JB Chemicals & Pharmaceuticals Limited (JBCHEPHARM) Q2 FY23 Earnings Concall Transcript

JB Chemicals & Pharmaceuticals Limited (NSE:JBCHEPHARM) Q2 FY23 Earnings Concall dated Nov. 14, 2022

Corporate Participants:

Jason D’Souza — Vice President of Investor Relations

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Lakshay Kataria — Chief Financial Officer

Kunal Khanna — President of Operations

Analysts:

Rahul Jeewani — IIFL Securities Limited — Analyst

Rashmi Sancheti — Dolat Capital — Analyst

Abdulkader Puranwala — Elara — Analyst

Unidentified Participant — — Analyst

Shrikant Akolkar — AMSEC — Analyst

Cyndrella Carvalho — JM Financial Limited — Analyst

Kunal Randeria — Nuvama Wealth — Analyst

Sayantan Maji — Credit Suisse — Analyst

Sonal Gupta — L&T Mutual Fund — Analyst

Rajat Sethia — iThought PMS — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to JB Pharma’s Q2 FY ’23 Earnings Conference call as on the 14th of November 2022. As a reminder, all participant lines will be in 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 now hand the conference over to Mr. Jason D’Souza, Vice-President at JB Pharma. Thank you, and over to you.

Jason D’Souza — Vice President of Investor Relations

Welcome to the Q2 earnings call of JB Pharma. We have with us today Mr. Nikhil Chopra, CEO and Whole-Time Director; Mr. Kunal Khanna, President; and Mr. Lakshay Kataria, Chief Financial Officer at JB Pharma.

Before we begin, I would like to state that some of the statements in today’s discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available on the Q2 FY ’23 investor presentation that has been sent to you earlier.

With this, I would like to hand it over to Mr. Nikhil Chopra to begin the proceedings for the call for his opening comments, after which Mr. Lakshay Kataria will address the financial highlights. Over to you, sir.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Thank you, Jason, and good afternoon to everyone. And a warm welcome to those joining us today for our discussion on the operating and financial performance for JB Pharma during quarter 2 and H1 FY ’23. I will begin with a commentary on our quarter 2 performance and share the perspective on the business. I will be followed by our CFO, Lakshay Kataria, who will bring the financial perspectives to you. Following the remarks, we’ll be happy to address queries that you may have over a discussion.

Dear friends, I’m happy to — I’m pleased to share a healthy set of numbers on the top line during quarter 2, supported by healthy traction in domestic market and continued momentum in the international operations. In quarter 2, FY ’23, our revenues showed 36% improvement to INR809 crores. In the domestic market we continue to see aberrant trend for our business with a revenue of INR434 crores. Organic growth for the quarter was mid teens, once again, JB outpacing industry growth in quarter 2 FY ’23, and we remain to be the fastest-growing company in top 25 as per IQVIA MAT September ’22 data.

Our key brands have continued growing larger. And to share some statistics, Metrogyl gained 56 ranks to rank at 149 number, Cilacar-T gained 76 ranks to be 212 number, Nicardia gained 27 ranks to be at 218 number, Cilacar ranks to be 48th ranked brand, and Rantac gained four ranks to be 41st rank of brand. These are all net figures for our key top-five brands. Prescription wise, JB ranked 15th in IPM with quarterly prescriptions increasing to 4.12 crores in quarter 2 FY ’23 from 2.65 crore in quarter 2 FY ’22, showing a growth of 55%.

Just to give a brief highlights of what has been happening in our inorganic business that we acquired in last six to eight months. Our portfolio acquired brands have shown a robust 25% growth in quarter 2 FY ’23 as per IQVIA data and on like-to-like basis. As per IQVIA data, the acquired portfolio from Sanzyme has performed well, where Sporlac grew 50% and retained number one rank in its covered market space. Azmarda which represent an extension of our leadership portfolio in cardiology segment has delivered 46% growth. Heart failure is relative new sub-segment and vastly underserved. During September ’22, Azmarda featured in IPM top 300 list also. We are presently in the investment mode for Azmarda and are witnessing good results month-on-month. Our teams on the ground are fully geared up with a portfolio from hypertension to the prevention of heart failure.

Coming to International business, our industrial business reported a strong trend with growth seen across all segments. CMO revenues were the highest that we recorded and that was translated into best-ever sales in our international business. CMO revenue was 64% higher in quarter 2 FY ’23 year-on year. This segment today accounts to 28% to our international sales and in H1 FY ’23 from 20% in H1 FY ’22. Within CMO segment, now JB is on the global niche in production and marketing of lozenges, especially in medicated and herbal varieties. Our teams are constantly at work with research in lozenges and liquid formulation with important clients, and we shall continue investing for further scale of this business.

Our formulations and API segments also delivered double digit performance with our home markets of South Africa and Russia performing as per our expectations. Momentum continues to build-up in our international operations, despite the situation that we’re facing in Russia and CIS region has presented us with a favorable demand scenario. Our approach in this region is that of caution and we are mindful of managing the health of our operations and have been keeping watch on key parameters, including receivables.

JB’s progress is built on solid foundation with emphasis on core therapies. We are seeing strong traction in our top-performing brands and acquired brands in the domestic market, which are consistently delivering market-leading performance. With a combination of line extensions and forays into new products we are driving this momentum forward.

Moving on to how do we see the business shaping in the coming period. Within domestic markets we seek to make our key brands even stronger with a sharp focus on building brand franchisee in terms of market share and higher prescriptions. We have already completed the integration of our acquired brands and are also well-placed to manage post-LOE events for our brands like Azmarda. With the extensive portfolios we offer in focus therapies, we are better placed to manage product lifecycles with a view of building upon our shares in those therapies. We expect our domestic business to continue outperform the market growth, thereby a mix of organic and inorganic will allow us to maintain sustained momentum in our domestic business.

Our view on our international operation is also attractive. As you all know, we have focused on select markets with the right products. We are optimistic about driving good sales growth. Our position in export formulations especially the RoW market has improved quarter-on-quarter with the traction we are seeing in our portfolio. Over the next six months we will also focus on finding new products for our export formulations market which would help us for long-term perspective. Our revenue levers are in-place and we are emphasizing better operating efficiencies and higher productivity in businesses, which together are forming the base for our sustaining our operating margins in the light of cost pressures across businesses.

I’d just now to close my opening remarks and would like to request our CFO, Mr. Lakshay to address you with a perspective of financial performance. Thank you all. And over to you, Lakshay.

Lakshay Kataria — Chief Financial Officer

Thank you, Nikhil. A very good afternoon to all of you, and welcome to our earnings call. I shall now cover the highlights of our financials for Q2 ’23. On the revenue front, the domestic and international business stood at a mix of 46%, 54% of the total revenue, respectively. While the domestic business recorded mid teen growth organically, strong performance of our acquired portfolio, that Nikhil mentioned earlier, helped maintain another quarter our INR400 plus crores revenue in the domestic business. JB Pharma’s international business continued its strong momentum and grew 28% year-on-year to deliver INR375 crores in Q2, on back of good performance in all the three business segments that is export formulations, CMO, and API.

Gross margins for the quarter were 63%, similar levels as last quarter, and compared to 65% in the previous year. The margin saw an impact of inflationary pressure on input costs and packing material cost and also impact of lower margins from Azmarda. As the quarter progressed, we witnessed further softening in areas like international freight. However the raw material costs largely continued to hold at elevated levels. The global scenario remains volatile. We are cautious and continue to monitor the situation specifically with respect to fuel and energy basis.

As we had mentioned earlier, we aim to maintain our EBITDA margins between 24% to 26% for FY ’23 with focus on revenue growth. During the quarter, our operating EBITDA for the quarter was at INR202 crores compared to INR140 crores and was a increase of 44% year-on-year. During the quarter, other expenses as a percentage of sales improved, despite normalization of marketing spend on a lower COVID base in the same quarter last year and higher utility and fuel prices.

As indicated in prior quarters, depreciation during the quarter was high because of amortization of acquired brands. Profit after tax for the quarter was at INR111 crores which is an increase of 13% from INR98 crores in quarter 2 FY ’22.

Lastly, on the cash flow front. For H1 FY ’23, the cash flows was steady. The borrowings of the business increased to INR350 crores compared to INR26 crores as of March ’22 on account of acquisitions. Cash and investments as at end of September ’22 was at INR203 crores compared to INR57 crores as at 31st March ’22. The strong cash flow momentum for the business continues and we are seeing a healthy conversion from EBITDA to free cash flows for the organization.

Our working capital metric, that is inventory and receivables, saw improvement vis-a-vis March ’22. We are confident that the cash flow momentum from operating business will continue.

With this, I may now request the moderator to please open the forum for discussion.

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. Rahul Jeewani from IIFL Securities Limited. Please go ahead. Rahul Jeewani, your line is unmuted. Please go ahead.

Jason D’Souza — Vice President of Investor Relations

I don’t think you unmuted his line. Can you check please again?

Rahul Jeewani — IIFL Securities Limited — Analyst

Hello. Am I audible?

Operator

Yes, you are audible.

Jason D’Souza — Vice President of Investor Relations

Can you speak louder?

Rahul Jeewani — IIFL Securities Limited — Analyst

Yeah. Thanks for taking my question, sir. Sir, can you please comment on what has led to strong growth in your acquired brands of Sporlac and Azmarda? You spoke about the fact that you are in the investment phase for Azmarda. So what are some of these investment measures which you are taking? And given the strong growth which we have seen on Azmarda this year, how do you view or how do you see this brand growing next year given the fact that Jan ’23 debating for Azmarda expires?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Rahul, overall, let me first answer your question on what is happening for Sporlac and Azmarda, what is happening on the ground. As what earlier we had commented that when we acquired the Sanzyme as asset there were three, four levers that we thought will help us in terms of inching up the revenues and improve the profitability, which has helped us. First-off that was overall synergy that we see in the prescriber base. We already have a experience of handling mass brands which is a combination of Rantac and Metrogyl which all has helped us to manage Sporlac brand very well in this last six to eight months.

Also overall, Sanzyme as a asset was under penetrated and under represented in many parts of the country. So in some parts of the country we have looked at in terms of how do we improve the share of voice with the help of team members on the ground. That also had helped us. And we have also got into some of the lifecycle management for Sporlac as a brand, not only Sporlac, but if you look at other parts of the Sanzyme asset that we have acquired which is a combination of specialized probiotic like Lobun, Oxalo, our infertility portfolio. Each part of that portfolio has given us good jump in revenue. So that has overall helped us for Sporlac and Sanzyme.

From a perspective of what is happening in the field of heart failure, I think the share of voice has overall improved with the team — strong team of 200 people on the ground. What we saw the opportunity majorly in the clinic of cardiologist in many of the big hospitals, getting into account point-of-care diagnostic for 2D and 3D echo more and-more patients getting diagnosed. Adoptions of patients to adhere to the therapy that overall has helped us in terms of what we started with when we acquired this brand was close to around 6 crore and 6.5 crore and today we have posted on 9 crore to 10 crores, so this is where we stand.

Post-LOE, what is going to happen? And this earlier also we have shared in terms of we will see an influx of around 50, 70 brands coming in. Overall, the cost of therapy will come down. Volumes over a period of time in next one year should go up by 2 to 3 times. So we see huge opportunity.

Talking more from a patient perspective, the suffering of heart failure in India is big. Around 12 to 15 million patients are potential sufferers of heart failure when we talk to the cardiologist and what data suggest. And today, only 10% to 15% of them are getting the treatment. So diagnosis looking at what more we can do, looking at how we can closely work with cardiologist as specialty that all things we have been doing and we’ll continue to do all those things. And that is where we stand with these two acquisitions what we have done.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. Just two follow-ups on Sporlac and Azmarda. So for Sporlac, have you launched the liquid probiotics which we — you were supposed to launch in the domestic market? And given the strong growth which we are seeing in Azmarda this year, do you think that this high base will become a headwind for us going into next year as far as as Azmarda’s growth is concerned?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

So let me answer the first part of your question. Second part of the question, Kunal will takeover. Sporlac, we have launched a couple of formulations. We have launched version of sachet, that is in the form of Sporlac GG, that is what we have launched. We have not — that also goes to pediatrician as a specialty only, that is where we stand. You will see us launching one or two more versions of Sporlac in the field of gastroenterology and women healthcare. That is what is going to happen with Sporlac as a brand.

Kunal, you would like to take the question on Azmarda, how things are going to shape up in post-LOE volume, pricing.

Kunal Khanna — President of Operations

Yeah. So on the Azmarda front, Rahul, yes, we have been able to significantly grow the brand over the last six months. But as we have maintained that given the overall potential which we see, even if there is some price erosion which will happen, we believe volumes will be able to neutralize a significant part of that price erosion, that’s point number one.

And the, second thing is overall, from a margin standpoint, we will still be at a better position despite this price erosion, because we’d be looking at local sourcing options. So that’s the key takeaway. Overall, it will just add to our profitability despite the price erosion because some level of that will get neutralized because of volume uptick and there will be significant benefits which we’ll get on the local sourcing upfront which will help us drive margins better.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. And my second question is on your CMO business. So last quarter we have indicated that the CMO business would see a sequential moderation in 2Q, but we have been able to maintain the momentum in 2Q as well. So how are you looking at growth in the CMO business going into — and for next year? Thank you.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

So fortunately, Rahul, CMO business what we have — what we scored the century in quarter 1, same continues to happen in quarter 2. And just to share with the group, I think we are placed in a sweet-spot if you look at order book for quarter 3 and quarter 4, so that is helping us.

See, overall, the strategy for CMO business is not for a quarter or not for a year. We are looking at long-term perspective. And earlier also I have shared that we want this business to be close to $100 million for us and we want this business to contribute mid to long-term 20% to overall JB business. So a lot of emphasis has been put in terms of what we want to do with this business in terms of new development of lozenges, looking at adding new partners in terms of where we stand, but these all things take time.

Quarter 3, quarter 4, what I can share at this moment of time, order book is healthy. And looking at next year, I think the fundamental work that we’re doing in this field should overall help us in terms of be better placed as compared to where we are today.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. And on the CMO business, have you been able to get any new clients in this business? And the product launches which we have been talking about on the CMO business, so some of those new launches have happened.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

So with existing partners we have added a couple of products that is what I can say at this moment of time. Adding new partners that has not happened, but that has got its own gestation period. As and when it happens, we’ll be more than happy to share.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. Thanks for answering my questions.

Operator

Thank you. [Operator Instructions] Next question is from the line of Rashmi Sancheti from Dolat Capital. Please go ahead.

Rashmi Sancheti — Dolat Capital — Analyst

Yeah. Thanks for the opportunity. Sir, again on CMO segment based on a really strong order book, now do you upgrade your guidance of CMO for the entire year? Here we had given 15% growth. And do you think that now the growth would be higher in this year?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

So growth would be higher as compared to where we stand and what we have guided. But also, Rashmi, what I shared earlier when Rahul was talking, please understand from where we are coming. This is a business that we do it many of our partners and this business we are not looking for a quarter or for a year. We are looking at it long-term perspective in this business.

Earlier also what I’ve committed that 60% of business should come from India formulation, short- to mid-term, and 20% of business mid- to long-term we are aiming that how do we at least get from the CDMO part of the business. So that is where we stand. So things have helped us in terms of post-COVID in anti-inflammatory backed-up lozenges are in good demand. But fundamentally, we want to strengthen the base of this business that is why some fundamental work what I shared in terms of the developmental work which is happening and with our teams at Daman and we want to extend our offering beyond the world of cough and cold that is what we are trying to do.

Rashmi Sancheti — Dolat Capital — Analyst

Okay. And sir, on the exports formulation, this time we have grown at least 17% during the quarter. If you can individually comment on each market like on US, South Africa, Russia then rest of the world. What is the kind of growth in CC terms we have seen? And how do we see these markets performing for the annually — on an annual basis?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

See, Rashmi, we don’t divulge the geography-wise overall performance. But just to share with you in terms of rest of the year you will see growth plus-minus near to mid teens in these markets. Overall, we have seen some demand coming back in BGF [phonetic] RoW market where the growth was flat. Here in quarter 2, we have seen double digit growth which gives us confidence that second half of the year combination of RoW, US, Russia, South Africa we should be able to show big teen growth.

Rashmi Sancheti — Dolat Capital — Analyst

Thank you, sir. That’s it from my side.

Operator

Thank you. [Operator Instructions] The next question is from the line of Abdulkader Puranwala from Elara. Please go ahead.

Abdulkader Puranwala — Elara — Analyst

Hi, sir. Thank you for the opportunity. Sir, just wanted to understand — yeah am I audible?

Operator

It seems the management is unable to hear us. Please be on the line while I check the connection. Thank you. Ladies and gentlemen, thank you for patiently holding. Abdulkader, we request you to please repeat your question. We have the management line joined with us.

Abdulkader Puranwala — Elara — Analyst

Yeah. Hi, sir. Thank you for the opportunity. Sir, two questions from my end on the India business. Sir you explained the key brands what you have acquired. But within the quarter how was the performance of the base brand of Cilacar, Rantac? If you could please throw some light there what is driving this growth?

And secondly, in terms of our MR productivity, so now that the India business seems to have crossed earlier threshold of INR100 crore per month run rate, where do we see the productivity inching up considering that there a little bit of MRs also added post the previous acquisitions? Thank you.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

So if you look at for the quarter, if you look at our exports part of the business that is Rantac and Metrogyl, they grew at a high single digit. And chronic part of the business if I were to talk about Cilacar, Nicardia and some of the — that grew at mid teens and that was in line with what we had planned.

In terms of productivity if I have to talk about this year — by the end of this year our MR productivity should be INR4 lakh to INR6.5 lakh that is where we stand. And from a addition perspective if you look at, we have added 200 people for our team for Azmarda, otherwise there is no addition of people on the ground. And we acquired Sanzyme as a business, there were 250 — closer to 250, 300 people who came in. So we have INR1,600 crores — 1,600 people organically who are working for JB as medical reps, 300 from Sanzyme and 200 from Azmarda. Total team stands to around 2,100 that is where we stand. So from a productivity perspective, this is what we want to achieve probably at the end of this year.

Abdulkader Puranwala — Elara — Analyst

Got it, sir. And just one final question on the CDMO. So sir, at this quarterly run rate of INR110 crores so what is the capacity which is currently under utilized for orders left?

Lakshay Kataria — Chief Financial Officer

See, purely from a capacity standpoint, we can go up almost 70% to 80% growth in what we are currently manufacturing. There are some packaging debottlenecking initiatives which are underway. But we have a very strong manufacturing capacity which can be utilized to almost double the business from where we stand right now.

Abdulkader Puranwala — Elara — Analyst

Understood. Thank you, and wish you all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tausif from BNP. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi. Sriram here. Sir, firstly on domestic business. I mean I think they are performing very well and we have closed three transactions this year and all seem to be doing either in line or better than expectations. How should we look at M&A transactions going forward? And any specific category that you want to strengthen further from hereon through acquisitions?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

So we are evaluating assets in terms of inorganic opportunities as and when it is coming. We would like — given a choice, we would like to acquire something in the world of cardiology, pediatrics, nephrology, respiratory that is what we have stated earlier. And the three assets that we have acquired have performed well as per what we were expecting. And we will — the ambition is with the right portfolio quality products that we have got we want in India to serve more and more number of patients.

You can — what I shared earlier that today from a prescription perspective we are 15th rank company. So with mass brands like Rantac, Metrogyl which we already had and now with Sporlac being there, we are able to generate 1.5 crore prescriptions in a month, close to 5 crore prescriptions in a quarter. So that overall is making JB as a company reaching all the corners of the country. And that we would like to do more and more in the coming time.

Unidentified Participant — — Analyst

Sure, sir. That’s helpful. And sir, for these businesses we don’t need to add any MR as such, right?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

No, no, no. We don’t need — actually eight to 12 months we need to add anything.

Unidentified Participant — — Analyst

Sure, sir. And secondly on export business, I mean it seems to be doing very good from the last two quarters. Possible to share what would have been the constant currency growth in this quarter? And any specific market that would have done much better for us which markets would have done better.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Sorry, what was the first line? Sorry.

Unidentified Participant — — Analyst

Constant currency growth in export formulations for Q2.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Lakshay?

Lakshay Kataria — Chief Financial Officer

Nikhil, I’ll pick that, yeah. So from a currency perspective, yes, we’ve seen some gains so you can look at maybe 5, 6 points being shaved off in terms of the currency gains, balance largely coming from the volumes, right?

Unidentified Participant — — Analyst

Okay.

Lakshay Kataria — Chief Financial Officer

Nikhil, you want to pick up the question on the markets?

Kunal Khanna — President of Operations

See, from the market side for our international business there are parts of Asia-Pac, Middle-East and Africa which will continue to be our growth and focused areas. Apart from these on the home markets front, we have, like Nikhil stated, on Russia, we are just very cautious. So it’s not that we’d be investing significantly there given the external market situation. South Africa continues to be a big growth driver for us both on the public and private side, and we see big opportunities for our South Africa business from a mid- and long-term perspective also.

So this is the overall summary on international. And as Nikhil mentioned in the commentary also, to further capitalize on our existing relationships there will be filings in these international markets which would really help us to commercialize new products in these existing markets over the next two to three years.

Unidentified Participant — — Analyst

Okay, got it. Got it. And lastly, on gross margins, I mean I think Azmarda is definitely impacting that. But how should we look at going forward, I mean assuming that the freight charges are now cooling off and maybe going forward raw material cost may also start normalizing? So how should we look at the gross margin going forward?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Yeah. Kunal, I’ll pick.

Kunal Khanna — President of Operations

Yeah.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

From a gross margin perspective, if you really look at it, I think, material cost as a basket we are not seeing significant cooling off. There are some pockets where aluminum, et cetera seen some softening. But I think again given the scenario in Europe, we are very watchful in terms of how things pan out. So as far as quarter 2 is concerned, we pretty much saw I think the elevated levels of material costs and that’s how we see things sort of going forward.

And from a perspective of the fuel prices and the freight prices, those sit in the other operating expenses. Those don’t necessarily impact the gross margins significantly. So I think the long answer short is, I think we continue to expect the cost side to continue to where it is right now from a quarter 2 perspective.

Unidentified Participant — — Analyst

Okay. Sure. That’s helpful. Thank you. Thank you so much.

Operator

Thank you. The next question is from the line of Shrikant Akolkar from AMSEC. Please go ahead.

Shrikant Akolkar — AMSEC — Analyst

Hi. Good afternoon. Thanks for the opportunity. Again, I have a question on CMO business. So this year we have benefited because of the cold and cough infections during the summer time. So I was wondering do you expect something like that benefiting in next year also?

Kunal Khanna — President of Operations

See, we are not too stressed about the cyclical variations, right? The important thing is, we are broadening our portfolio as well and we are working on lifecycle management for the big brands which we are currently supplying to our principal partners and going beyond the conventional cough and cold therapeutic segment. We have always maintained when we look at finished dosage formulation, lozenges as a category, we wanted to look at areas like immunity, sleep, motion sickness, all those things are underway, under development with our partners, not really restricted to cough and cold. So yes, this year certainly, one has seen an unprecedented demand surge because of demand in certain parts of Asia-Pac with our principal partners really picking-up. But as we look at the mid- and long-term investment opportunity we are certainly broadening our portfolio to mitigate any such dependence.

Shrikant Akolkar — AMSEC — Analyst

Okay. And then on the capacity utilization, you talked about 70% to 80%. So what is the goal to achieve? I think in terms of timeline what do you think cold to achieve?

Kunal Khanna — President of Operations

See, the way to look at it is, last year we were doing close to 4.5 to 5 crore lozenges per month. This year we are already managing close to 9 crore lozenges per month over the last three to four months, right? We can easily take this to almost 15 to 16 crore lozenges after debottlenecking of some packaging initiatives as underlined before.

Over the next two, three months itself, if demand holds then including manufacturing and packaging we would be in a position to do almost 12 crore lozenges per month.

Shrikant Akolkar — AMSEC — Analyst

Okay. And last question on Ranitidine. So we saw that coming out of price control. So if you can talk about what was the trigger to — for the government to take it out from the BPCMO [phonetic] [Indecipherable]. And how should we see next year whether you will take a good price hike in Ranitidine?

Kunal Khanna — President of Operations

See, there are certain — it was not Ranitidine alone which got out of the essential list. There were quite a few mature products, mass matured products, products like atenolol, right, which were — which actually came out of price control and the government could have given due consideration that if these are the products which are really reaching the last mile and if these products have already seen a significant hike in the intermediate and material costs which are very relevant for Ranitidine and if you see the material cost the way they have spiked up they have given due consideration. And any way the cost of therapy when you look at products like Ranitidine and Atenolol is these are the most affordable products. So the government may have given due consideration of how to ensure that the supply continuity and accessibility for these drugs remain, maybe moving them out of price control would be the prudent decision.

Apart from that, we cannot really comment on why their decision on this list of 20, 25 medications.

Shrikant Akolkar — AMSEC — Analyst

Okay. Okay. And last question with your permission is on Sanzyme’s IVF business. So if you can talk about the opportunity size and overall outlook that we have potentially competition also.

Kunal Khanna — President of Operations

IVF is a very competitive market. But having said that, we are looking at additions of products which go beyond the core IVF portfolio because we already have relationships with these IVF and IUI centers. For example, we also launched our product die hard [phonetic] Regestrone which you would have seen there was a monopoly by one of the largest multinational brands. And in the last 12 to 16 months there have been domestic companies who have been able to manufacture and source this product and have been able to establish reasonable presence and gain market share. We are also doing reasonably well. So we will continue to broaden our portfolio rather than only restrict to core hormone and IVF therapy to expand our presence on the Gynac side.

Shrikant Akolkar — AMSEC — Analyst

Okay. And finally, if you can reiterate the size — the opportunity size for the IVF business in India?

Kunal Khanna — President of Operations

It — the IVF overall it runs into close to INR1,200 to INR1,400 crore plus.

Shrikant Akolkar — AMSEC — Analyst

All right. All right. That will be all. Thank you so much. All the best.

Operator

Thank you. The next question is from the line of Cyndrella Carvalho from JM Financial Limited. Please go ahead.

Cyndrella Carvalho — JM Financial Limited — Analyst

Thanks for the opportunity. Just wanted to understand when we are looking at our prescription growth in the domestic market, how should we understand this from a little bit from brand level or territory level? What are the key drivers here which is driving such a high prescription growth for us? And what are the key strategies which are helping us here?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

See, overall, if you look at the market growth, Cyndrella, the market growth is also close to 40% and this is on a weak base of last year. But when you look at from a JB perspective, overall, our mass brands particularly in the first half of the year continue to do well because of the acute season dominant. We have a steady flow of growth for our chronic part of the business which is a combination of Cilacar and Nicardia.

But what has happened for JB that we were generating around close to — taking into consideration full portfolio we were earlier generating close to around 1.2 crore prescriptions. Now with the acquired portfolio we are able to generate 1.5 crore prescriptions every month and close to around 5 crore prescriptions in a quarter. So that is where we stand from a prescription perspective. Why I talk about prescription, because that is a fundamental to overall business that you do when you talk about your primary or secondary sale. And from a prescription perspective, we are 15th rank company and growing at a better pace as compared to industry. So that gives us confidence in terms of the portfolio that we have. The portfolio that we have acquired is making JB now a known company in the offices of medical practitioners.

Cyndrella Carvalho — JM Financial Limited — Analyst

That’s helpful. And if I understand in terms of our seasonality in the overall portfolio, again, from a domestic perspective, second half will be — how is the outlook for the second half from a seasonality perspective?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Quarter 4 will be somewhat — somewhere soft, but quarter 3 would be in line with — probably in line with what we have performed because now the mix also for us is somewhat we are trying to look at — not easy in short period of time to change the mix. But if you look at the chronic contribution which is now close to around 52% as compared to which was 45% around one, 1.5 year ago. So that is helping us in terms of bringing more stability to the business as compared to depending on the season.

Cyndrella Carvalho — JM Financial Limited — Analyst

That is helpful. And the last question, how should we look at the top line growth, I mean the amount of top line growth we are seeing? How should we look at it over two to three years time? We’ll have LOE also coming in plus this top line growth. From an EBITDA perspective how should we see it like going down, like buckling down to the PAT level? So any color on that because we understand that the cash level of course. But, any sense on that will be helpful. That’s it from my end. Thank you.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

So that aspiration is — now, what we’ll achieve will be shown over a period of time. The aspiration is that we should be growing at mid teens top line and profit should grow better than the top line. So 14% to 16% top line, 16% to 18% bottom line that is what we keep in consideration when we look at in terms of planning our budget and figures for next two, three years.

Cyndrella Carvalho — JM Financial Limited — Analyst

Thank you. That’s it from my end. Thank you so much.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Yeah.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rahul Jeewani from IIFL Securities Limited. Please go ahead.

Rahul Jeewani — IIFL Securities Limited — Analyst

Yeah. Thanks for taking my follow-up questions, sir. Now on the base business, in first half we have seen mid teens kind of a growth on the organic base portfolio. So if you can split that out between contribution from volume price and new introductions?

And with respect to some of the new therapies which you have entered, which is respiratory, pediatrics and nephrology. How has been the traction been in some of these newer therapy areas for us?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

See, overall, if you look at mid teens grow that we have achieved for H1, 6 — 7% to 8% would be price-driven growth, 5% to 6% would be volume-driven growth, and 3% to 4% will be their new production which are contributing to the growth. I can’t go in detail, Rahul, in terms of, but overall, that should share about the new portfolio that we have launched. They are helping us in terms of getting the prescription growth that I shared as compared to market in the clinics of chest physicians, pediatricians, physicians, nephrologist, that is what I can say.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. And would you like to comment anything on Sitagliptin? How that launch has been for us?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Very early. Very early. Three — two, three months. Very early to share about sitagliptin.

Rahul Jeewani — IIFL Securities Limited — Analyst

Sure, sir. And just a few questions for Lakshay. Sir, if we now look at your gross margins, your gross margins have stayed flat sequentially despite Azmarda growing very strongly during the quarter, which implies that your base business would have seen some sort of a profitability improvement. So how are you looking at your base business gross margins, ex of Azmarda going forward?

Lakshay Kataria — Chief Financial Officer

So like I mentioned, from a margin perspective, the costs have now, on the input side largely peak. We’re now expecting just to remain stable. And that’s how whether I look at base business or Azmarda, that’s how things will be. So peak costs are now into the P&L in Q2 and we see this going forward for Q3 and Q4 as well.

Hope, I have answered your question.

Rahul Jeewani — IIFL Securities Limited — Analyst

Yeah, sir. So sir, just on the imports from China what is the contribution to us? And I think we sourced Metrogyl’s API from China where we had seen significant cost escalations. So have we started seeing cost moderation on Metrogyl API as well?

Lakshay Kataria — Chief Financial Officer

We haven’t seen any moderation as yet on the Metronidazole API. In fact, the cost is very similar to what it was almost two to three months back.

Operator

Thank you. Next question is from the line of Kunal Randeria from Nuvama Wealth. Please go ahead.

Kunal Randeria — Nuvama Wealth — Analyst

Hi, good afternoon. Sir, just one clarification needed on Ranitidine. You seem confident that the government will not maybe ban this molecule. So is this based on your conversation with government authorities?

Kunal Khanna — President of Operations

See, with respect to Ranitidine, I think technically, there have been quite a few studies which have been done over the last three years, trying to link the NDMA levels with the carcinogenicity of this product, and all of them. And these are not studies which are being locally conducted. These are studies conducted by FDA and EU regulatory authority. And it’s clearly established that there is no risk of NDMA being linked to carcinogenicity for Ranitidine, right?

Ranitidine globally as well continues to be in the WHO GMP list. There have been some companies who may have kind of withdrawn the product because of their focus on PPIs versus H2RAs and given all the issues which happened almost four months back. But clearly, enough clinical evidence. This product has been there for almost 30, 40 years and the recent studies suggest that there is no cancer risk associated with the NDMA levels. The Indian government had never kind of intended to put any restriction on limitation on this particular product. There is certainly no linkage of this coming out of [Indecipherable] based future outlook of this product not being there in the market because this is not the only product which came out, it was backed-up with almost 25 products. So we really see no risk of that.

And in addition to that we have been taking a lot of initiatives to keep ensuring the NDMA is a inherent system issue which is not only there for Ranitidine but other molecules like Metformin and [Indecipherable]. So how can we improve that? We have been taking continuous improvement initiatives that API level we have kind of gone into non-detectable limits of NDMA. So those are the improvement initiatives which we are taking for the product as well.

Kunal Randeria — Nuvama Wealth — Analyst

Sure. That’s helpful. But just to maybe push you a bit more on this. See, because a couple of generic companies had sort of gone before $0.5 million kind of settlement with the litigant in the US…

Kunal Khanna — President of Operations

I mean those settlement litigation, clearly, those large pharma clearly represented what the scientific findings would and kind of fought against those — fought against the litigation which was there. And in fact we also hear that some of those same names want to kind of pursue the product once again given the recent findings from these studies.

Kunal Randeria — Nuvama Wealth — Analyst

Got it. That’s helpful. Thanks a lot.

Operator

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

Sayantan Maji — Credit Suisse — Analyst

Yeah. Thank you. Yeah. Sir, I have couple of questions. So first is on Cilacar. So in Cilacar have we seen any expansion in coverage among the cardiologist? And is there any plan to scale this up as well given that this is a large opportunity for us?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Not only at the level of cardiologist but equally the opportunity lies across specialty when we talk of majorly our people on the ground, a team of 500 people. When they promote Cilacar, they are promoting to cardiologist, physicians, nephrologist. And also, I’m happy to share that in patients with — patients who are suffering with — who are diabetic hypertensive, Cilacar team which is a combination of cilnidipine and telmisartan is a drug of choice. And if you look at IMS figures, this brand is now close to 120 crores and growing at a pace of 30% than what I shared that it has now gained 76 ranks in last one year. So, it has become a drug of choice, equally teams have been working closely not only with the healthcare professionals but also with the consumers in terms of how do they adhere to therapy for long-term benefit.

So we’ll continue to look at how do we — how do more and more number of physicians, when I’m talking about physicians that is doctors adopt this brand and at least that can be helpful to more and more number of patients who are suffering from hypertension.

Sayantan Maji — Credit Suisse — Analyst

Okay. Got it. Sir, is there — so basically what I was hinting at is, is there any benefit that we can leverage from promoting a smarter and leverage the relationship with cardiologist to promote the assessment? So do you see any initial indications with…

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

100%. If you look at the medical fraternity and with what we have done in the era of heart failure, the agenda going ahead is to prevent the progression of hypertension to heart failure. So it’s a combination of Cilacar and Azmarda where our teams have been working together and at least help overall the patients who are suffering who are undiagnosed hypertensive or who conceptually are — hypertension is not controlled and that has to be prevented to go into the era of heart failure. So this acquisition of Azmarda and now the number of patients that we are catering to has overall helped us to improve our presence in the world of hypertension. And this will happen more in the coming time.

Sayantan Maji — Credit Suisse — Analyst

Got it. No that’s helpful. My second question is on the new divisions respiratory and pediatrics. So in respiratory, we had few launches. We had launched nintedanib and acetylcysteine, which is Viscojoy and Dispred. So has there been any further launches or are we planning to scale these molecules up and grow these in this particular therapy?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

If you look at couple of launches that we have done, that is, one is N-Acetylcysteine as a mucolytic agent, our brand Viscojoy and the combination of N-Acetylcysteine with Acebrophylline Viscojoy AB that we are now at a run rate of around 50 lakhs — it’s close to around INR6 crore brand. Equally, anti-allergic which is a combination of Montelukast levocetirizine which we have formulation for tablets, syrup, Akair LC which is also now close to around INR6 crore run rate a year. These two brands have done fairly well.

Dispred we have launched a new line extension in the form of 16 milligram that also is helping us in terms of the family now which is available in the Methylprednisolone. Also, we are ventured into the world of nebulization with half a dozen nebulized products that we have launched in the field of respiratory. At that traction you will see in the season time probably from November to Feb that should help us to reach the revenue.

Sayantan Maji — Credit Suisse — Analyst

Understood. And for pediatrics, the key brands right now are Rantac syrup and the Sporlac what we have launched right now. So…

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Rantac is there. We have LAXOLITE. We have Zecuf syrup. We have half a dozen formulations. Now also what the brands that we have acquired from Dr. Reddy’s which is a combination of Z&D and also antibiotic Pecef, so we have now a good mix of portfolio which our teams have been going and we cover close to around 25,000 to 30,000 pediatricians. JB as a company is now in the field of probiotics, is in the field of supplement in the form of zinc, antibiotic. Rantac syrup. So we have got a good mix of portfolio. And overall, we are getting good traction in terms of prescriptions from pediatricians as a specialty. And this should only improve.

Sayantan Maji — Credit Suisse — Analyst

Got it. Got it. Okay. That’s all from my side. Thank you so much.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Thank you.

Operator

Thank you. The next question is from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead.

Sonal Gupta — L&T Mutual Fund — Analyst

Excuse me. Hi, sir. Good afternoon, sir. Thanks for taking my question. So just wanted to ask one on Azmarda given that the LOE is in January. So do we see a couple of months of no primary sales ahead of that? I mean so this quarter could — Q3 could be impacted as a result of that and then post whatever pricing settle — I mean you could launch with newer price post the LOE? How do we see the cadence there?

Kunal Khanna — President of Operations

So there may be a cooling period for 10 to 15 days, but not to the extent as stated by you, a couple of months. We will certainly have a cooling period to ensure that the stock which is there in the market gets liquidated and then we refill the channel with the newer prices. The good thing about this product is that there is a very strong secondary velocity and demand. As a result of which, the channel does not carry a significantly high inventory. So whatever cooling period will be there, we’ll try to restrict it to a couple of weeks and then see how the on-ground situation spans out.

Sonal Gupta — L&T Mutual Fund — Analyst

Got it. Got it. And just on the headcount, just a clarification. I think previously you’ve mentioned about 2,500 MRs, now you’re stating 2,100 just clarifying on that number.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

2,100 plus…

Kunal Khanna — President of Operations

The managers.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Yeah, plus the managers.

Kunal Khanna — President of Operations

So the actual front-line sales force is 2,100 plus you have the managers which comprises of area managers, regional managers and zonal manager. That’s the general industry norm.

Sonal Gupta — L&T Mutual Fund — Analyst

So I mean like — because my understanding was the breakup was like 2,000 for JB and then 300 for…

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

No, no, no. I will tell you. I just clarify it. 1,600 for JB around, and around 300 for Sanzyme and 200 for Azmarda. So 2,100 is a number when we talk of medical and the industry practices that you calculative per person productivity depending upon your front-line reps.

Sonal Gupta — L&T Mutual Fund — Analyst

Got it. Yeah. Okay, sir. Great. Thank you so much.

Operator

Thank you. We take the next question from the line of Rajat Sethia [phonetic] from iThought PMS. Please go ahead.

Rajat Sethia — iThought PMS — Analyst

Hi. Thanks for the opportunity. Sir, we did INR434 crores in domestic business this quarter. What would this number be without considering the acquisitions?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

This is full business that we have reported which is a part of — that is what we have reported.

Kunal Khanna — President of Operations

So if you’re asking actually essentially the contribution of organic versus inorganic acquisitions, broadly you can — our acquired portfolio around then to close to INR82 crores to INR84 crores. That’s the number.

Rajat Sethia — iThought PMS — Analyst

Okay. Understood. Thank you so much. And the other question was about the ESOP cost that we will be incurring in FY ’24 and FY ’25.

Lakshay Kataria — Chief Financial Officer

So — can you hear me?

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

Yes, yes. Yes, Lakshay.

Lakshay Kataria — Chief Financial Officer

Yeah. So basically, this quarter we had a cost of roughly about INR18 crores. This fiscal will be about roughly INR71 odd crores. And as we had guided earlier, you will start seeing a step decrease in the ESOP cost. So next year should be in the range of INR38 crores to INR40 crores and then maybe INR25 crores to INR30 crores in the following year. So you will see a step-down improvement in the ESOP cost.

Rajat Sethia — iThought PMS — Analyst

Understood. And what will be the total number of shares — increase in total number of shares because of the ESOPs?

Lakshay Kataria — Chief Financial Officer

If you look at the overall scheme that the Board has approved, it’s roughly about 3 million shares.

Rajat Sethia — iThought PMS — Analyst

3 million shares. Okay. And sir, on the debt side, what are the debt metrics that we will look at now that we have become a net-debt company for the first time and we still have our plans to acquire new brands and maybe full-fledged companies as well? So what kind of debt levels we will — and no debt levels, but the kind of, let’s say, debt metrics like debt to EBITDA or debt to equity we would like to limit ourselves to?

Lakshay Kataria — Chief Financial Officer

So, I can’t give you a specific number. But, I think directionally, what we can tell you we’ll be very, very conservative to the usual industry thresholds on debt to EBITDA. We do not want to stretch our balance sheet too much. And we have a reasonably good cash generating business. If you look at our first half, we’ve generated almost INR280 crores of cash from operations. So we will look at how do we get a good balance of own generated capital and debt to fund most of the growth.

Rajat Sethia — iThought PMS — Analyst

Okay. And finally, we are also open to acquire full-fledged companies or we will continue to acquire smaller size brands or part of the companies?

Lakshay Kataria — Chief Financial Officer

We are open to acquiring companies as well. It is a matter of what opportunity sort of comes our way and that makes strategic and financial sense.

Rajat Sethia — iThought PMS — Analyst

Okay. All right. Thank you so much.

Operator

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to, Mr. Jason D’Souza for closing comments. Thank you and over to you, Jason.

Jason D’Souza — Vice President of Investor Relations

Thank you. Thank you, Aman. I would like to just hand it over to Nikhil Chopra for any closing comments.

Nikhil Chopra — Chief Executive Officer, Whole-Time Director

First of all, thank you all for attending the conference call. And we’ll continue to focus on our entire strategy that we have spoken earlier in terms of how — along with the revenue drivers which are there in-place in terms of top line, in terms of EBITDA, profitability which we aim always [Indecipherable] growth. Also what we have kept in mind in terms of how do we look at improving the productivity and also looking at the cost optimization initiatives which are fully in-place which will only help us in creating strong operating leverage which will help us to maintain our margins in an environment which you all understand is full of headwinds. And we’ll continue to engage with you in the coming time in our conference calls and would like to update you in terms of what has been happening in the company.

Net-net, as a company we want to create value for our stakeholders, our shareholders and look at how more and more JB as a company we can serve more and more number of patients in the coming time with quality medicines coming from doubts [phonetic] of JB. Thank you, all. Thank you all for patience hearing. We’ll be connecting in our coming conference call with all of you.

Operator

[Operator Closing Remarks]