SMS Pharmaceuticals Ltd (SMSPHARMA) Q3 FY23 Earnings Concall Transcript

SMS Pharmaceuticals Ltd (NSE:SMSPHARMA) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

Corporate Participants:

Vamsi Krishna Potluri — Executive Director

Unidentified Speaker —

Analysts:

Viraj Shah — Shah Investments — Analyst

Aditi Sawant — ADM Advisors — Analyst

Dipti Kothari — Kothari Securities — Analyst

Mahesh Vyas — UTI Mutual Fund — Analyst

Unidentified Participant — — Analyst

Parth Vasani — KK Advisors — Analyst

Nisha Desai — Enam Securities — Analyst

Nehal Jain — SK Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the SMS Pharmaceuticals Limited Q3 FY’23 Earnings Conference Call.

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 the projected.

[Operator Instructions]. Please note that this conference is being recorded.

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

Vamsi Krishna Potluri — Executive Director

Hello. Good morning, everyone. Thank you for joining the earnings conference call to discuss the financial performance for the quarter and nine months ended December 31, 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 economy finally felt some respite after a period of prolonged uncertainty owing to rising inflation and cost pressures, precarious geopolitical circumstances and supply chain disruptions. The situation is now easing out and is expected to further stabilize going forward.

While the demand for ARV therapy has remained largely dampened in the last few months, the company is shielded from these disruptions as its exposure to the ARV segment is negligible. The ARV segment is experiencing some recoveries and better visibility in terms of demand. Order inflow for the ARV products will provide incremental revenues and operating leverage over and above the normalized revenue. The company continues to focus on strategic objectives, which include prioritizing R&D, having the best-in class manufacturing process and sustained emphasis on long-term value and growth.

Coming to our company’s highlights, we witnessed a healthy bounce back in profitability as profit-after-tax for the quarter stood at INR5.3 crores, a substantial growth from our previous quarter. The EBITDA margins also expanded, improving 504 bps sequentially and stood at 13.9% for the third quarter of the year. This was aided by improved product mix, driven by the success of new anti-diabetic line an uptick in demand for companies other than non ARV products.

After a few muted quarters, the pricing pressures in Ibuprofen has eased and we are witnessing strong revival paired with a better realization. Ibuprofen which was recently launched at the Vizag facility is in high demand and the business is exploring numerous growth opportunities for the product.

In addition, Ibuprofen’s recent CEP clearance has opened up chances in more current and regulated European market. This is expected to boost revenues even further. As a result of various gliptin’s patent expiry, there had been a surge in demand anti-diabetic market. The operations in companies anti-diabetic therapy scaled up quickly and the contribution of company’s overall revenue from operations was close to 41%. The anti-diabetic medications was very successful in terms of scaling up and delivering close to 41% of the entire revenue from operations.

Coming to API segment highlights. A nine-month FY’23 revenue from API segment stood at INR146.2 crores and INR368.7 crores, respectively. Q3 and nine-month FY’23 API segment contributed approximately 98.2% and 99% to the consolidated revenues, respectively. Within the API segment, 15% of the revenues came from the domestic market, 85% from the export market for Q3 FY’23.

Within the therapeutic areas, anti-diabetic contributed to 41%, ARV segment contributed to 1%, anti-migraine contributed 14%, anti-ulcer 5%, anti-epileptic 7%, ED contributed to close to 7% and the rest contributed to around 16% of the total sales of Q3 FY’23.

Despite the temporary setback in growth due to soft demand in the ARV segment, the company recuperated quickly and completely replenished this fall in-demand with other therapies without compromising its top-line. This is a testimony to our operational that we intend adaptability. The outlook remains positive, and the company is on-track to achieve its pre-COVID growth numbers. Lastly, I would like to reiterate that we remain committed on substantial growth and bringing value to all our stakeholders.

We can now take up the question-and-answer session. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question is from the line of Viraj Shah from Shah Investments. Please go ahead.

Viraj Shah — Shah Investments — Analyst

Hi sir, good morning. Sir, so the anti-diabetic segment share has increased significantly over the last few quarters so any long-term targets for this segment?

Vamsi Krishna Potluri — Executive Director

So, we have got a good launch in Europe because that is the only market where the patent has expired right now. So, US patent there is still time. ’24 is the patent expiry in US. So, in Europe we got a good partnership going with our JV partner and I think we have good visibility on this segment going forward.

Viraj Shah — Shah Investments — Analyst

Okay, and in margin terms, we have managed to register EBITDA margin near to 13%-14% this quarter. What is our target in steady state scenario any tentative timeline which we will reach our normalize EBITDA levels?

Vamsi Krishna Potluri — Executive Director

So, generally normal EBITDA level will be around 18% to 20% approximately. So that is the target here.

Viraj Shah — Shah Investments — Analyst

And the timeline when we can see that.

Vamsi Krishna Potluri — Executive Director

Maybe I think — maybe it might take one, two quarters. But I think, again, as we mentioned, the companies is on the bounce back mode. I think our first quarter and our Q4 last year was not very good. The entire industry was little on the slower side during that time and now I think slowly it is bouncing back, and if you see our revenues also it is growing steadily. So, I think in the next couple of quarters I think we could come back to that level.

Viraj Shah — Shah Investments — Analyst

Okay, and I see that ARV segment has fallen drastically. How is the demand panning out for this product now?

Vamsi Krishna Potluri — Executive Director

Yes, picked up right now again. So, in the past, I think there had been delay in tender allocations and there has been change in some strategy of tender allocation as well. Now the tenders have come in few months back and now slowly the demand for these products are also picking up. So, definitely in the next year 2024, definitely the contribution will be increased, but obviously I think, one good this thing that we would like to tell here is that though last year I think the

Contribution was almost around 30%-40%. But even though without that contribution also we were able to successfully replace the topline with respect to our other therapeutic segments. Definitely, I think anti-viral will come back, definitely we will be and that will be additional revenue for the company.

Viraj Shah — Shah Investments — Analyst

And sir how much caped have we done so far this year for the quarter three and what would be the guidance for the next year any?

Vamsi Krishna Potluri — Executive Director

So there is no major capex that has been done. I think it is the regular small, yeah, I think environmental and balancing equipment has been procured. I think which s not. I think which is to the tune of INR5 crores to INR8 crores range, it’s nothing more than that. So, I think that is — that’s already being. So there is no future huge capex that is planned. We want to consolidate at this point of time before going for one more expansion.

Viraj Shah — Shah Investments — Analyst

And sir ARV segment revenue contribution, what could it be?

Vamsi Krishna Potluri — Executive Director

Going forward, again depends right? It is 1% in Q3. Going forward it could come back to that 10% to 12%. But again, we are not very sure because this is based purely on tenders, right? It is very difficult to predict. But we are expecting may be next year I think could be around 12%-15% contribution.

Viraj Shah — Shah Investments — Analyst

Okay sir. Got it. Thanks.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Aditi Sawant from ADM Advisors. Please go ahead.

Aditi Sawant — ADM Advisors — Analyst

Hi, thank you so much for the opportunity. I have two questions. Going forward, do we have any plans to increase our API as a contribution

From domestic market. And second is also on export front, what are our key geographies and what is the share of our top three or top five geographies to the total export revenue?

Vamsi Krishna Potluri — Executive Director

So, with respect to the domestic market, definitely I think now the sales will definitely improve because of owing to ibuprofen. So, the domestic market is very big market for ibuprofen. Definitely, I think — and more or less companies mostly towards export-oriented business, deemed exports that we take into. So, most of our customers are domestic based but most of the products go into the US. So, that is taken under export and deemed export business for us. But I think domestic share right now is at 18% and I think definitely it is going to increase going forward because of ibuprofen because domestic market is big market for ibuprofen. So, definitely going to increase, probably it would be around 25% is our estimate for the next years, 25%-30%. And with respect to geography wise, I think, just a second, so geography wise — could you repeat your second question? What exactly you require?

Aditi Sawant — ADM Advisors — Analyst

What is the share of top three or top five geographies to the total export revenue?

Vamsi Krishna Potluri — Executive Director

So, the top 3 geographies are obviously US market, Europe market and Japan market are the top three export destination for us. Again as I said, exports contribute to 82% of our revenue and these segments contribute to almost 65%-70%. So, these are three big major geographies for us.

Aditi Sawant — ADM Advisors — Analyst

Okay, yeah. Thank you. That was from my side. All the best for the upcoming quarters.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] Our next question is from the line of Dipti Kothari from Kothari Securities. Please go ahead.

Dipti Kothari — Kothari Securities — Analyst

Good morning, sir. Thank you for the opportunity. Sir, so my first question was that, what is our installed capacity for sitagliptin, and with any other gliptin?.

Vamsi Krishna Potluri — Executive Director

So, our installed capacity for sitagliptin right now is close to around 35 tons every month, and we definitely produce other Sitagliptin like vildagliptin and linagliptin. So, commercially sitagliptin, and sitagliptin we produce multiple salts, sitagliptin phosphate, sitagliptin HCL and vildagliptin is also one more product and linagliptin is in our pipeline right now.

Dipti Kothari — Kothari Securities — Analyst

Okay, sir. And sir, last quarter you mentioned that we have got in the CEP approval for ibuprofen. However, the validation filing is in process. So what is the timeline on that? And by when can we start exporting to the European markets?

Vamsi Krishna Potluri — Executive Director

So Europe market depends on the customer-to-customer. So, we already sent out sample quantities, the products under registration with different customers, different countries, because Europe is the big continent, right? So the different countries have different approval timeline. So have to justify it. But I think in the next four to six months you will be able to see a very good uptick in sales to Europe.

Dipti Kothari — Kothari Securities — Analyst

Okay. And our intermediaries were a relatively low share of revenues as compared to last year. So what are the primary reasons for this?

Vamsi Krishna Potluri — Executive Director

Could you repeat? Is it intermediates or intermediaries? What did you ask?

Dipti Kothari — Kothari Securities — Analyst

Intermediate.

Vamsi Krishna Potluri — Executive Director

Intermediates.

Dipti Kothari — Kothari Securities — Analyst

Yes.

Vamsi Krishna Potluri — Executive Director

I think last year was around 4%, now it’s around 1%. Last year, they were from.

Unidentified Speaker —

Yeah, last year intermediates we have undertaking under contract manufacturing. In the current year, the contribution of contract manufacturing very less.

Dipti Kothari — Kothari Securities — Analyst

Okay. And on the anti-diabetic therapy, over the last few quarters the share of this therapy has risen dramatically. How did we achieve the scale?

Vamsi Krishna Potluri — Executive Director

We have been telling over, the last few conference calls also we have been telling right? So one of our customers has the patent expiry in the last two quarters. So, post patent expiry, obviously the sales has picked up.

Dipti Kothari — Kothari Securities — Analyst

Okay. And sir, is it possible to achieve that scale in some of our other top therapies like anti-migraine or anti-epileptic?

Vamsi Krishna Potluri — Executive Director

I’m sorry, could you repeat your question?

Dipti Kothari — Kothari Securities — Analyst

So, is it possible to achieve such scale in some of our other top therapies like anti-migraine or anti-epileptic?

Vamsi Krishna Potluri — Executive Director

See other products like anti-migraine, anti-epileptic there are unfortunately no products that patents are yet to expire. So, most of the products patents have already expired. So I think anti-migraine we have been consistently doing good business over the last four-five years. I think our contribution of anti-migraine because they are niche segments. So they contribute on the topline, but they have been contributing from 10%-15% consistently in the last 3-4 years. So, we see the same growth trajectory but it will be in that range of 14%, it could go up to 15%. But there are not any major products where patent is expiring where they would contribute significantly to topline because they are niche products, niche volume API. So, we expect the topline contribution to be in the similar range.

Dipti Kothari — Kothari Securities — Analyst

Okay, understood. And sir what are our R&D spend for nine months FY’23?

Vamsi Krishna Potluri — Executive Director

It’s around 3%.

Dipti Kothari — Kothari Securities — Analyst

Okay, sir. Thank you so much.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions]. We’ll take our next question from the line of Mahesh Vyas from UTI Mutual Fund. Please go ahead.

Mahesh Vyas — UTI Mutual Fund — Analyst

Yeah, good morning, sir. Just now you said that ibuprofen will help you to increase your domestic share from 18% to around 25%-30%. So, would like to know on what ibuprofen capacity you have and what plans you have to expand it further? And commentary on its pricing, volume growth and what will be the share of that in export and domestic market?

Vamsi Krishna Potluri — Executive Director

So, ibuprofen right now I think installed capacity in around 300 to 400 tons per month is the installed capacity at this point of time. But with the very minor investment, we could take it up to 700 tons per month and while mentioning we have the largest batch size in the market on this product. Our batch size is around 10,000 kgs. So, we have a very good cost position on this product and definitely I think we are under registration under various customers domestically and for both US and Europe. So, we definitely expect ibuprofen to be a very big contributor in next FY’24. We expect ibuprofen to be a very big contributor with respect to that and sales wise we would like to position, it is a very dynamic market. So, very difficult to tell you what is the price range that is currently going. But with respect to export and domestic that will probably be around 30% domestic and around 70% exports. So this is what is the ratio that we are assuming it to be 70-30 towards exports.

Mahesh Vyas — UTI Mutual Fund — Analyst

Sure, thanks. And what additional money you put in for this 700 tonne capacity reaching 700 tonne per month effectively?

Vamsi Krishna Potluri — Executive Director

Hardly I think around INR10 crores to INR15 crores will be our capex, but it will be taken up in the next few quarters, not immediately.

Mahesh Vyas — UTI Mutual Fund — Analyst

Okay, and what is the capacity utilization at present and where do we expect to reach this?

Vamsi Krishna Potluri — Executive Director

So right now it’s at 60% — 60%, 70% right now of the capacity utilization.

Mahesh Vyas — UTI Mutual Fund — Analyst

Okay. And when do we feel this to be operational this 700 tonne per month —

Vamsi Krishna Potluri — Executive Director

It could be probably Q3 next year. Q2, Q3 next yea. Again, see, we will scale it up based on demand. If we are able to, we are playing it out carefully, so based on demand and we want to make sure that that capacity is reached.

Mahesh Vyas — UTI Mutual Fund — Analyst

Sure, sir. Thanks. Thank you very much.

Operator

Thank you. Our next question is from the line of Shivakumar Swamy, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Hello.

Operator

Yes, sir. Go ahead.

Unidentified Participant — — Analyst

Sir, thanks for opportunity.

Operator

Mr. Swamy, I’m sorry, but we can’t hear you clearly. Can you please switch to a handset mode and talk and be a bit louder, please?

Unidentified Participant — — Analyst

Sir, regarding that as per our strategy is concerned, you are having a commodity molecules which are [Indecipherable] growth. But pharmaceutical players are going for greener chemistry like biocatalyst and anti-market process. So what is your stand on that one sir, are you doing any R&D regarding that for greener chemistry and ESG compliance?

Vamsi Krishna Potluri — Executive Director

Yeah, so again, it depends on, it’s a very general question. I think it depends on product-to-product, okay. So, it’s — I mean, it’s not a compulsion that all products have to be enzymatic route or to have a very good costing, most of the products, obviously, engineering also mix, plays a critical role in all products are not, it’s not that you have an enzymatic route, it’s not that you have costing on the products. See, few products we are already working on an enzymatic routes internally where we feel that costing plays a critical role.

So we are doing, to answer your question, short, I think we are working on a couple of products, where we are doing enzymatic route intermediates through enzymatic route and few of them are in R&D few of them are on the scale-up activity as we speak.

Unidentified Participant — — Analyst

Okay, sir. Regarding the green chemistry, [Indecipherable] in that any estimates reflect that solar power and zero discharge like that?

Vamsi Krishna Potluri — Executive Director

So the plant is a zero liquid discharge, it’s already in process. The plant itself is a zero liquid discharge and also the solar that because obviously consumes a huge power. So solar this thing also, options also, we are evaluating to see if that could be cheaper than the regular power that we take from the grid. So those options are under evaluation. We will plan something sometime this year based on our requirement.

Unidentified Participant — — Analyst

Okay. I think because from a CMO part, you’re looking for that customers, supplier for having that from ESG compliance like in future it will for the CMO part right?

Vamsi Krishna Potluri — Executive Director

Sure, sure, sure.

Unidentified Participant — — Analyst

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

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instruction] The next question is from the line of Parth Vasani from KK Advisors. Please go ahead.

Parth Vasani — KK Advisors — Analyst

Hello. Hi sir, good morning and thank you for the opportunity. I had a couple of questions. So first was, I wanted to know, are we planning to add any new capacity and undertake any kind of brownfield or greenfield expansion?

Vamsi Krishna Potluri — Executive Director

So at this point, we have no plans of taking on greenfield expansion or capacity — major capacity expansion. So we will take it phase-wise. I think mostly our expansion will be towards Ibuprofen capacity only. So, I already mentioned in this call, right. So we have a phase-wise approach to take it, to increase the volumes. But other products, I think we have sufficient capacity. We would like to at least occupy 70% before we take up, but in this financial year, we don’t see any need for the capex investment.

Parth Vasani — KK Advisors — Analyst

Okay. So what was the capacity utilization for nine-month and FY ’23 and our capacity utilization targets for the future?

Vamsi Krishna Potluri — Executive Director

So for Ibuprofen again it’s at 60% to 70% and rest other products right now, is that 40% as of now and our target is to at least hit 60%.

Parth Vasani — KK Advisors — Analyst

Okay, okay. Got it, sir. Okay sir, I’ll get back in queue.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instruction] The next question is from the line of Nisha Desai, Enam [Phonetic] Securities. Please go ahead.

Nisha Desai — Enam Securities — Analyst

Good morning to all. Thank you for the opportunity. I have couple of questions, how is the demand panning out in the commercial launches of VKT Pharma?

Vamsi Krishna Potluri — Executive Director

Hello. Yeah, can you — your voice is not that clear. So can you please —

Operator

Could you please connect on a speaker — handset mode and talk please?

Nisha Desai — Enam Securities — Analyst

Is that audible?

Operator

Better. Please repeat your question.

Nisha Desai — Enam Securities — Analyst

How is the demand panning out in the commercial launches of VKT Pharma?

Vamsi Krishna Potluri — Executive Director

Yes, so. I mean, I can tell you in brief, but VKT is an independent company, so I mean I don’t think this is the right forum to discuss about VKT Pharma, because it’s another company altogether, but generally speaking, I think the launch batches have already been in the market. So the launches of VKT has happened, but this is not the right forum to discuss about another company. So if you have any questions with respect to SMS, kindly let us know, so that we can answer you.

Nisha Desai — Enam Securities — Analyst

Okay, okay. My second question is regarding Ibuprofen. So how many tonnes of Ibuprofen are we producing each month?

Vamsi Krishna Potluri — Executive Director

So right now, actually we are producing around 180 tonnes to 200 tonnes of Ibuprofen.

Nisha Desai — Enam Securities — Analyst

And what kind of revenues we are expecting in the coming year?

Vamsi Krishna Potluri — Executive Director

Coming year, I think we are projected to do around 25% of the total revenue, which is somewhere around, maybe INR150 crores to INR200 crores.

Nisha Desai — Enam Securities — Analyst

Okay. And are we seeing any significant trends in our top therapy?

Vamsi Krishna Potluri — Executive Director

Significant?

Nisha Desai — Enam Securities — Analyst

Trends in our top therapies.

Vamsi Krishna Potluri — Executive Director

So again, so significant trends in the sense again, the they keep fluctuating to be honest with you. For example, ARV one year, we were doing 40% this year we have done 1%, but the company was able to adapt and replace it with few other products where we didn’t have the anti-diabetic, now the anti-diabetic took the leap. So like that, I think based on market scenario, the company is playing out and definitely, we are ready for all challenges and any particular product across therapies. So we mostly like don’t go on a particular therapy like because we are not a finished formulation company, right, so, it’s mostly an API [Phonetic] Group.

So we don’t typically go on therapy — therapeutic division. But because we are not a formulation company where we are very strong in cardio therapy, respiratory therapy, so we are not — we are an API company. So definitely based on the current trend, we think the anti-diabetic could be the driving force in the next year as well, because of the recent expiry on that — sitagliptin, but it could change, it could definitely change.

Nisha Desai — Enam Securities — Analyst

Understood. And my last question is considering what happened with ARV, are we new planning to diversify our product mix?

Vamsi Krishna Potluri — Executive Director

Yeah, yeah, definitely. So that’s the reason, right. So we are now — though we are — last year we had 40% contribution from ARV worth of around INR200 crores, but this year I think the contribution is less than 1%. So the full-year, I think nine months is 4%, so like obviously, I think we have diversified still maintaining the top-line. If you see I think the numbers of top line are more or less equal to the one that we maintained last year, but except first quarter which was not very progressive as was discussed in the past. But yes, so I think we’ve already replaced it.

Nisha Desai — Enam Securities — Analyst

I understand that anti-diabetic is a huge chunk of revenues, so that’s the concentration said to us.

Vamsi Krishna Potluri — Executive Director

I’m sorry, we didn’t get your question.

Nisha Desai — Enam Securities — Analyst

I understand that anti-diabetic is take is a huge chunk of our revenues, does this pose any concentration said to us?

Vamsi Krishna Potluri — Executive Director

Not as such, because see we have tied-up partner, who we are doing this product to. I think we are catering to lot of U.S. market through this channel partners. So, I mean, you don’t see a threat as such, but I mean threats are obviously, I mean, in their part of the business, right, so I mean as of now we don’t foresee any threat at this point.

Nisha Desai — Enam Securities — Analyst

Okay. Thank you.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] Our next question is a follow-up from the line of Mahesh Vyas from UTI Mutual Fund. Please go ahead.

Mahesh Vyas — UTI Mutual Fund — Analyst

Sir, just would like to know your raw material dependancy, are we — how we are dependent on for raw material or are we backward integrated for Ibuprofen?

Vamsi Krishna Potluri — Executive Director

So most of the raw materials we manufacture in-house Ibuprofen, there are some — there is some dependency overseas, but slowly we are trying to reduce that. And this year we are planning to manufacture those intermediates in-house also. So this FY ’24, I think we will be vertically-integrated on most of them.

Mahesh Vyas — UTI Mutual Fund — Analyst

Okay, thanks.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rahil Shah, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, sir, am I audible?

Vamsi Krishna Potluri — Executive Director

Yeah, please. Please go ahead.

Unidentified Participant — — Analyst

Yes, sir. So just a follow-up on the exports segment. So you said, we’re doing 80% from exports and the major is coming from U.S., Europe and Japan, right. So what would be — what are some other reasons that are showing good demand and promise in terms of growth?

Vamsi Krishna Potluri — Executive Director

So the other regions are like typically in terms of being an API company, so we take sales into other companies that have enough manufacturers in those countries manufacturing this product, right. So definitely, these are some of the world big market, see apart from these, we had some sales in Indonesia, some sales in Brazil, some sales in MENA region, some in Bangladesh, there are sales, but majority of our sales contribution is for U.S. market and see again, we are operating mostly from USFDA approved facilities, right.

So the pricing also makes an important factor, because we cannot compete in markets where the pricing is not viable for us because our overheads are a little on the higher side, based on a — based on having a USFDA approval. So again, we take a case-by-case scenario market-to-market scenario, but we have — like we have access to many markets, we are present in more than 70 markets across the world.

Unidentified Participant — — Analyst

Okay. So the markets like keep coming and going, but we have a —

Vamsi Krishna Potluri — Executive Director

Yes, yes, right.

Unidentified Participant — — Analyst

And — sorry, I’m asking you to repeat, but can you just tell me again, what was the revenue target for the next financial year, you mentioned —

Vamsi Krishna Potluri — Executive Director

We have not — as of now, we have not given out any financial targets for next year. I think that will be done in the next Board Meeting that we will be taking up. So definitely I think next investor call, I think we can have a discussion over this, but typically, it will be 15% to 20% on whatever is our existing revenues. But we have not set out on actual target to the Board yet, so once, we do that, I think we’ll be able to disclose that.

Unidentified Participant — — Analyst

Okay. Thank you, sir. And all the best.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Nehal Jain from SK Securities. Please go ahead.

Nehal Jain — SK Securities — Analyst

Thank you for the opportunity. Sir, I wanted to know that have the Ibuprofen prices stabilized?

Vamsi Krishna Potluri — Executive Director

Yes, yes. Again, it depends, I mean it’s a very fluctuating market obviously. I think at this point of time, yes, they are quite stable at this point of time, yes.

Nehal Jain — SK Securities — Analyst

Okay. So what kind of price trajectory are you expecting going forward?

Vamsi Krishna Potluri — Executive Director

So we feel that the prices have bottomed out at this point of time and we feel that unless there is a new entrant or someone is having some issues with manufacturing, I think the price will more or less be the same, unless you know something is happening in the market so that we keep our eyes open and we’re watchful, but we cannot break those at this point of time, but so unless some of these external factors play out, we foresee a straight line on the demand, on the pricing of Ibuprofen at this point.

Nehal Jain — SK Securities — Analyst

Got it. And sir now that our profitability has stabilized, what kind of initiatives are we taking from this point to achieve a pre-COVID margins of 22%, 23%?

Vamsi Krishna Potluri — Executive Director

So it is definitely — see the profitability definitely depends on the product mix very much because there could be a few quarters where a low market products would be going good in the number of sales. But I think going forward, I think the main target of us is to manufacture our own products and have — be more vertically dependent, vertically integrated and have a control on the input costs, so that we have the raw material costs in our control. So we sort of have sufficient margins for us to go forward. So that’s one stream of the things. And the second one is you export more markets and try to see increased revenues in some of our new products that we recently launched, we wanted to do it both ways.

Nehal Jain — SK Securities — Analyst

Okay. Understood. Thank you, sir. That was very helpful.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Parth Vasani from KK Advisors. Please go ahead.

Parth Vasani — KK Advisors — Analyst

Hi, again, thank you for the opportunity. Sir, I wanted to know, are we still getting any high-cost inventories and was there any inventory losses in this quarter, if you can elaborate a little bit on that?

Vamsi Krishna Potluri — Executive Director

Yeah. The inventory is already stabilized as compared to the last year of FY ’22 the nine-month inventory has come down by about 15%, 20% of the inventory and inventory only the normal — the slow moving inventory of the COVID-related products which already — the management is already evaluating to sell out into the market that maybe the small, about 10% of the cost.

Parth Vasani — KK Advisors — Analyst

Okay. Thank you for that. Lastly one more question. Sir, if I remember correctly, you mentioned that last quarter you were facing some issues with regards to liquidating this thing molnupiravir. So what is the status of that I mean, has that [Indecipherable]?

Vamsi Krishna Potluri — Executive Director

Yes, as of now, it is the same status and but we are evaluating — we are evaluating how to move forward.

Parth Vasani — KK Advisors — Analyst

Okay, sir. Okay, fine. That was it from my side. Thank you.

Operator

Thank you. [Operator Instructions] We take the next question from the line of Dipti Kothari from Kothari Securities. Please go ahead.

Dipti Kothari — Kothari Securities — Analyst

Sir, just a follow-up question. So, if I remember correctly, last quarter, our R&D spend were around 2%, right?

Vamsi Krishna Potluri — Executive Director

Yeah, right.

Dipti Kothari — Kothari Securities — Analyst

So sir, then what will be the steady-state number be?

Vamsi Krishna Potluri — Executive Director

It will be around 3% — 3% to 4% most likely, it will not be more than that.

Dipti Kothari — Kothari Securities — Analyst

Okay sir. And sir are we in the process of getting any new regulatory approvals for Ibuprofen?

Vamsi Krishna Potluri — Executive Director

So product as such will not get an approval, because we’ve already filed in the U.S., we’ve already filed in Europe. So we’ve filed in multiple countries, but product as such will not get an approval, our files probably our customers triggered like we are entering different, different markets. So I think as and when they file with their own regulatory agency, I think it will get triggered, but on-site inspections, if that’s what you’re referring to, I think it’s mostly U.S. and Europe.

Dipti Kothari — Kothari Securities — Analyst

Okay sir. And sir, what is the degree to which we are backward integrated now?

Vamsi Krishna Potluri — Executive Director

So you would say around 50% is backward integrated, but we will be achieving around 80% to 85% in this coming year, that’s the target.

Dipti Kothari — Kothari Securities — Analyst

Okay. Sir, thank you so much. That answers my questions.

Vamsi Krishna Potluri — Executive Director

Thank you.

Operator

Thank you. As there are no further questions from the participants, I now hand the floor back to Mr. Vamsi Krishna Potluri for closing comments. Over to you, sir.

Vamsi Krishna Potluri — Executive Director

Thank you. Thank you very much for all the participants for joining the call. You can now close the call. Thank you.

Operator

[Operator Closing Remarks]