Lupin Ltd (LUPIN) Q3 FY23 Earnings Concall Transcript

Lupin Ltd (NSE:LUPIN) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

Corporate Participants:

Vinita Gupta — Chief Executive Officer

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Nilesh D. Gupta — Managing Director

Analysts:

Prakash Agarwal — Axis Capital — Analyst

Saion Mukherjee — Nomura — Analyst

Damayanti Kerai — HSBC — Analyst

Surya Patra — Analyst — Analyst

Neha Manpuria — BofA Merrill Lynch — Analyst

Niteen Dharmawat — Analyst — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Bino Pathiparampil — Analyst — Analyst

Shyam Shrinivasan — Goldman Sachs — Analyst

Nitin Agarwal — DAM Capital — Analyst

Madhav — Analyst — Analyst

Presentation:

Operator

Welcome to Lupin Limited Q3 FY ’23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to the management. Thank you and over to you.

Vinita Gupta — Chief Executive Officer

Thank you. Good afternoon, friends. I’m very pleased to welcome you to our Q3 earnings call. I have with me our Managing Director, Nilesh, as well as CFO, Ramesh. As you would have noted, we have continued to build on our momentum in Q3 both on revenues and in particular on margins. I am very pleased that in Q3, our U.S. business performed well, India business growth improved, and API business rebounded as well. On the margin front, we saw the benefit of NPLs in the U.S., seasonal product upside as well and continued savings from our optimization measures. We are focused on sustaining this positive momentum in particular as material new product launches start and our recent investment in our sales force expansion in India starts yielding results.

I will let Ramesh talk through the performance in deeper detail. I would like to share some of the business highlights though. In the U.S., we are still continuing to evolve our business with optimization of oral solids, driving growth of complex genetics, respiratory franchise in particular and executing on our new product launches. During the quarter, our in-line business was almost flat with slight decline due to exit from low-margin products, offset almost completely by seasonal products. New product launches in the year contributed well in the quarter with [Technical Issues] ramping up, Perforomist generic’s successful launch and Pennsaid authorized generic launch. Our respiratory franchise strengthened with albuterol’s continued strong performance, addition of Brovana and Xopenex brands as well as generic Perforomist launch.

As we look at the quarters ahead, we expect new product launches like Spiriva, Diazepam Gel, Nascobal nasal spray and Darunavir, all products where we have either exclusivity or first-to-market position, will drive growth of our U.S. business in a profitable manner. Once Spiriva, we continue to make progress and have received priority review from the FDA for a target action date in April without inspection or July with inspection. In the meantime, we are getting ready with launch preparedness. We continue to see tiotropium as a substantial opportunity for fiscal year ’24 with a significant runway given the competitive dynamics. Products like Diazepam Gel and Nascobal, we now hope to see approval soon given the recent successful Somerset audit. Our U.S. generics business has come a long way in calendar year ’22, still a long way to go. However, with the new product launches coming in, continued optimization efforts, focused efforts on building [Technical Issues] inhalation as well as injectables pipeline. We are optimistic that we will grow our U.S. business in the next couple of years.

Switching to India, the largest part of our business, while our growth in the quarter and first half has been below market, this is primarily due to loss of Cidmus from our cardiovascular portfolio and genericization in the diabetes segment in the gliptins. But for the diabetes portfolio, our growth in Q3 was in line with market, with therapeutic areas like cardiac, GI, respiratory all delivering double-digit growth. Our gynecology and GI have actually been the fastest-growth therapeutic areas for us. This quarter, we have added close to a 1,000 reps, created six new divisions to expand our reach and [Technical Issues]. We expect our investments to get us to above-market growth in the quarters ahead. We are committed to growing our India business to double-digit growth in the quarters ahead.

Other than India and the U.S., our API business recovered with the growth in cephalosporins. And in other countries like U.K., on the back of [Technical Issues] generic and Germany due to [Indecipherable] grew well as well quarter-over-quarter. On the margin front, we expect continued improvement in particular as we execute on new product launches and our recent investment in India — in the sales force in India starts yielding results. Likewise, we continue to focus on cost optimization efforts. While we have been successful in optimizing our manpower costs, we have been very disciplined in getting out of low-margin products that have not allowed us to optimize our idle costs. Nevertheless, we are confident with the efforts that we have underway, we should be able to move the needle on this front in the quarters to come as well. On the compliance front, we have made progress with positive outcomes on sites like Ankleshwar and Nagpur injectables and Somerset. We’ve also made substantial progress on our remediation efforts in Tarapur and [Technical Issues]. The recent approval of our Nagpur injectables facility will enable us to start building organic injectables portfolio in full earnest. Overall, we are moving in the right direction. We expect the pace to get better as we execute on our material new product launches in the quarters ahead.

With this, I will hand it over to Ramesh for deeper analysis of our performance.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Thank you, Vinita, and good afternoon, friends.

Sales for the current quarter were INR4,244 crores as compared to INR4,091 crores in Q2 FY ’23, a growth of 3.7%. On a year-on-year basis, the growth was 3.8%, whilst the previous sales were INR4,087 crores. The U.S. business — in the quarter, the U.S. business registered 11.2% growth in local-currency terms on quarter-on-quarter basis [Technical Issues] that the new product launches in the U.S. generics business and brands acquired from Sunovion. On a year-on-year basis, revenue declined by 12.3% in local brands with price erosion in top brands like [Technical Issues] albuterol and famotidine. We launched four new products, [Technical Issues] tablets in Q3 FY ’23, bringing the total NPLs to eight for the year. NPLs contributed $20 million in Q3 revenue. India region — India branded formulations business declined by 3.4% in Q3 versus Q2, whilst on year-on-year basis, sales grew by 2.6%. The overall market growth during Q3 was 10%, whilst Lupin grew by 7.5%. Loss of exclusivity and generalization in the anti-diabetics portfolio has impacted growth rate of Lupin as [Technical Issues] portfolio held by Lupin in the anti-diabetes is close to 55% of the anti-portfolio. As you know, [Technical Issues] cardiovascular, diabetes and respiratory. Apart from that, gynecology and GI, they are also doing very well and they are growing, in the case of gynecology by 19.7% and GI by 16.1%.

API. API business sales grew by 12.7% quarter-on-quarter as core cephalosporins API sales recovered during the quarter. Year-on-year basis, sales growth was 9.8%. On the EMEA front, revenue growth of 11.1% year-on-year basis while strong performance of [Technical Issues] in Germany as registered. Sales [Technical Issues] markets grew by 23.5% [Technical Issues] Q3 FY ’22 and declined by 5.9% vis-a-vis the previous quarter.

Gross margins. Q3 FY ’23 gross margins are 59.8% [Phonetic] as compared to 58.1% in the previous quarter. This is mainly due to U.S. margin improvement, better product mix and reduction in freight rates. As compared to Q3 FY ’23 [Phonetic] gross margins, the slight margin is due to reduction in [Technical Issues] freight offsetting the impact of [Technical Issues] in the U.S. market and of course inflation pressures on the cost front. On the employee benefit front, FY ’23 — Q3 FY ’23 was INR764 crores vis-a-vis INR771 crores in the previous quarter. There is a marginal decline on quarter-on-quarter basis [Technical Issues] payments made in the last quarter. We had highlighted this in our last earnings call as well. On an ongoing basis, we expect employee costs to be in the range of 18.5% to 19% of sales as we build our sales force in India. A minute ago, I just spoke about that. A lot of people have been asking about our manufacturing other expenses spend. I also [Technical Issues] to say that there is indeed a onetime expenditure base increased by about INR40 crores, which will potentially come down next quarter that could also perhaps in some base be offset by perhaps an R&D increase next quarter.

EBITDA margins. Operating EBITDA excluding FX and other income is 12.2% in Q3, a quarter-on-quarter growth by 160 basis points because of higher sales, gross margins and cost control. Normalized ETR is expected to be 35% as a few subsidiaries like Eli, LOI, Digital and Healthcare [Phonetic] continue to have losses.

On the balance sheet front, there has been a lot of optimization that we’ve been working on and working capital operating base will lower by 5 working days.

With this, may I have the pleasure of opening this floor for discussion.

Questions and Answers:

Operator

[Technical Issues]. Thank you very much. [Operator Instructions]. So, the first question is from Prakash.

Prakash Agarwal — Axis Capital — Analyst

Yeah, hi. Am I audible?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yes. Prakash.

Prakash Agarwal — Axis Capital — Analyst

Yeah, hi, good afternoon. Just wanted to check on the U.S. run rate. We had fairly good launches where we have couple of one AG and recent launches and we also acquired the two decent size products. Just wanted to understand and the season of — season was also good. I think the flu season was good that the companies have reported market share gains. Would you — were you satisfied with the U.S. performance or we made some contracts or how do you think about it as a base business now?

Vinita Gupta — Chief Executive Officer

No, we were satisfied with the performance, Prakash. On the one hand, we should never be satisfied with the performance, but it’s come a long way in the last couple of quarters, the business — both the base business and the in-line [Phonetic] business as well as new product launches have contributed very nicely for the quarter. I’d say that the impact of the flu season products [Technical Issues] obviously as the flu season recedes, which has already started, one will allow see some decline on that front, but the team continues to work on this, now with $170-plus million run rate with the current products until we can get additional new product launches like tiotropium and the like.

Prakash Agarwal — Axis Capital — Analyst

Okay. I mean, so it’s full-quarter benefits of these launches as well as the acquired assets is what I was trying to understand, and you are saying that, yes, it had full-quarter benefits.

Vinita Gupta — Chief Executive Officer

No. I wouldn’t say it’s full-quarter benefits because we’ve had the brands only for a couple of weeks in the quarter and also Perforomist launch was — yeah, we had two months rather, the brands, [Technical Issues] we had some upside opportunity that we were able to capitalize on because of supply issues of some of our competitors. So, I’d say you will — we’ll see an increase from the brand products, but we’ll probably see a normalization on Perforomist.

Prakash Agarwal — Axis Capital — Analyst

Okay, got it. Fair enough. And secondly on Spiriva, so what I heard was April — the TAD date is moved a bit to April, which is with inspection and June without inspection. If you could just give more color, what does it mean? So, the TAD date is like what kind of color on the queries that has come in and without inspection means that if they don’t come by June, would deem it to be approved or how should we think about that?

Vinita Gupta — Chief Executive Officer

So it’s actually the other way round, Prakash. It’s April without inspection and July with inspection. So the FDA decides that they want to come and inspect, then the TAD date will be July, but if they decide that they don’t want to inspect, which is very hard for us to predict the agency would inspect or not, then it’s going to likely be April, and we are hopeful that we can expedite it as much as possible just given that — our back-and-forth with the agency. Majority of the disciplines have been closed, CMC, PGE [Phonetic] and — disciplines have been closed. I believe that quality is still pending. And that’s why I say it is either April or July.

Prakash Agarwal — Axis Capital — Analyst

Okay, okay, and lastly on the cost side, I think Ramesh did mention that there is a INR40 crore one-off, but even if I strip that off, that cost is fairly high even then. So — and I understand there’s a — 1,000 people have been added, so incrementally SG&A, traveling, marketing will increase from here. So first is, why the jump? I mean, apart from normal inflation, is there anything else that has increased? Or is it maybe Forex as well? And how do we see this number moving going ahead?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

There is of course a slight impact because of Forex because there is a rupee depreciation and we need to translate expenses outside the country, it does happen that way. But the large chunk of it is actually coming in because of the fact that you have had higher travels and I also told you in Q2 there was a shift to in fact our payroll expenses which has shifted backyard. To that extent, it has kind of normalized out here. There has been a higher component in terms of litigation spends and the like as well. So, all of this has actually contributed. Whilst — your question actually comes in from the fact that what did we do on the optimization plan, I rush to tell you that we have been doing a lot of work on that. To be honest, a lot of it actually happens at the gross margins line itself. And that is in terms of routes to synthesis [Technical Issues] development and the like. And apart from that, but this has also been in some ways eroded by higher inflation out there. Apart from that, there were inefficiencies across various lines. And at the start of the year, we spoke about in fact trying to address the manpower situation at the factory level. We have been pretty successful there and it’s captured in some ways the staff cost itself. There are other lines where we have been extremely successful. But there are parts which we couldn’t do much, because the fact that volumes did drop. We had to take write-offs in terms of inventories that we had and plus of course issues that we had on the impurities front itself. So whilst the initiatives are still on, there have been mixed results. But you’ll certainly see a lot more of this bearing fruit in the quarters to come.

Prakash Agarwal — Axis Capital — Analyst

Okay, so I wanted — EBITDA margin guidance of exit rate of 16% to 18% with cost increasing and [Technical Issues] moving out to next quarter changes, right?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

In a sense, yes. So if are talking about specifically quarter four, it would be in the same line, in the same range as the current quarter. But once we actually have the top line moving, which will potentially happen once we have Spiriva coming in and of course, we’ve got [Technical Issues] and others, you could expect in fact that — obviously impact to bottom line as well. We will continue to work on the cost lines as well, but I think we’re really banking on the topline to shift to actually — to see a real shift in the — on the EBITDA front.

Prakash Agarwal — Axis Capital — Analyst

Okay, lovely. Thank you and all the best.

Operator

Thank you very much. The next question is from Saion Mukherjee.

Saion Mukherjee — Nomura — Analyst

Yeah, hi. So, sir, just to carry forward the question, I mean you’re banking on topline to deliver the margins, but it’s a handful of products. So you have Spiriva. In case that gets further delayed, what’s your outlook on margin in that case? And in that context, it is important to understand in some granular detail what is the kind of cost control initiatives the Company intends to take because banking on U.S. revenues and that too is a handful of products, there can be potential risks to that because the margins are very low at this point.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yeah, so I also recognize that, we also recognize that in [Technical Issues], Saion. So if the topline doesn’t move, then potentially we still have to work on various initiatives on the cost front. And there are several things that you still can, for example, there is an element of [Technical Issues] coming in because of the fact that if they are impurities and we are not able to supply, that is actually impacting in some ways the bottom line itself. There were write-offs that we have taken during the course of this year, but those are lines that you still can work on, apart from in fact the footprint that we would reduce in case there is further volume drop. So we would — so it has to be in some ways iterative process. We need to kind of weigh the pros and cons of potentially when would the top lines start moving and then potentially work on other items as well. Specifically, when it comes to India region, yes, we are going to add more people, but we are also working on productivity. So whilst there is going to be an increase in overall expenses, we also believe that there is going to be commensurate increase in the top line. So, there would be — so at the very least what I do expect is that if Spiriva and other products are going to get delayed, the expense lines will certainly — will go down that path in terms of reducing, that would of course shift the EBITDA margin — EBITDA line in some way, not [Technical Issues] that the topline can really move it, but [Technical Issues] because of the reduction on the expense front itself.

Saion Mukherjee — Nomura — Analyst

Would you like to talk about material rates as well?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yeah, so [Technical Issues] talk about, there has been an increase in cost of production because of that and which is really impacting in some ways the gross margin line, but better sales mix and of course reduction in terms of other — the airfreight and others actually brought in some benefit there. And that’s reflected in the gross margin increase this time around.

Saion Mukherjee — Nomura — Analyst

Yeah. Ramesh, you were — used to talk about I think INR500 crores of savings. I mean, there was a number which you talked about earlier.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yes.

Saion Mukherjee — Nomura — Analyst

I mean, is that number still valid, and how much have we already achieved, and how much is left? I mean, if you can give some color as to how much more, just from a cost perspective, one can expect?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yeah, so, the INR600 crores really could be broken down into six or seven buckets, so to speak. We achieved a lot of success in at least three or four of them, whilst two of those, we were kind of stymied because the fact that the volumes dropped and there were write-offs and the like. So overall, I would say that it’s mixed results, so at least about 50% to 60% has been achieved, but where we have not achieved would also significantly alter the balance. So we’re still working on those. And it’s not as if it will never get achieved. It will get achieved. It is only a question of time. And that would actually kind of round off the full complement.

Saion Mukherjee — Nomura — Analyst

Okay, just one last question, just a clarification on the new product contribution, $20 million, I think you mentioned. This includes the acquired brands. And also if you can indicate what’s the exposure to the U.S. market from the Mandideep facility in terms of revenues?

Vinita Gupta — Chief Executive Officer

[Technical Issues] the largest part of it is [Technical Issues] Perforomist, Pennsaid and two months’ worth of the brands.

Nilesh D. Gupta — Managing Director

Exposure to — from Mandideep to U.S. revenues is [Technical Issues] 10%. I’m not sure if it’s sub 5%.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yeah. So what we really are looking at is [Technical Issues] suspensions of it in terms of [Technical Issues] products out there.

Saion Mukherjee — Nomura — Analyst

Okay, thank you.

Operator

Thank you very much. The next question is from Damayanti Kerai.

Damayanti Kerai — HSBC — Analyst

Hi. Am I audible?

Operator

Yes.

Damayanti Kerai — HSBC — Analyst

Okay, great, thanks. Thanks for the opportunity. So coming back to cost, first few clarification, so you added 1,000 people in your India sales team. So, when did this addition happened because sequentially we haven’t seen much in the staff cost. And then, you are planning to add on more people, so how many potentially could come in and when do you expect these new people to start contributing meaningfully? So what we understand is it takes around one and a half to two years, so are you expecting a similar timeframe?

Nilesh D. Gupta — Managing Director

Sure. [Technical Issues] from November and in this quarter, we will complete the addition, and large part of that is really in this quarter that we’re adding. We’re creating six new divisions out of that and part of this is just the fact that we are under-indexed in India as far as our sales force is concerned. So you’ll see — we’ll see some impact this quarter. But as you know, we’ve also been growing below the industry average in the last few. And that is changing, so I already see that minus in-licensed portfolio, we are already at market growth rate. Even after adding these people, we will see further acceleration of our growth [Technical Issues]. My expectation is that from the second quarter, we will be growing overall at a rate faster than the market.

Damayanti Kerai — HSBC — Analyst

So, Nilesh, how many people are left to be added? So, 1000 are done, right? [Speech Overlap].

Nilesh D. Gupta — Managing Director

Yeah. They are almost [Technical Issues] entire number is largely done.

Damayanti Kerai — HSBC — Analyst

Okay, but impact of that is not getting reflected in staff cost, right? What we have seen is mostly similar, so [Speech Overlap].

Nilesh D. Gupta — Managing Director

Yeah. I think there was some small number, which was added in this past quarter. In Q4 is where you’ll see some impact of the staff cost addition. That also is staggered through the quarter. And then, it gets baked into the numbers from Q1 onwards.

Damayanti Kerai — HSBC — Analyst

Okay, Q1 onwards. Second, Ramesh, you mentioned four quarter — sorry, third quarter number obviously had one-off and then you were seeing, if we moved to fourth quarter, that one-off might come down, but you were saying R&D will catch up because third quarter was [Technical Issues], so should we assume broadly similar other operating expense cost to continue?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yes. I think it will be more or less the same range. [Speech Overlap]. It will come down a little bit in terms of SG&A expense that we can control, but broadly around this. [Speech Overlap] Employee costs go up a little, but that’s on a different line.

Damayanti Kerai — HSBC — Analyst

So if I just look at the cost and that we wait for [Technical Issues] key approvals to come in, when we should be seeing, I’ll say, notable benefits coming from all the efforts, which you have been doing on the cost front for last several years.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

So that’s exactly what I was trying to explain. So we were stymied for — because of reasons beyond our control, which is really about in some ways the volumes dropping and because of write-offs and the like and those buckets we would be addressing. So these are not going to continue forever. These are systemic issues that we kind of face, which we have addressed. Those will get corrected. So if you are talking about the total quantum of INR600 crores benefit flowing in, it could have flowed into the P&L by the time we are through with this.

Nilesh D. Gupta — Managing Director

[Speech Overlap] more specifically, I think Q2 onwards, we would see improvement in performance [Technical Issues] some of which is optimization that would kick in as well. That’s what we see and obviously, tiotropium will only further improve that picture.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yeah.

Damayanti Kerai — HSBC — Analyst

Okay. My last question is on India [Technical Issues] so diabetic portfolio, obviously we have seen genericization, but with more sales people coming on board, which segments you are focusing, which can really help you to outpace to our market growth in coming few quarters?

Nilesh D. Gupta — Managing Director

So, our big therapy areas are diabetes, cardiovascular, and respiratory, and these are the three areas that would grow as well. So, while it is a point of time, the diabetes market is also bouncing back. In addition, areas like GI, areas like women’s health are growing strong double-digit as well and these are areas that we would accelerate as well.

Damayanti Kerai — HSBC — Analyst

Just I think to clarify, on diabetes, are we relying more on say improved penetration because maybe like there are some new launches lined up, but are you relying more on volume penetration to pick up pace?

Nilesh D. Gupta — Managing Director

Definitely, the market is [Technical Issues]. Unfortunately, India is the diabetes capital of the world, so I think that market potential is always there. Value wise, it is [Technical Issues] at this point of time because of the genericization of multiple products in the diabetes portfolio for the market itself, right, so it is the only segment that is really growing at at best single-digit kind of thing in the Indian market and if it is going to bounce back for the market, it is going to bounce back for us as well.

Damayanti Kerai — HSBC — Analyst

Okay, thank you. I will get back in the queue.

Operator

Thank you very much. The next question is from Surya Patra.

Nilesh D. Gupta — Managing Director

I think you are on mute, Surya.

Surya Patra — Analyst — Analyst

Oh, yes. Sorry. Thank you. Thanks for this opportunity, sir. My first question is on the kind of a potential profitability that we can exchange over next one- to two-year period. So practically, having seen the pricing pressure in one of the key complex product, what we have been waiting for, let’s say albuterol and other respiratory products. So now our focus has been, obviously, on the complex generics, and we have been spending a lot. But we are also visualizing that — or seeing that the kind of pricing pressure as well as competition where the complex products are also witnessing. So considering that, are you confident enough to achieve what you have been trying to fetch from the complex portfolio going ahead?

Vinita Gupta — Chief Executive Officer

We’ve already started seeing the benefit of the complex products, just a couple of products like albuterol, about how much they benefit from a profitability standpoint. We cannot wait for our portfolio to be rolled up completely and Spiriva gets approved. The potential of Spiriva is substantial, both on top line as well as bottom line and we will execute on these opportunities. Meanwhile, until they get delayed, one feels uncertain about them, but the fact is our team is working 100% to get these products approved and launched. And as we look at launching these products that will really help us both the top line as well as the margin profile and we feel confident of getting to that within the next couple of years to 17%, 18% EBITDA level.

Surya Patra — Analyst — Analyst

But whether you are happy to achieve whatever the profitability that you have achieved in case of albuterol ma’am, because that is the concern [Technical Issues] that was a key product and we have been targeting certain level of market share there. We achieved everything, but that has not influenced anything at all to our overall profitability although there has been incremental competition, incremental challenges [Technical Issues] that has come up, but still given the scenario whether we should see a kind [Technical Issues] whether the kind of profitability that we are trying to achieve, will that justify the kind of money that we have been spending on the complex portfolio?

Vinita Gupta — Chief Executive Officer

I would say that actually albuterol [Technical Issues] challenges of the oral solids portfolio [Technical Issues] on the oral solids portfolio, and as we look out the next two years, we are expecting that albuterol will have some price — pressure price erosion and that we are factoring in new products that we bring into the market that will help us bolster the top line and bottom line.

Surya Patra — Analyst — Analyst

Okay. My second question is on the, let’s say, Spiriva, obviously it is delayed a bit or that is fine, but in the meanwhile, have you understood anything about the potential competition in that product and [Speech Overlap].

Vinita Gupta — Chief Executive Officer

Yeah. So we don’t believe, I mean, as of yet, no one has really finished clinical trial, we believed that one company has started working on [Technical Issues] a trial, they are just starting a PD study, so from anyone who is starting a PD study right now, if I look at our timeline, they are going to be three years away at least to get their product to market.

Surya Patra — Analyst — Analyst

Okay. So, till that time, we will be having a kind of exclusivity situation in Spiriva, whether that will have some kind of advantages in terms of grabbing market share for other respiratory product as well or there is no [Indecipherable] benefit that we should see?

Vinita Gupta — Chief Executive Officer

No. I mean that would be an upside if we can get it. I mean, we are strengthening our respiratory portfolio. So overall position on the respiratory and offering from our customer standpoint goes up, but that will really be an upside to see how we can bundle them if we can at all. And to us, it’s just a standalone, a very lucrative opportunity.

Surya Patra — Analyst — Analyst

Sure, just last one question about the numbers basically. So, whether any debt number that has been added during the quarter, because the finance cost looks slightly elevated this quarter, that is one and to be also clear, what was the slow contribution this quarter? I mean sequential up move in the U.S. sales, what we have witnessed, how much was that driven by flu?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Firstly, on the debt front, yeah. So we had a couple of acquisitions and the brands that we bought in America, we also bought brands in Brazil, that’s actually in a [Indecipherable] to the scene and there is of course the normal capital expenditure that we continue, which could have come through in previous quarters also. So these have actually in some ways taken up the overall debt position. Though there has been a reduction on the working capital front, it’s the M&A front, which has really caused us to take on some debt.

Surya Patra — Analyst — Analyst

What is the gross debt, sir?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

It comes to about total about INR3,400 crores, that is the net debt actually.

Surya Patra — Analyst — Analyst

Okay, this is the net debt. Gross, are you sharing?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

[Indecipherable] INR4,600 crores.

Surya Patra — Analyst — Analyst

Okay. Thank you, sir. And anything on that — the slow season contribution for the quarter, ma’am?

Vinita Gupta — Chief Executive Officer

It’s a low single digit, couple of million dollars.

Surya Patra — Analyst — Analyst

Yeah. Thank you, ma’am.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

[Technical Issues] prices have been [Technical Issues] and because of that to that extent that ability [Technical Issues] actually sell at a loss in America also because prices are what they are. We have been focusing on only products that are profitable.

Vinita Gupta — Chief Executive Officer

He was just talking about the increase.

Surya Patra — Analyst — Analyst

Yeah. I was talking about the sequential revenue increase, so which you answered that it is single digit kind of million dollar revenue.

Vinita Gupta — Chief Executive Officer

Yeah.

Surya Patra — Analyst — Analyst

Yeah. Thank you.

Operator

Thank you very much. The next question is from Neha Manpuria.

Neha Manpuria — BofA Merrill Lynch — Analyst

Yeah. Thanks for taking my question. Nilesh, my first question is on the India business. I think you mentioned we should get back to double digit growth from second quarter onwards. So at that point most of the Cidmus impact and also the diabetes impact could be behind us, and we expect the [Indecipherable] to start contributing to productivity. That assumption is right [Technical Issues] we should start seeing outperformance versus industry from second quarter?

Nilesh D. Gupta — Managing Director

Yeah. And I actually did not even talk about the [Indecipherable] impact that we are seeing a little bit in the end of Q3 and then we’ll obviously have that in Q4 and then obviously, a good portion of that, we would expect to reverse in Q1.

Neha Manpuria — BofA Merrill Lynch — Analyst

Understood. And if I were to look at the business in a little more, two- to three-year perspective, do you think we need any investments, organic and inorganic to sort of bolster our position for the — in India?

Nilesh D. Gupta — Managing Director

I think we’re doubling down on India, adding a 1,000 representatives, we are cognizant of what that means in terms of employee expense in terms of selling promotion and the like, but we see this as an opportunity to grow in India. Obviously, in the COVID period, we held back from adding people and the like, and again I — what we’re doing is no different from other industry leaders, where clearly there is a renewed focus on India and it certainly is part of our plan as well. I think we are already committed to doing whatever is required from a people perspective and expense perspective and R&D perspective to get into the business. I would love to hold in inorganic moves in this as well. We did some smaller stuff including buying the in-licensed product [Technical Issues] including the Anglo-French portfolio, which is actually performing very well, but I think acquisitions are going to be fluent part, which means because especially, there’s somewhat bigger one, as you’ve seen, it gets to multiple [Technical Issues] you really can’t justify. So we would seek value and that would make it difficult from an inorganic perspective, but we are looking at everything that comes. We are for our own digging out opportunities that we [Technical Issues].

Neha Manpuria — BofA Merrill Lynch — Analyst

Understood. Given that we are doubling down on India, most of the competition is increasing, field force, SG&A, how do I put that in context with the fact that we want to look at cost optimization further that would indicate that our costs are probably optimization whatever might come through, might be more than offset by the fact that we need to continue to invest to grow in India, which does make margin expansion without Spiriva nearly impossible. Is that the right conclusion?

Nilesh D. Gupta — Managing Director

So maybe I can start and Ramesh can add [Technical Issues] I think first of all, there are some period effects. Yes. We are adding people. Yes, there will be certain costs that are associated with that and we will not get a return obviously the very day that we add good people. I think the cost optimization measures are largely driven from the optimization that [Technical Issues] overall from generic footprint perspective, so a lot of the stuff that we’ve done, optimizing the R&D spend, optimizing the manpower footprint, 16% reduction in our workforce in our manufacturing plants, optimizing the R&D workforce and the like. A lot of that is gone in the direction that the generic market is changing. We will obviously play in oral solids and the like as well. But clearly, the focus is to be a specialized generic player focusing on innovation, injectables and select oral solids. So, I think that to me, those optimizations run in parallel. There are still, obviously, [Technical Issues] there are five or six key growth drivers and big business areas [Technical Issues] some of them with big investments and at certain point time [Technical Issues], but net-net, obviously we’re all working to build a high-growth organization with growth at strong double-digits, and obviously [Technical Issues] far better than what we have right now. We are very cognizant of the fact that we are under-indexed, so I think these investments are being made in light of everything else that is happening, but obviously with the view that in the next few quarters, we should get into much more solid numbers.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Neha, just to add to that, to give — for the color, there is a base beyond which it is impossible to go on quite a few buckets [Technical Issues] some buckets, it’s not possible to kind of optimize further, but I also identified a few buckets where a great deal of optimization is still possible and it is essentially in terms of the footprint reduction in some ways, potentially you could also look at the idle [Phonetic] time associated with that and third bucket would potentially be on the reduction — on the inventory write-offs that we have seen so far. So, those buckets will certainly contribute in some base to further efficiencies and that will certainly move the needle. And we are also speaking in the same breadth of in fact two- to three-year horizon and when we get to that point, we are talking about quite a few products coming through. Spiriva certainly — in our opinion should certainly come through and with great deal of confidence, we are saying this, in the first half of the current year itself, and then we are also lining up in fact products for the future. We are working on, in fact, the injectables portfolio. We are working on the entire respiratory range. And there’s every conceivable product, which is worthwhile looking at. We’re looking at out there and we are pivoting a lot more towards a lot more complex ones. To that extent, there is a lot more stickiness associated with that, realizations associated with that, which is perhaps [Indecipherable] in the OSD portfolio in the recent times. So I think, whilst there is further optimization possible on the cost front, there’s a lot more possibilities on the topline. And that does — EBITA is ultimately going to be the difference between the two and of course the R&D expense and R&D expense to our mind, whilst we pivot to in fact the more complex ones, as a percentage of sales, it will certainly keep going down only. So I differ with you and I would say that EBITDA margins in the next two to three years will certainly be much higher than what it is today. 12% is the absolute nadir from my perspective, and 18% to 20% over the next two to three years is from my perspective a certainty.

Neha Manpuria — BofA Merrill Lynch — Analyst

Understood. And last question if I may. Vinita, you mentioned about the Nagpur facility clearance helping unfold our injectable pipeline. Could you give us some color on the number of launches or the opportunity size that we’re looking in injectables next year or the year after. Any color would be helpful?

Vinita Gupta — Chief Executive Officer

Yeah, so Neha, we’ve got the approval. I mean, we are also accelerating our portfolio, looking at some of the contract manufactured products that we can bring in house where we [Technical Issues] costs and supply position with — I think in fiscal year ’24, we potentially can bring fortified products into the market. We have couple of filings that are pending, glucagon [Indecipherable] famotidine as well as other products that we are — we manufacture outside that we can bring in in-house in Nagpur with right cost structure. So, in fortified products in the next fiscal year, we’ll try to accelerate that and a larger number the year after.

Neha Manpuria — BofA Merrill Lynch — Analyst

Thank you, Vinita.

Operator

Thank you very much. The next question is from Niteen Dharmawat.

Niteen Dharmawat — Analyst — Analyst

Yeah, thank you for the opportunity. Am I audible?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yes.

Niteen Dharmawat — Analyst — Analyst

Okay, see, I see that we are continuously changing our strategy. So I see that wherever there is a momentum we go there, we started somewhere in pathology, and now we are hiring 1,000 people for India business. Earlier, it was Japan. We made acquisitions [Technical Issues] and things are not working and that’s why we are making too many changes. Is that the case? Are we making too many changes with our strategy?

Vinita Gupta — Chief Executive Officer

Actually, we are not making any changes on our strategy. I mean, we’ve been very focused on building our core business, which is, one, India; two, our U.S. complex generic business; three, anywhere we can get operating leverage, like other developed markets with our generic portfolio, the investment that we made in our pipeline and in the manufacturing facilities; and four, the other emerging markets, which pretty much are self-sufficient in terms of their P&L as well as the cash-flow requirements. So there is no change and the only change in strategy that has happened over the last couple of years, I’d say, is a sharper focus on complex generics [Technical Issues] portfolio versus broad generic portfolio.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

And the entry into Japan 12 years ago and the exit were very well crafted strategy, so to speak. There’s nothing tactical about it at all. So I would not agree that — so our entry into in fact complex generics, injectables, biosimilars, inhalation space are very well crafted, and to that extent, we’ve been very consistent in actually going down the path [Technical Issues] spends on those. There has been no change whatsoever.

Niteen Dharmawat — Analyst — Analyst

I understand. So can you give some guidance for the current financial year and the next financial year for top line as well as for EBITDA margins.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

EBITDA margin, if you talk about the current — the next quarter, potentially, it will be around the same lines as the current quarter. But I’ve also indicated that things will get progressively better because we’re booking on several things on the cost front. And then on the topline front, we keep reiterating the fact that there will be products coming in, so things should only get better.

Niteen Dharmawat — Analyst — Analyst

I see, and for the next financial year?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Our ideal target would be to get to the core of 20% that the competition is looking at where we get there in the four quarter of next year or in FY ’24, ’25. It’s general — the overall direction is there, the target is that and there’s no reason why we should not get there because all the initiatives are in place and we are going down the path of our strategy without [Technical Issues] any of those.

Nilesh D. Gupta — Managing Director

The top line also we’re looking at double-digit growth.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yes, [Speech Overlap] across markets really.

Niteen Dharmawat — Analyst — Analyst

Got it. I know there are too many misses that have happened. So even if we achieve something, I’ll be happy about it. All the best to you.

Operator

Thank you very much. The next question is from Sameer Baisiwala.

Sameer Baisiwala — Morgan Stanley — Analyst

Hi, good evening, everyone. Vinita, if I’m not wrong, FDA has already inspected the site for Spiriva, isn’t it? So why should there be a need to do it again?

Vinita Gupta — Chief Executive Officer

Well, they have and I don’t know if there is a need to do it again, Sameer. It all depends on the agency though.

Nilesh D. Gupta — Managing Director

Standard language actually. Yeah.

Vinita Gupta — Chief Executive Officer

Yeah, it’s been inspected before.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, but they have given you two dates. So that means they are thinking about it.

Vinita Gupta — Chief Executive Officer

We don’t know. So they always give you two dates. It is a very standard language from the agency now on any product, so that’s why we can’t say for certain that is going to be April only.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, got it, and Vinita, what transpired in November TAD date, in the sense, I thought that there was a good chance that they might have approved then itself, so…

Vinita Gupta — Chief Executive Officer

So, we got our priority review in November, when we had reported, and at that point in time, we got — we were expecting an approval by close to eligible launch data, which would be very close to April actually.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, got it. Got it. And second question, Vinita, are you seeing the competitive intensity in the U.S. for OSDs going up or is it much the same? For the three, four products that you mentioned that you saw some price erosion, but the new entrants which we’re bidding lower or even without new entrants, you are seeing prices roll down?

Vinita Gupta — Chief Executive Officer

Actually, we have seen some rationalization on — and a little bit of [Technical Issues] on the price erosion front, because there’s been a lot of erosion and companies have started to get out of products like we have gotten out of a couple of products, which really worry our customers. So, there have been also supply disruptions with a lot of challenges that companies have had [Technical Issues] due to the margin pressure. But otherwise, the GMP related issues. So we’ve seen degree of getting back to single-digit, high-single-digit erosion, price erosion at this point. And we hope that we’ll see that continue in this calendar year.

Sameer Baisiwala — Morgan Stanley — Analyst

So, Vinita, if I may ask, how profitable is your U.S. business as it stands today? If you can just talk about it because is that what is taking the — taking the entire company average way below and how sustainable is it to do business in this manner for a company, which probably is the lowest-cost producer in that sense?

Vinita Gupta — Chief Executive Officer

Yeah, so I’d say that the U.S. business EBITDA is below the company EBITDA right now, but I can tell you that when we look at the last full year, when Q3 was probably the quarter where the U.S. business did the best from an EBITDA perspective. So given all the efforts on the cost optimization front, R&D optimization, stabilizing the base as well as executing on the new product launches, we have been able to get Q3 to a much better level than it was in Q2 and Q1, and we continue to build upon it and two years ago, the U.S. generic business was above the company average EBITDA. And as we look at the next [Technical Issues] subject to Spiriva happening and some of the other product launches which are certain [Technical Issues] and the like, we expect the U.S. EBITDA again from fiscal year ’24 to be above the Company’s average level of EBITDA.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, that’s great.

Vinita Gupta — Chief Executive Officer

Otherwise, we’ll continue to optimize it.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

You recognize, Sameer, as well as I do. It was a feast for quite some time. There has been a bit of a famine out there in the last two to three years, but it’s not as though this party will never begin again. It will — so once you get the products in place, things should be much better.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah, sure. Ramesh, my worry is excluding albuterol, is it a bit in the red kind of a business and it’s not about Lupin, it is just about — is this a sustainable business model in general for generics to be supplying at the pricing that it is, given the consolidated buying in the U.S.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

And you also [Technical Issues], so the entire business is kind of pivoting away from OSD into the more complex ones and [Indecipherable] more commoditized products is where there is intensive — there is so much of competition and one doesn’t really make too much of money, money is out there so and to that extent, companies should have focused on moving out of OSD. And that’s exactly what we’re trying to do also.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. One final question from my side, if I may. It’s on [Technical Issues]. Vinita, two parts. One is how has the pricing been, typical exclusivity type pricing, 40% erosion or and second, post 180 days, how do you see the competition coming up?

Vinita Gupta — Chief Executive Officer

Yeah. So, it has been a two-player market, authorized generic, the brand launched in authorized generic [Technical Issues] it’s been a very, very nice opportunity from a margin perspective. Price erosion, even in a two-player market is 60% or so. So it has been that kind of price erosion. However, the run rate that we see is looking better, beyond the 180 days because we believe that the players have supply issues on the API, that really is impacting the product approval and launch.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great, thank you so much.

Vinita Gupta — Chief Executive Officer

Thank you.

Operator

Thank you very much. The next question is from Bino Pathiparampil.

Bino Pathiparampil — Analyst — Analyst

Hi, good afternoon and good morning. Vinita, just a couple of specific questions on products. Darunavir, you just mentioned. So we are set for launch of 600 and 800 in 1Q, right?

Vinita Gupta — Chief Executive Officer

That’s right.

Bino Pathiparampil — Analyst — Analyst

Okay, and are we going to follow that up with the other strengths after six months or so?

Vinita Gupta — Chief Executive Officer

I believe so. I mean, the material opportunity, the larger opportunity we see is from the exclusive strength that we have in the majority of our revenues that we see, the upside is from the exclusive strength.

Bino Pathiparampil — Analyst — Analyst

Got it. And so what’s the update on pegfilgrastim in the U.S.? I believe you are looking forward to approval in the near term.

Vinita Gupta — Chief Executive Officer

Yeah, so we responded to the agency on the queries that they had just in the last couple of weeks and we believe that we’ve been able to satisfy, from our perspective, all of the questions that they have. So, fingers crossed that we’ll get that approval in the next couple of months.

Bino Pathiparampil — Analyst — Analyst

Next couple of months. Okay. Understood. And any further update on Dulera? I believe there also you had some queries to which you responded.

Vinita Gupta — Chief Executive Officer

Yeah, so on Dulera, we have received the CRL from the agency, and we need to do some additional work on the product that is ongoing. So we’ll have to respond this year, which we haven’t responded as of yet.

Bino Pathiparampil — Analyst — Analyst

Understood. Yeah, perfect. Thank you very much.

Operator

Thank you. The next question is from Shyam Shrinivasan.

Shyam Shrinivasan — Goldman Sachs — Analyst

Good evening and thank you for taking my question. Just the first one is the data point on the India business. What’s the current field force like? You talked about the 1,000 people. But where were we at, say March end and now. So what’s the absolute number?

Nilesh D. Gupta — Managing Director

[Technical Issues], at the end of this, we will be at 7,100 reps and 9,300 as the total sales force. Got it.

Shyam Shrinivasan — Goldman Sachs — Analyst

Thanks. Thanks, Nilesh. So, when we track the progress and you’ve guided to quarter two next year where you will start growing faster than the market. So what are some of the monitorables, maybe PCPM, if you could — doctor coverage, if you could guide us to some of the things that we need to be watching out for?

Nilesh D. Gupta — Managing Director

I think you should [Technical Issues] for the total number, [Technical Issues] I think there’s too much granularity. Our PCPM is actually pretty good. Our overall PCPM is 8.6 lakhs per representative PCPM. So it’s actually a pretty good number overall. But there is a spread. So in acute business, it’s going to be lower. It is higher in more chronic high-end business. So, I wouldn’t add too much on for those things. The divisions that we are adding are in the big areas. So that is — there is a metabolic division, there is another respiratory division, so but I think [Technical Issues] will reflect in the total numbers and in the therapy wise numbers.

Shyam Shrinivasan — Goldman Sachs — Analyst

Got it. Nilesh. Helpful. My second question is just on regulatory compliance. And just maybe, you can, Nilesh can answer it from an industry perspective as well, right? So when participants ask what is the contribution from Mandideep, why is the question being asked? Is it because people worry that every OAI is now equivalent to an import alert, so just — it is surprising. So after so many years of having to work with the FDA, so how should we think about the dynamic and what are you hearing when you interact with inspectors, quality people, what are some of the feedback that you’re picking up?

Nilesh D. Gupta — Managing Director

I appreciate you asking this question. From the industry perspective, I think there is an over-heightened sensitivity to every [Technical Issues]. But obviously there are excessive number of [Indecipherable] obviously other regulatory action, [Technical Issues] so there’s no question about that. And from an industry perspective, we’ve obviously had a few examples where quality is somewhat pretty bad, in other markets and the like, and unfortunately, I think that brings the industry in a bad light. We are coming out from — we had I believe about 60 odd inspects in India in 2022 versus the normal 200 plus. So obviously we are getting into a period where there will be more FDA inspections and with the number of facilities that we have as an industry, there will be obviously some portion of negative outcomes that will come out as well, but I would only — we had five observations in Nagpur, everybody given the hard time, we got the approval thereafter, right? So, I think the nature of the observations is important and not just [Technical Issues] — not just the numbers, so I think it’s important to get a little bit deeper into this, which is I think [Technical Issues]. As far as we’re concerned, I think we’ve had some wins and some misses. Ankleshwar was a win. Nagpur was a win. Somerset was a very nice win even with a follow-on inspection. Mandideep, clearly, we were not at the right level, we don’t expect that to — we’re taking the right steps to — but it could not go up further than what it is, but it’s not acceptable. That of course is not acceptable as well. And there is a clear remediation plan on this. So, we do believe that we will get them to the right spot. We’re not just going to leave them there just because the contribution may be below a certain level. Whatever we supply, every product that we supply has to be of the right quality, people don’t have to look at where the product was made. So, we are committed to this. I think the industry is committed to it in a broader sense as well. Certainly, scrutiny on the industry is going to be there. And they have to be up to snuff.

Shyam Shrinivasan — Goldman Sachs — Analyst

Got it. Thanks. Thanks for [Speech Overlap].

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

[Technical Issues] past time. But we can extend this to another five minutes. Last three questions, please.

Shyam Shrinivasan — Goldman Sachs — Analyst

Thank you. Thank you so much. Thank you.

Operator

Thank you. The next question is from Nitin Agarwal.

Nitin Agarwal — DAM Capital — Analyst

Can you hear me?

Operator

We can’t hear you, Nitin.

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Can we move on to the next question [Technical Issues].

Operator

Yeah. Sure. The next question is from Madhav [Phonetic].

Madhav — Analyst — Analyst

Hello, am I audible? Yeah. My only question was the — you said that the R&D expense as a percent of sales should come down as though [Speech Overlap] goes up, could you give us a sense? I think we should be about 8% or so for this year, but what does the FY ’24-’25 look like as a percent of sales, if you could give us some sense?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

Yeah, this year, it is going to be about 8%, but the subsequent years, it will certainly come down by a percentage or two for sure.

Madhav — Analyst — Analyst

Percentage or two. Okay, sir. Could be in the 6% to 7%?

Ramesh Swaminathan — Executive Director, Global Chief Financial Officer & Head Corporate Affairs

[Technical Issues] yeah, I would say over time.

Madhav — Analyst — Analyst

Got. Okay. Perfect. Thank you.

Operator

Thank you very much. So, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Vinita Gupta — Chief Executive Officer

Hopefully, we have been able to answer all your questions. We hear all your concerns on the margin front. It was not too long ago, a couple of quarters ago that we were in a single-digit margin. And the fact that we’ve been able to pull the business back up to double-digit in Q2 and then further improve it in Q3. I mean, we will continue to work on this front to ensure that we continue to grow our business in a profitable manner. We certainly don’t feel we’re anywhere close to our potential as an organization, but we’re moving in the right direction and we will ensure that we can get to our true potential. It might take us a couple of quarters, longer just given the delays in product approvals, but we will get there. Thank you.

Operator

[Operator Closing Remarks].