SMS Pharmaceuticals Limited (SMSPHARMA) Q2 FY23 Earnings Concall Transcript

SMS Pharmaceuticals Limited (NSE:SMSPHARMA) Q2 FY23 Earnings Concall Aug. 18, 2022

Corporate Participants:

P. Vamsi Krishna — Executed Director

LakshminarayanaTammineedi — Chief Financial Officer

Analysts:

Atul Kothari — Progwell Securities — Analyst

P.D. Gupta — Investors Forum — Analyst

Priyanka Shah — KP Advisors — Analyst

Ankush Mahajan — Axis Securities — Analyst

Ritesh Oswal — Opal Industries — Analyst

Meenal — C.J. Shah & Company — Analyst

Nishita Shah — Raga Securities — Analyst

Viraj Parekh — JMP Capital — Analyst

Amit Shah — PC Capital — Analyst

Rupesh Tatia — Intelsense Capital — Analyst

Anup Shah — Srinath Securities — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen, and welcome to Q1 FY ’23 Earnings Conference Call of SMS Pharmaceuticals Limited.

This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]

I now hand the conference over to Mr. Vamsi Krishna Potluri, Executive Director at SMS Pharmaceuticals Limited. Thank you. And over to you, sir.

P. Vamsi Krishna — Executed Director

Good morning everyone. Thank you for joining the earnings conference call to discuss the financial performance for the quarter ended June 30th 2022. I hope everyone must have got an opportunity to go through our financial results and the investor presentation which has been uploaded on the stock exchange as well as our company website.

The company’s financial performance witnessed an improvement on a sequential basis with the turnaround at the EBITDA level. The performance for the quarter was impacted due to low offtake of antiretroviral products. However, the non-antiretroviral products continued to witness a healthy demand. The company is witnessing strong traction for the recently commercialized Ibuprofen product. The company has also received the CEP approval for Ibuprofen recently. With this approval, the company can start selling Ibuprofen in the European markets. The company is also exploring multiple avenues such as new customer addition and geographical expansion to further booster the Ibuprofen sales.

Apart from Ibuprofen, the company is also planning to draw recently expired patent of an anti-diabetic product. The company remains confident of overcoming the short-term challenges. The company will continue to invest in R&D and new product launches along with new customer addition and geographical expansion to grow the revenue and profitability going forward. As a strategy, the company will also launch some tactical products as per need and market demand, which will further deepen the customer engagement and will provide the operating leverage for the company.

We can now begin the Q&A session. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Atul Kothari from Progwell Securities. Please go ahead.

Atul Kothari — Progwell Securities — Analyst

Thank you sir for the opportunity. Sir, I just have a couple of questions. Sir, first of all, can you help us with the products which are under pipeline with Chemo Iberica JV?

P. Vamsi Krishna — Executed Director

Yes, sure. So the products that are already on the pipeline are almost developed. I mean, the first set of products, we have got a hold of eight products that are part of the JV. And apart from one or two products, I think all the products have been validated and we are waiting for patent expiry for commercialization. So I mean, it’s got a mix of new products as well as some of the patent pending products. So as and when the patent expiry is done, we will be launching these products commercially.

So like, for example, Ranolazine is one major product. Patent has expired a couple of years back. We are very much commercial into that product, and we are selling tons lots of that product. Like Sitagliptin is one more product that just patent expired I think July 7 this was the day that the patent has expired. Again, now we are selling good traction. I mean, we got a good traction on the volume. So same is the case with Vildagliptin. But there are some products where the patent is yet to expire, like some of the Flozins, like Empagliflozin, Dapagliflozin. So once these patents expire, we will be commercially launching these products.

Atul Kothari — Progwell Securities — Analyst

All right. Sir, that’s helpful. And sir, how much revenue that we are generating as of now with this JV?

P. Vamsi Krishna — Executed Director

Yeah. The revenue contribution of the JV in the current financial year is about 11%.

Atul Kothari — Progwell Securities — Analyst

11%. Okay, sir. And sir, lastly, how many ANDAs VKT has as of now? And how many can we expect by the end of FY ’23?

P. Vamsi Krishna — Executed Director

So as of now, currently we have six ANDAs. And by FY ’22, we will be — I mean, we will not get an approvals, but we will be filing two more ANDAs. It will be in the filing stage if it’s a review with the agency.

Atul Kothari — Progwell Securities — Analyst

Okay, sir. Thanks very much, sir. That’s all from my end.

Operator

Thank you. [Operator Instructions] The next question is from the line of P.D. Gupta from Investors Forum. Please go ahead.

P.D. Gupta — Investors Forum — Analyst

Hello, sir. Good morning. Sir, actually, I want to know about this. Recently, there was a statement by GSK in U.S. that FDA and EMA found no evidence of a casual association between ranitidine and cancer. So whatever this case was going on in USA, can you give me some update on that so for our company’s concern?

P. Vamsi Krishna — Executed Director

Yeah, sure. As of now, we have tested our product against the NDMA content, Sitagliptin, that GSK has recently issued a statement, and our product is very good. There is no NDMA content issue with the product that we are currently launching in the market.

P.D. Gupta — Investors Forum — Analyst

Okay. Actually, our associate company, VKT I think so, VKT was also in the line from this ANDA on this — our ranitidine in U.S. FDA. Is any update on that?

P. Vamsi Krishna — Executed Director

So as of now, there is no update. I mean, as you rightly know that agency has put all the ANDAs on hold as of now, so still VKT is discussing with the agency on that. So as of now, there is no update. It’s at a standstill right now. This I’m talking about the ANDAs for VKT for ranitidine that you asked.

P.D. Gupta — Investors Forum — Analyst

Correct, correct. And whatever approval recently our VKT got ANDA from U.S., when we will be able to introduce those products in the market?

P. Vamsi Krishna — Executed Director

So we have recently got approval in the month of March. So we have already commercially launched last month actually. We started commercial launches happening from May and June. So the revenues — the first initial launch quantities of all the products that we have received approvals have been going out in month of May and June. So now I think going forward, once the initial quantities are picked up, then we will probably be getting the follow-up orders.

P.D. Gupta — Investors Forum — Analyst

Okay, okay. It means already we have started introducing?

P. Vamsi Krishna — Executed Director

Yes. Just started commercial launches, yes. So we tied up with partners in the front end and we have just started commercial launches at VKT.

P.D. Gupta — Investors Forum — Analyst

That may be the reason that our revenue of VKT in June quarter is INR9.86 crore. Losses is INR7.02 crore. That maybe — there is no initial expenses you might have booked?

P. Vamsi Krishna — Executed Director

That’s right. That is right.

P.D. Gupta — Investors Forum — Analyst

Am I right?

P. Vamsi Krishna — Executed Director

That’s right. That’s right.

P.D. Gupta — Investors Forum — Analyst

Correct, correct. Sir, one thing. This is regarding our introduction Ibuprofen and we got approval also and the product is also in demand nationally and internationally more I mean to say. Then it will contribute to what extent in our current financial year ’22, ’23?

P. Vamsi Krishna — Executed Director

So my this thing will be more than ’22, ’23 as we initially mentioned. So at the launch — so the actual commercial, like a full-fledged commercial, will be happening by end of this year. For Q4 of this year, I think we will be able to commercially launch the product in a big way because approvals take time. Because customers, we have got approval for the API, but customer needs to file our APIs, do a source change in their current ANDA. So that process will be pending with the agency for six months. It’s called PAS, post-approval submission. So once the agency does that post-approval submission, then the commercials will start. So that is the time taking factor.

So I think right from day one, we were mentioning by end of this year I think we start seeing the actual commercial sales. But right now, commercially, we are already selling decent volumes in the domestic market. And now with the CEP approval, now a lot of our European customers are also qualifying us for Ibuprofen again. So qualification after us will take time for them to get an approval. And post that approval, there will be commercial launches. But be rest assured, this is our flagship product that we are focusing very, very aggressively on and it will definitely good revenues going forward.

P.D. Gupta — Investors Forum — Analyst

I got it. I got it. Can you give any projection for ’23, ’24 next year?

P. Vamsi Krishna — Executed Director

’23, ’24, estimates would be roughly around — the contribution would be around I think 40% on the top-line. 40% — 35% to 40% on the top-line from my calculation.

P.D. Gupta — Investors Forum — Analyst

Okay. 40% to 50% on the top-line of our SMS Pharma.

P. Vamsi Krishna — Executed Director

35% to 40% on the top-line.

P.D. Gupta — Investors Forum — Analyst

35%, okay. 35%. Correct, correct. That is a good amount indirectly. Actually, I’m hoping as investor, a long-term investor, and we are hoping that due to this, which is a temporary period, this is how the company is working, etc. But it will come up in the, if not in this quarter, in the coming quarters, I think so, it may come. Is not it?

P. Vamsi Krishna — Executed Director

Absolutely, absolutely.

P.D. Gupta — Investors Forum — Analyst

Thank you. Thank you very much. All the rest.

P. Vamsi Krishna — Executed Director

Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Priyanka Shah from KP Advisors. Please go ahead.

Priyanka Shah — KP Advisors — Analyst

Thank you for the opportunity. Sir, how much is our R&D expense as percentage of revenue for FY ’22? And how much are we planning for FY ’23?

P. Vamsi Krishna — Executed Director

Yes. For FY ’22, about 4%, ma’am. And FY ’23 is more or less maybe in growth of about 20% of the previous year’s expenditure.

Priyanka Shah — KP Advisors — Analyst

And sir, how many new products have we launched in FY ’22 for non-ARV products? And how many are we expecting to launch in FY ’23?

P. Vamsi Krishna — Executed Director

So launch in the sense, we validated the process. See launch in the sense, are you talking about commercial launch or are you talking about validations being completed? Because based on patents, we don’t commercially launch all the products that we validate.

Priyanka Shah — KP Advisors — Analyst

Sir, commercial?

P. Vamsi Krishna — Executed Director

Commercial, three products actually.

Priyanka Shah — KP Advisors — Analyst

Okay. Okay, sir. And what is the strategy to increase non-ARV product contribution?

P. Vamsi Krishna — Executed Director

Yeah. So now our strategy is, we are now probably going to leverage our R&D expertise, because see our major focus on R&D till now was working on most cost-effective products. So when we are going into the product, we rework on the product processes to make sure the product is — we are targeting products like Ibuprofen, some old products like Famotidine and sildenafil, Tadalafil. Some of these old products where our strength probably lies in reworking on the processes and trying to optimize the process, but now we want to focus on more of the new product segment line that we recently added a few more products. And based on that line, I think we will be going in that direction, adding more products. I think next year at least we are planning to add at least eight to 10 products to our portfolio.

Priyanka Shah — KP Advisors — Analyst

Okay, sir. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.

Ankush Mahajan — Axis Securities — Analyst

Good morning, sir.

P. Vamsi Krishna — Executed Director

Good morning.

Ankush Mahajan — Axis Securities — Analyst

Can you tell us, sir, what is the name of the top five products? And how much is the revenue they are contributing? And especially for the Ibuprofen, how much is the revenue it is contributing?

P. Vamsi Krishna — Executed Director

See you are talking about this quarter or…

Ankush Mahajan — Axis Securities — Analyst

Yearly. Yearly, sir.

P. Vamsi Krishna — Executed Director

Yearly, anti-retrovirals typically contribute to our biggest this thing around 35% revenue.

Ankush Mahajan — Axis Securities — Analyst

Sir, in terms of the product, if I say, like Ibuprofen?

P. Vamsi Krishna — Executed Director

Anti-retrovirals we have only one product actually, Tenofovir. So that contributes to 35% of our revenue.

Ankush Mahajan — Axis Securities — Analyst

Okay. So what is the name of that? Cano?

P. Vamsi Krishna — Executed Director

Sorry?

Ankush Mahajan — Axis Securities — Analyst

What is the name of the product in anti-retrovirals?

P. Vamsi Krishna — Executed Director

Tenofovir disoproxil fumarate.

Ankush Mahajan — Axis Securities — Analyst

And sir, what about this Ibuprofen?

P. Vamsi Krishna — Executed Director

So Ibuprofen, as we were just discussing, we have just launched this product. Right now the contribution is less than 10%. But definitely, I think going forward, we are targeting for a growth of 30%. 35% to 40%.

Ankush Mahajan — Axis Securities — Analyst

And what is the another product that is contributing to the revenue?

P. Vamsi Krishna — Executed Director

Anti-migraine segment is a big contributor for our revenue right now. So it contributes roughly around 30%. So in anti-migraine, Sumatriptan, Rizatriptan and Eletriptan. These three are critical products for us.

Ankush Mahajan — Axis Securities — Analyst

Sir, can you repeat the name of these products?

P. Vamsi Krishna — Executed Director

Sumatriptan, Rizatriptan and Eletriptan.

Ankush Mahajan — Axis Securities — Analyst

And sir, in JV, what are the name of the products that we are launching?

P. Vamsi Krishna — Executed Director

So it is Ranolazine, Sitagliptin, all the gliptin family, like Sitagliptin, Vildagliptin, Linagliptin and all the Flozins, Cana, Empa, Dapagliflozin and couple of other products like perampanel and mirabegron.

Ankush Mahajan — Axis Securities — Analyst

So Sitagliptin and all these products we already have developed? Can we say these all are?

P. Vamsi Krishna — Executed Director

Yes, all these are developed and validated. And Sitagliptin, we have already commercially launched it since last one month. We have already commercially launched that product. Ranolazine is already commercially launched since one year. Vildagliptin is also commercially launched just last month. And perampanel in domestic market also has been commercially launched.

Ankush Mahajan — Axis Securities — Analyst

And sir, if we see, what could I say, the price of Ibuprofen is falling, most of the APIs, like classic example of Ibuprofen, earlier the price was $18 per kilo. Now it’s $12 per kilo. So you’re your sense on it, sir?

P. Vamsi Krishna — Executed Director

So to be honest with you, it’s actually less than $10 per kilo at this point of time. But again, we are geared up and we are ready to handle. So that’s the biggest strength of your company is that we are ready to handle price pressure on some of these commodity products. And when we developed the product, we were very sure that the product is going to be below $10 range. So we developed the product and process and our engineering has been done in such a way that we will be competing in the market. So as of now, there is — I mean, obviously, there is price pressure, obviously, higher price, all of us are happy. But I mean — but still we are with the current price also we will be able to compete in the market.

Ankush Mahajan — Axis Securities — Analyst

Okay. So sir, if I say, I am looking at the products in JV, they have niche products. So what kind of revenue contribution that we could look from the current revenue, sir?

P. Vamsi Krishna — Executed Director

Again, as our CFO was mentioning, so around 15% on the top-line. But actually, coming here, maybe even more actually. Maybe 20% to 25% could be there.

Ankush Mahajan — Axis Securities — Analyst

From JV?

P. Vamsi Krishna — Executed Director

Yeah, from JV, because of launch of Sitagliptin.

Ankush Mahajan — Axis Securities — Analyst

Right, right. So in JV, we have a 45% or 50% of our stake? 45%?

P. Vamsi Krishna — Executed Director

We have 45%, yes.

Ankush Mahajan — Axis Securities — Analyst

So that 45% revenue could increase 25%. Sir, and you said outlook on this gross margins, industry is not showing improvement in gross margins. So your outlook on it?

P. Vamsi Krishna — Executed Director

So see, the thing is the typical industry is actually going through that phase where if the movement of products post-COVID is not too high, so the industry is sitting on stocks. So if you see the stock inventory level of almost all the major companies, you see the inventory level, even including our company, has grown decently. The reason is because the movement of a product in the market is less. So in order to compensate the movement, I think people are going down on the price and they are sacrificing the margins in order to move the product that is sitting in the inventory. So this is a temporary thing is what we expect. Definitely, I think the industry will bounce back in the next couple of quarters going forward.

Ankush Mahajan — Axis Securities — Analyst

But sir, if we see all these formulation companies, like Dr. Reddy’s, Cipla, so they are getting the prices maybe in the range of 10% to 15% and industry where we are supplying our product, it’s facing price erosion. So it is impacting our API industry also. So this trend — sir, outlook on this trend, sir?

P. Vamsi Krishna — Executed Director

So see, definitely, they are easy. Every year, definitely, there will be a price erosion for us for all the old products where they are definitely. I don’t think it will be around 10%, 15%, but typically, our — this thing will be 5% to 8% of price erosion will happen for all our old products. So I mean, that’s a general trend in the industry for it’s been happening since some time. So definitely, I think the price pressure automatically is there in the industry.

Ankush Mahajan — Axis Securities — Analyst

So that is impacting the realizations of the API industry?

P. Vamsi Krishna — Executed Director

It depends on the product mix, right? So there are some new products. See the product launches, new patent products are there. Obviously, you get a better price in this. Some of the old products, obviously, that discounting or depreciation automatically happens for some old products where more players come into the picture. And once the patent is expired, more players, more competition, supply-demand sort of an issue comes up.

Ankush Mahajan — Axis Securities — Analyst

Yes, sir. Yeah, most of the questions have been answered, sir. Thank you very much, sir.

Operator

Thank you. The next question is from the line of Ritesh Oswal from Opal Industries. Please go ahead.

Ritesh Oswal — Opal Industries — Analyst

Good morning.

P. Vamsi Krishna — Executed Director

Good morning.

Ritesh Oswal — Opal Industries — Analyst

My question is on the inventory side. Why we are building a large inventory? Why we are keeping large inventory, INR275 crores approximately?

P. Vamsi Krishna — Executed Director

So see, just to answer your question, see, I think some of the — one of the major increase of inventory from last quarter to this quarter is because of the launch of Sitagliptin. Are you asking for the last financial year or this quarter?

Ritesh Oswal — Opal Industries — Analyst

Sir, both, last Q4 FY ’22 as well as Q1 FY ’23. Last year’s closing inventory is INR250-odd crores. Correct?

P. Vamsi Krishna — Executed Director

So I will tell you the reason for that. So the reason for that is one of our major products was going off patent. So we had to bring in raw material and we had to put it at different, different phases. One because for a quick launch post the patent expiry for us to manufacture the API and send the API out. So that’s the reason the last quarter the inventory has significantly increased also along with some of the commodity products like Ibuprofen and triptans where we had some orders that we had to put in the inventory.

And also, as you know, the company has also invested on some of the COVID-related drugs like Molnupiravir and HCQ. So at that point of time, the significant inventory was built up anticipating a very big launch of this product where the company has received license from Merck and Pfizer for manufacturing of both Molnupiravir and PAXLOVID. So that was the reason for the inventory level increase.

Ritesh Oswal — Opal Industries — Analyst

Can we use the Molnu raw material to other ARV if Molnu not take off?

P. Vamsi Krishna — Executed Director

Right now, no. Right now, no. We are not doing that at this point of time. But definitely, I think if there is an opportunity where the same raw material is used in any of our other products, not only ARV, any other products, I think we will definitely liquidate our inventory as soon as possible.

Ritesh Oswal — Opal Industries — Analyst

One more question. Can you give the break-up of raw materials? How much finished goods inventory Q1 FY ’22 — FY ’23?

P. Vamsi Krishna — Executed Director

I’m sorry. Could you repeat your question?

Ritesh Oswal — Opal Industries — Analyst

Out of INR275 crores, how much amount of finished goods?

LakshminarayanaTammineedi — Chief Financial Officer

Yes. WIP and FG is INR150 crores.

P. Vamsi Krishna — Executed Director

So WIP and finished goods put together is INR150 crores.

Ritesh Oswal — Opal Industries — Analyst

And INR125 crore other key raw materials, correct?

P. Vamsi Krishna — Executed Director

Yes, other key essentials.

Ritesh Oswal — Opal Industries — Analyst

So INR125 crore was sufficient for next two months. So we are not purchasing major raw material in this current quarter?

P. Vamsi Krishna — Executed Director

Correct, correct. That’s right.

Ritesh Oswal — Opal Industries — Analyst

Okay. So Q3 numbers will be great. I think good?

P. Vamsi Krishna — Executed Director

Good. Yes, that’s the hope.

Ritesh Oswal — Opal Industries — Analyst

Yeah. Okay, okay. Thank you very much, and congratulations and best of luck.

P. Vamsi Krishna — Executed Director

Okay, fine. Thank you.

Operator

Thank you. The next question is from the line of Meenal from C.J. Shah & Company. Please go ahead.

Meenal — C.J. Shah & Company — Analyst

Hi, sir. Good morning.

P. Vamsi Krishna — Executed Director

Hi, good morning.

Meenal — C.J. Shah & Company — Analyst

Sir, as you mentioned that Ibuprofen price has already gone to $10. So what is the future expectations on the pricing?

P. Vamsi Krishna — Executed Director

So see, the prices what we feel have already bottomed out at this point of time, because this is actually, to be honest with you, it’s nothing new. Three — as you know, there was a significant shortage of Ibuprofen back in 2017, ’18 time. So the prices have actually gone back to where they were pre-2017, ’18 time. So it’s not that they have bottomed out as a new this thing. So we were prepared for these prices to come back to this level at the time of developing their product in the process itself. So we were anticipating this sort of a price range on this and they seem to have bottomed out actually. So probably, it will not go down any further.

Meenal — C.J. Shah & Company — Analyst

Okay. Also sir, your ARV API is used in which ARV medication exactly? And what is the demand seen in the near future?

P. Vamsi Krishna — Executed Director

So see, the ARV is our contact manufacturing that we do with the few big companies. And this is used as a triple combination and a single combination and a dual combination. So it’s used in multiple finished dosage forms. I mean, that obviously our customer, as per our customer’s requirement. This is mostly used for HIV drugs. And definitely, I think most of these products are sold through tenders across different markets. So based on the tender timing and based on the tender, the funds allocated for these tenders and the bidder of the tender — I mean, the customer who bids the tender, based on that, I think we will be getting orders accordingly.

Meenal — C.J. Shah & Company — Analyst

Okay, sir. Thank you so much. Good luck.

P. Vamsi Krishna — Executed Director

Thank you.

Operator

Thank you. The next question is from the line of Nishita Shah from Raga Securities. Please go ahead.

Nishita Shah — Raga Securities — Analyst

Hello.

P. Vamsi Krishna — Executed Director

Hello.

Nishita Shah — Raga Securities — Analyst

Yeah. Good morning, sir. Thank you for taking my questions. Sir, just I had a couple of questions. Firstly sir, I wanted to understand that our depreciation has remained almost the same on the year-on-year basis despite a big capex in FY ’23. So sir, can you explain a bit about that, I mean, the reason for that?

P. Vamsi Krishna — Executed Director

No. Madam, the depreciation is — you mean to say they remain same for the last quarter, correct?

Nishita Shah — Raga Securities — Analyst

No, no, sir, on year-on-year basis?

P. Vamsi Krishna — Executed Director

Year-on-year basis, the depreciation, as per the Companies Act, we are providing the depreciation. And also, we already commercialized it. We already capitalized it in FY ’22 financial year. FY ’23 is a very nominal capitalization.

Nishita Shah — Raga Securities — Analyst

Okay, okay. Sir, my next question is, can we expect to turn EBITDA positive by end of Q2 FY ’23 and PAT positive by end of FY ’23?

P. Vamsi Krishna — Executed Director

Yes. Yes, definitely I think. So that’s the target that we have set for the company. And definitely, I am very positive that we will turn around this corner — and that’s the positive hope that we are currently carrying.

Nishita Shah — Raga Securities — Analyst

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

P. Vamsi Krishna — Executed Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Viraj Parekh from JMP Capital. Please go ahead.

Viraj Parekh — JMP Capital — Analyst

Good morning, sir. Thanks for the opportunity. I hope I’m audible?

P. Vamsi Krishna — Executed Director

Yes, yes, you’re audible. Good morning. Go ahead, please.

Viraj Parekh — JMP Capital — Analyst

Yeah, yeah. Sure, sir. So sir, just as a follow-up on the ARV market and your ARV product, Tenofovir, which you explained, sir, just wanted to check with you, how has the pricing scenario been pertaining to this API in the current quarter, the Q1 gone by versus the previous quarter Q4 of FY ’22, if you could elaborate, sir?

P. Vamsi Krishna — Executed Director

See, to be honest with you, it’s not gone down. It’s not depreciated too much actually. It’s either — I mean, probably 5% here and there, but I think not more than that actually. The pricing is not depreciated too much. And more importantly, our modus of operandi on that particular product is we are a CMO, contract manufacturer. So we typically get contact manufacturing charges. So price of the raw material is immaterial because our customers actually provide the raw material for us in these cases.

Viraj Parekh — JMP Capital — Analyst

Sure. Sure, sir. Correct, correct. So sir, on the demand side — coming to the demand side, what has been your sense on the demand pertaining to this particular ARV API, which is Tenofovir, if you could elaborate here? Again,, maybe the last six months’ view — because I assume there was some inventory restocking that had started in quarter three of FY ’22. So how could we make some sense of that across last six to eight months?

P. Vamsi Krishna — Executed Director

So last six to eight months, as we were — we mentioned in the last conference call, so I think there was a delay in the tenders that were opened by the different governments because I think most of the focus for the tenders were on the COVID-related injections and vaccines and COVID-related medication. And there was a significant delay on the tenders that were — because of the funds that were being awarded to the companies. So recently, couple of tenders have opened up and slowly I think it’s coming back. But it’s — at this point of time, it is very difficult for us because until we know who won the tender, so it’s very difficult to predict the nature of this business.

So hence, that’s the reason the company is also trying to — with adding more products like Ibuprofen and adding more internal products. We want to sort of decentralize our revenue and we want to go in a different direction with respect to — because see, ARVs contribute — that particular product’s contribution is around 42% in the last Q1 FY ’22 actually — sorry, Q1 FY ’22, that was around 42% was the contribution of that particular product. So we want to more deep focus and deep focus in the sense add more products and reduce the impact of that particular product in our portfolio.

Viraj Parekh — JMP Capital — Analyst

Correct, correct. Sure, sir. And sir, what would be the contribution in Q1 FY ’23, the current quarter for Tenofovir?

LakshminarayanaTammineedi — Chief Financial Officer

Q1 is hardly 2%. Hardly 2% actually. So that is the major reason for our this thing. It is hardly 2%.

Viraj Parekh — JMP Capital — Analyst

Correct, correct. Sure, sure. Thank you so much, sir. And wishing you all the best, sir.

P. Vamsi Krishna — Executed Director

Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rupesh Tatia from Intelsense Capital. Please go ahead. Mr. Rupesh, I have unmuted your line. Please proceed with your question. As there is no response from the current participant, we move on to the next question, which is from the line of Amit Shah from PC Capital. Please go ahead. Mr. Shah, I have unmuted your line. Please proceed.

Amit Shah — PC Capital — Analyst

So sir, I had one question. Sir, can you — sir, what is the impact of CDC approval on Ibuprofen growth going forward?

P. Vamsi Krishna — Executed Director

So definitely, it’s a very good opportunity that now our CEP is approved. And with CEP approval, we can comfortably sell the product in Europe markets. A lot of customers across the world also request for a CEP approval before they start qualifying us. So since we have received the CEP approval, now we are aggressively marketing this product in Europe and other RoW countries to make sure that we have a good offtake on this.

So the approval just came in I think few weeks back, actually in July, last week of July. So we have started reaching out to different, different customers who were very interested in qualifying us. And definitely, the process will take its due course, but we are heavily focusing on this particular product to make sure that we get a good market share from this.

Amit Shah — PC Capital — Analyst

Thank you, sir.

P. Vamsi Krishna — Executed Director

Thank you.

Operator

Thank you. [Operator Instructions] There is a follow-up question from the line of Ritesh Oswal from Opal Industries. Please go ahead.

Ritesh Oswal — Opal Industries — Analyst

Thank you for opportunity. What is our Sitagliptin capacity? And is it a dedicated block?

P. Vamsi Krishna — Executed Director

For which one, could you repeat it?

Ritesh Oswal — Opal Industries — Analyst

Sitagliptin capacity.

P. Vamsi Krishna — Executed Director

Yeah. So Sitagliptin capacity, we have a good capacity. I think per month we have around 10 to 15 metric tons can be manufactured at this current phase and our team is continuously working on the process to look at the optimization. And it’s not a dedicated block as such because it’s in the same block where we do multiple other products, but based on opportunity, definitely, a lot of priority is being given to Sitagliptin with the current launch that is happening.

Ritesh Oswal — Opal Industries — Analyst

Okay. Thank you.

P. Vamsi Krishna — Executed Director

Thank you. Next question.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rupesh Tatia from Intelsense Capital. Please go ahead.

Rupesh Tatia — Intelsense Capital — Analyst

Hello, sir. Can you hear me this time?

P. Vamsi Krishna — Executed Director

Yes, please. I can hear you. Go ahead.

Rupesh Tatia — Intelsense Capital — Analyst

Okay, okay. So sir, what was Ibuprofen capacity utilization in Q1? I joined call late, so some of the questions might be repetitive.

LakshminarayanaTammineedi — Chief Financial Officer

22%.

P. Vamsi Krishna — Executed Director

Yeah, no problem. So I think right now around Q1 it was around 22% utilization approximately.

Rupesh Tatia — Intelsense Capital — Analyst

And we were expecting to exit Q4 at 70% to 80% run rate. We still hold that guidance?

P. Vamsi Krishna — Executed Director

Sorry, could you repeat your question?

Rupesh Tatia — Intelsense Capital — Analyst

I think we were expecting that in Q4, we will have capacity utilization of 70% to 80% by Q4 of this year. So we still hold that guidance, right?

P. Vamsi Krishna — Executed Director

We are still on track for that, yes.

Rupesh Tatia — Intelsense Capital — Analyst

Okay, okay. And in case of Sitagliptin, sir, the launch I think is near. So we have supplied some quantity to our partner?

P. Vamsi Krishna — Executed Director

Yes, already. Launch has already happened. So in India, patent has expired. In Europe, I think there is still patent, so I am not sure. The finished product is out in the market. But in India, the patent has expired. So we have started the supplies of Sitagliptin to our partner.

Rupesh Tatia — Intelsense Capital — Analyst

And how large would be India market, sir, for Sitagliptin?

P. Vamsi Krishna — Executed Director

So India market is also very big. So we are working on different process on the Indian market on Sitagliptin on a different route of synthesis to be able to cost competitive in the market. It’s a significant market in India. It’s my assumption — I mean, it’s early days because it’s early launch, right? So my assumption is it’s close to around 150 tons, if not more, in the domestic market alone.

Rupesh Tatia — Intelsense Capital — Analyst

Okay, okay. And do we have now some sort of clarity on kind of price erosion we will see in this molecule?

P. Vamsi Krishna — Executed Director

Yes, yes. The advantage for us that we currently have is I think we are one of the first companies to commercialize this product on a big volume scale. So that sense we do have. And definitely, I think based on our new process and new this thing, we are very confident of trying to get a good market share in the domestic market as well.

Rupesh Tatia — Intelsense Capital — Analyst

So I think in last call, I mean, we were not sure about price erosion, but you said, maybe roughly INR100 crore kind of potential for us was possible. So has that number gone up now to, let’s say, INR125 crore?

P. Vamsi Krishna — Executed Director

INR100 crores in terms of sales is it what you are talking about?

Rupesh Tatia — Intelsense Capital — Analyst

Yeah, yeah. I think you had said that the market size is INR500 crore and we will at least try to look at 20% market share.

P. Vamsi Krishna — Executed Director

That number is definitely there. So that number will remain intact and I think it could even grow a little higher. So that’s there.

Rupesh Tatia — Intelsense Capital — Analyst

And we will see INR70 crore, INR80 crore kind of number in financial year ’23?

P. Vamsi Krishna — Executed Director

Yes, yes, absolutely. I think that’s the hope. So yeah.

Rupesh Tatia — Intelsense Capital — Analyst

Okay, okay. And I also kind of missed what happened in ARV because the sales is very low, but then in FY ’23, what kind of sales we expect on an annual basis in Tenofovir and other ARV products?

P. Vamsi Krishna — Executed Director

So again, that depends on — see, unfortunately, we are the CMO partner. So until we get the tenders out and we know who won the tender and based on that also, based on how much they are getting it contract manufactured with us, it’s very difficult to predict that at this point of time. But we are trying our level best to push our partners to see what best we can do and give us some forecasting and projections for the coming year. So we will probably have some clarity maybe by — maybe next quarter actually.

Rupesh Tatia — Intelsense Capital — Analyst

So at ARV industry level, are Chinese players coming back into the tender? And is that kind of what is happening?

P. Vamsi Krishna — Executed Director

No, no, I think it is mostly dominated — this market is mostly dominated by Indians — Indian players and mostly Hyderabadi companies and obviously some Mumbai-based companies as well.

Rupesh Tatia — Intelsense Capital — Analyst

Okay, okay. I see. So Chinese players are not making a comeback, right?

P. Vamsi Krishna — Executed Director

Yeah, not too much. I think there is just one major Chinese player that’s there, but I think that the major domination happens from India.

Rupesh Tatia — Intelsense Capital — Analyst

Okay, okay. And I think Q4 call, you were also thinking about — I mean, you have some new products that you are looking to launch. So are you ready to talk about them in this quarter or we have to wait a little more?

P. Vamsi Krishna — Executed Director

That is about Sitagliptin. That is the new product that we launched.

Rupesh Tatia — Intelsense Capital — Analyst

Other than Sitagliptin also — Sitagliptin, I think was clear last quarter also, but you were saying because to diversify further, you were maybe looking at two, three more products and you said that you will talk about it?

P. Vamsi Krishna — Executed Director

Right. So those products are in our R&D. So we are working on cost effective processes for those products. So once they are done, I think they automatically come into our product list and we push the sales from there.

Rupesh Tatia — Intelsense Capital — Analyst

We will hear about them in, let’s say, H2?

P. Vamsi Krishna — Executed Director

Yeah, yeah. I mean, they are — nothing — no major significant product, but they are regular products. I mean, they are not something out of the blue, but some products where we really thought maybe we could really add value because of the number of players in the market or because of the cost maybe if we think that these are some molecules which we could get into it based on our strengths on manufacturing. So definitely, I think those will be reflecting in our product list and we will take those out.

Rupesh Tatia — Intelsense Capital — Analyst

Okay, okay. Thank you. Thank you for answering my questions.

P. Vamsi Krishna — Executed Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Anup Shah from Srinath Securities. Please go ahead.

Anup Shah — Srinath Securities — Analyst

Hello. Am I audible?

P. Vamsi Krishna — Executed Director

Yes. Please go ahead.

Anup Shah — Srinath Securities — Analyst

Yeah. Sir, can you explain the current demand [Technical Issue]

Operator

I’m sorry to interrupt, Mr. Shah. We are not able to hear you properly. Can you please use your handset to ask a question.

Anup Shah — Srinath Securities — Analyst

Hello.

Operator

Please proceed.

Anup Shah — Srinath Securities — Analyst

Yeah.

Operator

Mr. Shah, please go ahead with your question. Mr. Shah we can hear you, please proceed with your question. As the current participant couldn’t answer — couldn’t talk, we’ll — and there are no further participants, I now hand the conference over to Mr. Vamsi Krishna Potluri for closing comments.

P. Vamsi Krishna — Executed Director

Thank you everyone for joining this call. Please reach out to our IR consultant, Strategic Growth Advisors or us directly should you have any further queries. And we can close the call now. Thank you so much.

Operator

[Operator Closing Remarks]