Orchid Pharma Ltd (NSE: ORCHPHARMA) Q3 FY23 Earnings Concall dated Feb. 17, 2023
Corporate Participants:
Manish Dhanuka — Managing Director
Mridul Dhanuka — Executive Director
Sunil Kumar Gupta — Chief Financial Officer
Analysts:
Himanshu Upadhyay — o3 Capital — Analyst
Viraj Parekh — Carnelian Asset Advisors — Analyst
Sajal Kapoor — Independent Investor — Analyst
Tushaar Talwar — regulation30.com — Analyst
Nikhil Upadhyay — Securities Investment Management — Analyst
Darshan Jhaveri — Crown Capital — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Orchid Pharma Limited Earnings Conference Call hosted by Nuvama Institutional Equities. [Operator Instruction] Please note that this conference is being recorded.
I now hand the conference over to Mr. Manish Dhanuka, Managing Director at Orchid Pharma Limited. Thank you, and over to you sir.
Manish Dhanuka — Managing Director
Thank you, Aman. Hi, good afternoon and welcome to the Q3 earnings call for Orchid Pharma Limited. I hope you have already gone through the results of Q3. This is the — happy to announce that this is the first quarter where Orchid has been PAT positive since I will takeover. I can say it has been an eventful journey for almost three years since we took over the control of Orchid Pharma, on 31 March, 2020. I will now take this opportunity to share a comparison of nine month results from the time we took over. This will demonstrate the progress we have made — we have been able to make during our time as the new management.
Sales in the nine months are up from INR396 crores to INR456 crores. Employee expenses are down from INR65 crores to INR49 crores, a reduction of 25%. Non-employee other expenses are down from INR166 crores to INR97 crores, a reduction of more than 40%. Major areas of cost savings have been consumables, which we — in which we have saved 50% factory maintenance, 30% insurance, almost 60% consultancy and credit loss. With this, our repeated operating leverage has improved significantly — with these developments our operating leverage has improved significantly. From an employee cost of 16.5%, as a percentage of sales in financial year ’20 first nine months, it has come down to 10.7% in the last nine months. On the other expenses we have come down from 41.9% to 21.4%. Overall basis from 58.4% of cost below the gross margin, we have come down to 32.1%.
As a result of these measures that is increasing the sales and reducing the cost, we have been able to achieve a 13% EBITDA as against 1.5%, which was before our takeover. Over there on the debt front as most of you would be aware, we had taken a term-loan of INR427 crores to acquire Orchid Pharma. Our endeavor was to reduce the debt and the interest burden at the earliest possible and we have systematically focused on conversion of all non-core assets into cash.
We have sold of loss-making IKKT business, the formulation business, it had a loss of INR61 crores in financial year ’20, which is no more existent. The sales proceeds of this INR113 crore has been used to repay the term debt, and we have received 26% equity, which is valued at about INR45.5 crores at the face value for this business. The current term debt stands at INR120 crores, that means a reduction of INR300 crores in less than three years. We feel happy with the above achievement of the last three years. However, we feel we still have a long way to go.
That’s all from my side. We’ll be glad to take up any questions.
Questions and Answers:
Operator
Thank you very much. [Operator Instruction] First question is from the line of Himanshu Upadhyay from o3 Capital. Please go ahead.
Himanshu Upadhyay — o3 Capital — Analyst
Yes, hi. Good afternoon. I had a question sir. One of this is a follow-up, okay. In the last con call, we were very confident, and it seems you were interested in merging both DLL and Orchid. And you also gave reasons why it made sense that both the companies to be merged, okay. And we were ready to go to higher courts also. What changed and why did the changeover opinion on merger? And what ramifications does it have? So because some of the products were being developed at DLL and which would be — were to get manufactured at Orchid. And similar type of things, which we were expecting or we had guided for. So how are those things going to now happen? And some of your thoughts, if you can leverage, which have gone into this disease. And will be helpful to us for the future.
Manish Dhanuka — Managing Director
Yes. Thanks for your question, Himanshu. See I’d like to inform that the basic philosophy and the intent of merging has not gone away, and that still stays. However, based on the advice from the investment bankers as you are aware, we have the requirement to meet the NPAs by 31 of March, and we have to bring in this QIP to meet that requirement. And after meeting various investors and as advised by our investment bankers, the MMQT [Phonetic] because of the delay in the merger process, and you know the courts took a very long time to give their decision. Although, we did decide to go back to the court to review the decision, but I mean due to the lack of maybe reasons in the court there was no decision coming.
So we had to, I mean, withdraw for the time being, but the overall intent remains the same. And the main reason was, of course, synergies which still exist. The other main reason was to have a good governance structure. So the synergies are not going to go away, the common intermediates and the partnership between two companies are still there. And for good governance, we would definitely like to go ahead, and that’s what we want to demonstrate here also. We did not want any new — coming in new investors to have any ambiguity. So we will again come to the board and to the shareholders for approving the merger once again after this QIP.
Mridul Dhanuka — Executive Director
Himanshu, just to clarify further, after the QIP, the capital structure of Orchid would change, that would entail change in the SAT ratio already approved by the board, and SEBI. So because these — of these two changes in any case, we would have had to go back to the Board for approval in SEBI. Therefore, we decided to withdraw our challenge in the courts, and we will come back with a fresh merger proposal, first with the board and then the stock exchanges once the QIP process is completed.
Himanshu Upadhyay — o3 Capital — Analyst
Okay. Thank you. And I was going through the credit rating report what we have put on the BSE. When we see that the sterile products the capacity utilization has improved quite significantly, and congrats on good set of portfolio — things which has happened, production of — in first half was more than what we did in complete FY ’19 or CY ’19. But in case of orals, the capacity utilization remains very low, okay. Can you just give an idea, what are the challenges here and what is the breakeven level of capacity utilizations of orals? And how — by what time or what would be the efforts you are taking to increase the capacity utilization on oral side?
Manish Dhanuka — Managing Director
You see as it is a common plant, so there is no individual breakeven you understand in the process industry there are lot of common overheads. So our intent is to increase both sterile, as well as oral output. But as you know, there are two factors there it play, one is the major innovator companies contract and sometimes that contributes largely to our oral sales, oral revenue. And depending on their demand, it varies from quarter-to-quarter, sometimes even financial year to another year. And that’s not very much in our control. But other than contract, we have increased the sales of all other products. So, overall intent remains same, and we are — I think we are heading towards that only.
Himanshu Upadhyay — o3 Capital — Analyst
Okay. And one, and then I’ll join back in the queue. We have seen the revenue stagnate Y-o-Y when we look at it, and the raw-material prices as a percentage have increased in the quarter. Has there been any product mix change or the prices have fallen for the products in the market and hence the gross margins have reduced? Can you elaborate on what has happened in this quarter?
Mridul Dhanuka — Executive Director
Yes, Himanshu, I think you are only comparing quarter-and-quarter numbers.
Himanshu Upadhyay — o3 Capital — Analyst
No Y-on-Y, Q-on-Q.
Mridul Dhanuka — Executive Director
Yes. Y-on-Y, Q-on-Q, that’s what I’m saying. So Orchid have always reiterated, our shipments are large one shipment could be as high, let’s say, INR10 crores. So one or two days order here and there could shift the quarter. So we have always reiterated in the past, we should always look at Orchid as a business, which is cumulative sales to year. So one or two days, because the customer couldn’t go, the flight was not scheduled sometimes the date of the order might ship, the last one or two days revenue in any case is not recognized, so it could be because of some of those factors. So we are growing, if you look at nine months basis, we are growing upwards of 15%.
Himanshu Upadhyay — o3 Capital — Analyst
Okay. And the fall in depreciation is for what reason from INR20 crores to nearly INR8 crores Y-o-Y and even if…
Mridul Dhanuka — Executive Director
Yes. So we have guided even in our first year, Orchid invested a lot of money to build this plant. And from this year, a lot of that money — investment has completed 15 years of life. So as for Orchid depreciation policy, once the assets are 15 years old and 95% depreciated, we stopped charging depreciation on that. Therefore, you see the sharp fall-off a plant, which was commissioned more than 15 years ago suddenly changing to this number.
Himanshu Upadhyay — o3 Capital — Analyst
Okay. Thank you. I’ll join back in queue.
Mridul Dhanuka — Executive Director
Yes. Thank you, Himanshu.
Operator
Thank you. The next question is from the line of Viraj Parekh from Carnelian Asset Managers. Please go ahead.
Viraj Parekh — Carnelian Asset Advisors — Analyst
Hi, apologies, I joined the earnings call late.
Operator
You are not clearly audible, we request to use the handset please.
Viraj Parekh — Carnelian Asset Advisors — Analyst
Hi, am I audible now?
Operator
Slightly better, but better if — yes. Please go ahead. It seems that we have lost the line for the current participant. While he joins, we will move to the next question that is from the line of Sajal Kapoor, as an Independent Investor. Please go ahead.
Sajal Kapoor — Independent Investor — Analyst
Yes, hi, and thanks for taking my question. Mridul, one of the menu items on your website mentioned contract research and manufacturing services, is this the generic or NCE grants?
Mridul Dhanuka — Executive Director
This is generic not NCE.
Manish Dhanuka — Managing Director
We are currently working for the products which are going off-patent in next few years. So we work with the generic players and develop it ahead of time for them, and then partner with them for manufacturing further, if they are interested.
Sajal Kapoor — Independent Investor — Analyst
So the end customer is that a generic company or the innovator?
Manish Dhanuka — Managing Director
Its a generic company.
Sajal Kapoor — Independent Investor — Analyst
Generic company, okay, fair enough, right. Okay. And then on this Enmetazobactam, the NCE royalty milestone payments, can you just remind us the timeline and the value again please?
Mridul Dhanuka — Executive Director
Yes, Sajal. So actually timelines is guesstimate, as we’ve said before, this is run by an independent company to which Orchid had licensed this product way back in 2013. So our estimate is that they have already filed for the new drug application in Europe in November and they should have filed in U.S. also early this year. So as per the U.S., it has been given a fast track status because of the increasing issue of antimicrobial resistance. So we believe that during June, July of this calendar year, it is likely that the product may be launched. Coming to the second part of your question in terms of the value estimate. We have estimated a lifetime value of $2 billion to $3 billion on this product, which is over a 10 year patent life left on this, and Orchid is entitled to 8% royalty on the global sales of this.
Sajal Kapoor — Independent Investor — Analyst
Sure. That’s helpful. And one more question that I have is, so when — if I go back 15, 20 years, so somewhere around 2005, when you guys were not the management and Mr. K. Raghavendra Rao and team were there. The gross margins used to be in the — as high as 60%, between 55 and 60%. I know a lot has changed in terms of selling the injectables capability to Hospira so on and so forth, so business has come a long way after NCLT, you guys have taken over.
My question is, with increased exposure to the regulated markets, because, I think that’s where our thrust is. And slightly better raw material pricing going forward. I guess, our gross margins should get closer to 45%, at least, if not more and then most of these gains should flow into the EBITDA margins, is that a reasonable assumption?
Mridul Dhanuka — Executive Director
You can say that, currently we — last year we were at 42%, currently we are at 40%, 40.5% of gross margin. So I think we won’t be able to go back to the days that you are talking about 60% gross margin, but it is possible that we may inch up one or two percentage points as we go forward. A lot of this synergy will come more into play when our PLI project is implemented and we would have in-house backward integrated some of the key raw materials.
So then this will happen [Phonetic] — in the longer-term, we could very likely to play out.
Sajal Kapoor — Independent Investor — Analyst
Right. And do we see any sort of execution risk on that 7ACA backward integration? What potentially could go wrong, that we can perhaps foresee and mitigate upfront?
Manish Dhanuka — Managing Director
So we don’t foresee much of the issues, the only gray area that as a viewer I would anticipate could the technology. And fortunately, we have been — we’ve got access to a couple of technology providers. And we are very hopeful that we will be able to sign a technology transfer agreement from a very reputed company, and they have an excellent technology in hand. We are in advanced negotiation stage at this point of time. So we don’t see much of a problem as of now.
Sajal Kapoor — Independent Investor — Analyst
Okay. Fair enough. I’ve got more questions, I’ll rejoin the queue. Thank you.
Operator
Thank you. The next question is from the line of Viraj Parekh from Carnelian. Please go ahead.
Viraj Parekh — Carnelian Asset Advisors — Analyst
Hi, apologies. I think I was in a bad network area. I hope you can hear me now?
Operator
Much better.
Mridul Dhanuka — Executive Director
Yes, it’s good.
Sajal Kapoor — Independent Investor — Analyst
Yes. So, first question, if you could let me understand that for the nine months FY ’23, how much of a revenue has been contributed from the Europe region? We’ve done around INR450 crores of top line. So can you help me with that number?
Mridul Dhanuka — Executive Director
Viraj, we only talk about this on an annual basis. And I can say this that, last year we were at roughly between 40% and 45% and the similar trend should continue even for this year going forward. What has happened new is, U.S. business has started in this quarter. And although, the numbers are not big, but we expect this number to be significant in next year.
Viraj Parekh — Carnelian Asset Advisors — Analyst
Okay. Just a follow-up on that, what kind of demand environment are you foreseeing in Europe currently and probably for FY ’24 as you are progressing towards the new financial year? If you can help me understand your talks with the customers, clients which are going on there.
Mridul Dhanuka — Executive Director
I think we are expecting a better demand this year with all this war going on, and lot of turbulence, we see the health care demand in Europe to be higher this year.
Viraj Parekh — Carnelian Asset Advisors — Analyst
Okay. And — apologies, I’m repeating the question, because I joined the call little late. I just heard that depreciation is around a decrease because of some non-capitalization [Indecipherable] is more than 15 years and it’s 95% depreciated. So will we have to incur further capex for the machinery which is outdated? Or do we — can we continue that for the coming three years more?
Mridul Dhanuka — Executive Director
So, Viraj, Orchid invested in world-class equipment always, most of our equipment, especially the sterile plant is all Italian, German, American and Japan, etc. So they have long life. What we do imagine is that depending on component to component as we expand and modernize the marginally capex would be needed of INR15 crores to INR20 crores kind of a thing to maintain these kind of assets. We don’t need anything major going forward to current this run-rate. You are already aware of the sterile plant that gets commissioning with investments, those we have already talked about earlier, we increased capacity. To maintain the current business we do envisage any large number as investment.
Viraj Parekh — Carnelian Asset Advisors — Analyst
So we can go ahead with the INR15 crore, INR20 crore-odd quarterly depreciation kind of a run rate going ahead, right?
Mridul Dhanuka — Executive Director
Yes, not INR20 crore per annum, it’s INR35 crores per annum Viraj, sorry.
Viraj Parekh — Carnelian Asset Advisors — Analyst
No, I’m talking about quarterly. For the quarter around INR8 crores this quarter, right, depreciation?
Mridul Dhanuka — Executive Director
Yes. So, a similar number should continue going forward.
Manish Dhanuka — Managing Director
Maybe something will get added for the new investment that is going to be kept layers. Otherwise, there should not be a significant increase in the position.
Viraj Parekh — Carnelian Asset Advisors — Analyst
Just last question before I join back in queue. Are we on track to dilute our stake before March ’23 or are there any further delays in that?
Manish Dhanuka — Managing Director
So we have appointed Edelweiss and JM, as our investment bankers, they are looking into the matter. They are preparing the documentation and all. We are hopeful, we should be able to do it before 31 March.
Viraj Parekh — Carnelian Asset Advisors — Analyst
Okay. Thanks. I’ll join back in queue.
Operator
Thank you. Next question is from the line of Tushaar Talwar from regulation30.com. Please go head.
Tushaar Talwar — regulation30.com — Analyst
I had my questions answered. Thank you so much. Thank you. Next question is from the line of Nikhil Upadhyay from Securities Investment Management. Please go ahead.
Nikhil Upadhyay — Securities Investment Management — Analyst
Yes. Hi, good afternoon. Thanks for the opportunity and appreciation for the improvement in the performance we’ve seen for the company. My question is like, if I go by the rating document and we’ve seen a significant scale-up in the sterile business. And what we understand is, sterile is a more profitable business versus the oral dosage. But, over the same period what we’ve also seen is that, our gross margin have significantly fallen, while the sterile mix and growth has been much higher. So what is the — so how should we read it? And is it mainly because of — is it like RM cost and prices in sterile have fallen significantly, which has impacted us or do you think it can reverse?
Mridul Dhanuka — Executive Director
Yes. So, Nikhil, sterile plant just to explain this to you, sterile plant, we need to keep operational to make the sterile conditions 24/7, whether we are manufacturing in it or not. So when the banks were running it before our takeover for almost three years, they decided they will not make any product, unless the gross margin was up further 50%. But while they were continuing to invest — incur the cost of people, energy, maintenance and all of those heads on a sterile plant. When we took over, we realized that while we are incurring this expense, not taking orders in our sterile plant is not a good strategy. So even at lower gross margins for the emerging markets, we have decided to keep the sterile plants operational. So let’s say, we are on a gross margin of even 30% that all of that goes directly to the bottom line, because we don’t add as much expense after the gross margin line on that manufacturing.
So that is what you see as a increase — significantly increased capacity utilization on the sterile side in our book. And our intent is to ensure that our sterile plants are fully operational all the time and you would see similar numbers on the sterile side going forward. As we increase our regulated market business going forward, obviously, the same product from the same plant can be sold to regulated markets. And we can see improvement like I just shared earlier answer, that we are increasing our U.S. business, so gross margins would see improvement on the sterile side due to that business.
Nikhil Upadhyay — Securities Investment Management — Analyst
Okay. Thanks for the detailed answer. Another question is like, if we look at last 10, 12 quarters, our operating cost. Now we are — we’ve been able to manage our operating costs other than the RM. So the employee cost and other operating cost in a tight — has been in a tight band. And what I understand is that, we are not putting any greenfield and most of the capacity is more of a brownfield in — both in sterile and oral other than the intermediate plant, which is separate. So as the utilizations of the oral dosage and everything increases, do you think the operating cost will remain at this level or how should we understand the operating cost inflation, which may hit like? Is it like as the utilizations improve, whatever increase happens will flow to the EBITDA margin improvement?
Mridul Dhanuka — Executive Director
Yes. So, Nikhil I would like to sight last year’s results as an example, roughly our last year sales increased by almost 24%, while the expenses increased only by 12%. So as we go forward we expect this operating leverage to continue to play out for us, what exactly will the numbers be this year, we have to see. But we expect that sales growth would be more and expenses would not increase the same proportion, thereby adding to the EBITDA percentage as a percentage to sales, which we have demonstrated in the three years of operating.
Manish Dhanuka — Managing Director
You see this year — this year the head that was not in our control was worldwide increase in the energy costs. But it is our endeavor to continue working on reducing the cost. And I am confident that you will see further reduction at least in terms of percentage of all the costs going into the future.
Nikhil Upadhyay — Securities Investment Management — Analyst
Yes. And that was my point sir, that in last nine months what we have seen is that the API prices corrected significantly, while the RM prices, the energy prices, freight prices like in the last one year had been 00 had significantly increased. So as those are cooling off and our utilization have improved, our margin profile should only improve from here. So, is there anything which I am missing that probably can pull the margins over or maintain at this level.
Manish Dhanuka — Managing Director
I think we are thinking on the same lines as you. We are hopeful that margins should improve with increase in sales and reduction in the overheads, yes.
Nikhil Upadhyay — Securities Investment Management — Analyst
Okay. And just last two questions. We were planning to sell the Orchid towers to — which would have reduced debt significantly from — so this INR130 crores to probably below INR50 crores, so any developments over there, or?
Mridul Dhanuka — Executive Director
Yes. We have signed an ATS with a party unfortunately, I cannot divulge the contents of that, but hopefully the transaction should be concluded before end of March this year.
Nikhil Upadhyay — Securities Investment Management — Analyst
Okay. And lastly, what is the carry forward tax losses which we are — which we have? And that should like be good enough or not, like which should keep the company as a non-tax paying for how many years?
Manish Dhanuka — Managing Director
Mr. Sunil Gupta, can you answer that?
Sunil Kumar Gupta — Chief Financial Officer
Yes. Actually, we have around INR1,000 crores of this carry forward losses. And I don’t think the next — at least three, four years, we will have problem, but as you know that after every year — after eight years this will start lifting.
Nikhil Upadhyay — Securities Investment Management — Analyst
Yes.
Sunil Kumar Gupta — Chief Financial Officer
So that part we have to.
Nikhil Upadhyay — Securities Investment Management — Analyst
Yes. So that’s why I was asking that, when we had acquired at that time there were significant losses and over the last two years…
Sunil Kumar Gupta — Chief Financial Officer
Yes. But right now, it is usable is INR1,000 crores.
Nikhil Upadhyay — Securities Investment Management — Analyst
Okay, fine. Thanks a lot. I’ll come back in the queue.
Operator
Thank you. [Operator Instructions] Next question is from the line of [Indecipherable]. Please go ahead.
Unidentified Participant — — Analyst
Hello, sir, can you hear me?
Operator
Yes. Please go ahead.
Unidentified Participant — — Analyst
Yes. Sir my first question is you — as in previously you’ve developed growth guidance of 20%, 25% for three, four years, in nine months we see that number is that 15%? I know you have talked about shipping, so let’s say for FY ’23 and then also, FY ’24 we can see that kind of guidance?
Mridul Dhanuka — Executive Director
Rupesh. Unfortunately, since the QIP process has started, we are advised by the lawyers, we cannot make forward-looking statements on this call today.
Unidentified Participant — — Analyst
Okay. Can you, I mean, other than shipping was there any issue in Q3? Because generally H2 is much stronger right for cephalosporin business?
Mridul Dhanuka — Executive Director
Yes, historically for Orchid H2 has been 60% of the sales compared to H1, so 40:60 has been the ratio historically.
Unidentified Participant — — Analyst
But was there any issue other than shipping?
Mridul Dhanuka — Executive Director
I’m not sure what you mean.
Unidentified Participant — — Analyst
I think the Q2 and Q3 number is same rights, sir? I mean actually Q3 is marginally lower and generally H2 should be much stronger, right? So this is the one you talked about that maybe some shipments got delayed, because of one, two days like that you have said, but was there any other industry event or some sort of demand side issue?
Manish Dhanuka — Managing Director
No. I think the trend last two, three years that we have experienced is that the second half is better. So, I mean, as you said, because of the advice from lawyers, we do not wish to make a statement in that regard. But — I’m sure you can understand.
Unidentified Participant — — Analyst
I’m not asking you about Q4, sir, I’m asking about Q3, December ’22.
Mridul Dhanuka — Executive Director
Yes. So there was no issue, and the H2 results should be like the past trend in our opinion, there is no major change. But the only point, I was trying to make is, don’t look at it just quarter, that’s not the right way to look at it.
Unidentified Participant — — Analyst
Okay. I see. And then the second question is for — is on ARP [Phonetic] on our injectable capex, we are already running at full capacity.
Mridul Dhanuka — Executive Director
Yes. So we are — what it currently has four sterile blocks. We are in the process of commissioning the fifth month. And — so because we are adding the products, if I remember, in the earlier calls, we’ve talked about Ceftaroline and Ceftazidime/Avibactam, in fact, Ceftazidime/Avibactam we have launched already in India on 27 of January. So to utilize, our capacity and able to service the market for these products, the fifth block will be commission, our target dates for that is 15 of June of this calendar year and we seem to be on track.
Unidentified Participant — — Analyst
And I mean after commercial — after commissioning, there must be some regulatory approvals or we can directly use it, given the sales…
Mridul Dhanuka — Executive Director
So for emerging market we can immediately start using it, and for regulated markets, we will need a inspection by the regulatory agency. But as I’ve explained before in this call and earlier, our regulated market capacities are more than enough. So we don’t see a challenge currently in servicing the regulated markets, even with the capacity that we have.
Unidentified Participant — — Analyst
Okay. And then sir, next question is, you said that oral capacity, I mean oral capacity utilization, I think as per credit report is roughly 40% to 45%, and you said CMO deliveries kind of dictate that I mean, we do a product manufacturing for some innovator. So my question is, what percentage of overall revenue or total revenue is this contract manufacturing for an innovator?
Mridul Dhanuka — Executive Director
I think there was some miscommunication. We have a long-term manufacturing deal with the innovator, we don’t do contract manufacturing.
Unidentified Participant — — Analyst
Okay.
Sunil Kumar Gupta — Chief Financial Officer
Yes, so it is a different kind of arrangement, it’s not a contract manufacturing arrangement. And in terms of the capacity utilization, actually, what you see in the credit report, some of that capacity I’ve said in the earlier call as well, so was related to GEN 1 products like Cefalexin, which Orchid used to sell 300 tons to 400 tons per year. So after our sterile capacity comes online, our next project is — the rejigging of the capacity is to make the newer generation products. And this capacity number during the next credit report would be revised once we rejig that capacity to make the newer generation products.
Unidentified Participant — — Analyst
Okay. Understood, sir. But in inside oral all our sales is this innovator sales or is there some other sales also?
Manish Dhanuka — Managing Director
No. The innovator sales would be about 20%, 25%.
Unidentified Participant — — Analyst
Of the total or of the oral.
Manish Dhanuka — Managing Director
Of the total oral.
Unidentified Participant — — Analyst
Okay. So then, I mean, rest of the 75%, [Phonetic] we should be able to use and take this capacity upward site on a 42% kind of sounds like a lower number right, at least 70%, 80% we — using the innovative business can we not get that capacity there.
Mridul Dhanuka — Executive Director
Yes. That’s what we are doing. That’s how the sales have increased in last two years. But as you suggested, some of those stated capacities are probably not the right parameter to judge because they need a little bit of, I would say reengineering to cater to the newer class of products, which have more demand than the older products. So that is what we are in the process of doing now.
Unidentified Participant — — Analyst
I see, okay. Sir my next question is on competition one-off, the mark based competitor, maybe I should take a [Indecipherable] life is a very big player in Cephalosporins. And we kind of see balance sheet issues with that company. And this is a pretty big INR1,500 crores, INR1,600 crores kind of sales. So do you — I mean, based on this and probably other competitors, how is the competitive scenario, do you see some value migration happening to us now that Orchid Pharma is in a strong balance sheet, strong management, do you kind of see that happening?
Manish Dhanuka — Managing Director
The markets are growing, we see healthy competition would not be proper to comment on the competitor. But we see that the demand is growing and there is scope for everybody.
Unidentified Participant — — Analyst
Okay. And then sir, my last question is, in nine months what was the U.S. revenue contribution? And what timing let’s say, ’24, ’25, you can do some — give some indicative range where the U.S. revenue can grow.
Mridul Dhanuka — Executive Director
So Rupesh just I like — I explained to Nikhil, we can’t make forward-looking statements. Currently, the revenue contribution is in low single-digit, but, does — CAGR percentage on this business would be significantly higher on than the rest of the business going forward. That’s all I can say.
Unidentified Participant — — Analyst
Okay. Thank you so much for answering all my questions.
Mridul Dhanuka — Executive Director
Thanks.
Operator
Thank you. The next question is from the line of Darshan Jhaveri from Crown Capital. Please go ahead.
Darshan Jhaveri — Crown Capital — Analyst
Hi, good evening, and thank you so much for taking my question. So sir, I just wanted to know, how much of our sales thus far modal and how much from injectables is rough range would also do.
Mridul Dhanuka — Executive Director
Yes. So roughly one-third of our business is injectables and two-thirds is orders.
Darshan Jhaveri — Crown Capital — Analyst
Okay, sir. And would these guys, what would be the margin profile of both the products? Are there similar range or how would they be hit?
Mridul Dhanuka — Executive Director
This is a very tricky question Darshan, unfortunately, I’ll have to give you a very convoluted kind of answer. So, it depends on which product and which market you are selling. I can give you the range, which will help you understand what it looks like. For some of the products that on the oral side the gross margins maybe as low as 25%. While for some products that maybe has the highest 75%. The similar ranges would playout even in the sterile space. So it’s very difficult to — in general, what is the margin between the two.
Darshan Jhaveri — Crown Capital — Analyst
Okay, sir. So I understand sir, we can’t make forward-looking statements. So — but in general it had proper capacity utilization, what kind of margins do these blended basis overall in a company level, what is the ideal EBITDA margin that we are looking forward to? Because there will be lot of fluctuations. We don’t really know what actually our business can generate in terms of profits. So I don’t want again any specific guidance, but just a range of normal profits or previously done 18% EBITDA or something like that reasonable or is this completely changed right now?
Mridul Dhanuka — Executive Director
So our intention is to continuously improve it, Darshan. And like I said, we’ve talked about it in the past. So our sales last year increased by 24%, 25%, while the cost increased by only 12%, and as we go along, we expect that leverage should continue to playout for us. And whatever we earned by extra sales and gross margin will go directly to EBITDA, because like I said, cost will not increase in the same percent as same.
Darshan Jhaveri — Crown Capital — Analyst
Okay, sir. Yes, sorry sir.
Manish Dhanuka — Managing Director
Yes, so we have three pronged strategy like, two we have already discussed about reducing the cost and increasing the sales of existing products. The third one, we probably didn’t talk about was the launching of new products and like Mridul said, we launched Avibactam/Ceftazidime combination which went off patent on 27 of January. And happy to announce that we were able to launch it on day one through a formulation partner and for large Indian companies, launch their product through our API. So that’s the third pillar which — on which we are working, and hopefully, we will have new products coming in the future, three, four years, that will contribute to not just top line, but as you know, newer products have a better gross margins. So that will contribute to a higher EBITDA also.
Darshan Jhaveri — Crown Capital — Analyst
Okay, sir. That helps me a lot. Thank you so much and all the best for your future. Thank you.
Manish Dhanuka — Managing Director
Thank you.
Operator
Thank you. [Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference back to the management for their closing remarks. Thank you, and over to you.
Manish Dhanuka — Managing Director
Dear gentlemen, thank you very much for your interest in this conference call. We appreciate your interest in Orchid Pharma. Thank you.
Operator
[Operator Closing Remarks]