Dr. Reddy’s Laboratories (DRREDDY) Q4 FY23 Earnings Concall Transcript

Dr. Reddy’s Laboratories (NSE:DRREDDY) Q4 FY23 Earnings Concall dated May. 10, 2023.

Corporate Participants:

Richa Periwal — Investor Relations

G V Prasad — Co-Chairman and Managing Director

Parag Agarwal — Chief Financial Officer

Erez Israeli — Chief Executive Officer

Analysts:

Mikhaila — Barclays — Analyst

Surya Patra — PhillipCapital — Analyst

Damayanti Kerai — HSBC — Analyst

Neha Manpuria — Bank of America — Analyst

Ankush Mahajan — Axis Securities — Analyst

Kunal Dhamesha — Macquarie — Analyst

Madhav Marda — FII industries — Analyst

Cyndrella Thomas Carvalho — JM Financial — Analyst

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Ashish Yash — IIFL Asset Management — Analyst

Nitin Agarwal — DAM Capital Advisors — Analyst

Prakash Agarwal — Axis Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Dr Reddy’s Q4 FY20 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal. Thank you and over to you ma’am.

Richa Periwal — Investor Relations

Thank you. A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy’s earnings conference call for the quarter and full year ended March 31, 2023. Earlier during the day, we’ve released our results and the same are also posted on our website. This call is being recorded and the playback and transcript shall we made available on our website soon. All the discussions and analysis of this call will be based on IFRS consolidated financial statements.

The discussion today contains certain non-GAAP financial measures. For the reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy’s comprising, Mr. G V Prasad, Co-Chairman and Managing Director; Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; and the entire Investor Relations team.

Please note that today’s call is a copyrighted material of Dr. Reddy’s and cannot be rebroadcasted or attributed in press or media outlets without the company’s expressed written consent.

Before I proceed with the call, I would like to remind everyone that the Safe Harbor contained in today’s press release also pertains to this conference call.

Now, I hand over the call to Mr. G V Prasad. Over to you, sir.

G V Prasad — Co-Chairman and Managing Director

Thank you, very much. Good evening, and good morning, to all of you. Welcome to this annual earnings call. My best wishes to you. I’m delighted to be here today, along with the members of the executive team.

As you may have seen in our public results. This year has been an outstanding year for the company, a year in which we are set all-time highs in our reported sales, profits, and embraced the healthy cash-flow. And we continue to strengthen our core businesses, while investing and building businesses of the future. Our sustained investments are being made to drive manufacturing excellence, strengthen our pipelines, and we continue to build efficiency and productivity in our R&D in as well as operations and continue to augment reaching customers by opening new markets and new channels.

Looking beyond the financial performance during the year we made great progress from multiple funds, and we were recognized for these achievements. Noteworthy among these are the recognition by CNBC TV, TV-18 under the Master of Risk, Healthcare and Pharma segment and we secured leadership line score from CBC [Technical Issues] action on climate change and supplier engagement. We also featured in the Bloomberg Gender Equality Index, the S&P’s Noble Sustainability Year Book, the DGSI Sustainability Index in emerging markets category, and we’re also awarded by the economic times as being among the best organizations, [Technical Issues] in the year 2023.

Our largest [Technical Issues] dosages factory was recognized by the World Economic Forum, as part of its Global Lighthouse Network. These recognitions are an endorsement of our commitment to building a sustainable high-performance organization focused on the needs of patients as well as society. I’m excited about how far we’ve come in the past 10 years and the opportunities we have for the future as we continue to make efforts to bring to life our credo Good Health Can’t Wait. With this, I’d like to hand over the call to Parag for taking you through the financial performance of the company.

Parag Agarwal — Chief Financial Officer

Thank you. Prasad. Greetings to all of you and I hope all of you are doing well. I am delighted to take you through our results for the quarter-four and full-year of fiscal 2023. FY ’23 has been a year of strong financial performance, due to highest-ever sales, record profitability and robust cash-flow generation from operations.

Let me provide you with a quick rundown of our Q4 and FY ’23 financial. For this section, all the amounts are translated into U.S. dollars at a convenience translation rate of INR82.19. This is the rate as of 31st March 2023. The solid used revenues for the quarter, it stood at INR6,297 crores, that is $766 million and grew by 16% on year-on year basis and declined by 7% on a sequential-quarter basis. The year-on-year growth was driven by growth in both generics and PSAI businesses. This was further augmented that income from divestment of a few non-core brands in India. Quarter-on-quarter was primarily due to sales volatility in the energy business.

The revenue for the financial year 2023 stood at INR24,588 crores that is U.S. $2.9 billion and grew by 15%. The growth was mainly driven by new product launches, partly offset this price erosion. Consolidated gross profit margin for this quarter has been 57.2%, an increase of approximately 430 bps over previous year, and decline of 210 bps on quarter-on-quarter basis.

Year-on-year increase was driven by new product sales with higher gross margins and favorable foreign-exchange. Quarter-on-quarter decline was primarily due to product mix and lower operating leverage also partly offset by divestment income. Gross margin for the Global Generics and PSAI was 61.7% and [Technical Issues] 5.2% for the quarter. Gross margin for FY ’23 has been by 56.7%, this is an increase of 360 bps over FY ’22. And these are driven by new products with higher gross margin, high government incentives, and favorable foreign exchange, partly offset the impact of price erosion.

Gross margin for the Global Generics and PSAI where at 52.1% [Phonetic] and 16.2% for the year. [Indecipherable] for the quarter is INR1,799 crores, that is U.S. $219 million and increased by 15% Y-o-Y while this remained flat quarter-on-quarter. The year-on year increase is largely on account of sales and marketing investments and the adverse impact of forex translation. The SG&A spend for the year is INR6,803 crores, that is U.S. $800 million and has grown by 10%. The SG&A cost as a percentage to sales was 27.7% and is lower by 130 basis point over previous year due to better operating leverage.

The R&D spend for the quarter is INR507 crores that is U.S. $65 million and with that 8.5% of sales. Our R&D efforts are focused towards building a healthy pipeline of new products across our markets, including biosimilars. The R&D spend for FY ’23 is INR1,938 crores, that is U.S. $236 million. R&D percentage to sales for the year stood at 7.9%. The EBITDA for the quarter is INR1,631 crores that is U.S. $198 million and the EBITDA margin is 25.9%. The EBITDA for the year is INR7,308 crores, that is U.S. $89 million. EBITDA margin for the year is at 29% which is ahead of our aspirational target of 25%. Our profit before-tax for the quarter stood at INR1,326 crores, that is U.S. $161 million, and debts for the year stood at INR6,037 crores that is U.S. $736 million [Phonetic].

Our profit before-tax for the quarter grew by 434% year-on-year. And for the year, it grew by 87%. Effective tax-rate has been at 27.6% for the quarter and at 25.3% for the year. The effective tax-rate was lower, in FY ’23, largely due to changes in the company’s jurisdictional mix of earnings. We expect a normal ETR to be in the range of 24% to 25%. Profit-after-tax for the quarter stood at INR959 crores, that is U.S. $117 million and that for the year stood at INR4,507 crores that is U.S. $548 million. Reported EPS for the quarter is INR57.52 and debts for the year is INR270.85. Operating working capital reduced by INR364 crores, which is U.S. $44 million against that on December 31st, 2022, mainly supported by an improvement in receivables.

Our capital investments stood at INR258 crores, which is U.S. $31 million in this quarter and INR1,132 crores, which is U.S. $138 million during the year. The free-cash flow generated during this quarter was at INR1,596 crores, which is U.S. $194 million. The free-cash flow generated during this year was at INR4,009 crores which is U.S. $488 million. Consequently, we now have a net surplus cash of INR5,046 crores that is U.S. $614 million as of March 31, 2023. Foreign currency cash-flow hedges in the form of derivatives for the U.S. dollar at approximately U.S. $774 million largely held [Technical Issues] INR82.4 to INR84.5 to the [Technical Issues] RUB7,380 million at the rate of INR1.045 to the Ruble and Australian dollar AUD4.2 million at the rate of INR57.8 to Australian dollar maturing in the next 12 months.

With this, I now request, Erez to take us through the key business highlights.

Erez Israeli — Chief Executive Officer

Thank you, Parag. Good morning, evening to everyone. As Prasad highlighted, we have delivered strong financial performance in FY ’23. We closed the financial year with double-digit top-line and bottom-line growth with EBITDA and obviously margin exceeding the 25% levels. This impressive way of performance was reflected in our cash-flow, and we continue to have a strong balance sheet. We progressed well on our strategic priorities, and we’re able to invest in our organic capabilities and business development opportunities to thrive and deliver on our purpose all through the long. Let me take you through some of the key highlights of the year.

One, we witnessed underlying growth momentum in FY ’23 across all businesses. Adjusted for COVID products contribution during last year. Two revenue in North America generics and in branded markets of India crossed the $1 billion mark for the second consecutive year. We divested certain non-core brands in India to focus on strengthening the core. Our EBITDA is it 30% and in our ROCE is at 35%. We generated a strong free-cash flow, leading to a net cash show class of $640 million. We also see positive momentum on BB/M&As with the acquisition of a novelty cardiovascular [Indecipherable] in India. The main pharma U.S. generic prescription product portfolio and eat-on’s branded and generic injectable products in the United States.

Significant progress also made in our biosimilar businesses. We see a launch of biosimilar Stimufend, which is pegfilgrastim by Fresenius Kabi in the U.S. We completed, and we saw the completion of clinical studies of rituxan biosimilars, and we already filed in U.S., Europe and the U.K.-MHRA. We saw the completion of Phase one study of biosimilar tocilizumab and global phase-III study was initiated.

Recently, we received approval of three products in China, namely [Indecipherable] and our partners got GA approval for [Indecipherable] tablets. We are also progressing well in our digitalization as well as our EFG journey. Our diversified global presence, capability and strong balance sheets, make us a partner of choice, contribute to work towards strengthening our position as the partner of choice, including our ways into SpaceX. Formalized in into perspective, we signed some strategic licensing deal in FY ’23, including the below. With cardiac care for deliverable for atrial fibrillation treatment with [Technical Issues] for deliverable in management of migraine, with the New Zealand based WZTL to bring the third generation county assets for clinical trials in India. We don’t see Bioscience to bring [Technical Issues] into India and other markets. We are investing in developing and trials of these DCX healthy biosimilar asset in keeping with our stated Horizon two strategy. We see them as a future [Technical Issues].

Now, let me take you through the key business highlights for the Q4 in FY ’23. Please note that all the reference to the numbers in this section are in respective local currencies. Our North America generic business recorded sales of $312 million for the quarter with the strong growth of 18% year-over-year and 17% decline on a sequential basis. On a full-year basis, we recorded sales of $1,468 million with a growth of 26% over the previous year. This growth is largely led by new product launches such as [Technical Issues] and growing market, share in certain key existing products, which more than offset increased price devotion. We launched 16 products during the quarter, in other words, 25 products during the year. The launch momentum to further improve in FY ’24.

Our Europe business recorded sales of EUR56 million in this quarter, with the yield of real growth of 7% and sequential-quarter growth of 9%. On a full year basis, the sales of EUR210 million and has grown by 9%, driven by base business volume and new product launches. We launched five new products during the quarter and 75 for the full-year in Europe across all markets. We expect these brands momentum to continue in FY ’24.

Our emerging markets business recorded sales of INR1,114, crore with the year-on-year decline of 7% and a sequential-quarter decline of 15%. On a full-year basis, emerging market sales has been roughly flat at INR4,550 crores. However, the sales have grown 17% adjusted for the COVID related products in the investment income in FY ’22. We launched 10 new products during the quarter and 94 assumed that crossed various countries in those emerging markets. Within the EM segments, the Russia business in Q4 declined by 34% on a year-on-year, and 17% on a Q-basis in constant-currency. In FY ’23, Russia business declined by 9% in constant currency. The decline is attributed to divestment of non-core brand during the previous year.

During the year, there has been normalization in the China and customer stocking level after the upticks seen in Q4 FY ’22. We have been navigating the evolving geopolitical uncertainties and have managed the global currency fluctuation with effective hedging. Our India business recorded Q4 sales of INR1,280 crores, with the year-on-year growth of 32% and sequential increase of 14%. On a full-year basis, our sales were INR4,893 rupees with a growth of 17%. Excluding the benefit of the divestment income and adjusted for COVID-19 related products the year-over-year sales growth for the quarter has been 11% and for the full-year has been 13%.

As per IQVIA report [Phonetic] we are ranked number 10 [Technical Issues]. India remains our priority market, and we are committed to continuing to grow this business, [Technical Issues]. Our PCI business recorded sales of $95 million, with the year-over-year decline of 4% or flat sequentially. On a full-year basis, the sales were $362 million, with a decline of 20%, the decline was primarily due to-high base effect of COVID-related product. We expect this business to grow during FY ’24. Our R&D efforts are focused in developing [Technical Issues] accretive products including several generic injectables and biosimilars where there is a patient needs. We have done 195 global generic filing including 12 ANDAs filed in the U.S. and 170 drug masters [Technical Issues] filing globally, including master in the U.S. drug master files in U.S.

During FY ’23, we are on-track to accelerate on this in FY ’24. We are progressing well in development of biosimilar products and working on submission potencies some mutual [Technical Issues] initiatives. Our strong balance sheets, provide us financial flexibility to support future growth. Invest in business development opportunities, and we will continue to maintain a disciplined approach to cash management in acquisitions. We continue to focus on optimizing work-place efficiency and productivity. We remain focused on strengthening our core generics and API business and delivering more-and-more strong foundation. We are building a pipeline of products that remains an evolving needs of patients and healthcare professional investment in internal R&D as well as strategic acquisitions. With this I would like to open the floor for questions-and-answers.

Questions and Answers:

Operator

Thank you, very much. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen we will wait for a moment while the question queue assembles. The first question is from the line of Balaji Prasad from Barclays. Please go ahead.

Mikhaila — Barclays — Analyst

Hi, this is the Mikhaila [Phonetic] on for Balaji. Thanks for taking our question. Just wondering if you could provide a bit more detail around the deal with [Technical Issues] discussing what responsibilities will look like on both. And just what really convinced you about their asset and its potential. Thanks.

G V Prasad — Co-Chairman and Managing Director

Balaji, we were not able to hear you. Well, I’m afraid you’ll have to repeat the question, can you repeat please.

Mikhaila — Barclays — Analyst

Sure, sure. Is this better. Can you hear me better now. Yes please. Okay, hi this is Mikhaila on for Balaji. Thank you for taking our question. We’re just wondering if you could provide a bit more detail around your deal with [Indecipherable] just discussing what responsibilities will look like on both ends. And also just wondering what convinced you about this [Technical Issues] asset and its potential. Thanks.

Erez Israeli — Chief Executive Officer

No, thank you. So, strategically, we are looking for unmet needs, especially in India. And we believe that we are in a great dialog with the innovation industry in China. And we’re trying to bring products that we believe that we can bring value. And we believe that this product shows very-very nicely [Technical Issues] and can be absolutely consider [Indecipherable]. And where we can bring it to India in a very affordable prices versus the alternatives and this is our focus, we [Technical Issues] that’s what was the main incentives behind this. Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Patra — PhillipCapital — Analyst

Yeah. Congratulation on the great set of numbers, sir. So, my first question is on the U.S. business front. So is it possible to share that, what is the sequential growth in the U.S. as we would have seen so for REVLIMID in the current quarter.

Erez Israeli — Chief Executive Officer

So — so we cannot give guidance without [Technical Issues]. But what I can see, let’s say that we are very consistent. So likely just you’re going to continue to see growth in all of our spaces including United States with and without the products. And it will be driven primarily from a [Technical Issues] activity specifically for the United States, beside the regular meds we are going to launch somewhere between 25 to 30 products, as well as the contribution of recent acquisitions and likely that we will see also additional activity [Technical Issues].

Surya Patra — PhillipCapital — Analyst

Sure, sir. So is it possible to give some extra color on the launch momentum that you have mentioned in your opening remark for the U.S. market, which you believe that to be strong in the current financial year.

Erez Israeli — Chief Executive Officer

Yeah, I think the investment in R&D and especially on the products that hopefully are likely to have less competition than the others is paying-off. And the as well as the type of pattern fleet that we will see in FY ’24 as well as the years after. So right now, the numbers that I mentioned 25 to 30 products it can be meaningful with the lesser of the competition. And we will continue to accumulate these products also in the years after. So, it’s absolutely our strategy in the U.S., and we will continue to focus on this.

Surya Patra — PhillipCapital — Analyst

Okay. Sir, my second question is on the composite question like we are seeing a strong cash accumulation and simultaneously, we are seeing multiple M&A activities by us to improve our focus on the domestic formulation business, which is at least around 20% of the total revenue base. And we are mentioning that this is going to be one of the focus market for us. So could you just could you share your thought process or the kind capital allocation to build this business in the near-future and our ultimately, what is the kind business mix, that you want to make, achieve it for domestic formulation considering the potential growth and all that, the second sales.

Erez Israeli — Chief Executive Officer

Yes, absolutely. So, in India, our primary goals will be — will come from one, focusing on our brands. We identified focus therapeutic areas as well as the focus brands, and we have a doubled down on that by increasing our footprint by going to more cities, etc. So this is one of the goals. Specifically, to your question.

The second one is that we are collaborating with the innovation industry in the United States, in Israel, in China in other places as well, of course, with companies and institutes in India to bring innovation to India. We are doing it both with our own internal R&D as well as with external R&D. Some of the deal I mentioned in my script and there are more to come. We are doing both on the Horizon-1 as well as Horizon-2 into and our best of [Technical Issues] people see us as a very attractive partner being compliant with all the international norms, given our reputation in the marketplace and we are leveraging it to bring more-and-more innovation into India.

And there also power of the capital allocation will go to deals like this. In addition, we are always looking for opportunity also propositions. There was nothing that we can report at this stage, but it is absolutely something that we are open to do all-the-time. For the initial [Technical Issues] at location all of our spaces including U.S., [Technical Issues] India except our B2B business we are looking for potential complementary deals. The type of deals that we are looking for are always complementary. We’re looking for products that we don’t have or capabilities that we don’t have. It is unlikely that you’re going to see mega-deals or this kind stuff. This is not our comfortable zone. We are looking for primarily unmet needs or complementary products that will feature portfolio in this way. So yeah, please.

Surya Patra — PhillipCapital — Analyst

Yeah, sure sir. So that is really great to know. And just lastly any — any color that you can [Technical Issues] investing, expectations and the progress post-launch?

Erez Israeli — Chief Executive Officer

So yeah, the product as you know is marketed by [Indecipherable]. So, I don’t have any — any expectation of anything like that. We as a partner, certain arrangements with them and as they will be successful, we will be successful as well.

Surya Patra — PhillipCapital — Analyst

Sure sir, wish you all the best. Thank you.

Erez Israeli — Chief Executive Officer

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

Damayanti Kerai — HSBC — Analyst

Hi, thank you for the opportunity. My first question is on the U.S. business, you have been obviously very consistent in terms of new launches, but can you talk a bit more about the kind of price erosion, which we are seeing in your existing product and my second part of the question is compared to oral solids in injectables, what kind price erosion you are witnessing?

Erez Israeli — Chief Executive Officer

Yes, so the nature of the U.S., the more change in the last quarter. It’s a similar, restructure of the market and similar behavioral players. Specifically for the quarter, the mix of products that we had, we saw less of the price erosion in the quarters before but fundamental structure of the market did not change, so likely [Technical Issues] when will face competition in certain products, then we see erosion. That’s the nature, but specifically, we saw a better mix this time. Comparing injectables to over solids, both are very competitive. So, it’s more of a function of how many players are attracting new customers. So both the injectables as well as our solids can see high-level of erosion, but also from time-to-time product with less competitive competition and therefore better situation.

Damayanti Kerai — HSBC — Analyst

Sure. Thanks for that. My second question is. As you continue to invest in new business and long-term growth drivers, how do you see R&D and SG&A cost moving from here on? And you obviously have — I’ll say, done better than your aspirational EBITDA margin for this year, but on a more sustained basis, how do you see this, like margin trajectory moving?

Erez Israeli — Chief Executive Officer

So, we are maintaining the 25-25 long-term, and we discussed it in previous meetings, and there will be yields in quarters that we will exceed it. There may be also yields that it will be below what happened also in the past. But we are very much there. What we are doing is that we are allocating the extra results between [Technical Issues]. And especially in R&D, the R&D likely to be somewhere between 8% to 9% also going-forward. And it’s naturally nominal will go up because we are going to sales, and this is allowing us to invest in the biologics. It’s allow us to invest in our products with our partners [Technical Issues] and we need to do some clinical trials and of course very important on the genetic R&D especially focusing on products with [Technical Issues] products that likely to have less competition.

Damayanti Kerai — HSBC — Analyst

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

Operator

Thank you. Yeah, the next question from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America — Analyst

Thanks for taking my question, sir, on the ROW markets historically, if I exclude the last year because of COVID impact, we have grown that market, north of 20% or 25%. As we go-forward should we see the ROW market going back to those levels of growth and this is excluding Russia?

That’s my first question and second, on the India business, could you quantify the divestment income in the current quarter and excluding that how should we look at growth? Is there more divestment that we see from the India perspective or do you think this is the base on which we should grow. And do you think you can grow in-line with the market in India?

Erez Israeli — Chief Executive Officer

Hi Neha. On the ROW question, yes, the answer is yes, we are aiming for our traditional growth and also give or take without guidance that range of growth that we saw and indeed, when you are taking out all the one-offs and the fluctuation of currency we are growing very-very nicely. This is where primarily as we are accelerating the — the development and the filings of [Technical Issues] that in all these markets and also focusing on our footprint, especially on the hospital business. So yes, the answer we will be [Technical Issues] and — and in some of those marketing accelerated growth versus the past.

As for India, the divestment was INR264 crores. And that’s the value we got. Specifically, if we see more, yeah, from time-to-time, but nothing significant that we are going and what we also very busy with these actually to bring more-and-more products and we are enhancing the collaboration discussions and the BD deals that will — will be for India. So, it’s a kind organic plus inorganic, but most of the inorganic would come from collaboration. That has been a kind M&A acquisitions of other companies.

Neha Manpuria — Bank of America — Analyst

And just extending the question, do you think we can grow in-line with the market, keeping aside the collaborations, etc., because that would take time to reflect a number just from the effort that we’ve been putting in the business over the last few years. Could we see these go back to or at least try to get-in line with IBM Group?

Erez Israeli — Chief Executive Officer

We believe that we should be better than [Technical Issues].

Neha Manpuria — Bank of America — Analyst

In FY ’24 itself?

Erez Israeli — Chief Executive Officer

In FY ’24 and after.

Neha Manpuria — Bank of America — Analyst

Understood. And one last question if I may on the Russia business I didn’t quite catch what you mentioned in the quarter, was there any specific impact from channel inventory being cleared in the quarter. I’m not sure what you mentioned?

Erez Israeli — Chief Executive Officer

No, no, in this business, this is impossible.

G V Prasad — Co-Chairman and Managing Director

So, Neha that impact is actually in the base. If you remember when the conflict started, at that time there was up-stocking and to that extent in Q4 same time last year, the base was high and that’s impacting the year-on-year growth.

Neha Manpuria — Bank of America — Analyst

Okay, there nothing specifically in this quarter.

Erez Israeli — Chief Executive Officer

Yeah, so nothing specific happened in this quarter and most of the sequential decline stuff it’s primarily timing of products. There is a specific timing of tenders of the biologic products and the stuff like that, so. We can sell that in Russia’s business usual.

Neha Manpuria — Bank of America — Analyst

Got it. Thank you so much.

Operator

Thank you. The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.

Ankush Mahajan — Axis Securities — Analyst

Thanks for opportunity, sir. So, my question is [Indecipherable] element that has — incremental revenue for U.S. business. So could you throw some light on it. What is the sustainability run-rate for this molecule in the upcoming quarters. And excluding [Indecipherable], how do you see the EBITDA margins for U.S. business?

Erez Israeli — Chief Executive Officer

So, on the product itself and it’s going to continue to be a meaningful [Indecipherable] product may fluctuate from quarter-to-quarter, but it is going to be there probably for the entire agreement timelines. The fluctuation is primarily patterns of older than as you know, it’s a limited volume arrangement and — and we believe that it will serve us well to the entirety of the agreement.

As for the — the activities outside of it, it’s going to continue to grow. I mentioned in previous discussions all-the-time we have products that have less competition than others. Naturally, this product is bigger than the others, but slightly, because in the future we are going to see products like this. And that’s what we are also focusing on and so the profitability, as well as the growth of our U.S. markets will continue to be in the same range also in years to come and quarters to come.

Ankush Mahajan — Axis Securities — Analyst

And sir, what about the EBITDA margins that we — sustainable EBITDA margins?

Erez Israeli — Chief Executive Officer

Like I mentioned, we going to sustain the 25-25 on the long-term basis, we are not guiding for EBITDA for market, as you know, but — and from time-to-time will be more than that. And there will be many times about — above this, so it’s a function of how much we want to put into the R&D. Likely there will be higher to the time that we will have a [Technical Issues], and the combination of low complexity in products.

Ankush Mahajan — Axis Securities — Analyst

Sir, if I do my calculations, excluding the [Technical Issues] this business is still on the lower side in terms of growth. So any strategy for the base business?

Erez Israeli — Chief Executive Officer

I don’t share business observation. Thank you, sir. Thanks so much.

Operator

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

Kunal Dhamesha — Macquarie — Analyst

Yeah, thank you for taking my question. So, the first question on strategy to leverage our U.S. Sandvik portfolio for Europe and other market. And we have seen significant growth in Europe geography over the last two-three years but in your [Technical Issues] journey, let’s say, in U.S., we have roughly around 140 and 150 products. How many products we would have already launched in Europe, how many in pipeline? And if you can throw some light there would be helpful.

Erez Israeli — Chief Executive Officer

Yeah, we decided to focus on Europe when we took the decision on the diversification, this is working well for us. And the end in terms of where are we in the journey somewhere in the beginning. And so I do see that most of the growth in Europe [Technical Issues] we are planning to launch many products in Europe in the next coming years, as well as to make move including inorganic. So we — So we see Europe as a focused market, especially around Germany. So Germany, would be the focal markets and of course, the rest of the countries in Europe. We believe we have to fulfill including biosimilar. So likely that you’ll continue to see the growth in Europe, also in the next coming years, including [Technical Issues].

Kunal Dhamesha — Macquarie — Analyst

And this leveraging of portfolio when you launch a product does it kind of become highly ROIC attractive in your view, even beyond what our aspirational target is or it helps us achieve that 25% ROIC target on a portfolio level, not in the product.

Erez Israeli — Chief Executive Officer

It’s absolutely it is and because it’s an experimental leverage. So that’s — and obviously it’s a piece in the puzzle, you’ll hopefully, still relatively small than compared to the other spaces but although the time will say getting more-and-more positive impact on the overall [Technical Issues].

Kunal Dhamesha — Macquarie — Analyst

Sure, and the second question on the CTO-1 observation. What’s the kind of nature of observation and have we submitted the response to U.S. FDA or are in the process of submitting a response. Yeah, it’s a minor observation. We will address it. And we did not submit [Technical Issues] we just posted. I think we have 15 days of [Technical Issues]. So, we will submit within time. I believe that this will grow. Sure. Thank you, and all the best.

Operator

Thank you. The next question is from the line of Madhav Marda from FII industries. Please go ahead.

Madhav Marda — FII industries — Analyst

Hi, good evening. Thank you so much for your time. Just had one question. Basically, we have accumulated a lot of free-cash flow-in recent times, and I think, have been doing some M&A activity already. Just wanted to understand given I think in general, lot of the peers have good free-cash flows and net cash balance sheets in the industry. So, when we’re looking at M&A aren’t good subsidiary aggressively bid? We’ve seen that in the past as well in the industry. So just wanted to understand that for a good asset, is it easy to get it a good IRR or how should we think about M&A opportunities, given we have a good cash burn?

Erez Israeli — Chief Executive Officer

Yes, so if you recall, it was part of our strategy to close the debts and the accumulated cash anticipating the situation, anticipating at the time, the increase in the interest-rate and inflation. So, we are now looking for opportunities. That one will, of course, fit us digitally, and second, we’ll be in good valuations will now. I think there are certain areas and certain type of products that potentially could get a good [Technical Issues] and that’s what we’re looking for.

In addition to that, we are looking for, and we are using this money, so the type of licensing in, type of boosting the portfolio also for the future. And the money will be used also for debts. We are not the type of company that is seeking what we call, transformational acquisitions, that’s unlikely that you’ll see in ourcase. But we would see in hopefully more deals than we saw in the [Technical Issues].

Madhav Marda — FII industries — Analyst

So basically, our M&A will be more bolt-ons in the time that we’ve done in recent times as well. That’s the idea?

Erez Israeli — Chief Executive Officer

Let’s call it business development, which is including licensing and with including product acquisitions, collaboration with companies of the and also M&A.

Madhav Marda — FII industries — Analyst

Got it, okay. Thank you.

Operator

Thank you. The next question is from the line of Cyndrella Thomas Carvalho from JM Financial. Please go ahead. Ms. Carvalho the line for [Speech Overlap].

Cyndrella Thomas Carvalho — JM Financial — Analyst

Thanks for the opportunity. Am I audible?

Operator

Yes, you are right. Please go ahead.

Cyndrella Thomas Carvalho — JM Financial — Analyst

Sir, just wanted to clarify this on. Sorry for asking on generic Brinzolamide [Phonetic], but is the higher volumes, reflected in this quarter or will it be reflected next quarter?

Erez Israeli — Chief Executive Officer

If you’re talking about Brinzolamide [Phonetic], we cannot share end quantity numbers. And what they said, is continuing to be meaningful to us. And — and in accordance to the agreement [Indecipherable], that we have.

Cyndrella Thomas Carvalho — JM Financial — Analyst

Okay, thank you. And on the — in your opening remark, you highlighted about the Chinese product approvals that you have received. When and where should we start reflecting these into earnings and what is your outlook here. If you can help us understand?

Erez Israeli — Chief Executive Officer

Yes, this is a reflection of the efforts that we had through the years by submitting for products — in China focused product. If we can get GA status and be one of the early entry before the market so. I think getting for approvals in less than a couple of weeks, it’s a big achievement for a company like us. What we see is we see pick-up all-the-time has a significant impact on our results. We will see [Indecipherable] over about, let’s say for starting in FY ’24, but more likely we see numbers in ’25 and ’26 fiscal as the submissions and their core and the timing of those GOP will take place, that’s what we anticipate. And right now we are in the pace of it’s product-submissions, and naturally with the cycle of the patterns in China and the timing of the GOP is. It will be more meaningful. But let’s say the strategy so-far it’s working well because it’s a level in which we have an outlet for that very-very important markets were [Technical Issues] forward.

Cyndrella Thomas Carvalho — JM Financial — Analyst

Thank you. This is helpful. And coming to the PSAI business compared to your peers, we have not seen the top-line growth. However, the gross margins have definitely improved Q-on-Q. So how should we see the outlook for this business, and we’ve been positive on growing this business such, does anything change here at this point in time or is it some seasonal impact that we have seen in this quarter, and we should start seeing growth from next fiscal onwards, like how should we read this?

Erez Israeli — Chief Executive Officer

We will see both, we will see growth, and we will see improvement of profitability. For us this — this market also in the past and excluding also in this segment, we used to record also COVID sales. So, if I’m excluding the COVID, what we saw is that time which was a decrease in prices of some old portfolio as well as increase some of the raw material. Now, we see the reverse what we see that we are launching new products and most of the sales are to more territories especially in Asia. And there we see also better mix of products, and we see an ease on the supply-chain and to a certain extent, procurement, so. So actually now I see positive momentum that is building on both growth as well as profitably.

Cyndrella Thomas Carvalho — JM Financial — Analyst

But we should see this gross margin level sustaining, that the…

Erez Israeli — Chief Executive Officer

I hope that it will even enhance, not just sustain for sure, but we are aiming for enhancing.

Cyndrella Thomas Carvalho — JM Financial — Analyst

And the top-line, any number that you would like to share like all the double digits, and the triple digits, anything. Any color would be helpful?

Erez Israeli — Chief Executive Officer

No, we are aiming for double-digit, we are not guiding, but we are aiming double-digit for all of our markets including our [Indecipherable]

Cyndrella Thomas Carvalho — JM Financial — Analyst

Thank you so much. I will return back to queue.

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, again on North America sales given that FY ’23 had certain strength related exclusivity as well or generic Revlimid and competition to some extent kicking-in the — in the coming quarters. So, considering this aspect just would like to understand we still grow in FY ’24 U.S. sales, North-America sales?

Erez Israeli — Chief Executive Officer

I believe that we will grow not just because of the product but we will go, because we are also launching 25 to 30 products. And the combination of all this mix should go up. Okay sir, thank you.

Operator

Thank you. The next question is from the line of Ashish Yash [Phonetic], IIFL Asset Management. Please go ahead.

Ashish Yash — IIFL Asset Management — Analyst

Yeah, thanks for the opportunity. So, I had this question, since we have been mentioning this 25% EBITDA margin guidance. But if we just try to strip out some one-time big opportunities and say some one-off non-recurring items, the EBITDA margins on the core business seem to be lower versus what we were earlier guiding for. Just if you could help us understand for FY ’24, as we go into FY ’24 would you like to provide some color as to, directionally what we, as investors, can expect?

Erez Israeli — Chief Executive Officer

First, I don’t share the observation that is less than what we guide, so. So that’s a starting point and we are mainly to clarify. We will maintain in the 25-25 message on the long-term basis in which we will allow us both to grow you great return on the shareholders as well as the finance the future. And the — what you see is that we are building bigger and better portfolio as time goes by and the class — the balance sheet is probably the best-ever, in terms of both cash-flow as well as no — no additional substantial risk in the balance sheet. So, this is of course, allowing us to much better also, utilization of the working capital. So, this will allow us, a better ROCE also in the future.

Ashish Yash — IIFL Asset Management — Analyst

Yeah, fair enough. Sir, lastly, on this India business. You did mention that FY ’24 or you expect to beat the IPM growth. And we have been acquiring assets those trying to strengthen our portfolio. What gives you the confidence that FY ’24 we can beat the industry growth? So just wanted to have some understanding on that.

Erez Israeli — Chief Executive Officer

I’m confident that we will do it, and we need to recall that [Indecipherable]. I know that we are looking at external sources like IQVIA [Phonetic], etc. But the most important for me is what is our bottom-line growth. And that should be very healthy. So the answer is that I am confident, and I believe that we will grow the bottom-line even faster than we will grow the top line.

Ashish Yash — IIFL Asset Management — Analyst

Okay, fair enough. Thanks, all the best.

Operator

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

Nitin Agarwal — DAM Capital Advisors — Analyst

Thanks for taking my question. It is on the main portfolio that we acquired in the U.S, can you help give us some more color on what opportunities do you see in that portfolio in terms of to grow the portfolio from the current size?

Erez Israeli — Chief Executive Officer

Yes, say. It’s a portfolio that has certain level let’s say, lower level of competition, especially in women health. We are — it’s allowed us to get back to an open end, something that was missing for us towards the years. And it’s also — if there were many products in the pipeline that Mayne did not launch and something that we’ll be able to do in the future. So, if you issue, have people impact one, we believe that we can do well with these products. Second, we will be able to launch product and sales, we can launch some of these products in other markets. Relatively, the economy of the deal is relatively attractive for us. So, we are very pleased so-far with the progress of the main acquisition.

Nitin Agarwal — DAM Capital Advisors — Analyst

Right, so I think it’s fair to assume, given the new product launches that you have opportunities that you have you see possibilities for growing the business off of where we acquired it.

Erez Israeli — Chief Executive Officer

That’s what we are aiming to, yeah.

Nitin Agarwal — DAM Capital Advisors — Analyst

And from a profitability perspective is this is a business which is higher than our corporate profitability right now?

Erez Israeli — Chief Executive Officer

I don’t I cannot share information about the specific profitability of products. But we believe that the nature of the products and the mix of the products that have less competition is always available versus those with a high-level of competition. This is the nature of this [Technical Issues].

Nitin Agarwal — DAM Capital Advisors — Analyst

And besides [Technical Issues] I can assume that you made-for this investment that you made, the U.S. generics, do we still are open to keep investing more money in U.S. generics by way of acquisition or this is more of a one of a special case transaction which came our way?

Erez Israeli — Chief Executive Officer

We are we will continue to look for opportunities in the U.S. market, including genetics if it will fit to the financials and the and if it will be complementary to what we do. So, we will continue to look for opportunities, both organic and inorganic in the U.S. not just now, also in the future. It is a very important market for.

Nitin Agarwal — DAM Capital Advisors — Analyst

Okay sir, 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

Yeah, hi, good evening. Thanks for the opportunity. Just if I heard that right. Just wanted to reconfirm that you mentioned that you expect double-digit growth from across markets including the U.S., would that be correct?

Erez Israeli — Chief Executive Officer

I do note this is every quarter and not necessarily all-the-time, but absolutely this is the long-term [Technical Issues] for us, including in the — absolutely, that’s what we are aiming also in the short-term, but I cannot but I must say that this will happen every quarter, and [Technical Issues] maybe the situation.

Prakash Agarwal — Axis Capital — Analyst

So sir, I speak for fiscal ’24, specifically, sir.

Erez Israeli — Chief Executive Officer

Specifically, that’s what we are aiming. We are aiming for double-digit growth.

Prakash Agarwal — Axis Capital — Analyst

And with excluding the acquisition with the base portfolio and some one-offs it is possible as what you see.

Erez Israeli — Chief Executive Officer

I believe that it is possible.

Prakash Agarwal — Axis Capital — Analyst

Okay, okay. That is helpful. And just a follow-up on this, the U.S. generic market, many companies have been talking about, while price erosion remains more or less similar. There is lot of volume opportunities that is coming. New business opportunities, etc. So would you say that we would have also got these in the last three, six months given there some U.S. FDA issues with the peer set?

Erez Israeli — Chief Executive Officer

I’m not sure I understand the FDA comments. Can you clarify that?

Prakash Agarwal — Axis Capital — Analyst

Yeah, so what we hear from some of the peers is that we are getting some volume opportunities like, new business opportunities and MBOs where they need to supply a few of the products where earlier they were not contracted largely due to the U.S. FDA issued by the peers. So are we getting some volume-based opportunities to supply in the U.S. market.

Erez Israeli — Chief Executive Officer

We do from time-to-time. I would — I’m not considering it as strategic issue, but we do from time-to-time ahead of this situation. So give or take, if I say correctly about 10% to 15% of the SKU in the United States in some a shortage from all kinds of reasons, not just the FDA. But all kinds of [Indecipherable] and in those situation, you are always in a [Technical Issues]. It’s a one-time buy and stuff like that.

Prakash Agarwal — Axis Capital — Analyst

And would you — have you seen anything incremental in the last quarter, is what I’m trying to get some color on? Given we have seen some large companies having [Technical Issues].

Erez Israeli — Chief Executive Officer

Yeah, so nothing that I see as strategic. We are not building ourself [Technical Issues] of others there. We are trying to build ourselves with our own capabilities.

Prakash Agarwal — Axis Capital — Analyst

Fair enough, fair enough. And lastly on the run-rate that we see in the past, it was 225 million and then it came back, the base business side, 250 and then we saw some, big — big jumps and now things are normalizing and you still maintain it is going to be volatile, but materials and I also understand that market-share of REVLIMID it changes by increases every 6 to 12 months, or maybe calendar year.

So would it be fair to say that with the new launches that you spoke about and REVLIMID continuing and this is in addition to the first question. So that is the key to grow double-digit. Would that be a fair assessment that on that REVLIMID base also you will grow?

Erez Israeli — Chief Executive Officer

The growth in the United States will be from new products as well as volume from other product as well as better costing. It is all of that will contribute absolutely. But I cannot guide you on with and without this kind stuff. I will not be able to do this.

Prakash Agarwal — Axis Capital — Analyst

Okay, okay, lovely. And lastly, on the while you spoke about growth across markets, would you say that this kind launch and product visibility across markets. These kind margins could be sustainable?

Erez Israeli — Chief Executive Officer

Yes, I believe so. I believe that’s why we are guiding for the 25 – 25, which will enable us even to finance always into. So, if you recall, we said that about 50 to 100 basis-points on the Horizon-2 and we are able to cater this within the margins. So and the — so we are very strategically positioned well, that we are able to finance our future and at the same time to provide this margins in our to the shareholders.

Prakash Agarwal — Axis Capital — Analyst

No, but we are doing better than what we are guiding right, that’s what I’m asking. Will we able to continue with this kind of performance?

Erez Israeli — Chief Executive Officer

Now we are doing better and — and maybe there will be also a period of time, this will be not better. But right now we are doing better.

Prakash Agarwal — Axis Capital — Analyst

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

Erez Israeli — Chief Executive Officer

Thank you.

Operator

We will take that as the last question for today. Ladies and gentlemen. I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you ma’am.

Richa Periwal — Investor Relations

Thank you. Thank you, everyone for joining us today for the earnings call. For any further queries, please reach-out to the Investor Relations team. Thank you. Have a great day.

Operator

[Operator Closing Remarks]