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Gland Pharma Limited (GLAND) Q2 FY23 Earnings Concall Transcript

Gland Pharma Limited (NSE:GLAND) Q2 FY23 Earnings Concall dated Oct. 26, 2022

Corporate Participants:

Sumanta Bajpayee — Vice President, Corporate Finance and Investor Relations

Srinivas Sadu — Managing Director & Chief Executive Officer

Ravi Shekhar Mitra — Chief Financial Officer

Analysts:

Neha Manpuria — Bank of America — Analyst

Dheeresh Pathak — White Oak Capital — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Ritesh Rathod — Nippon India — Analyst

Prakash Agarwal — Axis Capital — Analyst

Kartik Mehta — Klay Capital — Analyst

Rakesh Naidu — Motilal Oswal Asset Management — Analyst

Saion Mukherjee — Nomura — Analyst

Tarun Shetty — Haitong Securities — Analyst

Anand Venugopal — BMSPL — Analyst

Prashant Nair — Ambit Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Gland Pharma Limited Q2 FY ’23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. And 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’ll now hand the conference over to Mr. Sumanta Bajpayee from Gland Pharma Limited. Thank you. And, over to you, sir.

Sumanta Bajpayee — Vice President Corporate Finance and Investor Relations

Thank you, Faizan [ph]. Good evening and warm welcome to Gland Pharma’s earnings conference call for financial year ’23. I have with me Mr. Srinivas Sadu, MD and CEO; Mr. Ravi Shekhar Mitra, CFO to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview by Mr. Sadu, followed by financial overview by Mr. Mitra. After opening remarks from the management, operator will open the bridge for Q&A session.

Before we proceed with the call, please note some of the statement made in todays discussion may be forward-looking and based on management estimates. And this might be viewed in conjunction with the risks and uncertainties involved in our business. The Safe Harbor language contained in our press release also pertains to this conference call. This call is being recorded and the playback of the call shall be made available in our website shortly after the call. The transcript of the call will be submitted to the stock exchanges and will be uploaded in our website.

I will now hand over the call to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr.Sadu.

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for the second quarter of fiscal 2023. My best wishes to all our shareholders, analysts and their families.

Last quarter saw heightened economic uncertainty globally. After a tough start to the year, while we continue to see some supply chain disruptions and long lead times for several processing and raw [ph] materials, we saw improvement in the supply in the second half of this quarter and have much better visibility on our key material supplies.

Our efforts on [[ease with the supply chain by qualifying additional vendors and additional lines for manufacturing are also starting to show result. Commercial production (inaudible) started during the second half of the quarter. I’m pleased to announced that our new offices in US and Singapore are now operational. This expansion is aimed at strengthening existing customer relationships, forming new partnerships in target market to drive growth, while aligning our internal product pipeline strategy with our customer’s feedback and also help us mitigating some of the supply chain disruptions in the future. This initiative will also allow us expand partnerships to accelerate our entry into the biology and biosimilar CDMO space.

We had our first digital USFDA pre-approved inspection audit since COVID outbreak between 22nd August to 25th August (inaudible). We received one observation from the audit and our teams have already responded to the observation. I am satisfied with the preparedness of our teams across all our sites that any regulatory audit.

We closed this quarter Q2 FY ’23 with a revenue of INR10,444 million as against INR10,805 million in Q2 FY ’22, and our PAT stood at INR2,412 million for the quarter against INR3,021 million in Q2 FY ’22. We have generated INR627 million of cash flow from operations in Q2 FY ’23. The delay in retail supply impacted volumes for certain products and we observed the impact from price erosion which come off our recent branches.

Our robust business model gives us the flexibility to onboard multiple customers for single molecule, which is helping us maintain strong market shares in key molecules. Our strength of handling manufacturing of high volume impactful products and compliance track record has enabled us to standout from competition. We managed around six products SKUs during the quarter. We think that (inaudible) and Bortezomib in the European market. We have launched other products including Oxaliplatin in the Canadian market.

We continue to make investments in R&D and were able to complete six ANDA filings during Q2 FY ’23 in line with our plan. The filings will further accelerate in the second half of the fiscal year. We are receiving encouraging feedback from China. It will help us increase our pace of China filings as well over the next year. During Q2 FY ’23, upon excluding capital R&D expenditure, the R&D expenditure stands at 3.8% of our revenue for the period, in line with our historical trend.

As of 30th September 2022, we along with our partners have 322 ANDA filings in the US, and 1,586 product registrations globally. We have one project on senior executives In the quarter to strengthen our planned operations and human resources functions. We have further (inaudible) to strengthen our biotech manufacturing capabilities.

Let me summarize our performance across various geographies. Our research driven markets accounted for 21% of our Q2 FY ’23 revenue, similar to the contribution in Q2 FY ’22. The vacant supply timelines have improved and we have better visibility now. We are building inventory to support the demand. We used our products Ethacrynate, Ganciclovir and Labetalol in new geographies during the quarter.

Our key markets continue to remain MENA, LATAM and APAC. Our core markets namely US, Canada, Europe and Australia accounted for 72% of revenue during Q2 FY ’23 as against 67% [ph] during Q2 FY ’22. We continue to focus on building a niche portfolio in our core markets. Although we have seen increased competition in our new products, we remain confident of our launch pipeline that will ensure sustainable growth in the market.

India market accounted for 7% of Q2 FY ’23 revenue. (inaudible) in the second half of the quarter, the sales for Q2 FY ’23 were lower when compared to Q2 FY ’22 on account of absence of COVID related products sale. In Q3 costs [ph] in addition to supply chain disruptions have not only impacted our availibility to compete in RoW and India business, but also contributed negative EBITDA [ph] margin. (inaudible) supplies will help us negate some this impact in the coming quarters.

Sustainable growth has been our focus. We’re monitoring guiding and impacted valuations closely and we continue to use this to advantage (inaudible) for inorganic opportunities. On the geographic growth, China remains a key geographic focus and we expect to start receiving approvals through the current year.

On the portfolio front, we expect progress on the complex filings in the current fiscal and have completed installation of manufacturing lines for suspensions and hormonals.

On the biosimilar CDMO business, we have completed several customer visits during H1 FY ’23 and some of those have moved to the stage of commercial negotiation. We signed up for preclinical batch (inaudible) and discussing on a (inaudible) permissions as well. (inaudible) momentum we see in the biology, biosimilar CDMO space.

With this, I wish everyone good health. I would like to now hand over the call to our CFO, Mr. Ravi Mitra to share details about our financial performance for the quarter. Thank you. Over to you, Mr. Mitra.

Ravi Shekhar Mitra — Chief Financial Officer

Thank you, Mr. Sadu. Good evening, everyone. Thank you very much for attending our second quarter earnings call. Our earnings presentation has been submitted to the stock exchanges and is also available on our website.

Let me begin with sharing the financial performance of second quarter and first half of financial year ’22-’23. Revenue from operations for the quarter FY ’23 stood at INR10,444 million, a reduction of 3% on year-on-year basis. We have seen revenues from core markets, and RoW market has come back to normalcy and in line with the second quarter of previous year.

We have witnessed 22% increase in revenue as compared to previous quarter. Revenue from operations for the first six months of fiscal ’23 stood at INR19,013 million, a year-on-year decrease of 15% due to various reasons impacting first quarter of current fiscal year. Other income for the second quarter was INR656 million, which includes interest on fixed deposit of INR468 million and foreign exchange gains on operations INR181 million. For the H1 FY ’23, the other income was INR1,400 million, of which interest on fixed deposit of INR844 million, and foreign exchange gains on operation of INR523 million.

Gross margin of the company remain stable in both Q2 and H1 as compared to the same period of previous financial year, but reduced quarter-on-quarter sequentially largely due to change in geography mix and product mix.

We have reported an EBITDA of INR3,625 million in Q2 FY ’23 compared to INR4,278 million, which is a decrease of 15% compared to same period last financial year. EBITDA margin for Q2 FY ’22 stood at 33% as compared to 38% of the same period of previous financial year. Increased operating expenses such as higher logistic cost due to use of air shipments and certain one-time expenses impacted EBITDA margin of the company during the quarter. With normalization of inventory of certain critical items, we expect freight to come down with more sea shipments going forward.

During the first half of the year, we managed to maintain similar gross margin, but EBITDA margin reduced due to higher power cost, employee costs on account of increased headcount for biologic and biosimilar CDMO facility, new commercial lines (inaudible) and other operating expenses. EBITDA for the six months ended September 2022 was INR7,068 million compared to INR9,259 million for the same period last year. We have reported EBITDA margin for H1 at 35%.

Our net profit for the second quarter decreased by 20% and stood at INR2,412 million compared to Q2 FY ’22. During the quarter, we have recorded PAT margin of 22%. During the six months period of the current financial year our PAT was INR4,704 million at 23% margin.

The total revenue R&D expenses for the second quarter was INR394 million and stands at 3.8% of revenue, as against INR362 million or 3.3% of revenue, and year-on-year growth of 9%. The total revenue R&D expenses for the six months period was INR743 million. It is 3.9% of our revenue. Our effective tax rate remains at about 26% in the second quarter and for the first half of the current financial year.

Cash flow from operations during the six months period was INR3,956 million. Working capital increased and stood at INR21,436 million as on 30th September 2022 as compared to INR20,217 million as on 31st March 2022 due to increase in inventory levels. Average cash conversion cycle stood at 231 days for the six months ending September 2022 as compared to 198 days on a same period last financial year. The increased receivable and inventory days has pushed up the overall cash conversion cycle.

Total CapEx incurred during the six months was INR825 million, used for increasing capacity at our Pashamylaram and Vizag API facility and for routine maintenance CapEx.

Our ROC on ex cash basis was at 21% on an annualized basis for the six months period of this fiscal year. Our fixed asset turnover stood at 2.4 times for H1 FY ’23, decreased from 3.4 times for the same period last year. As on September 2022, we had total INR38,200 million of cash and bank balance, which we intend to utilize for the CapEx spend and to fund our inorganic growth strategies.

With this, I would request the moderator to open the lines for questions. Thank you.

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 Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America — Analyst

Yeah. Thanks for taking my question. My first question is on the US numbers that you reported in this quarter. It seems that overall the sales were pretty much flat. And you mentioned in your opening remarks that we have seen competition in some of the recent launches. So could you give us some color on what’s the pricing pressure that you are seeing there? And how should we look at growth in this business as we go forward? Thank you.

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yeah. Good evening, Neha. If you compare to last year, I think it remains flat. I mean, you’re absolutely (inaudible) they were sales which are co-related. That kind of gone down. From the pricing pressure perspective, if you look at our gross margin, still they’re intact. So I think the EBITDA margin and that is most on the cost side which has impacted the bottom line.

So from growth perspective, we have launched seven products last quarter. We’re planning to launch 11 products in next quarter as well. I think it’s depending on the size of the molecules which quarter it gets launched that’s where the growth comes from. So we have not committed any numbers right now, but the — rather (inaudible) and in terms of filing and approvals there. And we think it’s (inaudible).

Neha Manpuria — Bank of America — Analyst

Mr. Sadu, looking at the numbers on a quarter-on-quarter basis given that you have launched product in the US, we haven’t seen as much growth in the US market. And you commented there was not too much price erosion. Shouldn’t we have seen more growth in the US given we have launched a couple of products, good products in the last two or three quarters? I am not looking so much on year-on-year basis but on a quarter-on-quarter basis.

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So some of the product for sure in a developed competition we couldn’t get to those volumes what we estimated, especially the oncology products like, Pemetrexed and Bortezomib. This didn’t contribute because of too many players. And then — and that’s why we couldn’t show growth in that. But the other products what we launched still have given some volumes but they are not larger products.

So I would say I think whenever a product launches happen also considerably lower (inaudible) look at annual basis. So if you look at last year, we launched 32 products on an annual basis. So next quarter we have few more product launches coming up.

Neha Manpuria — Bank of America — Analyst

So you should go on the existing days that we had USA, INR45 million business we have in the US. So that assumption will be correct?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

That’s correct, yes.

Neha Manpuria — Bank of America — Analyst

Okay. And my second question will be our return to market. You seem to have gone back to the levels that would we last year. So is this fair to assume that this is a sustainable number and there is no one-off in this? And as we get additions, vendors (inaudible) et cetera, again, there should be growth on the RoW business from this base in the second half?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So, the issue order business RoW and Indian business is because of the disruptions most of it they’ve airlifted last few quarters. And that is what’s putting pressure on our margins and also the ability to compete. So unless that stabilizes and we value the market is earlier comment. But at least, once the cost settles down I think we have an opportunity to go and (inaudible).

Neha Manpuria — Bank of America — Analyst

But there is a one-off, so currently is that assumption right?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

No, there is no one-off.

Neha Manpuria — Bank of America — Analyst

All right, understood. Thank you so much.

Operator

Thank you. The next question is from the line of Dheeresh from White Oak Capital. Please go ahead.

Dheeresh Pathak — White Oak Capital — Analyst

Thank you for the opportunity, sir. So I wanted to know profit share (inaudible) for the quarter?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Profit share.

Ravi Shekhar Mitra — Chief Financial Officer

7%.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. New — share of new launches for the quarter? Revenue from new launches?

Ravi Shekhar Mitra — Chief Financial Officer

0.3%. [ph]

Dheeresh Pathak — White Oak Capital — Analyst

3% [ph]. India sales, I know last quarter very — I don’t remember correctly. But (inaudible) for INR100 crore run rate in India business, so it is slightly lower. Any particular reason?

Ravi Shekhar Mitra — Chief Financial Officer

So India business, it has been (inaudible) that, like I said, the import costs have not helped us so the margins are pretty low. So we were not able to compete in the domestic market. The combination of the dollar going (inaudible) business costs us. And also the importing costs have gone up. That’s one. And the other is the incident (inaudible) gives us the (inaudible) for domestic business. That got started off later this quarter. So this quarter we — now running around INR25 crores to INR30 crores a quarter (Technical Difficulty) which is in second half of this quarter.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. And the US is also like given the exclusivity we have on things like freight [ph] and then there was the net (inaudible) of supply both for shopper [ph] as well as for ranges. I was expecting a slightly better number sequentially based on the commentary from last quarter. So the current US sales, is it as per expectation or your tracking below your original expectation for this quarter?

Ravi Shekhar Mitra — Chief Financial Officer

So the (inaudible) 100% is not done. The range is there. They are good. But still the shopper [ph] opportunity is still not great. We are getting expansion, so (inaudible). Even some bad (inaudible) happened only 50% of the time because of some shortage issues. So still I think the impact of the supply is (inaudible).

Dheeresh Pathak — White Oak Capital — Analyst

Do you want to quantify as how much sales you would have then (inaudible) in US?

Ravi Shekhar Mitra — Chief Financial Officer

I don’t want to quantify that. But I would say (inaudible) half probably quarter.

Dheeresh Pathak — White Oak Capital — Analyst

Half in the quarter. Okay. And margin also, gross margin also, there is some deterioration in sales, although the mix is not very different and India you are saying is not good the overall margin business. So you should speak year-over-year compared to the revenue bucket the US has and the rest of the world (inaudible). There seems to be some compression in gross margin. So is that related to competitive pressure?

Ravi Shekhar Mitra — Chief Financial Officer

First of all, gross margin there I think US we are pretty much stable compared to last year. So first quarter was exception.

Dheeresh Pathak — White Oak Capital — Analyst

No. I am comparing September ’21 to September ’22 quarter and I am seeing the revenue mix in various geographies (inaudible) gross margin (inaudible). I am seeing some compression in gross margin by about 120 bps. Is that because of US pricing pressure because there if you see actually revenue in terms of what we did it like INR750 crores in regulated markets, INR230 crores in rest of the world? We’re just seeing the year-over-year, so there is still some compression. Is it because of lower profit sharing you had this quarter (inaudible) to do with some markets having more of a competitive pricing pressure?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Actually, if you look at the Q2 FY ’22 to Q2 FY ’23, the US market margin has actually gone up — contribution margin 57%, 58%. From Q1 FY ’23 to Q2 FY ’23, it has gone down (inaudible). So basically its flat for — so almost like similar (inaudible) for that market. I think maybe a lost margin (inaudible) than Canada (inaudible) where they’ve gone down from almost 88% we are having a larger margin (inaudible) in Canada. (inaudible)

Dheeresh Pathak — White Oak Capital — Analyst

And (inaudible).

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

For the quarter is about INR78 crores so gross 2%.

Dheeresh Pathak — White Oak Capital — Analyst

(inaudible) Okay. (inaudible) you want to come out in terms of margin contribution margin (inaudible)?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

In fact the rest of the core market did better or flat. So rest of the world market has gone down in terms of margin. If you look at on margin and (inaudible) they have gone down to (inaudible). And that’s mostly because of the import cost and (inaudible).

Dheeresh Pathak — White Oak Capital — Analyst

Why are we not able to pass it on because other (inaudible) facing similar. Should we invest in any (inaudible) in the rest of the world and Indian market. Most of it (inaudible). And so there is actually once that enter contribution margin also the freight cost comes below the contribution margin. (inaudible) So that also impacted all other margins.

Ravi Shekhar Mitra — Chief Financial Officer

And so Dheeresh just to add to what Mr. Sadu is talking about is that, this also includes the gross (inaudible) largely 50%, 52% similarly into (inaudible) orders. Q1 was (inaudible). But this time we’re also — based on the discussion we were having with several customers on the (inaudible) project. So we have taken a one-time inventory that about INR7 crores, INR8 crores largely Indian facility. This is how the redriving part and will be required going projects different contracts we are working on.

So this (inaudible) is about 0.7% 0.8% and run-off in nature. This will impact our gross margin. We don’t have any EBITDA margin the one-time some (inaudible) of course, M&A cost is about INR4 crores this quarter. And we had (inaudible) employee also for the (inaudible) business and (inaudible) cost is also very — about — yeah, (inaudible). So this is also impacting our margin but once the revenue starts coming (inaudible).

Operator

Thank you. Mr. Dheeresh, (inaudible) please return to the question queue for follow-up questions. We’ll take the next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Thank you so much. And very good evening to everyone. Sir, just couple of points I wanted to share from our discussion in the previous Q1 con call. If my memory is right, (inaudible) right and you already mentioned that for the balance nine months that you would grow 20% on — 18% to 20% on a top line. This quarter you were more than slightly up 3%, so I just wanted to check on that.

And second I think you had guided on the margins (inaudible). It will maintain Q1 margin, operating margin to 31.5% and you (inaudible) for FY ’20 to ’25. So down 300 basis point. So if you can just clarify on these two points.

Ravi Shekhar Mitra — Chief Financial Officer

Yeah. So earning from the (inaudible) it happened because of the competition. That’s one. Second, as I mentioned previous question some recession (inaudible). So that is help grow the business.

From a margin perspective, I can certainly say there are like one-off items which has impacted the margin about close to 1% on (inaudible). So again 1.5% to 1.8% has gone from this. If you add that, it will be close to 33.5% something.

Sameer Baisiwala — Morgan Stanley — Analyst

Sure. Sir, I mean, the number should grow total because of the sales pace of INR1,000 crores to miss the 20% growth is like missing INR200 crores. That’s a big mess. So I am just wondering what happened within three months. And what’s the outlook for the second half both on the sales as well as margins?

Ravi Shekhar Mitra — Chief Financial Officer

So we don’t — guidance, because there is still — market is still volatile. And from (inaudible) perspective, I would say, one side, (inaudible), start later in the quarter. And the session in guidelines actually has some delay (inaudible) situations. Now it has also gone capacity. And for September as far as (inaudible) that didn’t happen. (inaudible)

Sameer Baisiwala — Morgan Stanley — Analyst

Sir if you can just — I don’t want numbers. But how do we model second half going into fiscal ’24? If you can just help us qualitatively how you see business panning out?

Operator

This is the operator.

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Hello.

Operator

Sir, we’re not able to hear any audio.

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yeah, sorry. So one other aspect for (inaudible) still we said later part of the last quarter. So that also impacted. So (inaudible) for us. So that’s one we’re expecting to come. So that’s (inaudible).

Moving forward, while we are focusing on growth and (inaudible) product and launching product, the market is so volatile and the supplies are not get 100% in line with our plan, it’s very difficult to estimate the year-end growth. And it’s difficult to comment on future growth. Our business plan is a short tenure. While we are still in a situation and want to have a better visibility of (inaudible). And we have clearly everything in terms of the growing this business, (inaudible) business and also (inaudible), while working on (inaudible) CDMO side of the business. Now there we have added capacities in — new capacities in the line I think which will increase in cost and manpower because we (inaudible) to get the lines on track last quarter. So there I guess we’re pursuing (inaudible) business on those plans. So this should have a — to some revenues coming in actually (inaudible) I think once if I found visibility in the US growth.

As of now, we (inaudible).

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. That’s fine, sir. Thank you very much.

Operator

Thank you. The next question is from the line of Ritesh Rathod from Nippon India. Please go head.

Ritesh Rathod — Nippon India — Analyst

Yes. Sir, can you give your outlook on the margin? I think last quarter you spoke about some (inaudible) margin excluding (inaudible). So is that intact or given you expect partly this whole margin continue to enter into one-off or (inaudible) that needs to be downgrade?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So if you look at the quarter, (inaudible) 28.5% and if you add the one-time expenses of write off (inaudible) it will come down to the 30.5%, close to 31%. So like I guided there on that range, this one apart from cost basis. That will if the revenue change (inaudible).

Ritesh Rathod — Nippon India — Analyst

And sir on the supply disruptions it will be of course robust. Has availability improved and you are confident of things coming back by November, December end? Or that has deteriorated further and (inaudible).

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

(inaudible) there are two things we are doing, right? Now just focus other aspects (inaudible) cost while having extra suppliers wasn’t (inaudible).

In terms of (inaudible), which is a key product waited on supply. They have provided alternate supply. So we (inaudible) this quarter. We are seeking approval and (inaudible). In meanwhile we are getting some — not 100% data rely, but we are getting in (inaudible) so some part we are getting in November. Probably next one quarter which is first quarter on (inaudible) which would normalize in accommodation of what we have approved is (inaudible) today and also the new (inaudible).

Ritesh Rathod — Nippon India — Analyst

And last one is 500 employee addition (inaudible) what you are planning to do? What — is there some visibility in terms of order backlog order book (inaudible) or more medium (inaudible).

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So if you look at the capacity utilization, (inaudible) actually I mean almost like (inaudible) capacity. And we are not able to take up new orders. And you know these are the installations have kind of pushed out. So these are one-time as far as (inaudible). They’re also planning (inaudible) for essential products. So currently we’re taking lot of R&D prices on that because we have (inaudible) as well due in next four months.

So once the (inaudible) production. So that will bring the revenue to the domestic (inaudible). So we added manpower to that line. And also we have added (inaudible) 80% capacity for this line. The contracts they cater to each and other ones especially on the CMO side, so we can actually get as 50% of contracts. So these three lines will come on track in the next quarter.

So (inaudible) we had commercial capacity, we had. And we’re also investing CapEx on guideline section because (inaudible) in order to do (inaudible) what we have in the US. So we are still guiding to other (inaudible) land for that as well.

From Vizag (inaudible) we have added one more line, so that’s coming on track. So that will again (inaudible) we can leverage that to get more (inaudible). So these are more kind of growth drivers (inaudible).

Ritesh Rathod — Nippon India — Analyst

Okay. Thank you. Thanks so much.

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. Thanks for the opportunity. The first question is, are there any or more of a clarification. In your presentation you have talked about (inaudible) especially for RoW and qualification of alternate supply is in progress. So — and also it is going to take one, two more quarters to more (inaudible) or we are done with it and from the next quarter we are starting to (inaudible)?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So, RoW now has actually come back to normal, normalcy in terms of synergies we feel reach to us. (inaudible) also we have a increase on that and how we should accompany in the market. So it should come back now. In terms of (inaudible) we don’t have issue. We also have alternate suppliers for that. And they are always having supply (inaudible).

Prakash Agarwal — Axis Capital — Analyst

So these qualified alternate suppliers which is other than the — in what should we understand by that? Because last quarter you said it will take a couple of quarters to get qualifications. So are we done that qualification yet?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yeah, its already done and they are already (inaudible).

Prakash Agarwal — Axis Capital — Analyst

Okay. And for the US in the past you said that because RoW having same qualifications, you are using RoW supplies (inaudible) in US. So now with RoW will (inaudible) and US you do see there is any shortage. Is this more related to timing of (inaudible) as well as portfolio (inaudible). Nothing related to shortage apart from the stopper issue. Is that a fair assessment [ph]?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yes. Stopper issue (inaudible) and we have three or four other products where we have tubing and filter issues. There we have find alternative sources for those products. There are also issue with that where we have all (inaudible) resolved. So last one month we don’t have issues already moving forward most of the issues will be covered except the (inaudible).

Prakash Agarwal — Axis Capital — Analyst

Understood. And for that on every — early November or you are still saying it will come in batches. So maybe by Q1 of next year, China (inaudible).

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yeah. So even now we (inaudible) partial quantity. They qualified the second stopper and finally in this quarter. And I have (inaudible) approval for it was three months. So if that approval comes earlier probably next quarter (inaudible) 100% or else one more quarter we have to (inaudible).

Prakash Agarwal — Axis Capital — Analyst

And lastly all the (inaudible) is there any commentary? Last time, I think there was a collaborated inspection. And for the two last — three (inaudible) inspection. Is there any commentary on (inaudible) for inspections?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So we already had one inspection that (inaudible) within our commentary. So we had (inaudible) one-side with FDA and we got one observation study as we wanted. The other side we don’t have information on when (inaudible), so mostly its unannounced inspection, so we don’t know when.

Prakash Agarwal — Axis Capital — Analyst

But there is product related means that you are (inaudible) inspection also or is that (inaudible) related to product only and then the facility inspection is still (inaudible)?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So nowadays we are — it’s a combination of both VIP and all that. They don’t come back again. But it depends on the inspector as well. But normally, whether its (inaudible) or normal inspection they go through the site in and out.

Operator

Thank you. Mr. Agarwal, we may request you to return to question queue for follow up questions. Thank you. The next question is from the line of Kartik Mehta from Klay Capital. Please go ahead.

Kartik Mehta — Klay Capital — Analyst

Yeah, hi. I have a housekeeping question. Can you tell us what is the expense attributable to the CDMO business on the OpEx side? It would include staff, R&D, batch et cetera. Maybe secondly, if you could tell us for this quarter to be for the non revenue generating (inaudible) business?

Ravi Shekhar Mitra — Chief Financial Officer

Yeah. EBITDA is INR15 crores on the quarter without including the depreciation.

Kartik Mehta — Klay Capital — Analyst

If you would add the depreciation, would — also is it possible to qualify that? Hello?

Ravi Shekhar Mitra — Chief Financial Officer

Depreciation, another INR6 crores, INR7 crores for the quarter.

Kartik Mehta — Klay Capital — Analyst

And you spoke somewhere in the call, there you have presentation also that you are closer to commercial negotiation. Assuming everything will be charged to PL as of now including the write-offs which you earlier spoke about. So I’m not asking for a date or for the contract tenure et cetera. Is it fair to assume that in calendar year ’24 — in calendar year ’23 or your revenue stream leaseback, assuming that this explicit obviously then hurting your inventory days as you close the year to the contractual negotiations?

Ravi Shekhar Mitra — Chief Financial Officer

Yeah. The business has started to show it, how much it will cover in total cost. It’s not 100% should cover.

Kartik Mehta — Klay Capital — Analyst

I’m not asking for the real number. So US (inaudible) about INR60 crores a year at this run rate will be the cost which you will incur — I mean or are there anymore investments for particularly about EBITDA level which ones you are expecting Q3, Q4 or even in the next three, four quarters. Just operationally in terms of expense EBITDA (inaudible) if that is something that we have talk about. Thank you?

Ravi Shekhar Mitra — Chief Financial Officer

No. The overhead time actually we are all done in terms of people or utilities are consumables. So do not up the revenue side. Of course, direct material linked to that will align with the revenue also.

Kartik Mehta — Klay Capital — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Rakesh Naidu from Motilal Oswal Asset Management. Please go ahead.

Rakesh Naidu — Motilal Oswal Asset Management — Analyst

Good evening, gentlemen. Thanks for opportunity. I just wanted to have your comments on yesterday’s Moody’s downgrade. I mean how should we think about this entire scenario? And given the given the lineup of (inaudible) to offload and how does that impact (inaudible) are there any (inaudible)?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yeah so to start it, the issues that you mentioned is at international level, are promoted through pharma which is again a listed company. There is no balance sheet shrinkage or any dependency of them today. We have business relationships with Sun Pharma, for example, we sell to their subsidiary in US and other area. Last year, we did about INR180 crores, this half year we did about INR100 crores. And materially also from some of the subsidiary in China which is I think about INR200 crores. So I think other than that there is no impact in business per se and of course the (inaudible) large shareholder level, so (inaudible) our standpoint.

Rakesh Naidu — Motilal Oswal Asset Management — Analyst

That’s helpful. In Q1 next year, one of the reasons that you have highlighted for lower U.S. performance is shortages and then inventory in bounded is what you have alluded too. Now if I just looking all numbers stack up, there was (inaudible) in inventory and again there is the reason (inaudible). So how should I actually look on the (inaudible) dynamic, what exactly is playing out, is it the competitive intensity or lower occupancy for demand, what exactly is happening in the U.S. market?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yeah, sure, the competition is higher compared to earlier. But if you look at (inaudible) in fact in terms of margins. And if you look at the growth that is coming from (inaudible) also and also new products, where the de-growth was about 78% of our volumes. And these volumes is a mix of what (inaudible) and also from the demand situation for some of the products within our contact. Some of our key products have been gone back to the earlier level, we should start from this quarter or next quarter. Like I said, we were having annual contracts last year and there would be the (inaudible) in the last bidding used up, which we are still seeing from the (inaudible). So in that sense, I think it’s volume bigger which is coming back a bit, which should come back next few quarters.

Rakesh Naidu — Motilal Oswal Asset Management — Analyst

In last call, you seem more optimistic related to incremental contracts from your existing buyer and also seasonality but then now you seem to be restraining from giving us the guidance for the second half. My understanding was that you guys are limited to more package FY23. Should we have to expect that will be delivered or it is tough to take a call at this point in time?

Ravi Shekhar Mitra — Chief Financial Officer

So it’s tough tell right now, because we don’t want to comment. Like I said, while we are estimating the stuff has to come on side and leverage delay is happening, it is because of volatility and as well most of the shipments we have now and we’re making it daisy to reduce our costs. So that we will organize the data and (inaudible) Indian sales at least to keep our margins intact and profitability higher. So we keep you posted by next few months, once we get a clear visibility and (inaudible).

Rakesh Naidu — Motilal Oswal Asset Management — Analyst

Okay, so one final question if I may. The U.S. guidance per INR350 crores of CapEx per annum, we seem to be going a bit slow on that part, is there any reason or what exactly happening I think onboarding (inaudible)?

Ravi Shekhar Mitra — Chief Financial Officer

In terms of timing it is always back, because these are all unit growth indicated earlier in our project base already-approved project what is going on. It is only timing what we spend, but year-end, we will end at that number at that. For the next year, in fact, we are looking at some more additional capacity which I will explain in terms of undiluted format. So we’ll in the next analyst call quarter, I think we will update that for FY24 CapEx guidance. But FY23, we’re on track.

Rakesh Naidu — Motilal Oswal Asset Management — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of from Saion Mukherjee from Nomura. Please go ahead.

Saion Mukherjee — Nomura — Analyst

Yeah, thanks for taking my question. Sir, can you share, you mentioned profit share of 7% what is the number for the first half and also for FY22?

Ravi Shekhar Mitra — Chief Financial Officer

So six months FY22 is 8% and even FY23 it is same 8%.

Saion Mukherjee — Nomura — Analyst

Okay. And sir for income has been very high last year FY22, has that come off in the first half compared to what we closed in the previous year?

Ravi Shekhar Mitra — Chief Financial Officer

It’s almost same right, 7% last year in fact we are still at 8%, marginal revenue.

Saion Mukherjee — Nomura — Analyst

8% marginal revenue. The next question I have is on China, how many products you are buying only drug potentially I think you will be starting off your filings. If you can give a view in terms of how large these products are, any unique opportunity in terms of (inaudible) and how should we think about ramping up of the deal in China on the next two, three years?

Ravi Shekhar Mitra — Chief Financial Officer

So, eight products have filled, two are in approval, that’s what the team says by end of this year, one I think this quarter and one next quarter and six totally next year. I think six products again in FY24.

Saion Mukherjee — Nomura — Analyst

And sir in terms of size and opportunity, competition how should we be think about (inaudible) of China revenues ramp-up?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

We take that offline, Saion. Sumanta will give that information.

Saion Mukherjee — Nomura — Analyst

Okay, sure. And sir one question if I can ask from ROW. So we have seen a very good ramp up over the last two years, now in terms of product registrations it hasn’t gone up that much, but the revenues tend to go up in ROW, it was a bit volatile and you mentioned some of the reasons. Now I understand one thing (inaudible) take time. How should we think about growth in ROW excluding China, let’s say, over the next two, three years? The run rate is exceptionally high for us?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So one is on the percentage indication because the base was very low few years ago, so it wasn’t really high, now the base is high. And from the registration’s perspective, historically, we’ve been compromising on — we didn’t leverage registration because of capacity constraints whereas prevailing today. And also the GCC market whenever export earlier most of the focus was on Lat-AM and APAC regions. So that region opened up because of margin profile, that is better than other markets for more competition and our conversations we’re not able to compete in some of these markets, but usually they have the better margin profile. So that’s contributing almost 26%, 27% of the revenue, does not there before in terms of ROW business. So with capacity (inaudible) additional lines coming onboard, we continue to focus a lot in that region while we can’t comment on the growth but a lot of focus was happening in terms of registrations also during (inaudible) South Africa as well which was not there earlier. Somewhat (inaudible) countries which we are entering now. So these are the new territories where we have entered and around this year.

Saion Mukherjee — Nomura — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Tarun Shetty from Haitong Securities. Please go ahead.

Tarun Shetty — Haitong Securities — Analyst

Yeah, good evening, everyone. Thank you for the opportunity. There is some clarifications from my side. Could you help me with the number of launches, for this year and next year in the US market?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Just be on line. For the first six months we have launched about 20 scale [ph] in the US. And next two quarters we have about 25 launches planned.

Tarun Shetty — Haitong Securities — Analyst

So next — so for the next two years, I mean FY ’24 is there any visibility (inaudible)?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

So this quarter we have about nine launches happening, nine launches happening. And next quarter is about 16 launches.

Tarun Shetty — Haitong Securities — Analyst

I was looking FY ’24 (inaudible).

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

FY ’24, so normally its between — I don’t have it on hand, but normally its between 25 to 30 launches.

Tarun Shetty — Haitong Securities — Analyst

Okay. So yeah. The next one is on the inventory of (inaudible) inventory (Technical Difficulty). Do you see on that revenue (inaudible) should we build a more normalized (inaudible) in the coming quarter?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

No. We have restarted if you from March level and should be around this level going forward. This is high inventory we explained earlier also. We kind of — because the volatile situation we would like to have the inventory in hand.

Tarun Shetty — Haitong Securities — Analyst

Lastly, last time calculation was on the RoW. You mentioned the RoW margin of 25% for this quarter which was around 25% last year. Did I hear you right or is it — what is (inaudible)?

Ravi Shekhar Mitra — Chief Financial Officer

25% gross margin previous quarter compared to 25% of the recent quarter, yes.

Tarun Shetty — Haitong Securities — Analyst

Okay. Within gross margin?

Ravi Shekhar Mitra — Chief Financial Officer

Correct.

Tarun Shetty — Haitong Securities — Analyst

Okay. Yeah. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Anand Venugopal from BMSPL. Please go ahead.

Anand Venugopal — BMSPL — Analyst

Yeah. Am I audible?

Operator

Sir, there is a disturbance coming from your line. Request you to use the handset mode.

Anand Venugopal — BMSPL — Analyst

Yeah. Hello, can you hear me?

Operator

Sir, please use the handset mode. There is a disturbance coming from your line.

Anand Venugopal — BMSPL — Analyst

One second. Hello, is it better?

Operator

Sir, you may proceed.

Anand Venugopal — BMSPL — Analyst

Yeah. So I just would like to — if you could describe this fate of the US (inaudible) invest at the moment? Is there a risk of prolonged price erosion due to writing competition just like we have been seeing in generate (inaudible) or doses in over the past few years?

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

The competition intense for sure. So all the launches we kind of cutting down on the forecast especially with the last few quarters. But otherwise from our pipeline perspective our margins are intact. I mean I have been saying as gross margin are still better on 52% — 51%, 52% (inaudible) that’s been the case. But whatever new launches are happening earlier it used to be higher in the first year. It seems like 65%, 70% and even in some products it used to be like 75%, 80%. And then it is to settle down 40%, 50%, after three years.

So that scenario we are seeing from a few quarters. If you’re going down the first year itself because of the competition. But we’re going to see — FDA coming back and auditing your sites. And now we have see whether the competition is staying intact and how long can they sustain with this (inaudible) the market, because this is a cycle we’re in that space where we are seeing that few years ago. There are lot of companies will launch till the capacity get filled up and then would start exiting the market. So we have to give that time till that happens.

Anand Venugopal — BMSPL — Analyst

Thank you. That’s all from my side.

Operator

Your audio is not clear from your line. There’s a disturbance coming.

Anand Venugopal — BMSPL — Analyst

Yeah. That’s all from my side.

Operator

Thank you. The next question is from the line of Prashant Nair from Ambit Capital. Please go ahead.

Prashant Nair — Ambit Capital — Analyst

Yeah, hi. Good evening. I just have one follow-up question on growth going forward. So If you (Technical Difficulty) could you give (inaudible) 20% plus growth business that we have seen in the past or do you think given where we are in terms of base it would be slightly lower than that? So some sense on that would be helpful. (inaudible)

Mr. Srinivas Sadu — Managing Director, Chief Executive Officer

Yeah. From growth, there were certainly the lot of opportunities out still there, right? I mean, the way if you look at longer and longer acting injectable space, the offline suspension space, the (inaudible) space there we have invested recently. (inaudible) bags now in a big way. So — and also from geography perspective, we’re just entering into some of these markets we never grown earlier. So the opportunities are there. It’s just that I would say the consolidation phase we are going through.

We also need to streamline the supply thinking from long-term perspective, having several alternative sources for several assets and products in case of the key products. Then last one year we invested almost 20, 25 products working around adding our alternate suppliers in various areas so that also at the cost. But these are all investments we’re making for the future growth and more stability for the business. So once in five, six years, we need that (inaudible) where you have the consolidated business. I think we’re using that now.

But from the opportunity perspective there are several areas we can grown in. We have seen a lot of positive feedback on the biosimilar CDMO space. Our customers are approaching us. The relationship what we have with customers are intact. The large customers as the portfolio has been growing, they’re the biggest customers instead of a smaller players coming in and creating some noise in terms of kind of offering products (inaudible). But still we have one place in terms of the growth.

So we are pretty confident on the growth in the future as well the opportunities are there. Its just that we have to overcome the current tide in terms of supplies and operational issues. Because while we are talking about supply disruption directly linked to components and all that, we have to see you’re expanding the lines are coming on-track as per plan because people (Technical Difficulty) the technicians can’t travel. So several things happened when we were running the manufacturing setup. So that said, one thing settles I think we have a good growth story tools to move forward.

Prashant Nair — Ambit Capital — Analyst

Yeah. Thanks. That’s it from me. Thanks a lot.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments.

Sumanta Bajpayee — Vice President Corporate Finance and Investor Relations

Thank you. Well, thank you, everyone for joining us today. We appreciate your participation in the call. If any questions still remain unanswered, please reach out to us, to me and our Investor Relation team. And thanks everyone. We would like to again reconnect in our next conference call. Thank you. Good night.

Operator

Thank you. Ladies and gentlemen, on behalf of Gland Pharma Limited that concludes the conference call. Thank you for joining us. And you may now disconnect your lines.

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