Cipla Limited (CIPLA) Q1 FY23 Earnings Concall Transcript

Cipla Limited (NSE:CIPLA) Q1 FY23 Earnings Concall dated Jul. 29, 2022

Corporate Participants:

Naveen Bansal — Head of Investor Relations

Umang Vohra — Managing Director & Global Chief Executive Officer

Dinesh Jain — Interim Global Chief Financial Officer

Analysts:

Saion Mukherjee — Nomura — Analyst

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Prakash Agarwal — Axis Capital — Analyst

Kunal Dhamesha — Macquarie Capital — Analyst

Bino Pathiparampil — InCred Capital — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Nithya Balasubramanian — Bernstein — Analyst

Kunal Randeria — Edelweiss — Analyst

Nitin Agarwal — DAM Capital — Analyst

Krishnendu Saha — Quantum Asset Management — Analyst

Sayantan Maji — Credit Suisse — Analyst

Tarang Agarwal — Old Bridge Capital Management Pvt. Ltd — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q1, FY23 Earnings Conference Call of Cipla Limited. We have with us today, Mr. Umang Vohrav, Global Managing Director and CEO; Mr. Dinesh Jain, Global CFO; Mr. Naveen Bansal, CFO International Market and Investor. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to M. Naveen Bansal from Cipla Limited. Thank you, and over to you, sir.

Naveen Bansal — Head of Investor Relations

Thank you, Rituja. Good evening, and a very warm welcome to Cipla’s quarter one FY23 earnings call. I am Naveen from the Investor Relations team at Cipla.

Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management’s current expectation of the future performance of the Company.

Please note that these estimates involve several risks and uncertainties, including the impact of COVID-19 that could cause our results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new confirmations, future events or otherwise.

With that, I would like to request Umang to take over, please.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you, Naveen. Good evening to all of you. I hope that all of you and your families are safe and well. We appreciate you joining us today for our first quarter earnings call for financial year ’23. I hope you have received the investor presentation that we have posted on our website. We will shortly release our integrated annual report for the financial year 2022. This is our fifth integrated annual report and reflects our relentless focus on improving transparency in governance and setting best in class disclosure practices.

I’m pleased to share our quarter one FY23 performance, which demonstrates strong commercial execution and continued investments in portfolio, sustainability and growth linked initiatives.

Coming to the key highlights for the quarter. As anticipated, the incidence of severe COVID infections came down significantly and seemed more manageable with routine medication during quarter one FY23. Consequently, the contribution from COVID products has normalized. Despite the normalization, we have been able to drive strong core revenue growth through focused execution, operational efficiencies and maintaining high serviceability across our markets.

The overall revenue for the quarter was INR5,375 crores, which was 2% lower than last year’s reported base and last year’s reported base included a strong contribution from COVID products. Excluding the COVID portfolio from last year, the core revenue growth was a healthy 6% for the quarter.

Our reported operating profitability for the quarter came in at 21.3%, which is tracking in line with the full year 21% to 22% range we guided to earlier.

For the quarter, our One-India business across the prescription, trade generics and consumer health businesses recorded a robust 9% year-on-year growth adjusted for the normalization in COVID portfolio over last year’s base. The core growth momentum on last year’s high base reflects the strong equity of our flagship brands across key chronic therapies, as well as in-clinic excellence and our digital engagement. Big brands in our trade generic business maintained a healthy scale, and our digital engagement across the channel partners continues to witness seamless traction.

Our global consumer franchise continues to witness strong traction across brands in India and South Africa. The contribution of our global consumer franchise now stands at 9% of overall supply revenue for the quarter. With a vision to boost our wellness portfolio and diversify into the nutrition category, we have acquired Endura Mass in July of this year. Including this acquisition and domestic consumer business on [Phonetic] the Cipla Health is well poised to achieve an annualized INR600 crore franchise, led by category expansion with new extensions coupled with sustainable growth in the operating profitability.

Similarly brands with consumer potential sitting in our prescription and trade generics stable in India, and the OTC franchise in South Africa continue to deliver robust performance.

Our U.S. business continues to grow sustainability over the last year base with a steady momentum in overall portfolio and includes contribution from our respiratory and peptide products. In line with the operating environment, we experienced modest price erosion on the overall portfolio, which is reflected in our run rates. We believe this impact will be offset by upcoming new launches scheduled for the latter part of the year.

The uncertainties and challenges related to geopolitical conflicts and associated supply chain challenges continued through quarter one of this year keeping procurement and freight costs at very elevated levels. We have mitigated this incremental — these incremental costs and the forex downside to certain extent, while the price hikes reflecting the strength and nature of our brands and business.

Our API numbers for the quarter reflect normalization in scale. Last year, we spoke of a profit share on the commercial supply of an API to a partner, a good share of which was recognized in the previous year’s quarter. This is also reflected in the operating profitability for the quarter at the Company level, which I will come to in a bit.

Our reported gross margins after material cost stood at 62.3% for the quarter, which was broadly in line with last year’s figures. The gross margins for the quarter have baked in higher procurement, freight and forex to the extent of 170 basis points, which was offset by calibrated price hikes, as well as the benefit of decline in the low margin COVID portfolio.

Total expenses, which included employee costs and other expenses stood at INR2,207 crores declining by 6.6% on a sequential basis. Employee cost for the quarter stood at INR956 crores and increased by 7% versus the previous — versus the last year’s quarter, mainly driven by increments.

The other expenses, which include R&D, regulatory, quality manufacturing and sales promotion are at INR1,252 crores declining 15% percent sequentially driven by lower R&D spends, judicious promotional and growth linked investments.

Total R&D is at INR274 crores or 5.1% of revenues. The absolute trajectory remains intact with assets progressing in clinical trials and other portfolio developmental efforts ongoing.

Reported EBITDA for the quarter was at INR1,143 crores or 21.3% of sales. When adjusting the normalization in the COVID portfolio and the API profit share from last year’s base, our core operating profitability for the quarter grew by 12%. As alluded earlier, the reported 21.3% EBITDA margin has absorbed 170 basis point impact of elevated cost base, as well as a forex changes [Phonetic] to deliver higher margins than last year. The 21.3% tracks closely to the guidance of the 21% to 22% range for the full year ’23.

Tax charge for the quarter stood at INR268 crores and the effective tax rate was 27.5%. Profit after tax was INR686 crores, a 12% [Phonetic].

As of 30th June, our long-term debt stands at ZAR720 million in South Africa, and $7 million in Uganda. We also have working capital loans of $49 million, EUR3 million, GBP3 million and others, which act as natural hedges towards our receivables. We are driven by the relentless focus on generating cash and are continuing to focus the discipline on — rigorous discipline on cost. We continue to be appropriately hedged for key global currencies, as per our policies.

Coming to detailed updates for the quarter by market. Our One-India COVID portfolio, excluding the COVID products, as we mentioned, grew by 9% over the previous year. The branded prescription business demonstrated an 9% growth, and we continue to maintain healthy ranks and market share in key therapies.

The consumer health business, as we mentioned earlier, is now EBITDA positive, and we wish to grow this sustainably in the coming quarters. There has been very strong sharp consumer insighting [Phonetic] and strong on-ground execution in this business.

Over the last few years, we benefited from a strategic partnership with GoApptiv for digital solutions and channel. With our incremental investment, we hope to further widen our patient reach via end-to-end brand marketing and channel engagement for the Tier 2 to 6 towns.

I’m also pleased to announce our investment in Achira Labs, which is engaged in development and commercialization of point of care medical test kits in India. This partnership will propel Cipla’s entry into the PoC diagnostics and AMR space through the design, development, and manufacturing of microfluidics-based technologies. This increases patient access to innovative, affordable and quality diagnostic solutions.

Coming to U.S. generics and lung leadership, the U.S. core formulation sales for the quarter were $155 million and registered a growth of 10% on a year-on-year basis. We continued to manage healthy market share in our respiratory products despite price erosion. I alluded to earlier that our DTM respiratory franchise continues to perform well and grew by 22% over last year. And we have now reached a top 3 rank in terms of market share in the generic respiratory space.

From a launch perspective, we have geared up for some of the upcoming complex launches and closely working with the USFDA and approval time lines. On the pipeline front, clinical trials on respiratory assets and filings on the complex generics portfolio, including our peptide injectables are on track. There is a slide in the investor deck that will give you more details on the progress of our key assets across the respiratory complex generics and peptide injectables.

During the quarter, we had a routine pre-approval inspection at Indore for our — for an active [Phonetic] ANDA filed from the site. We received two minor observations and we have responded to the FDA. For our Goa plant, we continue to work with the USFDA on inspection time lines.

Coming to our SAGA business, which includes South Africa, Sub-Saharan and CGA. The overall SAGA region declined by 10% on a year-on-year basis in dollar terms. The South Africa private business experienced muted primary sales growth in Q1, FY23, which is expected to recover in the coming quarter. In secondary terms, strong demand continues with the private market outperforming — our South Africa private market outperforming the industry. We continue to maintain a third position with a market share of 7.4% and grew by 10.6% versus 7% of the overall market, as per IQVIA MAT May ’22. In markets outside South Africa, the CGA business maintained its scale, while the Sub-Saharan business growth was driven by traction in order flow across region terms.

Our international markets business grew by 18% year-on-year in dollar terms across emerging markets in Europe. The growth numbers include the benefit of last year’s low base, where we experienced timing deferrals pertaining to in currency — in country currency allocation for our Middle Eastern supplies. We continue to closely monitor the volatile operating environment for currency and demand headwinds and explore options to mitigate risks and protect our margins. Our DTM franchisees continued to deliver strong double-digit growth, which helped offset the emerging market forex volatility and muted B2B demand that we have seen.

To summarize, we are witnessing strong growth in our One-India business despite the normalization in the COVID portfolio. We see strong and steady momentum in our U.S. portfolio and upcoming launches are on track. Our international markets business continues to grow despite ongoing geopolitical volatility. And our reported EBITDA margin of 21.3% with the elevated cost base baked in tracks closely with a guidance of 21% to 22% range for the full year. On adjusting for the normalization in the COVID portfolio and API profit share in last year’s base, our core operating profitability for the quarter grew by 12%.

Turning now to the outlook. We do want to accelerate our growth in the One-India engine with a sharp focus on building big prescription brand across chronic therapies, driving accessibility to trade generic brands for unmet ailments and sustained expansion in our portfolio and wellness categories in our consumer wellness franchise. We want to sustainably scale up our U.S. formulation business driven by the high serviceability of our current product portfolio and closely launching and monitoring upcoming high-value launches in the second half of the year.

Continue our execution on branded and generic portfolio brand building and portfolio inventions in our — portfolio interventions in our emerging markets and South Africa business. Very strong cost focus, calibrated pricing actions and other interventions to navigate the inflationary headwinds that we are seeing on procurement and freight, and focus on regulatory compliance across our manufacturing facilities and implementing globally benchmarked ESG practices.

With this, I would like to thank you for your attention. We’ll request the moderator to open the session for Q&A.

Questions and Answers:

 

Operator

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

Saion Mukherjee — Nomura — Analyst

Yeah. Hi, thanks. I wonder [Phonetic] just if you can give some color on the peptide asset that you’ve launched in the U.S. in terms of pricing, market share and how you are seeing that ramping up?

And secondly, presentation suggests you made around five filings on peptide, if you can throw some light on the opportunities. And are these near-term opportunities, something around the time line and the size of these opportunities?

Umang Vohra — Managing Director & Global Chief Executive Officer

Saion, just a minute. I have just cross connection and just trying to see if I can go to a place, which is a little bit more in terms of signal. But let me start and if you can’t hear me, just let me know.

So I think the — if — as we look at the — I’ll come to the peptide portfolio later. But if you — the current peptide product in the market is scaling up, as per our plan. We had guided that we would be in the teens market share by the end of the year, and we are well in — well on track with that.

I don’t want to comment too much on pricing at this stage. But on market share, we are ramping up fairly with our overall commitment that we have made for the product. On the rest of the portfolio, I can give you a sense that we have launched — that we are — we have five peptide products. And I think hopefully, one is probably either a end of the year launch this year or early next year. And then the other two are — two after that are probably launches in late next year.

Saion Mukherjee — Nomura — Analyst

And do you think this would be meaningful in terms of opportunity?

Umang Vohra — Managing Director & Global Chief Executive Officer

I would think so. I would think that they would be fairly meaningful launches to our trajectory.

Saion Mukherjee — Nomura — Analyst

Okay. And my second question would be on generic Revlimid. So you are scheduled for launch in September in the second wave and where you stand on the approval?

Umang Vohra — Managing Director & Global Chief Executive Officer

We will expect approval, Saion, hopefully, when the market forms.

Saion Mukherjee — Nomura — Analyst

Okay. But can you confirm a September launch?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, I can’t give you an exact date because this is a settlement agreement. But as we mentioned earlier, we will be — when the market forms, we are expected to launch as well.

Saion Mukherjee — Nomura — Analyst

Okay. All right. Thank you.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Yeah. Thanks for the opportunity, sir.Considering this quarter EBITDA margin 21.3% and even adjusting for the 170 bps impact, it’s quite healthy at 23% and kind of a base quarter for FY23. However, the EBITDA margin guidance still remains kind of conservative at 21% to 22% wherein we have a good niche launches lined up in second half. So any particular reason you’re like kind of conservative on this guidance?

Umang Vohra — Managing Director & Global Chief Executive Officer

Naveen and Dinesh, can you take that, please?

Dinesh Jain — Interim Global Chief Financial Officer

So just to answer there. See the reason for that is the freight cost and the other procurement cost related increase, we expect it to continue for some period of time. So therefore, we want to — and maybe that I think that launches will compensate for that increase.And therefore, we want to give guidance in this range only.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay. So does Revlimid and Advair launch are kind of factored into this margin guidance. Is that safe to assume?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay. Thanks. That helps.

Operator

Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal — Axis Capital — Analyst

Yeah. Hi. Just continuing with the previous participant’s question, so the procurement and freight cost, which we’ve already seen in this quarter, right? I mean, incrementally, what I see from data is that Q-on-Q it is actually kind of dipping, coming down a bit. So what is holding us with a clear guidance of meaningful products in second half. And so if you could just give us more color, that would be helpful. I mean, trade and procurement is what I understand is actually coming a little bit off versus quarter-on-quarter. And please correct me if I’m wrong.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah. So we are seeing [Phonetic] that’s coming off, but at the same time, we are seeing our R&D costs likely to increase in the quarters ahead. So there will be a balance on account of that. And because we have given a guidance, it doesn’t mean that we will hold to making sure that we are within this range. It will be what the business mix of the or the business mix allows us to do.

Prakash Agarwal — Axis Capital — Analyst

Right. And R&D, what guidance sir, we have given?

Umang Vohra — Managing Director & Global Chief Executive Officer

R&D, we have said that we will likely be about closer to 5.5% to 6% for the full year.

Prakash Agarwal — Axis Capital — Analyst

Okay. Perfect. And my second question is actually on the India business. So I understand ex-COVID, we have 6% growth. So two parts here. One is, is it pure COVID products or is it direct, indirect related products as well? And if you exclude that, would the growth would have been higher?

And secondly, if you could split it, and call out that is it volume-led, price-led and the outlook for the same given that there is — there has been a volume dip in the past, but any outlook on the volume improvement that one can see. On prices clearly known that everybody has taken price hikes. So two parts here.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah.

Prakash Agarwal — Axis Capital — Analyst

Yeah.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah. So just — yeah, so couple of points to your question. I think on India, we are seeing — so these India numbers are only excluding from last year, the COVID number — sales of COVID products, which means Remdesivir; you know, Remdesivir, Molnupiravir, the antibody cocktail, those are not part of the numbers comparison. So the rest of the products that went up with COVID, those are very much part of our base, right. So it’s only the COVID portfolio, which is knocked off, not — and normalized. So we see roughly a 50-50 percent [Phonetic] breakup between volume and price in terms of growth.

Prakash Agarwal — Axis Capital — Analyst

Yeah. And outlook, sir?

Umang Vohra — Managing Director & Global Chief Executive Officer

So outlook, as I mentioned, we will continue to grow higher than industry. And depending on where the industry grows, I think our growth will be higher than that. So we still think that core base business should continue to grow in India, which is if you take out the impact of COVID, etc, to the tune of about 10% in the full year.

Prakash Agarwal — Axis Capital — Analyst

For you or for market?

Umang Vohra — Managing Director & Global Chief Executive Officer

For the market.

Prakash Agarwal — Axis Capital — Analyst

Okay. Great. Thank you, and all the best.

Operator

Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.

Kunal Dhamesha — Macquarie Capital — Analyst

Hi, thanks for taking my question. So first one on Advair. So we had the inspection, but any update on the filing, any queries that are pending or we have responded?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. We have responded to queries on Advair, and it’s being part of it. I think the inspection was also related to the Advair program.

Kunal Dhamesha — Macquarie Capital — Analyst

Okay. So there are no currently any pending queries related to it?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah. Not that we are aware of.

Kunal Dhamesha — Macquarie Capital — Analyst

Okay. And have you seen any pricing aggression in that market very recently?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, I think that — let me answer by saying we believe that the last entrant [Phonetic] has also gained some share. And so I think the market is — we haven’t seen any significant price aggression.

Kunal Dhamesha — Macquarie Capital — Analyst

Sure. And second question on Lanreotide. Is there any supply constraints that we are facing in that product?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, we do not have any supply constraints right now.

Kunal Dhamesha — Macquarie Capital — Analyst

Okay. And for our targeted market share also, we don’t see any issues?

Umang Vohra — Managing Director & Global Chief Executive Officer

No.

Kunal Dhamesha — Macquarie Capital — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Vinod [Phonetic] from InCred Capital. Please go ahead.

Bino Pathiparampil — InCred Capital — Analyst

Hi. This is Bino. Hi, Umang. And just a follow-up on Revlimid. Most of the — most or at least some of your competitors were planning September launch just caught in getting approvals in place, whereas in your case, is there anything to read into it or is it technical?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, it’s just that we don’t comment on exact dates for the market if it is a settled product.

Bino Pathiparampil — InCred Capital — Analyst

Okay, understood. And for Advair and Abraxane, do you still hold to a second half FY23 launch guidance.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. For Advair, we are hoping it’s the earlier part of half two and Abraxane will be the later half of part two.

Bino Pathiparampil — InCred Capital — Analyst

Okay, got it. And just one last one on Lanreotide, what are you seeing in terms of vision gathering in the market, are you mostly getting a linear treatment initiations or are you seeing some conversion from existing users to your product?

Umang Vohra — Managing Director & Global Chief Executive Officer

So it’s difficult to plot that for us because beyond the sale to the channel partners, we don’t have exact visibility of whether this is going to only the new patients or old patients sort of combination. So we would think based on whatever we have learned that it would be for both categories of patient.

Bino Pathiparampil — InCred Capital — Analyst

Okay, good. Thank you very much.

Operator

Thank you. The next question is from the line of Sameer B from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah, hi. Thank you so much and a very good evening. Although it’s a very pleasant surprise to see the pipeline slide and if I was pleasantly surprised to see five peptide products already filed. So good job done there. Just a couple of questions on this. For the first two or three launches that you talked about, can you help us with the addressable market, A and B, are these patent protected or are you limited by our own approval to enter the market and see related, I mean, do you see a generic competition there or you think you’ll be the first entrant in these first three products?

Umang Vohra — Managing Director & Global Chief Executive Officer

So Sameer for a few of those products, we know we are not first, but the addressable market is fairly sizable for two or three players to exist together. We think there could be two or three players in each of these markets. I don’t think we are first in any of them, frankly. So I think that’s what I would say at this point in time. I think the market is fairly large, I mean, for any peptide for the ones that I think will not be uncommon to see your product in the 35 million to 50 million range if executed well. I think on the exact question of — sorry, what was your third question, Sameer, it skipped my mind as I was on a flow trying to answer it and then I just lost track of it. So you asked me about the addressable market, you asked me about whether the competitive nature whether we’d be first, what was the third one you asked?

Sameer Baisiwala — Morgan Stanley — Analyst

Are these patent protected today or…

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, sorry. Yes…

Sameer Baisiwala — Morgan Stanley — Analyst

And self-limiting.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah. So I think one of them is I know for sure has lost its patent. The other two have some patents which probably from what we understand will go — have either gone off and a few of the remaining will go off in the next year.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, excellent. Thank you. Very helpful. And also for your partnered inhalation asset, I think the slide says that it was filed in 2017. So why is it taking so much time?

Umang Vohra — Managing Director & Global Chief Executive Officer

There were queries that the agency had, Sameer, on it. They were not completely satisfied from what we’ve heard from the partner and for which the partner had to do additional work and has filed and resubmitted that.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. And it still remains a relevant opportunity or has it shrunk over time?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think the market stays relevant even now. There is no generic entrants on that particular product.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. And one final is, any update on Abraxane? I think you’re also expecting FDA inspection for that progress.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. I think we are hoping that there would be an inspection soon. Because in terms of — when we make a list of what we need to do, I think we’ve addressed significantly most of the items on the product, but the inspection is critical for it to come in for it to be launched. Okay, great. Thank you so much. That’s all from me. Thanks, Sameer.

Operator

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

Nithya Balasubramanian — Bernstein — Analyst

Yeah, thank you for the opportunity. I’ve got a couple on India and one quick one on the U.S. So in India, Umang, several of your peers have announced that they’re actually adding people on the ground, any plans to do so for Cipla? And the second question on India is, we are now seeing a lot of these diabetes brands use exclusivity, Cipla actually licensed a bunch of branded DPP4 and SGLT2 in the recent past. So now that there is competition from these genetic brands, so how do you see Cipla being positioned to grow in diabetes and cardio?

Umang Vohra — Managing Director & Global Chief Executive Officer

So I think on diabetes, Nitya, let me take that one first. I think it’s pretty clear. We’ve actually not — Cita [Phonetics] recently not patent. We don’t have a Cita. We were never selling Cita. We didn’t have it licensed from any innovator. So for us, it’s an opportunity. At the same time, having said that several players launched on — actually more than several launched on beva. So we continue to stay extremely excited about what the potential for diabetes is because also our relative size is significantly lesser.

I think, on the others, we are taking calibrated costs. In some cases, we are going ahead with the partnership with the ability to stay in the market, even after the patent expires with potentially, our own product with the same brand name, etc., or we are finally having conversations with the innovators to stay relevant in the category. So I think both options are open. On the India field force, yes, we are expanding, but our expansion used are not big news in terms of numbers. What we try and do is look at pockets and we don’t have a one — we sanctioned X number of expansion per year. We actually are beginning to look at more India’s pockets because I think the expansion thesis for some territories plays out very well. So for example, as healthcare deepens in Tier 2 to 6, we think there is a lot of expansion potential, let’s say, in certain markets in UP and certain markets in Tamil Nadu, as against in all and an overall team to expanding field force in a particular division across the country. So we’re taking those views. And I think we also have — I think last year also, we had expanded set of people, and this year also we will expand. But it will be out of one big announcement and how many we would expand for the full year.

Nithya Balasubramanian — Bernstein — Analyst

Got it. Umang, one quick follow-up on your diabetes response. I think my question really was we had license line uplift I mean in public providence, do you now see lesser potential for these products now that they are competing products in the same class that are generic? And my second question on the U.S. was, on the pipeline slide, you have a complex inhalation I said right up top, which is approved. I’m assuming this is not as withdrawal or any of the other assets you have in the market. If it’s approved, can you talk to us about what sort of business?

Umang Vohra — Managing Director & Global Chief Executive Officer

Sure. I think Naveen you can provide clarity on what that asset is specifically, but let me just take the diabetes one. So Nithya on that one, we’re very clear. I think if we feel that the potential for a particular category class is diminished, then we would have the conversation with the branded company to either return the asset or continue to sell it with modification, etc., in terms. So that’s why we are having those discussions and the overall objective should be that we stay relevant and competitive in the diabetes category. Naveen you want to clarify on the asset?

Naveen Bansal — Head of Investor Relations

Yeah. Umang, we will come back on this. We’re just double checking this and come back.

Nithya Balasubramanian — Bernstein — Analyst

Okay. Thank you and all the best.

Operator

Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.

Kunal Randeria — Edelweiss — Analyst

Yeah, good evening and thanks for giving me the opportunity. Umang, the first question is on domestic trade generic business. For the last couple of years we definitely see quite strong growth, but now we are seeing few more players have entered, so just would like your thoughts on how you see this market evolving in the next couple of years and where does Cipla stand now, now that you’ve build a critical scale here?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah. I think we are very bullish about this market, especially as healthcare deepens in India. And I think the other players who’ve entered are also we know that they are also doing well based on competitive intelligence that we’ve gathered. But we continue to grow significantly higher than market in the trade generic category and I think it’s probably because of our legacy of the business that we have here. So it’s very strong growth that we forecast for the trade generics segment and we believe that deepening of health care will aid in that.

Kunal Randeria — Edelweiss — Analyst

So I mean should we sort of assume this will grow faster than a branded business?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well it historically has. Historically, it has grown either at the same level as the branded business or marginally higher, and I think that trend should probably continue.

Kunal Randeria — Edelweiss — Analyst

All right. And my second question is competition in Advair. I believe [Indecipherable] file has been delayed to 2024 now. So, any other players are you are aware off that could may become sometime next year after year?

Umang Vohra — Managing Director & Global Chief Executive Officer

I don’t have color on that, not that we’re aware of right now based on what we have you, but we don’t have full color on that.

Kunal Randeria — Edelweiss — Analyst

Sure. Thanks a lot and all the best.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

And thanks for taking the question. Umang, on the — you talked about the complex launches in the second half of the year. I mean, can you just put a number to the number of potential launches, you’re looking at? We’ve talked about three of them. Are there more than three or is that the three that we talked about at various times in the conversation?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think we’ve put out a detail on which are the significant ones expected. I think that’s the reason that those three have come out. There may be one odd more launch, but they will not be meaningful in terms of trajectory elevation.

Nitin Agarwal — DAM Capital — Analyst

Okay. And likewise, if you sort of put it little forward, do you have similar launches of similar sort of size even in ’24?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think some of the peptides that we have mentioned will come in that range. But yeah, and there are few others also depending on timing. There will also be a full-year effect.

Nitin Agarwal — DAM Capital — Analyst

Secondly on the biosimilar bit, is there any sort of update on your thoughts on how you looking about this opportunity now?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. So biosimilars we’ve actually progressed, one asset is moving forward. And between Kemwell and us, and I think we’re very happy about the progress of that asset. But you know it’s a long-term out, it’s not a launch in the next. It’s a launch only after the next five years — five to six years. So we’ve got the asset early. We believe it’s a good respiratory biosimilar to be after and we are also developing products for the India biosimilar franchise. And I think that’s — those are the two categories that work is on. Our second product for the regulated markets will be shortlisted very soon.

Nitin Agarwal — DAM Capital — Analyst

Thank you, and best luck.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Krishnendu Saha from Quantum Asset Management. Please go ahead. Yeah, hi. And thanks for taking my question. Pretty good launches that is coming up in second half. Just wanted to your thoughts on the U.S. profitability, how’s that comparative to last year? We are improving significantly and when it come through — is it way about — is it going to be above the average of the company? This is the first question. If could throw some light on that please.

Umang Vohra — Managing Director & Global Chief Executive Officer

Naveen and Dinesh, would you like to take that?

Naveen Bansal — Head of Investor Relations

Yeah, it is in line with the company average.

Krishnendu Saha — Quantum Asset Management — Analyst

So it is in line. But in H2, it’s launches do come through. So they will be better than the company?

Umang Vohra — Managing Director & Global Chief Executive Officer

So compared to last year, it is in line. And I think whenever the launches happened, then it will become in line with the company.

Krishnendu Saha — Quantum Asset Management — Analyst

I see, okay. It will come in line. And on the partners. Can you talk about partner’s products? What kind of economic do we look at it? Reimburse the bill for us or we bought them? How does it work for us, could you throw some economics along the queue? And just on one thing, on the financials, the other income has increased drastically this quarter. I just forgot the number, INR106 crores of outstanding. So could you fill me up on that please. Thank you. These are two questions.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah, I can take the lead and then Dinesh can comment on the other income. We don’t divulge the economics for the product. But I think it’s a fairly healthy share off the product economics. The product is made at Cipla. So there is — the health of economics are fairly healthy from our perspective and it’s in line with what the company — what the industry averages for these type of products are. Maybe Dinesh, do you want to comment on? Yeah, go ahead, sorry. Please ask your question.

Krishnendu Saha — Quantum Asset Management — Analyst

Sorry. Just — means whatever we will partner, it will be manufactured from our facilities, be it Goa, be it Indore, be it in England. Is that one manufacturing thought?

Umang Vohra — Managing Director & Global Chief Executive Officer

It is manufactured at our facility.

Krishnendu Saha — Quantum Asset Management — Analyst

On. Okay.

Umang Vohra — Managing Director & Global Chief Executive Officer

The product is manufactured already at our facility. Yeah. Dinesh, do you want to comment on the other question?

Dinesh Jain — Interim Global Chief Financial Officer

No. On the profitability — on the deal economics, I think it is better than the normal, purely licensed product. So at least — since it is already manufactured at our facility and we’re partnering in the development process also, the deal economics will be much better. But we can’t diverse the actual numbers. It will vary with the product.

Krishnendu Saha — Quantum Asset Management — Analyst

I got that Mr. Dinesh. I’m talking about the other income. It seems to be a bit higher than in the quarter on quarter numbers, some that’s relating to that fact, if I’m right?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think it may be more accrual specific. Dinesh, the delta is on account of what specific? How much is — so you’re comparing this with quarter four or quarters or losses.

Krishnendu Saha — Quantum Asset Management — Analyst

I think I am comparing it with quarter for now. It’s nothing big, but it just caught my eye, so just.

Umang Vohra — Managing Director & Global Chief Executive Officer

It is mainly on account of the — there is an exchange loss in last — at quarter four because of the depreciation in the Sri Lanka currency. We had an exchange loss. So this time, it was a higher compared to what I’ll be getting on a USD. In the current quarter, we have an exchange gain, which is a positive number and also the finance income is slightly higher than the quarter four.

Krishnendu Saha — Quantum Asset Management — Analyst

Thank you. Thanks for your attending.

Operator

Thank you. The next question is from the line of Sayantan Maji from Credit Suisse. Please go ahead.

Sayantan Maji — Credit Suisse — Analyst

Yeah. So thank you for the opportunity. My first question is on Albuterol. So in this quarter, so 1Q FY23, have we seen incremental price erosion due to the entry of a new player versus 4Q ’22 over the ramp up of nuclear?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah, actually for Albuterol, every quarter we see a little bit. So we’ve seen it in quarter four. We saw it in quarter three years as well. And I think there is incremental price pressure every quarter actually. But it’s not deep discounted erosion, if that’s what you’re question is.

Sayantan Maji — Credit Suisse — Analyst

Okay. But so, my question was mostly around — so in 1Q FY23 versus 4Q FY22, so has the erosion been higher compared to what you would usually see quarter-on-quarter or has it been at similar trend?

Umang Vohra — Managing Director & Global Chief Executive Officer

I am not sure. Well, yes, there is erosion, but I haven’t been able to look at the numbers to see whether it is higher or lower or as it trend. But every quarter, we see some erosion as a little bit always happens.

Sayantan Maji — Credit Suisse — Analyst

Okay, good. And second question is on R&D, so this quarter was a bit lower than our full year guidance. So when do we see it increasing? Does it increase how uniformly with the next few quarters or will it be more back-ended?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yeah, I think as our clinical trial begins to enroll more and more patients, I think you will begin to see this peaking out in Q2, Q3, Q4.

Sayantan Maji — Credit Suisse — Analyst

Okay. So that’s all from — at my end. Thank you.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tarang Agarwal from Old Bridge Capital. Please go ahead.

Tarang Agarwal — Old Bridge Capital Management Pvt. Ltd — Analyst

Hi, good evening,. Just further to one of the earlier participants’ questions on the semantics of partnered products. So, basically what I wanted to understand is, how is it really flowing through the P&L and the R&D? So for instance, if it’s a partnered product and if development costs are being shared, then clearly a portion of it will be reflected in R&D when the product is being developed. But as the product gets an approval and the commercialization takes place, in case the product is being manufactured by a partner, do we buy the product and then sell it, so we have a revenue and a cost line item? Or we directly sell it and there is a percentage of profit coming in which will directly flow to EBITDA against our R&D investments?

Umang Vohra — Managing Director & Global Chief Executive Officer

Which specific product are you asking about, because then I can I give you an answer for that.

Tarang Agarwal — Old Bridge Capital Management Pvt. Ltd — Analyst

Yeah. For instance, the peptides portfolio. I believe the peptide portfolio, manufacturing is happening with the partner…

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes.

Tarang Agarwal — Old Bridge Capital Management Pvt. Ltd — Analyst

Which obviously. Yes. So how would you…

Umang Vohra — Managing Director & Global Chief Executive Officer

So there we would buy it. So the cost of it would come into our gross margin and the sales would be captured in our sales.

Tarang Agarwal — Old Bridge Capital Management Pvt. Ltd — Analyst

Against whatever we would have invested in terms of our R&D in the earlier patent, right?

Umang Vohra — Managing Director & Global Chief Executive Officer

So R&D was anyway is charged off. So a lot of the R&D is charged off. Whatever milestones we may have paid the partner that is anyway getting amortized over the usual life of the asset.

Tarang Agarwal — Old Bridge Capital Management Pvt. Ltd — Analyst

Okay. And our arrangement with the partner is not a fixed procurement — fixed price procurement or does that vary as the marketplace behaves?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, it’s a mix of both. It’s a price that is set and then on top of that there is a sharing that happens.

Tarang Agarwal — Old Bridge Capital Management Pvt. Ltd — Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Naveen Bansal for closing comments.

Naveen Bansal — Head of Investor Relations

Thank you, Rutuja. Thank you so much everyone for joining us on the quarter one FY23 earnings call today. In case you have any follow-on questions, please feel free to reach out to the Investor Relations team here at Cipla. A very good evening to all of you. Thank you so much for joining.

Operator

[Operator Closing Remarks]