Gland Pharma Ltd. (GLAND) Q4 FY22 Earnings Concall Transcript

Gland Pharma Ltd. (NSE: GLAND) Q4 FY22 Earnings Concall dated May 19, 2022

Corporate Participants:

Sumanta Bajpayee — Vice President-Finance & Investor Relations

Srinivas Sadu — Managing Director & Chief Executive Officer

Ravi Shekhar Mitra — Chief Financial Officer

Analysts:

Sudarshan Padmanabhan — JM Financial — Analyst

Shrey Jain — Iroha Investment Management — Analyst

Kartik Mehta — Klay Capital — Analyst

Kunal Dhamesha — Kunal Dhamesha — Analyst

Amey Chalke — Haitong Securities — Analyst

Ankush Agrawal — Surge Capital — Analyst

Nithya — Bernstein — Analyst

Tushar Manudhane — Motilal Oswal — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Gland Pharma Limited Q4 FY’21-’22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sumanta Bajpayee Finance and Investor Relations, Gland Pharma Limited. Thank you, and over to you Mr. Bajpayee.

Sumanta Bajpayee — Vice President-Finance & Investor Relations

Thank you. A warm welcome to Gland Pharma’s earnings conference call for fourth quarter and financial year ended 31 March ’22. I have with me, Mr. Srinivas Sadu, Managing Director and CEO; and Mr. Ravi Shekhar Mitra, our CFO, to discuss business performance and to answer queries during the call.

We will begin the call with business highlights and overview by Mr. Srinivas Sadu, followed by financial outlook by Mr. Ravi Shekhar 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 statements made in today’s discussion may be forward-looking and based on management estimates. This must 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 shall be made available in our website shortly after the call. The transcript of the call will be submitted to the stock exchanges and made available on our website as well.

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

Srinivas Sadu — Managing Director & Chief Executive Officer

Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for fourth quarter and full year ’22. My best wishes to all our shareholders, analysts and the families. The industry continues to face heightened supply chain disruptions, not just deal in API supplies, but also primary packaging components. There was a considerable escalation of freight costs, utility costs and several input material costs. Efforts are made to minimize the impact of these disruptions by qualifying new suppliers as well as optimizing our production planning. We remain committed to maintain our business resilience in these challenging times. Despite the ongoing disruptions, our business performance continues to remain strong.

We closed this quarter Q4 FY ’22 with the revenue of INR11,030 million, that is an year-on-year revenue growth of 24% for the quarter Q4 FY ’22. Our full year FY ’22 revenue stood at INR44,007 million, which is a growth of 27% over FY ’21. Our PAT stood at INR2,859 million for the quarter. This is an year-on-year PAT growth of 10% for the quarter. Our full year FY ’22 PAT stood at INR12,117 million, a growth of 22% for the full year FY ’22 over FY ’21.

We have generated INR7,908 million of cash flow from operations in FY ’22. Our broad portfolio, differentiated business model and strong execution capabilities have helped us deliver strong business performance during the year. I laid down four focus areas for the company at the beginning of this fiscal year, regrouping and consolidation, with limited physical audits. We took the opportunity this year to complete extensive knowledge sharing across our manufacturing sites and strengthen the centralized quality function. We are very well prepared to handle any upcoming regulatory audit at any of our sites.

Diversification of product portfolio we made further investments in our R&D and we are able to make 29 ANDA filings during FY ’22 as compared to 20 ANDA filings during FY ’21. Important to note that we initiated filings for our complex portfolio during the year, we made three hormonal filings and one complex peptide filing during the year, which have market size of $1 billion. We also focused our ensuring timely new launches in the market, to hire the few we commercialized our Penem portfolio during the year, we launched Ertapenem and Meropenem. We also launched other key products, including Foscarnet and Enoxaparin and launched a total of 44 product SKUs in our core markets during the year.

In FY ’22 upon excluding capital R&D expenditure, the R&D expenditure stands at 4.4% of our revenue for the period in line with our historical trend. As on 31 March 2022, we along with our Partners have 311 ANDA filings in the U.S. and 1,557 product registrations globally. Our human capital was further strengthened this year. We have focused on filling any gaps in skill set and also ensuring learning from experience are well distributed across the organization.

In terms of a manufacturing infrastructure, we have not just increased more capacity ensuring debottlenecking of critical areas, but have also worked on improving yields for products on existing lines. The new lines commissioned will support our complex injectables development pipeline for suspensions, hormones and emulsions based products. We hence ensure our manufacturing cost per unit is among the lowest in the industry, despite maintaining high quality standards. All our plants continue to remain approved by USFDA.

Not taking much of your time, let me quickly run you through our business highlights across various geographies. Our Rest of the World markets accounted for 17% of our Q4 FY ’22 revenue and we have seen 32% year-on-year growth in revenues for the quarter. Our full year FY ’22 revenue for these markets stood at INR8,481 million, a growth of 55% over FY ’21. Our key markets continue to remain MENA, LatAm and APAC. We registered our products Dexmedetomidine, Ertapenem and Tigecycline in new geographies during the quarter. Enoxaparin Sodium was a key contributor to growth for the Rest of the World markets during the year.

Our core markets, namely, U.S., Canada, Europe and Australia remained strong during the year despite market challenges. Our core markets accounted for 64% of revenue during Q4 FY ’22 as against 74% during Q4 FY ’21. We have seen 8% year-on-year growth in revenues for the quarter. Our full year FY ’22 revenue for our key markets stood at INR29,248 million, a growth of 16% over FY ’21. U.S. market continues to surprise us its high price pressure on one side and at the same time, encountering several drug shortages.

While our U.S. business grew by 13% in FY ’22 over FY ’21, the launch pipeline remains robust for the coming year. The key products helping us achieve this growth include Micafungin, Ketorolac Tromethamine, Heparin Sodium, Ziprasidone and Dexmedetomidine. India market accounts for 18% of our Q4 FY ’22 revenue. Our full year FY ’22 for India stood at INR6,278 million, a growth of 60% over FY ’21, primarily on account of volume growth of existing products. Our key launches include Caspofungin Acetate and Enoxaparin Sodium multi-dose cartridge with pen device during the year.

We say a setback on the vaccine front initially with delay lifting of embargo in vaccine exports and later the geopolitical situation in Ukraine didn’t help our cause. As a update over the last call, we have received export NOC and have also validated the commercial scale batches for Sputnik Light. Meanwhile, we have initiated work towards repurposing this facility to initiate bio-similar CDMO work. We are aggressively pursuing collaboration opportunities with established biologic players with some of the sites visits already scheduled. We are working towards complementing our business — existing business with new growth avenues and we are hopeful to maintain business resilience in this challenging environment.

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

Ravi Shekhar Mitra — Chief Financial Officer

Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our fourth quarter and financial year ending 2022 earnings call. Our earnings presentation has been uploaded on the website. Let me begin with sharing the financial performance for fourth quarter and financial year ’21-’22.

For the fourth quarter, we have reported revenue of INR11,030 million, which is a 24% growth year-on-year basis. Revenue from operations for the fiscal ’22 stood at INR44,007 million, a year-on-year increase of 27%. The key drivers for this growth were increase in volume of existing portfolio and new product launches. In terms of bifurcation of revenue during the FY ’22 as per markets, core markets comprising of the U.S., Europe, Canada and Australia has contributed 67%, followed by ROW markets adding 19% of revenue. India contributed balanced 14% of the revenue from operations.

Our core markets have seen a growth of 8% during fourth quarter of FY ’22, as compared to same period of last financial year. It has registered 16% growth during the financial year. ROW markets managed to maintain robust historical growth momentum and registered a 32% growth for Q4 FY ’22 and 55% growth on full-year basis. India market grew by 137% for Q4 FY ’22 and 60% for FY ’22. In domestic markets, we have managed to grow both in our B2C and B2B business.

Other income includes foreign exchange gains on operations of INR272 million for the fourth quarter and INR792 million for the full year ended March 2022. We have reported an EBITDA of INR4,136 million in Q4 FY ’22 compared to INR3,749 million, which is an increase of 10% compared to the same period last financial year. EBITDA margin for Q4 FY ’22 stood at 35% as compared to 40% for the same period of previous financial year.

EBITDA for the full year ended March ’22 was INR17,341 million compared to INR14,370 million for the previous financial year, a growth of 21%. We have reported EBITDA margin for FY ’22 at 37% as compared to 40% to the previous financial year. We have managed to [Indecipherable] full impact of reduction in gross margin and increase in some of the expenses due to higher operating leverage.

Power and fuel cost has gone up by 30% in Q4 FY ’22 and 27% in full year FY ’22, due to increase in power tariff and oil and gas prices. Additionally, during Q4 and FY ’22, we have incurred one-time legal and professional fee for our ongoing acquisition evaluation, amounting to about INR55 million for Q4 and INR70 million for the full year FY ’22.

The total R&D revenue expense for the financial year ’22 was INR1,932 million compared to INR1,199 million of the previous financial year, which is an increase of 61%. The increase in R&D spend will help us to maintain strong future pipeline and strengthened capabilities. It stands at 4.4% of the revenue for the full year FY ’22. Revenue R&D expense for the fourth quarter was INR443 million, which is 4% of revenue compared to INR302 million in the previous financial year, an increase in R&D revenue expenses due to higher number of ANDA and DMF filings and increased expenditure on complex products.

We have commissioned our new R&D facility during financial year ’22 expanding our R&D capabilities. Our net profit for the fourth quarter was INR2,859 million, a growth of 10% compared to Q4 FY ’21. During the financial year ’22, our PAT was INR12,117 million, which is an increase of 22% as compared to last year. We have reported PAT margin of 24% for Q4 FY ’22 and 26% for FY ’22. Our effective tax rate remains at about 25% in fourth quarter and for the fiscal year 2022.

Cash conversion cycle stood at 187 days for the financial year ’22, as compared to 192 days as of last financial year-end. The improvement was due to reduced inventory level. It has also helped us achieve better cash flow from operations. Total capex incurred during the financial year ended March 31, 2022 was INR5,221, used for increasing API and formulation capacities.

During the year, we have installed three liquid vial lines and four lyophilizers and one pre-filled syringe line in our Pashamylaram facility. New lines will support our complex injectables development pipeline in areas of suspension, hormones and emulsions. One more API block was completed in our Vizag plant. We are building sufficient production capacity to support our next organic growth demand.

Our ROCE on ex-cash basis as on March 31, 2022 stood at 33% and fixed assets turnover remained stable at 2.8 times for FY ’22. As of March ’22, we had total INR34,483 million of cash, which we intend to utilize for capex and to fund our organic and 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. [Operator Instructions] The first question is from the line of the Sudarshan Padmanabhan from JM Financial. Please go ahead.

Sudarshan Padmanabhan — JM Financial — Analyst

Yeah, thank you for taking my question. Sir, my question is, we heard a lot about needle shortages and across other companies as well some of the consignments getting pushed to the first quarter because of that. I just wanted to know, in the fourth quarter, I mean has that impacted any kind of products for us. And can you quantify if at all there has been any kind of shipment delay to the first quarter because of this?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah, it did. I didn’t mentioned last quarter as well, there is a shortage of syringes supplies and if you look at our U.S. sales in last quarter, the growth is lesser compared to the normal run rate. That’s primarily because of the syringe shortages, which we couldn’t export because of the shortages. What we did was, we got some alternate source syringes. But we can’t really change for the U.S. market. So we utilize those ranges for our domestic market and other markets. And that’s one of the reason you see we have larger third-party sales in the domestic market, where we have utilized syringes from other suppliers, where actually we can supply to the local market. So there was an impact, but the end market don’t suffer because of model. The companies do have the pipeline, but it did impact in terms of export last quarter. And indirectly, it’s also impacting the cost, because we are airlifting for the syringes to meet the demand, and that’s one of the reason, why the gross margin level, there is an impact of that as well because the logistic costs gone up when we’re importing this by air.

Sudarshan Padmanabhan — JM Financial — Analyst

Yeah. And sir what could be the impact of that, I mean if you can quantify it and whether this issue has been solved, because it’s been running for the last two quarter?

Srinivas Sadu — Managing Director & Chief Executive Officer

I would say, I can’t put a number to it yet, but it will — we are catching up I think this quarter, next quarter. There is a backlog of orders, what we need to supply. Still we’re not in stage where the pipeline is drive for our partners, so but there is a backlog of orders for us. So this quarter, there will still shortage of about 3 million to 4 million syringes. But I think by next quarter everything will be on track in terms of the syringes they have promised to deliver.

Sudarshan Padmanabhan — JM Financial — Analyst

Sure, sir. And sir, on the cost front, I mean you talked about the gross cost as well as the cost impacting on the power and fuel and other expenses, but if I’m looking at consistently. I mean, our gross margins have been coming down from 55% to 50% and so as the EBITDA margin. So going forward, I mean are we going to see in an improvement from the current levels, given that fourth quarter was a consortium of several issues, including shortage syringes and cost escalation. I mean, can we expect some kind of retrieve in terms of some kind of price increase and some kind of normalization and basically no margins increasing going forward.

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. So in my previous calls, also I said, our gross margin, the way you look at is a little different than the front-end company. And also because of a business model, a quarter where we have a larger portion of contract manufacturing, your gross margin looks better. That’s one area. If you look at our business last quarter, there is lesser contract manufacturing business. Second, the U.S. portion of our business is lower because of the impact where the margins are higher for us. But if you look at just the U.S. business itself in fact our gross margins have increased over previous, I mean, if you look from the material point of view. The other key thing is in our gross margin, there is also lies component of logistic cost, because when we will build the revenue, it includes the transfer price plus a profit share. Profit share element includes the cost of logistics that deduct that and distribution costs, and then they share the profit and that is actually billed as revenue.

So unlike other companies where everything is going at the bottom line, not in the gross margin level for us, the distribution costs and also the logistic costs, what the — our partner is importing that also gets into the gross margin level. At least what we share, right. I mean 50% or 60% depending on our profit share model that also we sharing, so that’s deducted and then the profits will be shared with us. That way, there is an impact on the gross margin. So it — so the way we look at gross margin should be different for Gland just because of the model we adopt and the margin — there is a pressure because of the logistic cost, which is actually lying for all the U.S. market. It’s also lying as part of gross margin. So it should come back to normalized margins as well as EBITDA. Once, I think the external environment tends to claim better.

Sudarshan Padmanabhan — JM Financial — Analyst

At this environment, I mean on the sales, you did mention that going, you are looking at 20% to 25% kind of CAGR. And I mean, are we looking at any kind of a margin guidance that you would like to give, I mean from FY ’22 base?

Srinivas Sadu — Managing Director & Chief Executive Officer

We internally we always keep the margins around the gross margin, like I said, that’s not a criteria for us. But at the EBITDA margin level, we always look at 35%-37% levels of EBITDA margins. And at the PAT level around 25%. That’s how our internal area always looks towards that.

Sudarshan Padmanabhan — JM Financial — Analyst

And you have confident of delivering 25% growth that pipeline should there?

Srinivas Sadu — Managing Director & Chief Executive Officer

It all depends on the mix. So I can’t really give us growth guidance yet. But we try to grow it, historically what we’ve been doing on average you try to do that.

Sudarshan Padmanabhan — JM Financial — Analyst

Sure. Thanks a lot. I’ll join back in the queue.

Operator

Thank you. Next question is from the line of Shrey Jain from Iroha Investment Management. Please go ahead.

Shrey Jain — Iroha Investment Management — Analyst

Hi, thank you for taking my question. On the vaccine, you mentioned that there is a repurpose of the facility that is being planned. Wanted to ask two questions on this? One, was there any kind of write-off on the vaccine business given that we had some commission, [Technical Issues] talk about.

Srinivas Sadu — Managing Director & Chief Executive Officer

So we have not done any fill finished batch, other than the validation batches. So that will be very small quantities. So as of now, there is no write-off quantities yet, whatever we bought are in terms of batch and all that it can be used for the bio-similar production as well. So as of now, there is no write-off of that.

Shrey Jain — Iroha Investment Management — Analyst

Got it. Second question on the vaccine front was on the timeline or rather the — as well as the cost for repurposing these facilities. Does that entail some timeline? Or would that be immediately swappable. Just wanted to visualize that?

Srinivas Sadu — Managing Director & Chief Executive Officer

So when we say repurposing whatever lines we have installed because we’re not gone for commercial production. So that nothing much involved in terms of cleaning up. One line, we need to clean up because they have taken validation batches. So that doesn’t include — doesn’t involve too much of expense. So already we have started discussing with some of our partners and a couple of visits are already been done. So hopefully pretty soon should start some work at least the preliminary work will be starting soon.

Shrey Jain — Iroha Investment Management — Analyst

Reported and these will be — this will be repurposed to biologics, that’s right understanding, right, bio-similar?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah, bio-similar biologics front, yeah.

Shrey Jain — Iroha Investment Management — Analyst

Got it, got it. My other question was on the China, NMPA inspections. You mentioned in the last quarter, there would be some sort of update you would be able to give us on the exports, is there something that you could talk about?

Srinivas Sadu — Managing Director & Chief Executive Officer

Still because of the shutdown, we are not getting any dates on them yet. But we are continue to develop products for that and we’re going to file as planned. But on the inspection perspective still because it’s not opened yet. We don’t have a date yet from them.

Shrey Jain — Iroha Investment Management — Analyst

Got it. And my last question from again from the China front as well, on bio-similar any kind of headway in terms of discussion between parent entity or any other entity to kick start bio-similar in FY ’24 like you had guided for?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. So that’s been ongoing. And I think we’ll also — will be doing some kind of work subsidiary of the parent. So while we are working with external companies to collaborate. We’re also working the internal subsidiaries.

Shrey Jain — Iroha Investment Management — Analyst

Got it, sir. Thank you and congratulations for a great result again.

Srinivas Sadu — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Kartik Mehta from Klay Capital. Please go ahead.

Kartik Mehta — Klay Capital — Analyst

Hello, hello?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah.

Sumanta Bajpayee — Vice President-Finance & Investor Relations

Yes, hi.

Kartik Mehta — Klay Capital — Analyst

Yeah, just on the part that you mentioned at the start of the call about the shortages, which you see. I’m just curious to understand the reason, which are there now in the U.S., is it supply of raw material? Or is it due to the renewed FDA actions across as inspection start. That’s the first part of the question. And how much percentage of your portfolio now, if you can probably help us is under that list as per the USFDA?

Srinivas Sadu — Managing Director & Chief Executive Officer

So the shortages what I talked, nothing to do with the FDA, mostly, it’s the manufacturing sites in the U.S., there are various reasons some — for example, I was talking about components, whether it’s vials or stoppers and some of the process materials like being filters. So most of the supplies were going towards vaccine manufacturing and so, it got diverted to that. So that’s one of the reason. So there is a lot of backlog for them to supply to the regular injectable manufacturers. So the lead times of really gone bad for most of this components. So that’s one of the reason we’re quickly trying to identify other manufacturers who can do it. Some, it’s easier to change the suppliers, but some difficult depending on the technicality of the item what we’re using for a particular product.

The reasons — this is one of the reason, but there also reasons around the manufacturing issues happening at sites in U.S., whether it’s labor shortage or reduced manufacturing days. So there — so the post-COVID, there have been some disruption in that. So, the capacity is actually their output have come down drastically. So I think last few quarters, we’ve been seeing that. We’ve been holding off a pretty good last, I would say, five to six months, the lead times are also high because we were having inventories but there are starting to impact few of our products, especially, and this is mostly from the U.S. manufacturers I would say.

Kartik Mehta — Klay Capital — Analyst

Yeah. And just that while we are on this, is this nature for you, explain that it would take a quarter or so for this to resolve? But in this case, are there options in your contract where pricing can be renegotiated in terms of this? And what is the overall outlook? I’m just trying to understand from your experience in manufacturing — especially in injectables, if FDA inspections across the world do start full throttle and assuming we are able to maintain our track record? Do shortages increase across on manufacturing largely on injectables? Is it the right way to look at this?

Srinivas Sadu — Managing Director & Chief Executive Officer

Well, I’ve not seen a case where the price have gone up in recent times, it always in spite of the shortages, still prices are kind of normal, but at least it will not go down for sure. But the volumes are increasing for certain products, which we never thought it will increase because of the shortages. So although the competition has gone up in injectables, and like always said, people are exiting these some of these products and while I’m on the material shortages in fact FDA is aware of these. In fact, they have sent email few weeks ago. What are the comprehends which having an impact on supplies and because they want to discuss with the supplier side, so they are actively pursuing that because they are seeing more and more products getting in the shortage situation. We are seeing at least in some areas, we have seen some development happening, it just going to add some cost because we can’t wait for them to be shipped by sea due to the time. So we are airlifting most of that which we had earlier bringing by sea. So the margin pressure is there on that. But at least we should cater to the market and it is capture the demand when it’s there. And some of these contracts where other companies are not able to meet the demand, those contracts are getting converted to the companies who are supplying. We got a couple of contracts like that as well. So it’s an opportunity to do that. While the price pressure is — the cost pressure is there.

Kartik Mehta — Klay Capital — Analyst

Yeah. My last question if I may, what is the capex plan for the next three years. And in terms of, if you could specify which lines you will be investing in?

Ravi Shekhar Mitra — Chief Financial Officer

Yeah. So we plan to spend INR300 crores next year and about INR250 crores a year after that. So we are currently spending —

Kartik Mehta — Klay Capital — Analyst

You said INR300 crores is FY ’23, right?

Ravi Shekhar Mitra — Chief Financial Officer

Yes.

Kartik Mehta — Klay Capital — Analyst

FY ’23 and INR250 crores, yeah.

Ravi Shekhar Mitra — Chief Financial Officer

Yeah. So this currently project which is online and Pashamylaram is our suit for complex injectables and expansion of a warehouse capability and few more lines including Bags lines — including lyo, addition in Penem. So these are basically the immediate capex plan and in the API side also, we are expanding for increasing the capacity of Enoxaparin production. So this will take care of our near two years capex plan.

Srinivas Sadu — Managing Director & Chief Executive Officer

So if you see, we have added almost four lines in the current year, we have increased from 24 to 28 lines, but we are still not able to meet demand of Penems. So we have a shortage of that. So we are trying to invest into that. Also Bags, we are 100% capacity utilized and we are not able to cater to the entire demand. So we have planned to invest into that as well. From the API perspective, if you see about a year ago, internal APIs were about 24%, 23% was internal, now it has gone to about 33%, 34% of revenue is coming from internal APIs. And we continue to invest into that because at least the risk of the suppliers not supplying will go away, so substantial investments are going into that as well.

Kartik Mehta — Klay Capital — Analyst

Sure. Thank you. Thank you.

Operator

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

Kunal Dhamesha — Kunal Dhamesha — Analyst

Hi, thank you for taking my question. So the first one, we earlier alluded that by the COVID time that product mix shifted towards, COVID products like Ziprasidone and Dexmedetomidine and wondering product per say which are used in elective surgeries took ahead. So now with COVID normalizing, are we seeing that mix shift coming back to the elective surgery our portfolios like Penems and antibiotic.

Srinivas Sadu — Managing Director & Chief Executive Officer

So I would say, the COVID portfolio has gone away about two quarters ago, the demand for products. But otherwise, rest of it is coming back slowly. Some of the products have not caught up like before, but I think the portfolio mix is it getting back to the earlier this year.

Kunal Dhamesha — Kunal Dhamesha — Analyst

And is it fair to assume that those products typically have better margins than COVID funnels making of certain?

Srinivas Sadu — Managing Director & Chief Executive Officer

Well, I think if you see the margin wise, all the new products will give a better margin. So whatever we launches, I think that’s the key thing, which will give better margins than the old products coming back, because the competition also increased. But I won’t say that those margins will go up. So whatever the margins there with their pre-COVID that will continue. But I think products, what we are launching recent times. If you look at our growth over 9% to 10% comes from these new products and volume and also the volume growth, right. I mean, if you look at last year 21% growth came from that, whereas the price actually has gone down by 2% or so. So the price is still, I would say, no similar or 2% lower, but I think the volume growth and new product launch growth. That’s a key for it.

Kunal Dhamesha — Kunal Dhamesha — Analyst

Sure. And just one more logistic question, what was profit share contribution this quarter?

Srinivas Sadu — Managing Director & Chief Executive Officer

About 10%.

Kunal Dhamesha — Kunal Dhamesha — Analyst

Okay. Sure. Thank you.

Operator

Thank you. The next question is from line of Amey Chalke from Haitong Securities. Please go ahead.

Amey Chalke — Haitong Securities — Analyst

Yeah. Well, thank you for taking my question. First question is related to staff cost. I think know whether we have anticipated in the opening remarks. But it has gone up sequentially by around INR15 crore odd to INR94 crore — INR95 crore. Any reason for this or is it related to the plant expansion you have done? Or is it the new base if you’re going to see?

Ravi Shekhar Mitra — Chief Financial Officer

The staff costs.

Amey Chalke — Haitong Securities — Analyst

Yes.

Ravi Shekhar Mitra — Chief Financial Officer

Yeah, I think, it’s a combination of both. One is the additional lines coming in. So recruitment has happened in those lines. The other is January is the time where we get the raise. So the increment impact is also there and the incentive quarter. So that’s the impact you’re seen.

Amey Chalke — Haitong Securities — Analyst

So we should assume this as a new rate, right?

Ravi Shekhar Mitra — Chief Financial Officer

Some incentive is only there in every quarter. So that will go away.

Amey Chalke — Haitong Securities — Analyst

Sure. Okay.

Ravi Shekhar Mitra — Chief Financial Officer

Yeah, so the annualized basically if you see, this the increment is normal, as for the — what we have been seeing. And Mr. Sadu said, there is a headcount increase. So yearly basis, that can be the rate.

Amey Chalke — Haitong Securities — Analyst

Sure. The second question is related to Enoxaparin during the year, we have seen one of our partners closing lot of market share in U.S. and if you can highlight any reason for this. And also we have added one more partner in the U.S. at the end of the year. So should we see a good growth coming in in FY ’23?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. So the — both partners were already there. But because of the margin profile, the partners and the market shares they were getting, so it didn’t make sense to continue with that — with the low volumes. So that’s why they kind of hold off till the margins improve. But the other contract, we have a GPO contract, which I’ve mentioned. So there’s a ramping up is happening and still selling of the product, what they got from the innovator earlier, and you see from this quarter and we were also a bit slow because of the shortage of syringes. We don’t want to take all SKUs immediately. So we kind of limited what we can supply. And from this quarter, we are seeing a ramping up and probably more ramping up will happen from June, July.

Amey Chalke — Haitong Securities — Analyst

Also supplementary question to this — for the global supply, which we are doing for Enoxaparin, how far we have reach in terms of getting approval in other markets and are we still are expecting some more approval from new territories or you think we have already achieved the geographic expansion in terms of supplying Enoxaparin?

Srinivas Sadu — Managing Director & Chief Executive Officer

The several other markets still there is opportunities where we are looking at, because the competition for this molecule is compared to low compared — in fact, there were several markets where the competition is lower than the U.S. So we are still there — only area where geography area not looking at is Europe, because of the price pressure there and also the complexity of raising the product. But rather than Europe, we are looking at it any other country — every other country.

Amey Chalke — Haitong Securities — Analyst

Sure. Just last question on the U.S. market, I mean, you have talked about the launches, which are coming in FY ’23. So if you can highlight. Any color on the same in terms of the business opportunity in terms of the complexity, anything if you can provide?

Srinivas Sadu — Managing Director & Chief Executive Officer

In terms of value, I think it’s about $3 billion — in the three quarters — and in three quarters, we have launches planned which is worth about $3 billion. And the products about 2024-’25 molecules launches are planned for the next three quarters.

Amey Chalke — Haitong Securities — Analyst

So in terms of trend should we expect higher growth or similar growth in the U.S. in FY ’23? Or it will be too early to follow?

Srinivas Sadu — Managing Director & Chief Executive Officer

It’s too early, but because of the base is high, so the percentage growth will not be same. But if you look at globally, we’re trying to get at least that 10% growth as a company level launching more products in other — the Rest of the World markets also. But if you look at for U.S., it may not meet the same percent like earlier because the base is high, but at the company level, we are still looking at 10%, 11% of growth some coming from the new products.

Amey Chalke — Haitong Securities — Analyst

Sure. Thank you so much for taking my question.

Operator

Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.

Ankush Agrawal — Surge Capital — Analyst

Thank you for the opportunity Mr. Sadu. So firstly, on the growth slowed down in the core markets, so you highlighted one of the specific reason around syringes, right? So any other reason that you want to highlight qualitatively that has affected the performance? And on the — similarly on the margins front as well? So is it still suffice safe to assume that the reduction in margins, primarily because of the lower share of developed markets in this quarter and the logistic and syringes that you highlighted?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. So one is of course enough, other also and if you look at launches on an annualized basis, you should see launches it might go up and down in a quarter. So launches were fewer in the last quarter and also some products we didn’t launch to, we actually because we had inventory — we have inventory for the launch batches. But then the follow batches, we can’t make the market dry, so waiting for the components and they have to come in so that we can supply on a continuous basis, so some of the launches, which we actually plan last quarter will go this quarter, end of this quarter.

Ankush Agrawal — Surge Capital — Analyst

Right. And then the margins front, is it because of the market mix and no logistic and syringes primarily?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah, absolutely. So, one is if you look at the percentage for the year and for the quarter, U.S. percentage has come down, that’s one. And then the logistic cost and if you look at the plants — where our plants are located Vizag there was issue of power supply. So we’ve been running on diesel for almost 40-45 days. So that’s become expensive. So on an annual basis, there was a big impact on power, diesel, utilities costs and of course, the import and logistic costs.

Ankush Agrawal — Surge Capital — Analyst

But so I think in your opening comments you mentioned something about an inorganic acquisition or that some cost that was spent? So can you highlight something on what front it is like, is it development assets or if assets something what would the potential side?

Srinivas Sadu — Managing Director & Chief Executive Officer

See we cannot comment on the target we are currently evaluating. But —

Ankush Agrawal — Surge Capital — Analyst

Not the name but just focus areas?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. So focus area like we also said earlier is in line with our strategic target. So one is that of course the backward API capability from decision where we don’t have. Second is on products and complex injectables side.

Ankush Agrawal — Surge Capital — Analyst

Yeah, that is clear. Your focus area are clear. I was wondering if there is any specific area attached to this inorganic acquisition or is it multiple acquisitions this year?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah, yeah. We cannot comment right now.

Ankush Agrawal — Surge Capital — Analyst

Okay. Okay. No worries. Lastly, sir, on the vaccine. So you’re repurposing plant, is it safe to assume that the vaccine project itself, as you know, out of the box for Gland at the moment, right?

Srinivas Sadu — Managing Director & Chief Executive Officer

Look, I won’t say out of the box, because that is one line we are keeping it like that and the other line, like I said, where we have not produced any vaccine that block. We are trying to work with the bio space we still — the other line is still going to keep it for few more months because discussion is still on. So we don’t want or shut it if there is any opportunity you want to get it in them.

Ankush Agrawal — Surge Capital — Analyst

So anything that we will salvage from this in case, the vaccine project doesn’t go on like earlier at the time of contact you had mentioned that, it has — it’s a take or pay kind of contract. So will we be getting anything out of it?

Srinivas Sadu — Managing Director & Chief Executive Officer

I can’t comment on it. No, it’s ongoing discussion.

Ankush Agrawal — Surge Capital — Analyst

Okay. Got it.

Srinivas Sadu — Managing Director & Chief Executive Officer

Because I think it’s — I mean, nobody has that problem.

Ankush Agrawal — Surge Capital — Analyst

But it accelerates, our biosimilars opportunity, right, because we had been commenting that we will wait for the vaccine to end by — end of 2022 and then Q1 of 2023 will start? But this accelerates that, right?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. So that’s why we have already initiated that and some of the companies have started visiting it because we thought, why keep the entire plant as well. We can start working on one line, while the other can be used for this.

Ankush Agrawal — Surge Capital — Analyst

Got it. Thank you.

Srinivas Sadu — Managing Director & Chief Executive Officer

Thank you.

Operator

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

Nithya — Bernstein — Analyst

Yeah. Thank you. So FY ’23 seems to a larger LOE year as there are more number of injectable branch losing exclusivity. So is a fair to assume that on a relative basis compared to, let’s say FY ’20 your share of new launch contribution will be higher and therefore profit share will be higher? Is that fair characterization?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah, at least the second half of FY ’23 should look like that Nithya.

Nithya — Bernstein — Analyst

Quick tactical one, by when do you expect then the partner volumes in Enoxaparin to entirely shifting to you. What timeframe?

Srinivas Sadu — Managing Director & Chief Executive Officer

We are looking from June, July.

Nithya — Bernstein — Analyst

By June, July all of their market share would have shifted to Gland, right?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. Correct, correct.

Nithya — Bernstein — Analyst

Understood. And this is a related question to what another gentleman was asking you’ve been talking about M&A for the last year, 1.5 year, if you can just update us on where you are? And are we likely to see more traction in the coming months?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. Hopefully, we should give something Nithya because last year is more like the valuations were all over the place. Now, there is some sanity around the valuation. So we are working actively on couple of things. So hopefully we should give something in next few months, Nithya.

Nithya — Bernstein — Analyst

Is there a priority between the three areas that you had mentioned which is controlled substances, fermentation, API or complex injectables business?

Srinivas Sadu — Managing Director & Chief Executive Officer

Priority, I would say complex injectables, advanced stage assets, I think that’s a priority for us. While we have our own pipeline for next three years, which covers about INR10 billion there several other products we have, we think we can expedite using cash on books, so that’s our main priority and then second, of course, the fermentation.

Tushar Manudhane — Motilal Oswal — Analyst

Understood. Thank you so much.

Srinivas Sadu — Managing Director & Chief Executive Officer

Thank you.

Operator

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

Tushar Manudhane — Motilal Oswal — Analyst

Yeah, thanks for the opportunity. Sir, post considering these partners volume as well for Enoxaparin overall globally, what would be the market share of that for this product?

Srinivas Sadu — Managing Director & Chief Executive Officer

Globally I can’t tell, because Europe positive the huge market for this. China is a huge market, where we don’t have the presence. So I think globally, probably 10% because volume size is huge in other markets also. So probably 10% could be my wild guess here.

Tushar Manudhane — Motilal Oswal — Analyst

Got it. I mean you are highlighted that Europe is not geography to look for at least for these, so China would be key market to look in terms of significant expansion for this product.

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah. China and also in other markets, there is still there where — see if you look at the Chinese manufacturers presence, they are big in Europe, they are big in China and they are big in the U.S. But other markets they still, they don’t have presence because of the complex in terms of backward integrated in different markets. If you look from the margin perspective and the opportunity perspective, there’s still a lot of value left in other markets as well. So we are focusing that also. If you see our growth of Enoxaparin as a molecule coming is mostly from Rest of the World markets. Now with the U.S. contract coming in, you see substantial growth in U.S. also. But China is an area also, but I would say there is a presence of China, Chinese players in that. So we have to go and fight with them, where they are backward integrated.

Tushar Manudhane — Motilal Oswal — Analyst

Yeah, in fact, I was just about to ask that, given that the key raw material lines in China. So there, what would be the right to win the business for this product in China market?

Srinivas Sadu — Managing Director & Chief Executive Officer

So a good thing is, we are backward integrated until Heparin level. So now current procurement of crude have been, we are getting from different sources and there also sources available which are cheaper than China today. So that’s why we are trying to source for our product in India business. So once that supply chain is secured. So our priority is, first, how to increase margins in the U.S. So we’re trying to use whatever crude happening are getting from different sources and get approved for our ANDA in the U.S. Once we have enough supply for that, then we’ll start looking at other markets. So I think currently, our focus has been to increase the margins for the U.S., whatever we want to supply in next few years for this contract.

Tushar Manudhane — Motilal Oswal — Analyst

Yeah, got it. And just on the R&D spend annually the amount has been increasing considerably, like this year, it’s almost INR227 crores compared to INR122 crores in FY ’21 and given that we have complex filings coming up for next two to three years. So could you just quantify like what kind of R&D spend we have in FY ’23, ’24?

Srinivas Sadu — Managing Director & Chief Executive Officer

If you specifically look at this year, you have to look at the capex. We have capex R&D, right, I mean, because we are built this new R&D center and equipments have bought. SO that’s like a one-time item. So if you remove that, the increase is about 0.6%

Ravi Shekhar Mitra — Chief Financial Officer

Yeah, 0.6%.

Srinivas Sadu — Managing Director & Chief Executive Officer

But 0.6% increase, which is not substantial. But on the absolute number, it will increase but I’ve always said, you should always look at 4% to 5% of the revenue as the R&D spend with complex injectables coming a number of — the percentage of complex injectables going up. So the absolute number will increase, but percentage wise, it should be 4% to 5% of revenue.

Tushar Manudhane — Motilal Oswal — Analyst

Got it. And just thirdly, there have been multiple inspections at the peer side, probably the drug shortage triggering the inspection? And in fact, Gland does have existing products or probably the products in the pipeline where — which are part of the drug shortage list of USFDA? So any inspection on the near-term side or that is not yet triggered?

Srinivas Sadu — Managing Director & Chief Executive Officer

So most of the inspections are walk-in these days. So we should be ready for any day. So we hear every day, every second FDA walking into some site. So we are all prepared for that. And we think even tomorrow somebody can walk-in any of our site. So that’ how it is unlike earlier at least sounds, they were coming announced inspections. Now mostly they are unannounced. So we have to just go day-by-day.

Tushar Manudhane — Motilal Oswal — Analyst

Okay. Done sir. Thank you and all the best.

Srinivas Sadu — Managing Director & Chief Executive Officer

Thank you.

Operator

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

Kunal Dhamesha — Kunal Dhamesha — Analyst

Thank you for the opportunity again. So slightly longer-term question, in the sense, would you ever look at consolidating the ROW product portfolio into a separate facility MSME or medium term, because I believe the compliance costs related to USFDA which is much higher vis-a-vis, let’s say, ROW market and that way you can improve the margin from the ROW portfolio?

Srinivas Sadu — Managing Director & Chief Executive Officer

I mean, there is this — there was debate, always on this, but I think we want to keep the quality standard across besides similar. We don’t want to dilute that because at a long-run that helps. Because from the corporate quality perspective, we want to have a common quality systems across side, so there is no confusion and different qualities or different sites. Maybe so there will be some margin pressure in ROW. But that helps to keep your regulated market business going up and having a clean quality record with the authorities.

Kunal Dhamesha — Kunal Dhamesha — Analyst

And secondly, as we said that we have increased our backward integration into API from roughly around 25% to 35%, would increasing further can it give a boost to our gross margin and if yes, what would be to be extent of that positive impact on the growth?

Srinivas Sadu — Managing Director & Chief Executive Officer

Well, I can’t quantify, but for sure that the one is of course eliminate the risk there is increase in the gross margins. That’s primary reason why we are expanding into this. For sure there will be a positive the impact on the gross margin.

Kunal Dhamesha — Kunal Dhamesha — Analyst

And do would you have some products in the pipeline, when you are actively looking to backward integrate?

Srinivas Sadu — Managing Director & Chief Executive Officer

There are ongoing, I mean every year, if you look at last year, we filed about 11 DMFs historically we were doing like 5 to 6. But this year we did 11 DMFs and the way to increased. So the some of the R&D spend is also going into this, right? So if it’s is a continuous process we are — and identifying API is — so that you can — your margin portfolio will be better.

Kunal Dhamesha — Kunal Dhamesha — Analyst

Well, thank you.

Srinivas Sadu — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.

Ankush Agrawal — Surge Capital — Analyst

Hello. Hello.

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah, go ahead.

Ankush Agrawal — Surge Capital — Analyst

Yeah, so just one clarity like from last couple of quarters, we have seen our business where in you know exports from — exports to U.S. from India has grown because the partners from Indian partners have grown, so wanted to understand is the profitability on this business similar to if we export to a U.S. partner?

Srinivas Sadu — Managing Director & Chief Executive Officer

It’s similar with this. There is no different with that.

Ankush Agrawal — Surge Capital — Analyst

[Indecipherable]

Srinivas Sadu — Managing Director & Chief Executive Officer

Number of products got what these guys — these companies have they started launching more products and also new partners of being, we have added Piramal as a new partners. So some of the partners from India who selling — Sun Pharma is also one of our partners who are selling products — more products now in the U.S. So we have more Indian partners who are selling. So the volumes have increased that way.

Ankush Agrawal — Surge Capital — Analyst

Okay. So I mean a couple of years, we expect share of Indian partners increasing, is that?

Srinivas Sadu — Managing Director & Chief Executive Officer

Yeah, because more products to more players who have front-end in the U.S., the share has also increased, so that’s an increasing number. That’s why you see how increasing.

Operator

Thank you. [Operator Instructions] As there are no further questions, I will now hand the conference over to Mr. Sumanta Bajpayee for closing comments.

Sumanta Bajpayee — Vice President-Finance & Investor Relations

Thank you. Thank you everyone for joining us today for our fourth quarter earnings call. If any of the questions still remain unanswered, please feel free to get in touch with us. Thank you, and good night.

Operator

[Operator Closing Remarks]