention to expand in the oral side, at least next to — at least next three years.

Shyam Sreenivasan — Goldman Sachs — Analyst

Got it. Last question. I know you didn’t share any guidance at the start. But are [Technical Issues] if there is some way we could think about revenue growth going forward, so we’ve had a flattish kind of year this year. But when is there likely to be a step change in growth? Can — when can we likely see double-digit growth for Aurobindo?

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

In [Indecipherable] you take — we can see the other divisions are or other plants are something it will take another two to four quarters.

Shyam Sreenivasan — Goldman Sachs — Analyst

Sir, so given that your earlier comments on price erosion being high for the next — so, the next two quarters are where the visibility is lowest and…

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Yes, I have not told price erosion is high, maybe there is a possibility because we — I cannot tell that there is no price erosion. We felt in the — in this fourth quarter there is no much price erosion. But the actual thing happened other way around it happened. So, let us wait and see that is what we are taking a chance. We are taking a reasonable margin next — one to three quarters, it will go, how it will change.

Shyam Sreenivasan — Goldman Sachs — Analyst

Got it, sir. All the best.

P. V. Ram Prasad Reddy — Aurobindo Pharma USA

Thank you.

Operator

Thank you. We will take the last question from Vikas Sharda. Vikas, please unmute yourself.

Vikas Sharda — — Analyst

Yes. Hi. Thanks for the opportunity. I have one question on the specialty business that for the full year, how does the margin profile looks like? Like suppose the full year margins are 18.5% for the company, how would you split it say between a specialty and non-specialty?

Satakarni Makkapati — CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses

I think it’s at a pro forma level. But in terms of the gross margins, we will continue to be in the 65% to 70%. And in terms of EBITDA, it will be around 35% to 40%. But it is still at a pro forma level, not as a specific set of numbers, but that is what is going to be the range.

Vikas Sharda — — Analyst

Understand. So just a follow-up to Mr. Subbu then, I mean when you look at the overall ROE of the company, say in the mid-teens, and then I mean the non-specialty business, I mean, what kind of returns does it make? And how would you look at that kind of — that business in terms of return profiles?

Santhanam Subramanian — Chief Financial Officer

Vikas, just now Satakarni has explained, we have a great future from the biosimilar business which is expected to deliver well. Even if the specialty business is, I mean, we thought the specialty business also, the biosimilars will step in and increase — improve the overall ROE.

Vikas Sharda — — Analyst

Understand. Thank you.

Operator

Thank you, sir. Thank you. I would now like to hand the conference over to Ms. Deepti Thakur for closing comments.

Deepthi 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 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]