Lupin Ltd (LUPIN) Q4 FY23 Earnings Concall Transcript

Lupin Ltd (NSE:LUPIN) Q4 FY23 Earnings Concall dated May. 10, 2023.

Corporate Participants:

Vinita Gupta — Chief Executive Officer

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

Nilesh Gupta — Managing Director

Analysts:

Damayanti Kerai — HSBC — Analyst

Kunal Dhamesha — Macquarie — Analyst

Krishnendu Saha — Quantum Asset Management Company — Analyst

Neha Manpuria — BofA Merrill Lynch — Analyst

Prakash Agarwal — Axis Capital — Analyst

Bino Pathiparampil — — Analyst

Surya Patra — — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Madhav Marda — — Analyst

Chirag — — Analyst

Cyndrella Carvalho — J M Financial — Analyst

Kunal Randeria — Nuvama — Analyst

Presentation:

Operator

So good evening and welcome to Lupin Limited Q4 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

Hi, everyone. This is Vinita here. Very pleased to welcome you to our Q4 earnings call. I have with me our MD. Nilesh; as well as our CFO, Ramesh. We’re very pleased to close the fiscal year with continued improvement in operating margins. Our team has had a sharp focus as you know on getting our India business back to double-digit growth and quarter-after-quarter improvement in U.S. margins as well. This focus along with growth in other areas like API, EMEA and APAC enabled us to deliver margin improvement as planned. We are committed to sustaining this positive momentum into the new fiscal year and driving strong growth across all our regions, in particular in India based on our recent sales force expansion and the U.S. aided by material new product launches.

Our India business as you would have noted recorded an 11% plus growth for IQVIA. Ex the diabetes portfolio, growth was 15% plus in line with the market growth. In Q4, we made a significant investment to expand our sales force in India and enhance our reach. We’re very pleased that overall we delivered margin improvement for the organization despite this material investment. In the U.S., we improved our margins for a third quarter in a row through portfolio optimization, maximizing the high-value products and continued cost optimization efforts.

We were able to improve our margins despite increase in R&D spend quarter-over quarter. Overall, when you look at it for the year, the R&D spend for the U.S. stood at $100 million with an increasing proportion of complex generics in particular inhalation and injectables. Apart from India getting to double-digit growth and U.S. business improvement, our API business recovered in the quarter with demand growth in our core products. Our EMEA business grew driven by South Africa quarter-over quarter and Fostair, Luforbec in Europe Year-over-Year. In APAC, our Philippines subsidiary performed very well.

Switching to R&D. We continue to drive the shift to complex generics with a focus on respiratory and injectable products. We filed 19 products in the U.S. and 10 ex U.S. Off the U.S. filings, we had four injectables, three nasal sprays and we made progress on Respimat and Ellipta products on both platforms. Apart from generics, on the R&D front, we optimized the new chemical entity R&D spend in Q3 to focus on two of our oncology pipeline programs significantly reducing the discovery spend.

Switching to compliance. Compliance front as you know, we have made progress in part with positive outcomes on the Ankleshwar, Nagpur injectables and Somerset sites. We’ve also made substantial progress on our remediation efforts in Tarapur, Mandideep and Pithampur unit too. We are committed to ensure that we get all our sites to a consistent and sustainable level of compliance. I’m sure we’ll see more progress on this front in fiscal year ’24.

On the M&A front, our recent acquisitions have performed well with Anglo-French, Southern Cross, Xopenex Brovana in the U.S. and Paloma in Brazil, all delivering per plan. Our recent acquisition of Medisol in France enables us to accelerate our injectables franchise in Europe. We are very pleased to be able to close that. We have come a long way in fiscal year ’23 and are excited about the prospects in fiscal year ’24 as we launch products like Tiotropium, Darunavir and others in the U.S. and drive consistent double-digit growth in our India business. We remain focused on driving operating margin improvement as we grow our business.

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

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

Thank you, Vinita. Friends, welcome to refreshing set of numbers. We are hopeful that it sets the stage for better numbers here on. Sales for quarter four FY ’23 are at INR4,330 crores as compared to INR4,264 crores in Q3 FY ’23, which is a growth of 2% quarter-on-quarter. On a year-on-year basis, the company registered a 12% growth over Q4 FY ’22 sales. In the U.S., during the quarter, the U.S. business registered a small de-growth of 1.3% in local terms, total currency terms on a sequential basis. Sales have come down from $177 million to $174 million in Q4. During the quarter, Albuterol sales came down marginally due to a seasonality factor.

India region. India branded formulations business declined by 3.1% in Q4 FY ’23 versus Q3 FY ’23. Whilst on a year-on-year basis, the sales grew by 8.9% FY ’23 year-on-year, the growth was 3.3%. Overall market growth during Q4 ’23 was 14.9%, whilst Lupin grew by 11.3%. Lupin witnessed highest growth in Q4 as compared to the earlier quarters. Q1 was 1%, Q2 was 6.2% and Q3 was 7.5%. Adjusted for diabetes, we’re close to market growth rates, just 14.9% vis-a-vis 15.2%. Loss of exclusivity and generalization of the anti-diabetes business has impacted our growth rate as [Indecipherable] portfolio is a large chunk of our diabetes portfolio. We do well apart from the top two years of Lupin in gynecology and GI.

API business. The API business sales grew by 14.6% on a quarter-on-quarter basis as core [Indecipherable] API sales continued the path to recovery from higher sales in Cefaclor and 7-ACCA. On year-on-year basis, sales was — growth was 46.4%. EMEA, sales for EMEA region grew by 19.3%. Year-on-year was 11.4%. South Africa. Quarter-on-quarter growth of 35.3% in local currency terms led by higher sales in various products. U.K., the big growth was 6%, but the higher sales over the last quarter is primarily driven by Fostair. Germany quarter-on-quarter de-growth of 12% was an outcome of Q3 being higher for Germany — for the market due to competition stock out regions.

Growth markets. Sales of growth markets grew by 4.7% quarter-on-quarter. Philippines, traditionally, Q4 is a strong quarter for Philippines. Nearly all divisions performed well in comparison to last year. The growth was 14%. Australia quarter-on-quarter and year-on year growth was led by higher sales in our new acquisition, Southern Cross. Q3 was lower due to shipments to getting deferred to Q4. Quarter-on-quarter de-growth was 23.6% led by stock out of certain products due to plant shutdown. Brazil quarter-on-quarter growth of 9.4% was led by acquired products from Paloma.

Gross margins, this is an important here. Q4 FY ’24 gross margins is 59.7% as compared to Q3 FY ’23 gross margins of 59.8%. The sales mix especially India regions played a part in the slight lowering of the gross margins. Friends, at the beginning of this year, we spoke about optimization initiatives on various fronts. I’m glad to state that we did achieve good progress on some elements of the program as in the case of our sales returns, air freight and so on, both elements of which folded into this line. Secular inflation of over 5% in input prices was however eroded into the games barring visible progress here. We continue to work on write-offs and other initiatives, including launch of meaningful products that will make a difference in the gross margins and hence to the bottom line.

Employee benefits line. Q4 FY ’23 is INR750 crores versus INR764 crores in Q3 FY ’22 and INR703 in Q4 FY ’22. Quarter-on-quarter increase is mainly due to field force expansion in the India region, higher bonus accruals, ESOPs in US, etc. On an ongoing basis, we expect employee cost to be around on 19%. Despite the lower growth on the top line, the year-on-year increase has been only 3% reflecting the initiatives on the workforce reduction that we carried on at various functions. This also captures a negative impact of FX translation resulting from a depreciating rupee.

Manufacturing other expenses. Q4 FY ’23 is INR1,303 vis-a-vis INR1,333 crores in Q3 FY ’23 and INR1,321 crores in Q4 FY ’22. The quarter-on-quarter savings is a result of reduction in business settlements, other expenses of one-time nature. Year-on-year savings is on account of a reclassification done in travel in Q4 last year from employee benefits. Friends, whilst there are savings as a result of optimization measures, the translation impact of outside India expenses as well as an increase in sales promotion spends in India along with minor investments in adjacent businesses offsets the gains made.

EBITDA front. Operating EBITDA excluding forex and other income is at 13.9% for the current quarter reflecting an improvement of I 70 basis points in comparison to the previous quarter. The improvement in EBITDA is primarily driven by optimization endeavors, lower other expenses and PLI benefits. With launch of newer products and sharper focus on cost, we expect material continued optimization of EBITDA across quarters over the next year.

R&D. R&D is 7% of sales at INR305 crores in the current quarter as compared to INR289 crores, about 6.8% of sales in Q4 FY ’22 and 8.9% in Q4 FY ’22. We continue to pivot to more — INR289 was actually Q3 FY ’22. We continue to pivot to more complex products and platforms while continuing to focus on cost and outcomes. Year-to-date, ETR is 36.9% for the quarter. The ETR for the current quarter is only 5.9%.The lower ETR in the current quarter was mainly due to higher profit in the U.S. apart from normalization of accounting for the effective tax rate.

Other operating income. Quarter-on-quarter, there is an increase in other operating income on account of inclusion of PLI benefits, somewhat reduced by other settlement income, other milestones and the like. Forex gains is at about INR26 crores in Q4, again in FY ’23 was — Q3 FY ’23 was INR16.6 crores.

So with that, I would like to open the feed for discussions.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] So the first question is from Damayanti Kerai. Go ahead, ma’am.

Damayanti Kerai — HSBC — Analyst

Yeah. Hi. I hope I’m audible.

Operator

Yes.

Damayanti Kerai — HSBC — Analyst

Okay, thanks. Thanks for the opportunity. So my first question is, can you update us on the status of your Tiotropium filing? Because you had earlier given two TAT [Phonetic] dates, one in April and one in June. So if you can talk about it?

Vinita Gupta — Chief Executive Officer

Yeah. So we’ve been in active dialog with the agency back and forth on information requests over the last two months on Tiotropium. The TAT date right now is on paper July and August, so instead of April and August. And we hope that we will actually get approval sooner. We’ve had communication on a monthly basis with the agency on the application. Just last week, they cleared our drug master file for the product, which is a very positive sign. So we hope that we should be able to get approval in the next month or two on the other side by July, August.

Damayanti Kerai — HSBC — Analyst

Ma’am, why two TAT date? Is it similar like plant and without plant inspection?

Vinita Gupta — Chief Executive Officer

Yeah. That’s the two TAT dates, but the extension of the TAT dates is based on the information request that the agency is making. And when we respond to the information request, they have an automatic 90 day from the response that they give as a TAT date. So we’ve been trying to work with the agency to figure out how we can avoid that. Some of them are just clarifications that they are asking of us.

Damayanti Kerai — HSBC — Analyst

Okay. My second question is on R&D. So now you’re down to say 3 billion a quarter. So — but at the same time, you are progressing in some of the complex generic product. You talked about Ellipta, Respimat, etc. So my first question is, how should we look at R&D expense from here on? And if you can split R&D into your complex generic spend and CES spend that will be helpful.

Vinita Gupta — Chief Executive Officer

Sir, if you want to take that, the R&D spend?

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

Like to answer the first part. We are pivoting to more…

Vinita Gupta — Chief Executive Officer

Yeah. So overall, strategically, we’ve been pivoting to more of a complex generic platforms and continue to do so. So even when you look at our generic R&D spend at this point, the percentage oral solids versus complex platforms, inhalation and injectables has changed in favor of inhalation and injectables. And we continue to drive that shift towards complex platforms. I mean, the NCE spend that you asked about is very small and the scheme of things is less than 5% at this point.

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

10% really, but it is actually coming down to about less than 5% impacting the force this current fiscal. We’re pivoting more towards into complex generics. So salience of the oral solid is actually coming down and that used to be well above 45%. It’s coming to much lower figures and the spends for injectables and inhalations is certainly going up in the course of this fiscal and certainly would be the way forward as well.

Damayanti Kerai — HSBC — Analyst

Just a clarification, so OSB you said earlier it used to be 45% of the generic spend. It is coming down and more is going for the inhalation and…

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

Inhalations and injectables, sure.

Damayanti Kerai — HSBC — Analyst

Okay. And my last like your fourth quarter number include cost for the MR edition in India, does it reflect fully or like more to come in coming quarters?

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

Yeah, a huge chunk of it is actually captured in Q4 that is opposed to annualization impact of that because these were recruited in the fourth quarter. The annualization impact will certainly definitely be captured along the full — the entire year next year, this fiscal, the current fiscal that is.

Damayanti Kerai — HSBC — Analyst

Okay. Thank you. I’ll get back in the queue.

Operator

Thank you very much. The next question is from Kunal Dhamesha.

Kunal Dhamesha — Macquarie — Analyst

Hi. This is Kunal from Macquarie. First question again on Spiriva, would you be able to share the nature of the information requests that we are getting from FDA? And secondly on the same generic Spiriva, would we have clarity as to whether we will require plant inspection or not by now? And if yes, hypothetically, let’s say, if we require, what is our preparedness? Have we done any mock inspection? Have we proactively employed consultants, etc?

Vinita Gupta — Chief Executive Officer

So I’ll take the second question first that we have always been inspection ready in the unit three for FDA in case they come to inspect the site for Spiriva. At the same time, we don’t know for certain, but we believe that at this point, we’re pretty far along with the agency. The information requests that we’re getting beyond the last year that we responded to was really clarification on the testing method, sample size and the like, the rationale for it. And what is giving us comfort is the fact that they started clearing parts of the application. We have already informed that, the PD/PK was cleared a while ago and the fact that the DMF has been cleared last week. And we continue to get minor queries at this point, gives us the comfort that we are pretty close.

Kunal Dhamesha — Macquarie — Analyst

Sure. And also we are still sticking to a September timeline or second half timeline for launch, second half of FY ’24?

Vinita Gupta — Chief Executive Officer

We’re hoping first half.

Kunal Dhamesha — Macquarie — Analyst

Okay. Because last time, I think you said September launch for — September ’23 launch.

Vinita Gupta — Chief Executive Officer

Well, so I think August was the outside chat date. So we hope that we’ll be able to get approval before that and we’re getting launched ready.

Kunal Dhamesha — Macquarie — Analyst

Sure. And secondly I think Ramesh one for you. Whatever cost savings that we have done that is getting offset by some of the line items which have seen increased like and marketing, etc. But still would it be possible for you to quantify in terms of our target of INR550 crores cost savings which we said at the start of FY ’23? Where would we be right now and what’s the runway left for us for FY ’24?

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

Yes. We have been able to achieve well over INR325 crores to INR350 crores across at least three of the four levers that we have progressed along. There is of course some more steam left in so far as the inventory write-offs is concerned and we believe on the idle time as well, which is not a switch, on switch off kind of thing. So it has to be over a period of time. So we will exercise those levers and potentially see gains over the next several quarters.

Kunal Dhamesha — Macquarie — Analyst

Sure. And I think last year, we had a failure to supply penalty roughly around $26 million, $27 million. Would you be able to share the number for this year?

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

Yeah. Well, I don’t want to actually make it explicit, but it has come down dramatically. It’s in fact in high single-digit numbers right now.

Kunal Dhamesha — Macquarie — Analyst

Sure. And lastly on the profitability expectation for next year. Would you be able to share any form of guidance or range?

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

We believe that the momentum will be sustained and so going forward, we would like to see that Q2, Q3, Q4 would see successful improvements for sure after the launch of Spiriva and other products you’re speaking of about, Darunavir and others in America. And of course, there is expansion of Fostair in Europe and the like. So with the cache of products that we’re launching across various markets and that’s actually you would see top line lifting up to a double-digit growth rates for the entire idea. And of course, the [Indecipherable] on costs, you would expect EBITDA margins also to go up. We do think that towards the end of this current fiscal, you would find a substantial increase those are impact where we think we should be upward of 18%.

Kunal Dhamesha — Macquarie — Analyst

18% plus exit run rate?

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

Yeah, exit run rate, that’s what I meant. And for the full year, you can talk about at least up upward of 15%.

Kunal Dhamesha — Macquarie — Analyst

Sure. Perfect. Thank you and all the best.

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

Next question, please. Krishnendu?

Operator

Yeah, hi. Thank you very much, Kunal. Next will from Krishnendu Saha.

Krishnendu Saha — Quantum Asset Management Company — Analyst

Hi. Can you hear me?

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

Yes, Krishnendu.

Krishnendu Saha — Quantum Asset Management Company — Analyst

Yeah. Hi. Thanks for [Indecipherable]. Just wanted to get a hand on the U.S. numbers in the quarter which is flat. So just trying to understand we had one extra month of [Indecipherable]. We had — I think so we have also EG [Phonetic] in the mid of December and we had launched. So is this $175 million sustained, what were the initials and what were the plus additions group which get to this $175 million. I’m trying to understand that point.

Vinita Gupta — Chief Executive Officer

Yeah. So the difference $177 million versus $175 million, $2 million. And there is a good amount of seasonality that you see in Q3 especially with flu products as well as Albuterol. So I’ll do Albuterol while the share remained the same, the volume came down a little bit in Q4. And — but otherwise Suprep was very strong and offset some of that actually as well as we had — our in line products were fairly stable I would say overall.

Krishnendu Saha — Quantum Asset Management Company — Analyst

So Suprep, we still have two clear mark, right?

Vinita Gupta — Chief Executive Officer

That’s right. It is authorized generic and ourselves so far.

Krishnendu Saha — Quantum Asset Management Company — Analyst

[Indecipherable] we see this. How long do you think that this can continue [Indecipherable]?

Vinita Gupta — Chief Executive Officer

Yeah, it’s hard to predict. So far, we don’t see any new entrant imminent.

Krishnendu Saha — Quantum Asset Management Company — Analyst

I’m not saying on the last approval which we launched of [Indecipherable] at end of the quarter. With [Indecipherable] market, have we launched it? Could it be meaningful?

Vinita Gupta — Chief Executive Officer

Which are you talking about?

Krishnendu Saha — Quantum Asset Management Company — Analyst

[Indecipherable]

Vinita Gupta — Chief Executive Officer

I don’t recall having launched it in the U.S.

Krishnendu Saha — Quantum Asset Management Company — Analyst

We haven’t, okay. Understood. I though we launched that. Nonetheless, thank you.

Vinita Gupta — Chief Executive Officer

Yeah.

Operator

Thank you very much, Krishnendu. So the next question is from Neha Manpuria.

Neha Manpuria — BofA Merrill Lynch — Analyst

Thank you so much. Vinita, on Spiriva, you don’t see a scenarios FDA giving us possible CRM when the TAT date comes, right, based on the queries that we’re getting or is that still a risk?

Vinita Gupta — Chief Executive Officer

That would be highly surprising.

Neha Manpuria — BofA Merrill Lynch — Analyst

Okay.

Vinita Gupta — Chief Executive Officer

I mean, it’s hard to predict the agency at any point in time. But just based on where we are, we feel like we are close to the finish line here.

Neha Manpuria — BofA Merrill Lynch — Analyst

Okay. Got it. And second, Ramesh, if given Spiriva launch, etc, is still tough to predict and there is also the market share that we end up ramping up to, if there is any delay in Spiriva, then how should we look at the margins from the 13% that we are doing? Could there be legs to the margin or all of that margin guidance that we’ve given is dependent on the new launches?

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

I don’t envisage the situation there, Spiriva is going to be in doubt. But in the unfortunate event it does happen to be something like that, the base is set with the current levels and we expect in fact better numbers to come in from our India business. And we have products across others also. So I would certainly say that there would be margin improvement, but because the needles really moves sharply, then Spiriva is really launched.

Vinita Gupta — Chief Executive Officer

I would just add to that other than Spiriva which of course will be the largest opportunity as we see it right now. I mean, we also have Darunavir in June. We have cyanocobalamin that we hope to launch out of Somerset in August. We have Diazepam gel that we hope to launch in July. We have Varenicline that we hope to launch. We have a TAT date of October for that product and we have Bromfenac, the ophthalmic product where we’re exclusive first to file that is at the tail end March. So while we have Spiriva as a major new product opportunity, we also have few others that will help us grow the business. Needless to say, I mean, the margin guidance that we just spoke about, there will be some impact. Hypothetically, Spiriava was not — would not come through. But again, we’ve looked hard. We’ve worked hard on cost optimization and we’ll continue to do that to make sure that we continue to drive our margins forward.

Neha Manpuria — BofA Merrill Lynch — Analyst

Understood. And Vinita, one other question on the U.S. business. I think you mentioned in the television interview about price erosion being, if I heard correctly low single-digit, mid single-digit. Just wanted to understand are you seeing, let’s say, things improve on the pricing erosion front, let’s say, at least customers not coming back to you with repeated request for the division on the baseline products given what’s happening with the plants for competitors?

Vinita Gupta — Chief Executive Officer

Yeah. We are starting to see that. And I think I said mid to high single-digit, Neha, on the interview. But that’s a normalized level that we saw in previous years. We have — given the supply chain challenges that companies have had, our customers have become again very, very focused on reliability of supply and are again engaging in more longer-term relationships, contracts or at least the commitments, which gives us comfort that they are prioritizing reliability of supply over price. I mean, of course, they always like to get the best price, but they’ve struggled a lot this past year with the flu season products. So the flu season products in particular we are finding that they are engaging with us in a more strategic dialog on how do we really ensure that we meet the market demand and how do we partner to meet the market demand. So the partnering dialog is gaining momentum over the transactional business with our channel partners.

Neha Manpuria — BofA Merrill Lynch — Analyst

Understood. Okay. Thank you so much.

Operator

Thank you so much, Neha. So the next question is from Prakash Agarwal.

Prakash Agarwal — Axis Capital — Analyst

Yeah. Hi, good evening. Am I audible?

Operator

Yes, Prakash.

Prakash Agarwal — Axis Capital — Analyst

Yeah, thanks. Just on the India business, we talked about we expect double-digit growth. When we see April data, I mean, the month is pretty flat. Volumes are down 5%. So first question is what is the strategy that we’re following? I did hear you have added some MRs. If you could explain how much you’ve added with therapies and what is the strategy despite a very soft start for the industry?

Nilesh Gupta — Managing Director

So we have added close to 1,000 representatives and we’ve done five new divisions out of that. There is a sixth division that will come up in this first quarter as well.We’re seeing growth across the board coming back. We’re seeing growth on respiratory. We’re seeing growth in cardiac. We’re seeing some normalization of growth in diabetes even and the intent would be for that to continue, good growth in areas like gynecology, for example. So I think the mood is extremely upbeat. Our own internal numbers on April look higher than what our estimates we originally had. So yeah, I do think moving in the right direction. I don’t think — I think there’s two of these [Indecipherable] that we’ve added that has started giving us some return. The others have — we have just set them up in Jan, Feb, March. So that will really come in the quarters to come.

Prakash Agarwal — Axis Capital — Analyst

Okay. And what’s the final count as on the March for after 1,000 MRs getting added?

Nilesh Gupta — Managing Director

About 7,000 and about 9,300 all inclusive of the sales team.

Prakash Agarwal — Axis Capital — Analyst

7,000 is the MR with the managers and supervisors or…

Nilesh Gupta — Managing Director

I believe it’s 7,300 and 9,300, right? So 7,000 MRs and 9,300 including the total sales team.

Prakash Agarwal — Axis Capital — Analyst

Understood. Fair enough. And secondly, on the facilities issue that we’re having across the U.S.-FDA issue, just wanted to have a flavor in terms of what is the remediation expenses we are incurring currently across? And as and when which ones would be the first one that could get you out of the FDA scanner and by when? I mean, if you could just very ballpark what is the thought currently?

Nilesh Gupta — Managing Director

Sure. We can talk about the remediation. I think when they will get cleared is a little bit of crystal ball gazing. I think the spend is definitely higher at this point of time. For example, there is a considerable amount of spend being done on nitrosamines as I like. Part of it would be for the industry as well, but certainly for us basis some of the observations we had in Tarapur. So we’ve made great progress. I think we’re close to remediation of that site. We’re close to remediation of Mandideep as well. Pithampur, we are hoping with the next update we close out all the observations that we had. And the next step obviously would be to engage with FDA and get feedback. So I think there is definitely additional spend at this point on the compliance front, which we would hope to see normalize in the second half.

Prakash Agarwal — Axis Capital — Analyst

That would be to the extent of what, couple of million dollars or it’s a larger number to look at?

Nilesh Gupta — Managing Director

No, it is larger than that. We spend currently large amounts on consultants itself.

Prakash Agarwal — Axis Capital — Analyst

Okay. So about $10 million, something like that? I mean, some ballpark number.

Vinita Gupta — Chief Executive Officer

Times two.

Prakash Agarwal — Axis Capital — Analyst

Okay. And this is annual, right?

Vinita Gupta — Chief Executive Officer

That’s right.

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

There was a settlement number in the base also. All of this is not incremental, but there is definitely room to optimize here.

Prakash Agarwal — Axis Capital — Analyst

Yeah. Okay. And at best it would be what, six, 12 months while we see like a clean slate or it could be long run as well?

Nilesh Gupta — Managing Director

Yeah. So our last part we expect to complete in the first half. So definitely there would be optimization that we would expect to get in thereafter. And some of it will flow into the next half as well.

Prakash Agarwal — Axis Capital — Analyst

Got it. And just last one here on looking at past nos [Phonetic]. We had talked about products Vama for injectable tie up. Just wondering if there’s any update? We had two tie-ups if I’m not wrong, two injectables. Is that plan still on or where are we on that?

Vinita Gupta — Chief Executive Officer

Yeah. So they’ve filed doxycycline. I think we have a TAT date pretty soon. It’s a product that we intend to launch in the next 12 months.

Prakash Agarwal — Axis Capital — Analyst

And the other one?

Vinita Gupta — Chief Executive Officer

AmBisome is still in development.

Prakash Agarwal — Axis Capital — Analyst

Okay. And it is limited to two products or are we planning more?

Vinita Gupta — Chief Executive Officer

The four dose partnership was two products.

Prakash Agarwal — Axis Capital — Analyst

And are we doing more such types or…

Vinita Gupta — Chief Executive Officer

Yeah. So on the injectable front, we have a pretty active effort ongoing to partner as well as acquire injectable products that can accelerate our build off the injectable franchise.

Nilesh Gupta — Managing Director

You would have seen the approval that we had with some of the capital points as well.

Vinita Gupta — Chief Executive Officer

Yeah. So we have I think five or six Caplin point products that we intend to launch in the next 12 months.

Prakash Agarwal — Axis Capital — Analyst

Okay. Perfect. Great. Thank you. All the best.

Operator

Very good, sir. We’ll take the next question from Mr. Bino Pathiparampil. Thank you.

Bino Pathiparampil — — Analyst

Hi. Good afternoon. I have a couple of questions. One, pegfilgrastim what’s the update? I thought that was also expected this fiscal.

Vinita Gupta — Chief Executive Officer

Yeah. So we’re just waiting to hear back from the agency on pegfilgrastim. We have after the inspection of the Pune site, we’ve responded to all of the queries that the agency had and believe that we should be getting that approval if they have no objection. Well, we’re just waiting to get that approval to really determine next steps with the product.

Bino Pathiparampil — — Analyst

Understood. Could you please repeat the product. You said the ophthalmic product you said could get launched in March.

Vinita Gupta — Chief Executive Officer

Bromfenac, Prolensa.

Bino Pathiparampil — — Analyst

Okay. And the list of products that you mentioned for launch this fiscal, do any of them depend on clearance of this FDA issues at the facilities or are or de-risked?

Vinita Gupta — Chief Executive Officer

Actually Bromfenac does.

Nilesh Gupta — Managing Director

Only Prolensa.

Vinita Gupta — Chief Executive Officer

Yeah. Prolensa is for unit two, which we hope to clear.

Bino Pathiparampil — — Analyst

Okay. Great. And finally, Ramesh, this year we had a very high tax rate. Going forward for next couple of years, what do you expect reported tax rate to be?

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

As you can imagine, the back state has been high only because we had loss making subsidiaries across, but since then, actually Brazil has turned around. America is expected to of course do well next year. So I expect the rates to come back to — normalize to around 30% next year. It could be little lower than that also.

Bino Pathiparampil — — Analyst

Got it. Thank you very much.

Operator

Thank you so much, sir. So the next question is from Surya Patra.

Surya Patra — — Analyst

Yeah. Thanks for the opportunities. So first question on the general over cost. See, in fact, thanks range of offense in the quarter, but still generally the margins are below par versus the industry trend. We know the kind of the challenges what we have been facing. But of having seen the kind of cost containment measures and all that, so we have started seeing some kind of sign of improved. But could you give some sense that, okay, which are the key cost element that we are targeting currently and where that we can see some improvement because that will give some kind of confidence about it because we have been under the 15% kind of margins in long. And one of our big revenue driving market that has been under loss.

So could you give some cost line items that you are targeting to really control? And also, what is the update on that hiring of Discovery researchers division? What we have been talking about to improvise our overall margins? So let’s say, over next two to three-year kind of operation, what are the kind of margin progression that we can see? And for that, what cost line items or cost items that we are considering?

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

I’ll start with the easiest, starting with NCE. We have actually ramped down the overall infrastructure associated with that. So INR150 crores spend is actually coming down to much lower numbers that’s the first. So essentially, we’ll say is close to about INR70 crores to INR80 crores on that. On the cost lines, yes, we do realize whilst there has been considerable savings and progress along various initiatives and I spoke about INR325 crores to INR350 crores kind of savings. We still believe that there is a good INR250 crores that is possible across lines like inventory write-offs, which still remain high because of products if you’re dropping, impurities, nitrosamines and the like backing those as well. And that would of course come down.

It’s not as if it’s going to be situation continuing for long. We’ve taken active measures in terms of looking at the inventory control and evidence of that is seen in the working capital optimization measures that we’re — which we’re taking, which is actually bearing fruit even in this particular quarter. There is a base below which it is impossible to go below when it comes to in fact cost threshold so to speak. So there is a mini infrastructure that we need to maintain in terms of staff and across various functions. But for sure, we do believe that there is still some score when it comes to, for example, facilities on the — the infrastructure, for example, on the R&D, oral, solid dosages front and so on because we got to keep it lower.

Then potentially, there is scope for optimization. If the volumes are what they are and then potentially there is scope for footprint reduction across our manufacturing lines and the like. So it is going to be a continuous process, but it’s not as though it is going to be something which can be achieved between a period of two quarters or three quarters. It is going to be over an elongated run possibly over the 18 to 24 months period. The only thing that we can actually assure you is that the focus is going to be constant. It is going to be laser sharp in that sense. And we will show you results over time.

Nilesh Gupta — Managing Director

Ramesh, if I can just add, I think first of all is the gross margin line I think you guys did a bunch of efforts around that. We did a bunch of efforts around that. A very large portion of that got wiped out by inflationary [Indecipherable]. Same way on the SG&A front, there is a significant increase. The majority of that increase is towards India and the related adjacencies that we have. In fact, we’ve optimized expenses on a bunch elsewhere. So there is an optimization plan in the U.S. that is actually what’s helping getting the numbers to a better level at this point of time, but there is also an investment plan in markets like India that is resulting in an increase in some of these lines as well. So it not going to look linear from that perspective.

It’s going to be different strokes in different markets, but U.S. clearly moving down the optimization path. Clearly, the focus on new product launches as well. In markets like India, we are obviously investing. Like we said, we added the sales force. There’s a cost attached to it that’s just started. So there’s going to be a additional selling promotion spend that will come around that as well, but that obviously is with a clear visibility of return that we will give literally within 12 months, starting within 12 months from the time that we get the sales force on the ground. So I think the margin will obviously improve, but there are these moving things up and down a little bit.

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

So actually you mentioned a lot of that at the session of itself in terms of my opening remarks.

Surya Patra — — Analyst

Yeah. Sure, sir. Sir, my second question is on the, let’s say, all your efforts toward the injectable — ramping-up your injectable base. So the acquisition of the Medisol, this one recently that we have done, see, this is a very small company, although it is not very influential one to the overall size and this thing. But see, whether it is having any capability apart from the products that is one? And secondly on the injectable front for our existing key market, what is the kind of core strategy that or when are we expecting to see kind of a meaningful contribution from the injectable portfolio? That is my second question.

Vinita Gupta — Chief Executive Officer

Yeah. So your two-part question on injectables, the first, Medisol just gives us access to France. France is a market where we’ve had very little exposure right now in Europe. We’re really in Germany, U.K. directly and then France with the muscular. But this small toehold or so, so to say, just gives us entry into the hospitals in France and it allows us to really take our injectable pipeline that we put in place for the U.S. as well as other developed markets and bring it into France to — the hospital segment in the France is actually pretty attractive for the portfolio that we have invested in. So it gives us a access point. It doesn’t give us material infrastructure or a sales force or — it really gives us access to the market and it’s a very accretive deal. It’s small asset, but accretive which — our focus has been on all our acquisitions to really buy accretive assets that don’t dilute our earnings.

So on the contribution from injectables, I’d say that fiscal year ’25 onwards, I mean, so we have been building our pipeline. We have a good number of products filed even in fiscal year ’23. We filed Liraglutide. We filed glucagon. We filed — and the Caplin products we filed. So we’ll see six or so injectable products coming to market in fiscal year 23. There’ll be 24 rather will be the smaller products. The larger products whether it’s glucagon or Risperdal Consta, we expect in fiscal year ’25. So that will be our hopefully a big ramp-up year for injectables. And then we’re trying to figure out ways and means that we can accelerate that with products that we can partner products that we can acquire. The team is — the U.S. generic team is actively working on it to figure out how we can accelerate the injectable build.

Surya Patra — — Analyst

Okay. Just a last question, if I may. On the domestic formulation business on say how should we see because see having seen this segment really contributing meaningfully to everybody’s growth were present during the difficult time also last two year. So hence everybody is now kind of trying to enhance, expand or whatever in the domestic business. So it is nothing when taking just enhancing the competition. So while the growth of the industry or growth of the base is kind of known and the trend is kind of forgetting followed only, so is it because of the incremental competition and everybody trying to have their share in that? So whether the profitability is likely to be compromised going ahead?

Nilesh Gupta — Managing Director

I couldn’t help, but smile when you were saying the message. I think there is a massive opportunity in India. There is a massive need in India as well. For example, the six division that we’re going to launch is an extra urban division where we will go to doctors in geography that we don’t even cover at this point of time. So I don’t think it is competition with each other. Definitely, when you launch products, obviously, you compete against other companies, but I don’t think it’s that and I don’t think it’s going to have a reflection on pricing. There is an opportunity in the bigger scheme of things. I think it’s the GDP, the amount of spend on healthcare out of GDP, the affordability, the ability for people to pay, the people to get diagnosed and test it, that is the bigger story in India. And I think anybody who is really focused on India is driven towards that story. Certainly, we are. So I don’t see this as a limiting opportunity going forward. I actually see this hopefully as something that should accelerate in the next few years.

Surya Patra — — Analyst

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

Operator

Thank you very much, Mr. Patra. Now may I request Mr. Sameer Baisiwala to go ahead with his question.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah. Thank you so much and good evening, everyone. I mean, just quickly how many complex injectables and inhalers have been filed and what’s the approval visibility over next couple of years?

Vinita Gupta — Chief Executive Officer

So on the injectable front, we have a few, I mean, glucagon that I mentioned. I think four or five products, the Liraglutides, glucagon, relics [Phonetic] and then of course the four dose product treatment with Doxycycline. On the inhalation front, it’s been the products you know so far Spiriva and Dulera. But we’ve been — like this year, we filed a couple of nasal — three nasal sprays as well. So while smaller opportunities, but still meaningfully add to the respiratory portfolio. And I’d say that the Ellipta filing as well as Respimat should really happen in the next fiscal year. I mean, we are making good progress on these products, but in terms of the development cycle based on where we are, they will really be fiscal year ’25 filing.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Excellent. And just talking about Albuterol, what’s the outlook for the current year fiscal ’24 both in terms of pricing and is there a room for market share gains over here?

Vinita Gupta — Chief Executive Officer

If there any market disruptions, we certainly will be ready to take share. I mean, so far, the market has been fairly stable and we’ve got this 20% plus share. And we hope to be able to sustain it at current pricing or as close as possible. So I mean, I think if there are any disruptions, certainly, we’ll have the opportunity to gain share. But it’s turned out to be a really nice product for us.

Sameer Baisiwala — Morgan Stanley — Analyst

And you said you expect the pricing to be stable for the foreseeable future.

Vinita Gupta — Chief Executive Officer

Yes, we think so.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Great. And just one final on India. For the full year fiscal ’23, I see you have grown at 1% or so, whereas the price increases I would imagine have been more like 7%, 8%. So does that mean there has been quite big volume erosion in India? That’s one. And second, what’s the pricing outlook for fiscal ’24 for India?

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

Yeah. So I think the bigger story we’re impacted on diabetes and definitely we’ll be growing there, right? So — and from a value perspective. So that’s certainly happened. As far as the pricing outlook, so obviously the WPI was 12.2 or the like, so for the scheduled products. For the most part, we would have taken that increase. We typically don’t take it on anti-infectives, for example. Then obviously we optimize other products and take an annual increase as well. There have been input material increases as well last year. So we definitely wanted to take more of the increase typically and I think in the non-scheduled 5%, 6% is — the price is increased and kicking too.

Nilesh Gupta — Managing Director

So I think the pricing — last year, if you take out diabetes, it’s a growth story with diabetes. It’s actually a de-growth. So from that perspective, obviously, there is significant room to move. That diabetes part is starting to stabilize. Diabetes is about 20% of what we do in India. So there is direct impact on the overall India number when we do it, but we’re starting to see all of that just starting to even out. Respiratory was slow to start where now that’s growing nicely. That is starting to get to the double-digit number as well. We basically see everything. And in diabetes, we’re not. I think other than diabetes, everything else will be a double-digit.

Sameer Baisiwala — Morgan Stanley — Analyst

And Nilesh, just to conclude on this, after 7%, 8% price increase last year, 5%, 6% this year, I mean, 14% put together, I mean, you think markets, doctors are quite okay to absorb this kind of a price increase? I can’t remember when last we had such high price inflation in the drug industry, therefore I’m asking.

Nilesh Gupta — Managing Director

Yeah. So as far as these controlled products, as you know, there was an additional invest. So net, net, there’s actually a negative impact on that portfolio from what happened in November, December. So on that list of products which was there, obviously, there is a impact. I’m not sure where you’re getting the 7%, 8% from. That certainly was not our price increase last year either.

Sameer Baisiwala — Morgan Stanley — Analyst

That’s a number you get if you see industry-wide volume versus value growth for the industry as a whole in most companies and that’s where it’s coming.

Nilesh Gupta — Managing Director

No. I think that would also be the portfolios. We’re the shaping it if there’s going to be more on quality, then the value will go up. Yeah, I can’t comment on that. You can comment on that better. From our perspective, I think obviously we look at products very closely from affordability as well, certainly, with our peer set as well. We would not be priced at the lowest product. We’ll certainly not be priced as the most expensive product as well. And there have been significant cost increases which have happened over the last couple of years, right? If you look at the base product, look at anti-infectives, look at vitamins, look at some of the starting material out of China, massive inflationary partially, the same thing that we’re explaining on the gross margin line. You can’t directly pass them on in India. I think you only get an opportunity once a year to go and address that. And you would address it where it’s possible to do. Where you feel that it’s not, you don’t.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Great. Thank you so much.

Operator

Thank you so much, sir. The next question is from Mr. Madhav Marda, please. Thank you.

Madhav Marda — — Analyst

Hi, sir. A few questions. Just wanted to understand on the R&D side, you did about 7% of sales in Q4 and about I think INR300 crores on absolute basis. I’m not sure if you gave some guidance in terms of all where we could be as a percent of sales on an absolute business if we — should we like annualize our Q4 number or can this go up?

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

So essentially, there would be actually pivoting to more complex. So — but the magnitude will be around the same vicinity in INR1,300 crores to INR1,400 crores max.

Madhav Marda — — Analyst

INR1,300 crores to INR1,400 crores R&D, okay. And then just the second question was on the India business. By when does the diabetes portfolio genericization impact come through in the base, like is it Q1 FY ’24 where it’s fully in the base and then sort of we can start growing at a faster pace?

Nilesh Gupta — Managing Director

No, no, it goes into — I think it goes into ’25 as well I think as some products do arrive. So I think there is definitely — if you look at what’s happened is there’s two things here, right, products that we would have in license where competition comes in or we reduce pricing in line with competition or other products which are getting genericized. Both of these things are the two elements eating away diabetes, right? So you would have seen in the DPP4s one by one each of them has been going off patent. In the SGLT2, same way that’s been happening as well. That keeps impacting the market over time because certain prescription behavior keeps switching when a higher price product remains, but a lower priced in the same category is available as well.

I think that will go on till 2025. From our India region perspective, while that’s a top line story, it’s not a bottom line story because in the end license portfolio, obviously, you make a lower margin profile versus products that you would make yourself. But — and I think we obviously enjoyed the wave of increase in the entire diabetes sales over the years as these new products were brought to market by us. But on the flip side, we are seeing this as well. I think it’s part of life. It’s going to pan out in the next two years. But till then, the growth I think on diabetes will remain possibly — in my opinion possibly high-single-digit, not get into the double-digit category.

Madhav Marda — — Analyst

Got it. And just one clarification, you mentioned about INR250 crores cost impact from the nitrosamines. Could you just clarify what that was? Like that’s a saving which can come to…

Nilesh Gupta — Managing Director

INR250 crores and anything like that. We said about $20 million, about…

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

Well, we said $20 million on consultant spend. We did not…

Madhav Marda — — Analyst

Total…

Nilesh Gupta — Managing Director

Everything put together.

Madhav Marda — — Analyst

[Speech Overlap]. Yeah, okay. Thanks, sir.

Operator

Thank you so much, sir. I request Mr. Chirag [Indecipherable] to go ahead with his questions, please. Thank you.

Chirag — — Analyst

Yeah, sir, thank you for the opportunity. So we spent INR1,500 crores capex — organic capex in FY ’23. Can we have some details on what this capex is on? Any much larger…

Nilesh Gupta — Managing Director

Acquisitions.

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

No, no. So essentially, a chunk of the capex is far lower. In fact, less than half of what you’re mentioning. A huge chunk of it is actually for M&A with the spread across in fact what we bought in India, what we bought in Australia and what we bought in America.

Chirag — — Analyst

So there is a separate line item, Ramesh, which says payment for the acquisition of business that’s INR291 crores that’s separate. There’s also another one on capital expenditure on property plant.

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

So what you’re seeing there on the acquisition, that’s only for one piece, which is on [Indecipherable]. All the other acquisitions, whether it was with the Sunovion for Xopenex, Brovana or the Paloma acquisition in Brazil, those are all getting accounted in the line, which is where you see the capital expenditure. And both this acquisition specifically the Sunovion was a significant one from an acquisition perspective which we did.

Chirag — — Analyst

This line items says property, plant, equipment.

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

The intangibles actually, what we’ve bought into brands and so on. So that’s becoming as part of it.

Chirag — — Analyst

But I think like you said the capex is basically of the order of INR600 crores, INR700 crores that’s global. And about half of that would be really going towards maintenance kind of spend and the other part would be for newer capabilities.

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

So both line together is INR1,700 crores odd is what you see overall.

Chirag — — Analyst

And we hope to maintain this kind of run rate, INR600 crores, INR700 crores organic capex?

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

The capex will be around the vicinity INR600 crores to INR700 crores. So potentially M&A is really going to be based on the proposition that’s present itself.

Chirag — — Analyst

Understood, understood. And this you this M&A, we keep doing these small, small bolt-on deals. My question is really how do you — is there a internal hurdle IRR payback period, return on capital, how are you thinking about…

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

Of course, we do have that. It really varies. For example, if you take the Medisol thing, it is actually very strategic. So of course, the payback period is very reasonable from our perspective. So which really is dependent on the proposition and what does it do to our overall portfolio. And on the respiratory space, for example, we found an opportunity with Brovana and Xopenex. And also essentially, Paloma, for example, helps in actually stabilizing the overall portfolio in Brazil. So it is actually better strategy and of course, the kind of returns associated with it.

Vinita Gupta — Chief Executive Officer

For all them, our focus has been on a quick payback and high IRR and EBITDA multiple…

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

EBITDA accretive as well as much as possible in the very first year.

Chirag — — Analyst

So we’ve spent about INR1,000 crores on these acquisitions, right, INR1,700 crores of overall capex like you’re saying…

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

Yeah, that is correct everything put together.

Chirag — — Analyst

So my question is this INR1,000 crores, if you can just give us a sense of how are you thinking about payback periods, IRRs or whichever way you’re slicing? This seems like a fairly large amount. I would have been surprised if you would have told me 12 months back that you would spend about INR1,000 crores with a single-digit ROIC, you would spend about INR1,000 crores on M&A, I’d be surprised. And that’s the question that how have you evaluated…

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

No, our threshold limits are — as I said, it is pretty high. So I would say anything 19% to 20% on an IRR basis which includes in fact the terminal value of that. So even without that, it would be well above 16%. So from our perspective, it actually adds value — economic value to us. Our cost of funds is about 11.3% and there abouts. So to that extent, all of these propositions as well as we are well above those limits, it makes sense to us.

Chirag — — Analyst

Understood. And just the last question is on the tax rate. At what point do we become a normalized tax rate company?

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

So in the recent past, we have been inhibited by in fact losses in various subsidiaries and that included Brazil and America. And of course, we still have our entity R&D [Indecipherable] in Netherlands. That would potentially be because it’s more R&D expense, but we do expect the other business subsidiaries to start making money for us as was the case in America until very recently. So effective tax rates would actually normalize around the 28% to 30% mark from next year onwards. Though if we recognize, I guess, it’s much lower than that.

Chirag — — Analyst

So FY ’25 you’re saying 28% to 30%.

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

FY ’24, the current year, we will bring it down to about 28% to 30%.

Chirag — — Analyst

Understood. But a normalized rate should be 25%, Ramesh.

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

It would be, but that — yeah, so could expect that out of India because it is possible if I would move to regime two and lost net regime. But of course, we still have tax picks in India. So that’s why we’re still switching on to that. But if you talk about other parts of the globe, incremental tax rates are in the vicinity of 30% in most parts really. It is really a function of those. In America, for example, is to also have federal — apart from federal taxes, you have state taxes as well. And so there NOL. So to the extent you won’t be actually making any — paying any payments out — tax payments out. There’s been some federal tax out there.

Chirag — — Analyst

Okay, sir. Thank you so much.

Nilesh Gupta — Managing Director

I know we’re at the hour, but maybe last two questions.

Operator

Thank you so much, sir. Next is Ms. Cyndrella Carvalho, please. Next question.

Cyndrella Carvalho — J M Financial — Analyst

Thanks for the opportunity. If I can understand if we are looking at the coming quarter in U.S., it will be seasonally weak quarter, right, if I follow the general trend. Do you see our quarterly run rate of $175 million sustaining or should we assume it more towards the seasonality that we always consider? Plus with the U.S. base, can you help us understand how Suprep is expected to pan out for the coming entire fiscal FY ’24 along with Albuterol? Do you think these both products will continue at the same level for us today or you see that they will see some competition though you highlighted earlier that you do not see meaningful entry in Suprep yet? But any further thoughts will be helpful. That’s first question.

Vinita Gupta — Chief Executive Officer

Yeah. So we definitely will see seasonality impact in the first quarter for the U.S. business. All the anti-infectives, Cephalosporin, Azithromycin or [Indecipherable] all of that portfolio will be down. So there will be an impact on revenues, but we have some upsize also. We have the RENOVIR launch and we’ll see when we can launch Spiriva, June or July based on FDA approval. We have some launches as well to offset it. For us, once we launch Spiriva, that’s where revenues pick-up in a major way in the U.S. But otherwise, the seasonality will have an impact in the first quarter.

Cyndrella Carvalho — J M Financial — Analyst

And on Suprep and Albuterol?

Vinita Gupta — Chief Executive Officer

Yeah. So Albuterol is already a multi-competitor market and we believe that it’s stable from the standpoint of competitive and from a share perspective for the competitors. We don’t see any near-term entrant in Albuterol in the next 12 months. On Suprep, it’s hard to tell. We don’t believe that there is any imminent approval right now based on what we understand of the supply chain, but it’s hard to tell how long it will remain exclusive. We think the next three to six months, it should. It could be beyond that as well.

Cyndrella Carvalho — J M Financial — Analyst

Okay. And if I have to understand the overall scenario ex these new launches, like if we keep Suprep aside, do you see the price erosion at the mid to high single-digit run rate only or do you think it is higher than that?

Vinita Gupta — Chief Executive Officer

We think that it’s gotten to that high-single-digit run rate, but for the new products, like Suprep.

Cyndrella Carvalho — J M Financial — Analyst

Excluding new products, right?

Vinita Gupta — Chief Executive Officer

Yeah, yeah.

Cyndrella Carvalho — J M Financial — Analyst

And if I may understand, Ramesh, how should we look at the hedging rates for us? Can you give us some idea around the coming quarters? Where are we?

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

There is this philosophy that we should not hedge fully. The current — As these trends kind of indicated, we’re going to stagnate around 82 mark. But given the volatility around the economic front, it’s good to be actually open at least for a huge chunk of our portfolio and that’s what have actually done. Yeah, some things for the future and those are well into very acceptable rates at this juncture, but a fairly large chunk of our overall exposure is still unhedged.

Cyndrella Carvalho — J M Financial — Analyst

Okay. And if I may ask one more question on the API side. What is keeping this kind of growth in the API? Do you think there is some seasonality to this or you think this is sustainable? And what were the key drivers for the API segment? Can you please highlight and help us understand? Little more granularity will be helpful.

Nilesh Gupta — Managing Director

Okay. Cyndrella, we’ll have wrap our — because we’re already five minutes over time. As far as the API business is concerned, we were basically doing very low in the first three quarters. And there’s really been a success to build over the quarters on the API business. Every quarter, the business grew and in Q4, obviously, we’ve seen a lot more normalization in products like 7-ACCA and Cefaclor. That’s really what’s driving it. We expect it to continue. We don’t expect this growth to continue, but we would expect it kind of continue more or less at this kind of levels.

Cyndrella Carvalho — J M Financial — Analyst

Thank you so much.

Nilesh Gupta — Managing Director

Last question, please.

Operator

So can I request Mr. Kunal Randeria.

Nilesh Gupta — Managing Director

Kunal, are you there? Hello? It’s okay. We can wrap up then.

Kunal Randeria — Nuvama — Analyst

Am I audible?

Nilesh Gupta — Managing Director

Yes, you are.

Kunal Randeria — Nuvama — Analyst

Thanks for allowing me to squeeze my question in. Just a couple around Spiriva. Now is my understanding correct, the Spiriva volumes have been shrinking and even within that Respimat share has been rising. So which means hand deal is maybe going down in double-digits in the last five years.

Vinita Gupta — Chief Executive Officer

That’s right.

Kunal Randeria — Nuvama — Analyst

So just what is your expectation once the [Indecipherable] generic comes in the market, do you expect some shift back from Respimat to [Indecipherable]?

Vinita Gupta — Chief Executive Officer

So we haven’t assumed that, but hopefully that happens from a pricing perspective that the retail — retailers have the incentive to shift some.

Kunal Randeria — Nuvama — Analyst

Right. And what would be the market size today at the manufacturer level?

Vinita Gupta — Chief Executive Officer

It’s at the gross level still $1 billion plus at the gross sales level.

Kunal Randeria — Nuvama — Analyst

Net level maybe $500 million odd? Would that be a correct understanding?

Vinita Gupta — Chief Executive Officer

I would think so. But from a pricing perspective, it’s really the gross level that is important.

Kunal Randeria — Nuvama — Analyst

Sure. Okay. Perfect. Thank you and all the best.

Vinita Gupta — Chief Executive Officer

So thank you. Do we have another question or can we wrap up?

Operator

Yeah. I think that pretty much concludes our Q&A session. I now hand the over to the management for closing comments. Please.

Vinita Gupta — Chief Executive Officer

Well, thank you, everyone. Hopefully, we’ve been able to respond to all of your questions. If not, I’m sure you’ll be following up with Ramesh. But as we mentioned at the outset, we are very pleased with the progress we have made through the year for fiscal year ’23 closing the year on a positive note in terms of EBITDA margin improvement and we continue to be very focused on driving profitability as well as growing our business into fiscal year ’24 with our new product launches as well as the basic business, India business as well as other parts of our business. So look forward to a successful fiscal year ’24 and we’ll look forward to speaking with you again in the next quarter. Thank you.

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

Thank you.

Operator

[Operator Closing Remarks]