Cipla Limited (CIPLA) Q3 FY23 Earnings Concall Transcript

Cipla Limited (NSE: CIPLA) Q3 FY23 Earnings Concall dated Jan. 25, 2023

Corporate Participants:

Ankit Bhembre — Investor Relations

Ashish Adukia — Global Chief Financial Officer

Umang Vohra — Managing Director and Global Chief Executive Officer

Analysts:

Saion Mukherjee — Nomura Securities — Analyst

Kunal Dhamesha — Macquarie Group — Analyst

Krishnendu Saha — Quantum AMC — Analyst

Prakash Agarwal — Axis Capital — Analyst

Shubham Goyal — Motilal Oswal — Analyst

Sriraam Rathi — BNP Paribas — Analyst

Damayanti Kerai — HSBC Securities — Analyst

Surya Patra — PhillipCapital — Analyst

Parvathy Menon — Course5I — Analyst

Neha Manpuria — Bank of America — Analyst

Bino Pathiparampil — InCred Capital — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Nikhil Mathur — HDFC Mutual Fund — Analyst

Nitin Agarwal — DAM Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Cipla Limited Q3 FY ’23 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Ankit Bhembre from Investor Relations Team, Cipla Limited. Thank you and over to you Mr. Bhembre.

Ankit Bhembre — Investor Relations

Thank you, Thanvi. Good evening and a very warm welcome to Cipla’s Q3 FY ’23 Earnings Call. I’m Ankit Bhembre 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 reflects management’s current expectations 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 actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statements, whether as a result of new confirmation, future events or otherwise.

With that, I would like to request Ashish to take over.

Ashish Adukia — Global Chief Financial Officer

Thank you, Ankit. And good evening to all of you. I hope you’ve all gone through the presentation that we’ve uploaded on our website. So this quarter, we actually witnessed strong performance across all our core businesses with expansion in the profitability, despite increase in the R&D investments.

The quarterly performance reflect sustained momentum in our branded markets and contribution from our differentiated launches in the U.S. And this was amid the challenging macro environment and SAGA missing our internal estimates. While procurement costs remains escalated, but freight cost has improved sequentially, responding to lower rates and improving logistics mix, which is quite reassuring.

Coming to the highlights of the quarter. Overall, we are pleased to report a quarterly revenue of INR5,810 crores. The overall revenue growth for the quarter was at 6% y-o-y on a reported basis. On a COVID adjusted basis, in comparison to last year, a strong 11% growth. Our One-India franchise grew in healthy double digits on an ex-COVID basis and the North American business reported the highest ever quarterly revenue, driven by traction of the differentiated portfolio including market share expansion in key respiratory and peptide injectable products.

Our free cash flow generation and operating efficiency continue to drive our healthy net cash position. Our reported RoIC for the trailing 12 months stood at 19.7%, which was towards the higher-end of the range that our long-term target of 17% to 20%. In line with our expectation, EBITDA margins stood at robust 24% plus for the quarter on a reported basis. The reported EBITDA growth is 13% y-o-y and 24% if adjusted for COVID in the base year. Our EBITDA margins for the quarter subsumes the impact of lower than anticipated SAGA performance, a higher inflationary market, and a higher R&D outlay.

Our R&D investments was driven by ongoing clinical trials on a respiratory asset, as well as other developmental efforts including contribution to biosimilar JV. Total R&D expense was higher by INR100 crore plus versus last year, which is incremental 1.75% of our revenue and part of our profitable — profitability business plan. Our reported gross margin after material cost 55.5% for the quarter, which is 450 basis points above last year’s figures, driven by contribution from new launches and overall mix change.

Total expenses, which include employee cost and other expenses stood at INR2,398 crores, increased by about 1.4% on a sequential basis. Employee cost for the quarter stood at INR949 crore, which was flat. The other expenses which includes R&D, regulatory, quality, manufacturing, and sales promotions are at INR1,450 crores, increased by 3.2% sequentially, driven by, like I said, R&D expense which was also followed-up with judicious promotional and growth-linked investments.

Total R&D investment for the quarter are at INR363 crore or 6.2% of revenues. The absolute trajectory remains intact with assets progressing into clinical trials and other portfolio developmental effort continuing. We expect our absolute R&D investment to inch up gradually from these levels in the coming quarters.

Profit after tax is at INR801 crore or at 13.8% of sales. The PAT for the quarter subsumes one-time charge of reversal of deferred tax asset, as we revisit our plan for one of our subsidiaries. The adjusted PAT is INR876 crore, which is more normalized or 15.1% of sales. The adjusted growth rate over last year is 20% and the adjusted ETR would be 27.5%, which is more normalized.

As of 31st December 2022, a long-term debt primarily constitutes ZAR720 million in South Africa and working capital loan of about $49 million in the U.S. Driven by our relentless focus on cash generation and rigor on cost discipline, we continue to be net cash positive company as of December 2022.

To close, we saw robust momentum across portfolio and geographies for the year till now. Our growth levers in the subsequent quarter will include continuing market beating growth in India across all three categories of prescription, trade generics and consumer health. Full year operating profitability, in line with our guidance of 21% to 22%. Robust traction in North America portfolio, with continued contribution from respiratory and peptides, incubate and drive growth in stable geographies in international markets with focus on growth, core markets and managing the growth in EM markets, and we’ll continue to monitor the geopolitical headwinds that have ebbed, but still continues.

I would now like to hand over to Umang to talk about the business and operational performance. Thanks.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you Ashish, and good evening to all of you. Welcome to our call today evening. We are pleased to report another strong quarter of performance which demonstrates robust commercial execution and continued investments in our portfolio and growth oriented initiatives.

Our quarter three FY ’23 performance reflects continued momentum across our businesses of One-India and U.S. and has a moderation of the SAGA region coming in lower than our internal estimates. Developmental efforts on delivering a robust future pipeline investment in capacity creation and high rigor on compliance, including our de-risking efforts continue to be our top key focus areas.

To accelerate our innovation journey, we also invested in a critical partnership this quarter to support development in therapies, which are future innovation levers for Cipla. During the quarter, we initiated our investment into a JV focus towards building the biosimilar pipeline. We also partnered with Ethris GmbH for the development of mRNA based therapies and this fast-tracks Cipla’s participation in cutting-edge healthcare solutions to patients.

On our journey to build the consumer health franchise in India and South Africa, we continue our growth driven by new launches, category innovation and actionable consumer insights. Our India consumer franchise grew by 14% year-on-year in INR terms over the last year, after adjusting for the acquisition we made in quarter two FY ’23 and the Global Consumer franchise including South Africa now stands at close to 9% of overall Cipla revenue for the quarter. We’re expecting the India Consumer franchise to be nearly 1,000 — INR1,100 crore by the end of this year.

Coming to detailed updates for the quarter by market. Our One-India segment. The One-India core portfolio delivered a 11% year-on-year growth after adjusting for the COVID contribution in last year base. The double-digit growth reflects solid traction in big brands, as well as contribution from launches in the focus chronic categories during the year.

Our branded prescription business demonstrated double-digit growth in chronic therapies in the core portfolio, driven by continued demand. The market beating growth trajectory continued for the seventh consecutive quarter with the 11% growth, significantly higher than the market growth rate. The core revenue growth is underpinned by a healthy mix of price volume and contribution from new launches and as per IQVIA December ’22, we continue to maintain healthy ranks in market-share in key therapies for the quarter.

Our growth in respiratory, cardiac and anti-diabetic therapies outperformed the market and the overall chronic share has expanded by 240 basis points over last year and now stands at 60% of mix for the quarter. We now have more than 21 brands which have revenues greater than INR100 crores in the trailing 12 months as compared to 19 in the corresponding previous period as per IQVIA December ’22.

Our Trade Generics business continues to witness strong volume traction, strengthening our leadership in the Trade Generic segment in India. The revenue growth for the quarter reflects a steady order flow from the Tier 2 to 6 in rural towns and demand fulfillment across regions, translating into sustained scale-up in our flagship brand. We launched over 10 products and therefore the launch momentum continued in key therapies such as cardiac, anti-diabetic and injectable dosage forms.

Our Consumer Health business continued to deliver consistent growth across anchor and emerging brands, translating into the growth we had mentioned earlier. We now have four brands in well-entrenched categories, scaling up over INR100 crores in revenue under a trailing 12 month basis.

Coming to our U.S. generics and U.S. generics portfolio, the U.S. core formulation sales for the quarter was the highest at $195 million, registering a robust 30% growth on a year-on-year basis. This is the 10th consecutive quarter of growth, demonstrating an increasing share in our respiratory, peptides and differentiated launches like Lenalidomide.

The sales of Lenalidomide incidentally are marginally lower than the previous quarter. We continue to keep market well supplied and focus on maximizing value from all our new launches. Our peptide franchise continues to track well with Lanreotide steadily gaining market share to 14.1% as of November ’22 end. We are on-track to achieve a 15% guidance in this category. We’ve also launched Leuprolide Depot during the quarter, which expands our peptide franchise further. We continue to maintain this launch momentum in the next fiscal and after.

Our generic market shares in respiratory products have witnessed expansion in the last 12 months, driven by sustainable supplies and competitive cost position. The total market shares for Albuterol and Arformoterol stood at 18% and 39% respectively, as per IQVIA weekend December 31st, 2022.

On the pipeline front, clinical trials on respiratory assets and filings on complex generics, including peptide injectables are on-track. From a launch perspective, we responded to the queries on the Advair files and are working closely with the U.S. FDA on the approval. We have been proactively communicating with the FDA on the GO observations as remediation efforts continue at the site. We continue to focus efforts on de-risking our key assets from this site and will share material updates as the situation evolves. We believe our North America franchise will witness continued growth on the back of new launches.

Coming to our international markets business, we continue to drive superior local market growth and navigate a challenging operating environment and forex volatility, while the excluding COVID growth in INR terms is 6% for the quarter, our reported dollar numbers subsumed the adverse impact of depreciating local currencies against the U.S. dollar, which is offsetting the healthy double-digit secondary growth we are seeing across our DTM markets.

Coming to our SAGA region, as alluded earlier, the South Africa private business is recovering from a reconfiguration of supply and an evolving business mix between private and tender. In secondary terms that strong demand continues for our South Africa private business which outperformed the market growth. We continue to maintain a third market position with a market share of 7.7% and the business did come in lower than our internal estimates this quarter.

Our EBITDA margin of over 24% for the quarter tracks well above the 21% to 22% guidance range for the full year. We expect our overall quarter four margins to moderate with seasonality. We are encouraged by and committed to maintain the high strong launch momentum in the coming fiscal and continue investments in developing a robust pipeline across the categories of respiratory, peptide, complex generics and biosimilars. We are committed to accelerating our return on capital employed, which is currently tracking closer to 20%.

Turning now to our outlook. Our near-term priorities include accelerating growth in our One-India engine. With a sharp focus on building big prescription brands across chronic therapies, driving accessibility to trade generics, as well as our global wellness franchise. Sustainable scale-up of our U.S. formulations business, driven by maximizing contribution from complex launches, and maintaining a high serviceability of our product families.

Continued execution on branded and generic portfolio, brand building portfolio interventions and launch excellence across our DTM and emerging markets. Continued cost focus, calibrated pricing actions and other interventions to navigate inflationary procurement, freight and other cost elements, and maintaining a consistent upward ROIC trajectory. And continued rigor on regulatory compliance across manufacturing facilities and implementing globally benchmarked ESG practices.

I thank you for your interest in Cipla and your attention, and 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 Securities. Please go-ahead.

Saion Mukherjee — Nomura Securities — Analyst

Yes, thanks. Hi, Umang. On the U.S., if you can give some color on the growth trajectory, you mentioned Revlimid was lower this quarter and you expect growth to sort of come back or growth to continue in the quarters ahead. So if you can just give more color, what would drive it, Revlimid and other products? And also on, what’s the status? Is there a new target action date, any particular timeline that we can look-forward to?

Umang Vohra — Managing Director & Global Chief Executive Officer

Certainly, Saion. I think, let’s start with Advair, our target action date is hopefully in the first week of April. So, I think we’re quite looking-forward to being able to bring the product to the market and it’s the first week of April. I think what — last quarter we had guided to a base of about $185 million to $190 million, quarter four — quarter three typically — quarter four calendar and quarter three fiscal, typically is a quarter in the U.S. where buying is always a little stronger and the U.S. has had a pretty strong flu season. So, I think some part of that is there in our numbers for quarter three. But overall, I think from this base of $185 million to $190 million, we could add new launches as they come along and we certainly have a good pipeline of launches coming up in the next year.

Saion Mukherjee — Nomura Securities — Analyst

Okay, thanks. And my second question would be, the challenges in South Africa and Sub-Saharan Africa, so you are seeing lower tender business in South Africa and also what’s the [Technical Issue] in other markets in Africa and how should we think about next quarter and the year ahead in this region?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, I think the South Africa business issue is more around tender, as well as on private. Private, what’s happened is, though we are growing faster than the market, the overall market growth has also shrunk. Then, I think this is a post-COVID readjustment that’s happening in the supply chains there. I think stock levels of customers are going — are falling a bit to accommodate this, and so I think the supply chain is getting reconfigured a bit. So, my guess is this, is — the worst is probably in our numbers over the last two quarters and I think we begin to see a resumption to the normal from quarter one of the next year.

Saion Mukherjee — Nomura Securities — Analyst

Okay, thank you.

Operator

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

Kunal Dhamesha — Macquarie Group — Analyst

Hi, thank you for taking my question. So, first on the India business, while our reported growth is only 2% and you have said excluding COVID is 11%. Can you just give some color on what was selling in the quarter three of FY ’22, because as far as I remember, we did not have lot of COVID during that period, so what was the contribution in that particular quarter or something you can help me with?

Umang Vohra — Managing Director & Global Chief Executive Officer

Naveen or Ashish, do you want to take that?

Ashish Adukia — Global Chief Financial Officer

Yes, sure, So the previous quarter of last year, quarter three had COVID sitting there of almost INR200 crores plus. So, that I would just wanted to address first. And if you remove that, then the growth is 11% in quarter three and this growth has come across actually on chronic therapies, as well as in respiratory, where we’ve grown much faster than the market, which is our both therapies. So, both in chronic, as well as including that in respiratory, we’ve actually grown. So that’s why you see that reflection in the gross margin improvement as well versus earlier quarters.

Kunal Dhamesha — Macquarie Group — Analyst

Okay. So is it fair to say this INR200 crore was more of a product that was supplied to China and then whatever COVID related provisioning we took in quarter two was also kind of more or less related to those? Because the end market sale of those products were already lower.

Ashish Adukia — Global Chief Financial Officer

Sorry, let me clarify that INR200 crore was the COVID sales in India previous year in quarter three. That’s the readjustment of base that if you had to move that and then look at the figures, then it’s a plus 11% growth. I’m not too sure, there is no — the inventory provisioning that we did on COVID that was done over quarter one and quarter two of this year.

Kunal Dhamesha — Macquarie Group — Analyst

And that was our inventory or that was the inventory which got basically reversed from channels?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, no, no, that was our inventory that we were carrying in anticipation of COVID to continuing and it was across both API and different products as well, the core directly related to COVID treatment, yes.

Kunal Dhamesha — Macquarie Group — Analyst

Okay, okay, perfect. And second one just on the Advair. So, when we say, we had queries and we have submitted it. Can you just provide some color on when to submit these queries and these queries came in as a CRL or information request and what was the nature of those queries?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, I think it was a minor query letter and so the minor query letter was responded and the new goal date is — as I mentioned, in the first week of April.

Kunal Dhamesha — Macquarie Group — Analyst

Okay. So typically if the inspection is not required, then the TAT date is generally four months, which means you would have responded somewhere in November? Is it fair assessment? November or start of December?

Umang Vohra — Managing Director & Global Chief Executive Officer

I’m not sure we’ll give that level of detail. But you could do the maths around it, yes.

Kunal Dhamesha — Macquarie Group — Analyst

Okay, perfect. Thank you.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Krishnendu Saha from Quantum AMC. Please go-ahead.

Krishnendu Saha — Quantum AMC — Analyst

Yes, hi. Can you hear me?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes.

Krishnendu Saha — Quantum AMC — Analyst

Hello. Yes. I just had a couple of questions. Advair, I believe the TAT dates have been shifted a couple of times. So just trying to understand, if — is there a chance that — what happens if the TAT date is shifted again and again, just wanted to get a feel of that?

Operator

Sorry to interrupt you, sir, your voice is sounding little muffled. So if you can speak to the handset mode.

Krishnendu Saha — Quantum AMC — Analyst

Yes, yes, I’m speaking with the handset itself. Can you hear me now?

Operator

Better. Yes.

Krishnendu Saha — Quantum AMC — Analyst

I’m just wondering that for the Advair, the TAT date has been shifted a couple of times. So what happens if come April things get through, so I’m just wondering on that? And, just on the presentation, I see Brovana gaining market share, but with 10 player market, is it still important, do we make money on that? You could throw some light on that too. And that’s it.

Umang Vohra — Managing Director & Global Chief Executive Officer

Look if the FDA continues to have queries, obviously the TAT dates will keep shifting, right. So the FDA has to be satisfied with what we have responded to this. All we know is that, we had a major and now we have a minor. So this is the second cycle of review. So ideally, this should hopefully result in — if nothing else goes wrong, this should hopefully — we feel we are closer to an approval. And Brovana, it is our ambition to keep our share — the market well supplied, and our share high in the respiratory category, because it’s a higher profitability category. So whether it’s Brovana or it’s Albuterol or Budesonide, we’d like to maintain high shares on those categories in this market.

Krishnendu Saha — Quantum AMC — Analyst

And just a last question. You spoke about Goa plant having a couple of important filing from there, besides ABRAXANE, how many filings would you like to shift out from there?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, I think we’re only in the process of doing ABRAXANE and one more. I don’t think there is anything significant. Just for your information, the plant has been in that situation just pre-COVID, right?

Krishnendu Saha — Quantum AMC — Analyst

Yes, yes, okay. If I can squeeze a last one. This — just the $15 million incremental revenue on — maybe on a quarter-on-quarter basis as we look at, but it is largely due to — has Revlimid has huge contribution with that or is this — you are okay with it?

Umang Vohra — Managing Director & Global Chief Executive Officer

Sorry, are you saying, is Revlimid higher in the $195 million versus the previous quarter?

Krishnendu Saha — Quantum AMC — Analyst

Yes, yes, just the $15 million incremental revenue, it’s Revlimid contribution or it’s a –?

Umang Vohra — Managing Director & Global Chief Executive Officer

So, Revlimid is lower than the previous quarter. So, Revlimid in this quarter is lower than the previous quarter.

Krishnendu Saha — Quantum AMC — Analyst

So basically the large three molecules — the three molecules, which you have outlined, those are the ones which have gained the market-share, [Indecipherable] $195 million for the quarter?

Umang Vohra — Managing Director & Global Chief Executive Officer

That is right.

Krishnendu Saha — Quantum AMC — Analyst

Right. Thanks you for that. Thank you, that clears it, thank you.

Operator

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

Prakash Agarwal — Axis Capital — Analyst

Yes, hi, thanks for the opportunity. Good evening. Just trying to understand Revlimid better. So you mentioned it has lower contribution, but going-forward, we see Natco coming in March, again with higher share. How do we see the — I mean, is this going to ramp-up in the upcoming quarters for the next few quarters or how should we think about it?

Umang Vohra — Managing Director & Global Chief Executive Officer

I’m not sure that — I still think that the market at least for the next one to two years is still going to be a market where the generics would — all generics added together, may not possibly be able to satisfy the full demand of Revlimid as it exists today in the market. So I’m not sure that there should be intense competition in this segment despite people getting higher allocations or entering into the market.

Prakash Agarwal — Axis Capital — Analyst

Okay. And with our market-share increasing with the time gap, it’s fair to say that there could be ramp-up from the current levels?

Umang Vohra — Managing Director & Global Chief Executive Officer

I can’t comment on that. I cannot comment on that, because that is subject to a — that is part of an agreement with the branded company. I can’t comment on that right now.

Prakash Agarwal — Axis Capital — Analyst

Okay, okay, fair enough. And in terms of understanding the U.S. run-rate, you mentioned barring the flu season, Lanreotide, as well as another peptide product had contributed, but you seem to be cautioning for Q4 and Q4 typically is a softer in terms of margins also. But with this kind of U.S. run-rate, would it be fair to see margin expansion unlike previous 4Qs?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think we will — we are hoping to be higher than the previous fourth quarters of the previous year, that’s for sure, but it’s not going to come at the margin profile similar to this quarter.

Prakash Agarwal — Axis Capital — Analyst

Okay, and lastly, on the gross margin side, we should assume the sales mix to be a major contributor, as you said, Revlimid is lower, so since tender business is lower, that’s the key contributor for the gross margin improvement, is that right understanding?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think maybe, Ashish, you can take this one.

Ashish Adukia — Global Chief Financial Officer

Yes, so it’s a combination of two, three factors out here. So product mix is one, so there is more respiratory, there is more products that are higher-margin, tender is also playing a role out here. There is also a forex element that helps us in the margin in this quarter versus the previous quarter. So there are many factors that play a role there. There was a provisioning that we took for COVID inventory in the previous quarter, which is obviously not — which is absent in this quarter. So it’s combination of all these factors which has led to better gross margin.

Prakash Agarwal — Axis Capital — Analyst

Okay, great. Thanks and all the best.

Operator

Thank you. The next question is from the line of Shubham Goyal from Motilal Oswal. Please go-ahead.

Shubham Goyal — Motilal Oswal — Analyst

Hello.

Operator

Yes, we can hear you, please go-ahead.

Shubham Goyal — Motilal Oswal — Analyst

Yes. So I just wanted to ask that, going forward, considering all the JVs and stuff that is planned, so how does — so what is like the kind of projection that you have for like maybe next two or three years?

Umang Vohra — Managing Director & Global Chief Executive Officer

Projections for?

Shubham Goyal — Motilal Oswal — Analyst

Like the future, like a few months from now, sort of few years from now?

Umang Vohra — Managing Director & Global Chief Executive Officer

Is that in terms of R&D or in terms of what?

Shubham Goyal — Motilal Oswal — Analyst

In terms of business, like how do you expect the business to be growing?

Umang Vohra — Managing Director & Global Chief Executive Officer

So I think, on India, we do expect to have a growth higher than the market. Like we’ve had in the past eight quarters, seven to eight quarters. In the U.S., it is responding — it is going to respond to how the product launches come. And we have a — we’d like to believe that between respiratory products, etc., we do have a good pipeline. And on the emerging side, I mean, South Africa will readjust from the current quarter as we’ve signaled, it should be back in the quarter one of next fiscal it should be back. So I think it’s — and we see a reasonable growth going-forward.

Shubham Goyal — Motilal Oswal — Analyst

Okay.

Operator

Shubham, do you have any further questions?

Shubham Goyal — Motilal Oswal — Analyst

No.

Operator

Thank you. The next question is from the line of Sriraam Rathi from BNP Paribas. Please go-ahead.

Sriraam Rathi — BNP Paribas — Analyst

Yes, thanks for the opportunity. Just one question on the U.S. sales. I mean earlier when we were around $500 million sales, we were guiding for like $800 million to $900 million, and we are already closer to that. And I think you also mentioned that coming beyond $800 million, $900 million, it becomes a challenge to grow in the U.S. market. So how should we look at this market now for us? I mean from a $95 million, let’s say, in the next two to three year. I mean, what will be the key drivers from this space? Thank you.

Umang Vohra — Managing Director & Global Chief Executive Officer

We have a good line-of-sight at least to the level of numbers that you are looking at. We are currency somewhere around $700 million-ish mark on a 12 month basis. So from here, we think that we can get to the $900 million mark over a period of time. And I think from there, we are actively building the pipeline to see what best we can do. There is evidence now at least in the market that companies can grow higher than that value. So we are also investing in pipeline. We’ve also got our Biosimilars engine firing, more respiratory product trials happening. So we’re still — we are very quite optimistic about the U.S. market and we can see growth in this market even beyond the $850 million to $900 million mark.

Sriraam Rathi — BNP Paribas — Analyst

Okay, got it, that’s helpful. And another question on margins. I mean, we have been guiding for 21% to 22% EBITDA margin. Now considering the fact that we are already around 22% plus, and probably the share of Revlimid will keep on increasing in the next two years. I mean, how should we look at the margin profile over next couple of years?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, I mean our intention is to grow margins year-on-year. I think the pace of growth, as we’ve said earlier, that since we’ve reached the level of the 21% to 22% now, I think the objective is also to reinvest back-in the business and to try and see if he can increase the margin profile for the full-year, because we’d like to invest back to grow the business faster, which is the direction we are on.

Sriraam Rathi — BNP Paribas — Analyst

Okay, got it, that’s helpful. Thank you. Thank you so much.

Operator

Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities. Please go-ahead.

Damayanti Kerai — HSBC Securities — Analyst

Hi, thank you for the opportunity. Umang, my first question is on Advair, so new TAT date in first week of April. Do you see like if FDA reinspection will be required for the facility?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, according to us, the PAI inspection is over, right. Now if the FDA does have to audit indoor in the interim, that’s a different issue, but the PAI inspection for Advair is over.

Damayanti Kerai — HSBC Securities — Analyst

Okay. So, after — like they might need to re-inspect the plant before the final approvals comes in, that cannot be ruled out, right?

Umang Vohra — Managing Director & Global Chief Executive Officer

It can’t be ruled out, but it’s not our — at least the correspondence we have from them, this was not a precondition.

Damayanti Kerai — HSBC Securities — Analyst

Okay, that’s clear. My second question is on ABRAXANE. Have you got any update to share after the Goa update in the previous month?

Umang Vohra — Managing Director & Global Chief Executive Officer

No update. I think as we said, we are also trying to de-risk the product. So we do not have a new update.

Damayanti Kerai — HSBC Securities — Analyst

So in most case we assume this could be a potential second half FY ’24 launch if everything go as per the plan?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, towards the later half of the second half of FY ’24, that’s a correct assumption.

Damayanti Kerai — HSBC Securities — Analyst

Okay, and my last question is on the SAGA and SGA segment. I think you obviously mentioned some of the issues there, but this segment has been very volatile over, I’ll say, some time now. So how should we see sales or like business performance moving ahead in coming quarters?

Umang Vohra — Managing Director & Global Chief Executive Officer

See, all the markets which has economies which are responding to the current goals — global situation, whether it’s in markets in the Middle East, to some extent Europe, as well as South Africa, the economies in Europe as well as in South Africa, some readjustment happens because of dollar and especially if the market is a self pay market, it also responds to the economic situation. So if you look at South Africa, market growth has reduced right over the pace of the previous year and obviously the global situation does not help.

However, our business has always outgrown the market growth, right, and I think that will continue going-forward. But we have some issues in terms of just the market readjusting, the amount of supply it needs for it’s growth and I think that’s currently happening. As I mentioned, I think the worst is over from a growth perspective over the last two, two and a half quarters. And from quarter one of next year, we expect things to be — and when I say quarter one of next year, it’s quarter one of next fiscal, we expect things to be pretty robust again.

Ashish Adukia — Global Chief Financial Officer

And just to add on SAGAs, specifically, if you see how the business is transitioning into lower tender and higher private, so in FY ’19 or so we used to be probably about 30% tenders, 70% private, which is now a 80%-20% kind of a split in favor of private and that’s also supported by new introductions that we’re doing. I think the volatility has come due to the supply issue that we talked about, which hopefully from next year onwards, we should see it going away and the advantage of growing faster than the market, though market is actually — but the fact that we are growing faster than the market, those benefits should be more visible over the next couple of years.

Damayanti Kerai — HSBC Securities — Analyst

That’s helpful. And my last question if I may. Umang, can you comment on the pricing scenario for Albuterol market, has it changed meaningfully compared to previous quarter?

Umang Vohra — Managing Director & Global Chief Executive Officer

No. No meaningful change to the previous quarter.

Damayanti Kerai — HSBC Securities — Analyst

So prices are largely stable, right?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, in the sense that the prices adjust during the year, there’s no doubt about it, right, but I think since your question was specific to versus the last quarter, no.

Damayanti Kerai — HSBC Securities — Analyst

Okay, thank you. I’ll get back in the queue.

Operator

Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go-ahead.

Surya Patra — PhillipCapital — Analyst

Yes, thank you for this opportunity. Sir, congratulations for the good set of numbers. Two questions. The first is the point of care device that you have introduced. So in fact, we have been seeing kind of a better performance driven by the One-India policy or One-India approach in the domestic formulation side. Now this device introduction, do you consider this is a complementing factor rather than the other aspect or it is just a one-off kind of a introduction, that is how we should see?

Umang Vohra — Managing Director & Global Chief Executive Officer

Ashish, can you take that?

Ashish Adukia — Global Chief Financial Officer

Sure. I think diagnostic and devices, while it is nascent, it continues to be one of our legs in our strategy, okay, going-forward, I think it can grow into a business as well. So that’s how we are looking at it. It is at the very nascent stage, as we speak, but we want to improve our touch points with patients and actually service the patients from every possible wave, right. And therefore, devices and diagnostics are some of the legs that we have identified as to future legs for ourselves.

Surya Patra — PhillipCapital — Analyst

Okay. Second question is on the, let’s say, this gross margin improvement only. Sir, you have clarified about it. If we look at — if I see that, if it is a kind of a normalized kind of a gross margin situation, then I think this seems to be one of the best gross margins over the last four, five year excluding the phase of this COVID. So, how sustainable this gross margin scenario for Cipla? And I mean how should we see really for the future? Because going ahead, the production — the product mix is likely to improve towards the complex product more and more. So whether it is a kind of a permanent phenomenon or it is just a one-off quarter-specific scenario?

Umang Vohra — Managing Director & Global Chief Executive Officer

See, I think this quarter you had the benefit of seasonality and this is probably one of the best quarters of the year as well. I think if you see a little bit long-term, you’ve seen that we’ve got partnered product etc., as well, and that is the idea of having partnered product to actually go to the market much faster and tap the potential that exits and share the capability. So, and that of course in partner products, there will be lower margins, right. So it’s fair to say that, we’ll be able to maintain the margin. To grow the margin, it depends on how many launches we are able to successfully do in the U.S.

Surya Patra — PhillipCapital — Analyst

Okay. Just one scenario. On the mRNA JV or the acquisition, partial acquisition of Ethris. So it looks like that that’s a interesting at home technology that you are getting access to. And because of that, possibly you can have multiple product opportunity using that technology platform. And hence, possibly complement your lung leadership program. So if you can elaborate a bit on the on the intent front relating to Ethris mRNA project?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, so I think in terms of you’ve probably answered the question yourself. I think in terms of technology, it is something that goes along with our core strength of respiratory and lung leadership. So this is an inhale technology and therefore, the whole idea is that if there is an existing capabilities that exist, we have invested in that and the whole idea would be to actually commercialize that in our core markets through partnership.

Surya Patra — PhillipCapital — Analyst

Okay, but it is a futuristic project, that is how one see it?

Umang Vohra — Managing Director & Global Chief Executive Officer

Absolutely, yes.

Surya Patra — PhillipCapital — Analyst

Okay, thank you, sir.

Operator

Thank you. The next question is from the line of Parvathy from Course5I. Please go-ahead.

Parvathy Menon — Course5I — Analyst

Hello, am I audible?

Operator

Yes.

Parvathy Menon — Course5I — Analyst

Yes, thanks for taking my question. Just wanted to know like do you have any plans to file generics [Indecipherable] in the U.S.?

Umang Vohra — Managing Director & Global Chief Executive Officer

We’re not going to comment on that. We’re not going to comment on that, please.

Parvathy Menon — Course5I — Analyst

Okay. And one more question. Could you give some clarity on the respiratory assets for which the clinical trials are ongoing? Like, would you reveal the product?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, we are not going to reveal it, but yes, it’s a product like Advair.

Parvathy Menon — Course5I — Analyst

Okay. Yes, thank you.

Operator

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go-ahead.

Neha Manpuria — Bank of America — Analyst

Thanks for taking my question. My first question is on the R&D. Ashish, you did mentioned that R&D would inch up gradually, but just wanted to get a sense on the guidance for next year, would it be in the historical range that you’ve given or would it be much higher than that given the respiratory trial?

Ashish Adukia — Global Chief Financial Officer

No, I think it will remain at what guidance we’ve been giving, which is about 6% to 7%. Because the focus has always been complex R&D and that’s what we are focused. I think what I meant also was that this quarter there were certain clinical trials due to which the expenses had also gone up. So just keeping that in mind, there was some increase.

Neha Manpuria — Bank of America — Analyst

Understood. In which case, given the level of commentary on the strong growth in the U.S. that we are expecting. If I look at as a percentage of sales, we’re not talking about too much — a very large increase in R&D, probably 100, 150 basis points. Should we not be seeing a material increase in EBITDA margins versus what we have been reporting for the last two or three quarters? Any reasons for us to say — I understand that we are reinvesting back into the business, but should there not be a step-up in margins as we see U.S. grow from current levels?

Ashish Adukia — Global Chief Financial Officer

I think, overall, if you look at EBITDA margin guidance that we’ve been giving, it’s a mix of many things, right. And in the U.S. there is erosion that you — price erosion that you constantly witness and you make it up with new launches. So, on an overall basis, we expect the margins to be maintained. I think, that’s what the endeavor is. And then, like I said, the new launches are both self, as well as in partnership. So, you have to look at margins of both in combination to arrive at overall U.S. margins.

Neha Manpuria — Bank of America — Analyst

Okay, so when you see margins to be maintained, it maintained at what we have been reporting?

Ashish Adukia — Global Chief Financial Officer

Yes. Okay. And second question. Umang, just a clarification on Lanreotide, because we are already close to the market share target that you had been indicating. Is there scope to improve market share further in the next year or are we constrained by certain raw material surprise, etc. From a revenue perspective, was this product in line with what we had initially expected at launch?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. I think this is in — the current trajectory is in-line with our expectations. And market shares could expand from here, but these products are not like generic where the share expands significantly in one quarter. So, we see some expansion, but it is completely in-line with our expectation.

Neha Manpuria — Bank of America — Analyst

Understood. Thank you so much.

Operator

Thank you. The next question is from the line of Bino Pathiparampil from in InCred Capital. Please go-ahead.

Bino Pathiparampil — InCred Capital — Analyst

Hi, good afternoon and congrats on a great set of numbers. Umang, a follow-up on Revlimid. If I remove Revlimid revenues from this 3Q numbers — 3Q U.S. revenue number, will the U.S. revenue number be higher than the first quarter level, when there was no Revlimid?

Umang Vohra — Managing Director & Global Chief Executive Officer

Would it be — sorry, repeat your question. If you remove Revlimid from this quarter numbers —

Bino Pathiparampil — InCred Capital — Analyst

Would the U.S. revenue be higher than 1Q of this year where there was no Revlimid?

Umang Vohra — Managing Director & Global Chief Executive Officer

Of course.

Bino Pathiparampil — InCred Capital — Analyst

Okay. Second, coming to ABRAXANE, a product set launched, after that I believe HBT Labs has got an approval, have they entered the market and any other competitive scenario that’s changing while we ship the manufactory?

Umang Vohra — Managing Director & Global Chief Executive Officer

Bino, I’m not sure if at least till the last update that was given to me. We believe that HBT had not entered the market. However, I think there is some pre-existing relationship that two or three market players have by virtue of an AG agreement. So we are not sure whether the AG stocks are completely liquidated or not. So I’m limited by my understanding of that right now.

Bino Pathiparampil — InCred Capital — Analyst

Understood. And lastly on Leuprolide, apart from the AbbVie product, there are couple of other products in the market, one from Tolmar and one from Accord as well. So would you be competing against all of these and possibly taking share from all of these or is totally from AbbVie?

Umang Vohra — Managing Director & Global Chief Executive Officer

Bino, I think the market pulls from each other. Exact amount of how much it would pull from which particular type we are nor aware right now.

Bino Pathiparampil — InCred Capital — Analyst

Okay, but practically, this is all the same product, right?

Umang Vohra — Managing Director & Global Chief Executive Officer

Technically they are not, but because even though, I think in administering the products look different and probably feel different too. So, I think it’s — I think they will pull from each other, but I’m not sure exactly to what proportion.

Bino Pathiparampil — InCred Capital — Analyst

Understood. But your primary pull would be from AbbVie or would it be spread around?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, we do have a target to go after. But at this point, we’re just being as open as possible in terms of where we could get shares at.

Bino Pathiparampil — InCred Capital — Analyst

Okay. Great, thank you. Thank you very much.

Operator

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

Sameer Baisiwala — Morgan Stanley — Analyst

HI, thank you and good evening everyone. Umang, is it possible for you to give us a broad guidelines over next 15 months. What would be the complex launches in the U.S.? I mean we know there is Advair, there is potentially ABRAXANE. I think you had mentioned one peptide product by September, if I’m not wrong, so anything else that you want to add to this?

Umang Vohra — Managing Director & Global Chief Executive Officer

Sameer, there are a few other products. But at this point, we’re not sure we’d like to provide that visibility, and not because of any other reason, but because we’re just trying to figure out what the likely dates for these products would be based on most recent correspondence with the FDA.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Okay. So they are more complex other than these three, that’s what you’re saying, the timing is unfair

Umang Vohra — Managing Director & Global Chief Executive Officer

But at the same time, let me also say that the last — these three would probably be the larger ones in the kitty.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, that’s very helpful. Umang, the second question is on Revlimid. If the market does remain under-supplied by generics over next couple of years, then is there any risk to pricing or the same pricing is going to hold?

Umang Vohra — Managing Director & Global Chief Executive Officer

Sameer, I think that every year on generics, there is always a little bit of a pricing drag, right. Having said that, I’m not sure in Revlimid we may necessarily see a huge drag as more people enter, like we’ve seen with regular generic classes. There would be — it would be — I don’t think it would be unfair to expect that there would be some amount of erosion, but I don’t think it’s going to behave like a regular generic product at all.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. And for Leuprolide 22.5 mg, I think three month depot, you are probably the only generic. So did it contribute materially to 3Q number or? And the second is, how the market share ramp up be more or less like Lanreotide or different or much faster?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think the Lanreotide version would be something similar, give or take a quarter here or there. I think that would be a probably a curve that could be a little likely. Again, we have to keep in mind that Lanreotide was the only available product, whereas for the others, we have two or three brands in the market right now on the Leuprolide side. Having said that, I think the trajectory should be slower than a regular generic just probably like a Lanreotide.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. One final question, Umang, is on Ethris. So for EUR15 million, what’s the sort of percentage stake you have taken, if you can share? And I saw the pipeline, it looks like all of them are discovery stage preclinical type. So it looks like a, even the science is sort of untested, unverified. So how are you thinking about taking this forward?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, I think that the platform they have developed, the area that they are researching is the delivery through an inhale route, right, which appeals to us significantly. Now, having said that, there is always risk involved in discovery of pops [Phonetic]. They have a couple of products, which we believe will also — could move faster in their pipeline, and I think it is our belief that their technology is pretty sound, in terms of what we’ve seen and analyzed so far. So I think we have about a — I don’t know if we have been public with this stake, Ashish, have we been?

Ashish Adukia — Global Chief Financial Officer

No, we have not been public yet.

Umang Vohra — Managing Director & Global Chief Executive Officer

Okay. So it’s a — I would say it’s a minority stake, Sameer, you could pencil that in. And the objective is to have the ability to bring these products in India, and introduce them in India as and when they are ready.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, thank you very much.

Operator

Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go-ahead.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Yes, hi, good evening. My question is on the overall One-India businesses. Can you share the overall One-India business, what is the share from chronic and acute net in nine months this fiscal? And if the growth overall is 12% in One-India, what is the chronic and acute growth that the company is tracking in nine months FY ’23?

Umang Vohra — Managing Director & Global Chief Executive Officer

The split of acute and chronic, chronic is about 60% and this is on the prescription, right that I’m talking about. The balance is — chronic is 60% and balances is acute.

Nikhil Mathur — HDFC Mutual Fund — Analyst

And what are the growth level we are tracking in both chronic and acute?

Umang Vohra — Managing Director & Global Chief Executive Officer

Growth levels in –?

Nikhil Mathur — HDFC Mutual Fund — Analyst

Nine months FY ’23.

Umang Vohra — Managing Director & Global Chief Executive Officer

So, about 6% probably, that kind of a number for anti-infectives.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay. So in the prescription business, if I’m getting this correctly, 60% is chronic, 40% is acute. 40% acute business has grown by 6%?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, chronic is all double-digit right, 10%, 11% and like respiratory can be somewhere around 17% is what showed in the — on our slides as well.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Right. So my question is tied to, let’s say, the respiratory segment. It seems that this particular year the growth is pretty strong. I mean, anti-infectives also Cipla might be at 6%, but when we see the rate of some other companies, ex-COVID, the growth is looking pretty strong this particular fiscal year. Pre-COVID, there were some challenges on the acute side on growth front. So just wanted to understand, is there some sort of risk building up, let’s say, in FY ’24 of an adverse base in India because acute, and specifically respiratory first of all is doing pretty well this year.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, I’m not sure that I would — I think the risk — so let’s try and understand your question. Is your question on whether there is excess stocking in the market? I don’t think there is, considering just how the India system operates and our review of secondary data. So if your question is, will the incidence of anti-infective and respiratory drop in the next year? That’s — I’m not sure we can predict that. It’s very seasonal and it’s linked to your pathogens and disease favor. I’m not sure we can predict that actually today.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Sure. And one more question on the margins front. I think there was a comment made on some cost also easing whether it’s raw material, packaging materials, freight costs have eased sequentially in this quarter. So on the journey of cost normalization across these three heads, which is raw material, packing and freight. Where are we in terms of normalization? Or, let’s say, on a scale of 0 to 100, are we close to reaching the peak normalizations [Indecipherable] or we are still far away from what the normalized cost would be across these three heads?

Umang Vohra — Managing Director & Global Chief Executive Officer

Sure. I think it’s a constant endeavor for us to keep bringing down the freight cost, which happens in — there are two levers, one of course the freight cost, the rates itself has come down and moderated. And the second is that you change the mix right, you — the air and sea mix. And for that requires you to do your planning of supply chain very accurately, so that you can use the sea route. So it’s a constant endeavor, I think there is still room for us to improve further because we still have air mix and that will continue as a journey. We are reaching a point to where, I think, there will be some optimization that should happen.

Nikhil Mathur — HDFC Mutual Fund — Analyst

And sir, what about API prices and raw material costs, what’s the outlook on this?

Umang Vohra — Managing Director & Global Chief Executive Officer

On the procurement cost also we’ve seen some stabilization, but somehow it is to say because China is still evolving from the supply situation. So, can’t say for sure what the next stage of contracts would be. But the cost increase that we saw earlier in the previous year, that seems to be adding.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay, perfect. Sure, sir. Thanks a lot.

Operator

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

Nitin Agarwal — DAM Capital — Analyst

Hi, thanks for taking my question. Umang, you mentioned about the biosimilar initiatives that we’ve undertaken during the year. Can you just highlight if there is any more incremental developments on that account?

Umang Vohra — Managing Director & Global Chief Executive Officer

We have two products that are in development, one more that’s been selected, which will be going into development. We’re also now steadily ramping-up the team. So, Kemwell is the partner and they’re doing the manufacturing. So I think they’re pretty satisfied. Most of the programs are in-line with our internal targets.

Nitin Agarwal — DAM Capital — Analyst

And what would be the timelines for these regulated and un-reg market launch or non-reg market launches for these products?

Umang Vohra — Managing Director & Global Chief Executive Officer

Non-reg could happen in the next three to four years, because I think the patent estate for some of these would be four years out. Reg markets would still be five six years out.

Nitin Agarwal — DAM Capital — Analyst

And secondly, in terms of the significant cash that we have and the cash realization that’s happening in the business. I mean, what are your thoughts on utilization of these proceeds or this cash which is there in the balance sheet, given the fact that we keep accruing cash, I presume the way this is going at this point of time?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, but I think we have also signaled, we are open to acquisitions. So we will look at the right acquisition. Of course, India is a market where we are very interested in. As well as the capex program could go up a little bit in the next one to two years. And then of course, the Board, we’d always discuss the ability of the company to pay some cash back to shareholders as higher dividends or other manner, so effectively this is only our second year of surplus cash. It’s not that we have been having surplus cash for a long period of time.

Nitin Agarwal — DAM Capital — Analyst

Right. I mean on M&A India you rightly mentioned, but beyond India, what would be our strategic objectives from a M&A perspective?

Umang Vohra — Managing Director & Global Chief Executive Officer

So, we keep looking at opportunity across the globe in the international market, as well as selectively in the U.S. as well. I think it’s to fill the gap that we have rather than anything else. But in terms of — if I have $1 then the proportion allocation to India would be higher, because it continues to be a growth market and we are keen to grow share out there.

Nitin Agarwal — DAM Capital — Analyst

Okay, thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments.

Ankit Bhembre — Investor Relations

Thank you, Thanvi. Thanks everyone for joining our earnings call. If you have any other follow queries, please do reach out to investor.relations@cipla.com. Thanks and have a good evening.

Operator

[Operator Closing Remarks]