Strides Pharma Science Limited (STAR) Q3 FY23 Earnings Concall Transcript

Strides Pharma Science Limited (NSE:STAR) Q3 FY23 Earnings Concall dated Jan. 24, 2023.

Corporate Participants:

Abhishek Singhal — Investor Relations

Arun Kumar — Executive Chairperson & Managing Director

Analysts:

Rishabh Jain — — Analyst

Aman Shah — — Analyst

Unidentified Participant — — Analyst

Rohan — ICICI Securities — Analyst

Nitin Agarwal — DAM Capital Advisors — Analyst

Devansh Mehta — — Analyst

Amar Maurya — AlfAccurate Advisors — Analyst

Sarvesh Gupta — Maximal Capital — Analyst

Vikram Damani — Damani Securities — Analyst

Ankit Jain — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY’23 Earnings Conference Call of Strides Pharma Science Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhishek Singhal. Thank you and over to you.

Abhishek Singhal — Investor Relations

A very good evening and thank you for joining us today for Strides earnings call for the third quarter and nine month ended financial year 2023. Today we have with us Arun, Founder, Executive Chairperson and Managing Director; Badree, Executive Director of Finance and Group CFO, to share the highlights of the business and financials for the quarter.

I hope you have gone through our results release and the quarterly investor presentation that has been uploaded on our website as well as stock exchange website. The transcript of this call will be available in a week’s time on the company’s website. Please note that today’s discussion may be forward-looking in nature, and must be viewed in relation to risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team.

I now hand over the call to Arun to make the opening comments.

Arun Kumar — Executive Chairperson & Managing Director

Thank you, Abhishek, and good evening everybody, joining us today in our — on our call. Let me first start with general overview of Strides. I know there would be rustic questions around standards, which I will allude to in a bit. So as regards, Strides is concerned, we are extremely pleased with the progress that we’re making Q-on-Q in bringing back the company to its normalized EBITDA in the next couple of quarters. As you recall, we started off this year with an EBITDA of less than INR4 crores. We are now at INR120 crores in less than three quarters, a lot of that is driven by our focus across the group in terms of COVID, in terms of how we reset the company in terms of our focus on portfolio, price discipline, margins and also our keen eye on our cost structures. All of this is playing through.

If you see the Q3 numbers, revenue numbers, slightly depressed in comparison to Q2, it was predominantly because we had zero revenues on our institutional business, this is quite normal as institutional business is awarded, every three years. Like we alluded in the last quarter, we have already completed our last location in H1, which led to a very hefty H1 numbers on our institutional business. But I’m also now pleased to let you know that we have been awarded similar volumes in terms of our institutional business, we have received our awards and we will commence supplies to the institutional business starting from Q1 for a three-year contract.

So adjusted for that, it’s been a great quarter, and typically, we have INR15 crores to INR20 crores of thoughtful gross margins, on a quarterly basis on that business which should stood at — lifted our EBITDAs significantly higher than the INR120 crores that we reported. But generally, significant milestones this quarter, first time we have crossed the $100 million of revenues in our regulated markets. We continue to grow well in our U.S. portfolio, reporting yet another highest quarter. So we have weaken — obviously done better than our Q2 numbers. I must say, however, we benefited from a significant seasonal opportunity, which is quite — was quite unusual. Strides thus benefit from these opportunities. But that also gives us the ability to further fine tune our portfolio and an exiting lines that don’t make profits.

In the U.S., we still have over 100 approved ANDAs that go through rigorous processes of cost improvements and robustness before the relaunch. And therefore, we have very strong pipeline for the next two to three years to continue the momentum of growth that we are showing in the U.S. Pleasing, of course, is the improved gross margin. Historically, our regulated market delivers 60% gross margin. We are very close to those numbers. So over the last few quarters, we have improved gross margins by 700 basis points. And as we hoped and committed, we did receive the deferred payments from Australia, we received it just a few days before Christmas. So in the next update, you will see a significant drop in the gross debt to net debt. We continue to focus on improving our balance sheet quality, reduction of our debts, which are — which is going well. One must also appreciate the fact that we have added $60 odd million of revenues in the U.S., in the last nine months with no incremental cost — no incremental increase in our working capital lines. Our U.S. revolver close to about $80 million has now been renewed for another five years, showing the strength of our U.S. business as all it’s based on our U.S. operations.

Chestnut Ridge, this is a facility we acquired from Endo is now very close to breaking even, it still does have an under recovery, that we are — we believe we will solve for by the end of this financial year and that should then add further momentum to the U.S. business. We guided in Q2 of a depressed other regulated markets business that will come back to the historical numbers. And that was just a timing issue. We are also pleased to today announced that our other regulated market businesses especially, led by strong rebound in our B2B strategy and our U.K. businesses are now back to traditional quarterly throughputs. And at — in rupee term, this is now again, a highest quarter that we reported.

So overall, the regulated market delivered a very strong $100 million plus revenue and we strongly believe that this — the fundamentals of the business have been softer. We have now further [Indecipherable] network optimization, cost improvements, the product cost levels to the levels that we work in FY’21, this is in-line with what I mentioned in Q1 of this year. We have now moved from almost negligible EBITDA to closer to 14% and we have — we are chugging along and I’m sure that we will add more to these numbers in the coming quarters and we get back to our historical numbers in — not in the distant past and future.

So key of course, here is the continued momentum of our relaunches of our accrued India portfolio. We have several new programs and B2B partnerships that we’re building out in Europe. You will see us a significant drop in the emerging markets, because as you will note from our notes in our Q2 results that we have deconsolidated universal our Kenyan operations, which delivered approximately INR200 crores of revenues per year and there was more to do with local strategies in terms of a securing more business we still have beneficial interest have not changed. But however, from an accounting standpoint, we stopped consolidating UCL relapsing as we communicated earlier. So with the pickup of institutional business from Q1, we think we should be back on-track to what effect would have been end of more or less the end of the reset strategy for Strides.

Overall, it’s been a productive three quarters. We have grown steadily Q-on-Q, that renewed focus on our governance and how we run this business and our capital allocation and also our focus to on product portfolio and profit maximization. You’ll see more of this playing field, because you will also appreciate that several of our cost improvements, included significant cost reductions of our overseas operations, which leads to several actions, leading the costs that we carried through the — through the financial year. All of that will be behind us as of the end of Q4, and that adjustment itself should add another 2% to 3% to our EBITDA.

So I’m confident that not only when we have a very strong comeback in FY’24 as previously guided, but we will also be in line with our historical EBITDA, which is approximately in that 18% to 21% range for the next financial year. So I’m excited with the opportunities that Strides had, set for itself. We have a very motivated and dedicated team delivering outcomes as chartered and I’m very happy with our progress. Our progress with Strides maybe marked or overshadowed by the results related to Stelis that this is something that we’ve been guiding The Street for several quarters, as we have taken several prudent provisioning in Stelis as we move from a product company to a pure-play CDMO. And I’ll discuss more details in a little while as we get into Stelis.

Overall, debt reduction, we have now reduced debt by close to about INR600 crores. And we’ll continue to focus on reducing debt as we compete several actions that we are focused on which will have an impact on our revenues, on our growth strategies. We hope to give you more updates in the next quarter and the full year update.

Separately, in terms of our cash flow generation, but we can allude to that in recommence but we have now become cash flow positive company, which is great considering that we have several quarters of challenges. So that’s — so we are — our focus on capital allocation and tight governance on our cash flow has resulted in improved inflows and that momentum should continue given that we are not refilling a lot of our inventory given that we had a large inventory position when we started off this year.

Having said that, we think that we will continue our focus, we will improve our margin expansion and you would see more important growth coming from other regulated markets as we stabilize the U.S. business, mainly focused on portfolio — profit maximization and launching the right products that add to those the philosophy of our — previous philosophy of niche product selection and margin expansion.

I know that there would be several questions on Stelis. We have an endeavor to put in a very detail note for that we give more color around this. Now as you probably are aware that Stelis is an investment in our biopharmaceuticals division that we have invested for several years. During COVID, we brought into the expanded biopharmaceuticals business to setting up a new multi-modal facility, which could make amongst other things, vaccines and got into this contract with the Russian Direct Investment Fund, which is a sovereign fund of Russia, and we received all permission to export the products, but given the challenges, geopolitical situation, our take-or-pay contract has not been executed. So although, we have now received extension of inventory timing until the end of June, we had made prudent provisions in terms of all COVID-19 related inventories as we now become a pure-play company. Consequently, we have also written-down approximately some IP value of close to about INR100 crores on products that we do not intend to continue developing, which we have been developing for the last seven to eight years, as we believe that the value in Stelis comes from it’s pure-play CDMO strategy and that is what is playing out well.

I’m also very pleased to let you know that we have add three very important inspections by the U.S. through from the U.S. FDA and one from the EMA. And the only one product that we have developed got EU approval and we are now in the process of licensing that product to a very large European company, we would — we’ll make an announcement in time for our results in the next quarter. Promoters have brought in along with investors at Stelis, close to INR650 crores we have made commitments of INR650 crores of capital to ensure that we meet all operational losses, debt obligations and COVID related provisions and also to meet our obligations. So we had — they use that quite significantly in Stelis and debt at Stelis will now dropped down to INR700 crores by the end of March and we now have a CDMO order book for the next year in excess of INR300 crores, now giving us the confidence to guide the market that will be Stelis EBITDA positive from next year. As you know, this is a high 90% gross margin business that we operate in. Post as U.S. FDA approvals, our requests for quotes have been very significant. And our RFPs issued now runs into $7 million in terms of both contracts and also our engagement with big pharma and large biopharmaceutical companies have been very, very significant ever since we got our FDA approval. There has been — it has been challenging times for biopharmaceutical companies globally in terms of compliance, and we are starting to gain from these opportunities. We know we are all an answer to the Strides’ shareholders and what we intend to do with Stelis. I’m now pleased to let you know that after much deliberation, we have appointed a global banker to evaluate the strategic options including listing options for Stelis in the near term. We will have more concrete and final updates for our stakeholders with our FY’23 results or eariler.

So we strongly believe that while Stelis had significant headwinds, not to its making and towards lighting. The shift to the CDMO business is playing out extremely well. We have added several new customers and we are benefiting very significantly from the shortages of certain types of capacities that are challenging the industry. And we’re very happy with the new customers that we are on-boarding.

So with this rather longish opening commentary, I will suggest — I request the Operator then led for questions, so that we can addresses as many as we can. I have with me, Badree, my colleague who will address questions on finance. But Badree, do you want to take a minute. Yeah, so we’ve covered little bit of the debt book. But if there are specific questions on finance we’re more than happy to discuss that. Thank you.

Questions and Answers:

Operator

Sure. Thank you. [Operator Instructions] We have the first question from the line of Rishabh Jain, an Investor. Please go ahead.

Rishabh Jain — — Analyst

Hi, thank you for the opportunity. I have two set of questions, firstly on the U.S. business. So the U.S. business, you still have — revenue outlook now with the current quarterly run rate? So how should we think about this business over the next two to three years in terms of approval on new launches? And secondly, on the other regulated markets, so it has bounced back strongly during the quarter. So are there any one-offs or we can assume the growth trajectory to continue? And what will be the key drivers for this business going forward? And are there any specific geographies we should watch out for? Thank you.

Arun Kumar — Executive Chairperson & Managing Director

Thank you. So the U.S., business subsidiary as you rightly said is in line with our exit run rate range to $260 million of revenues. We have to now consider the quarters. So that is the base number that you can bake in, which is what I mentioned in the last quarter call. From here, we already have over 100 ANDAs approved through our acquisition through Endo, which we are in the process of re-launching from several of our sites. We are not dependent on any new product approvals because as in April, you would recall that. I have mentioned that we are not investing in R&D in the U.S., because we are have very strong portfolio. And that answer to your second question that we have diverted a lot of the R&D capital to the other regulated markets, which is where the build-out is coming with several filings and approvals that are expected, and we are getting on a regular basis. Our other regulated market business of $39 million has got no one-offs and that is the number that we have hit at least three or four quarters consequently. I mean, previously. So that is a good base number to keep and there are no one-offs in that number.

Rishabh Jain — — Analyst

Okay. Got it, thank you.

Operator

Thank you. We have the next question from the line of Aman Shah, an Advisor. Please go ahead.

Aman Shah — — Analyst

Hi, sir. Thank you for the opportunity. Am I audible?

Arun Kumar — Executive Chairperson & Managing Director

Yes.

Aman Shah — — Analyst

Hi, sir. I have two set of question. First is, [Technical Issues] market business has seen a significant decline during the quarter, can you help us understand the reason for this change? And what’s the outlook for this in coming quarters. And the second question is. Also, how does this sale fit into the overall strategy — overall strategy, given that it’s now approximately just [Technical Issues]?

Arun Kumar — Executive Chairperson & Managing Director

Yes. See emerging markets, I explained in my opening statement that the emerging market is typically a market that we call for our brands Africa business and UCL, which is a Kenyan operations, which we deconsolidated starting — beginning last quarter. So adjusted for that emerging market, particularly about not more than about INR400 crores a year [Technical Issues].

Operator

Mr. Aman Shah, we request you to mute your line. There is some disturbance coming from your line.

Arun Kumar — Executive Chairperson & Managing Director

So the emerging market business should be estimated at INR400 crores, but in that INR400 crores almost. INR250 crores to INR200 crores odd — INR250 crores is institutional business. This business is awarded to us once in three years. The contract was completed in H1 of this financial year. We have just won our awards, couple of weeks ago. And we have retained our volume share. So we still believe this business — so you said in your evaluation, I mean, in your calculations you should consider the emerging markets to peak at INR400 crores, and you’ll see that run rate from Q1 of FY’24.

Aman Shah — — Analyst

Okay, sir. Thank you so much.

Operator

We have the next question from the line of Vishwanandini, an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

My first question is regarding gross margins on the company. So we have seen a sharp bounce-back in gross margin on a Y-o-Y basis, then I think CMM expanded by 800 bps. So what is driving this margin expansion? Is this sustainable? And how is the overall pricing environment across the key market? And my second question pertains to our operating leverage. We have seen an operating leverage playing out for the business over the last three quarters, so what is driving this improvement in operating — operating cost, margin expansion. And from a long-term perspective, where are we in our journey on the margin expansion front? So these are my two questions. Thank you.

Arun Kumar — Executive Chairperson & Managing Director

Right. Our gross margin is sustainable at 57%, 58%. This is the second quarter running that we’re delivering these numbers. So I don’t see any reason why this will be any lower than it could be one or two percentage points lower once in a while, especially when the emerging markets come up the modules done or not so much. Having said that, our journey is to get back to 2019, 2020 number, approximately 61%, 62%. So we have moved from 52% to 57%, but 57% to 61%, 62% will be a slow climb, but we’ll get there in a couple of quarters. Our opex leverage is coming directly from our oversight of opex. So we have reduced significantly our network costs to cross the blow. We have been supported, to be honest, also by reduce freight costs, because of the significant drop in freight costs. So that playing out to budgetary numbers. So this business, what it’s playing through, we are able to full reduce every line item of cost, be it HR costs, be it warehousing costs, logistics, networks. So we have been very successful in getting back the cost structure to where we should be. It’s approval business. So we have totality back to the business and that’s what we’re focusing on.

Unidentified Participant — — Analyst

Okay, thank you.

Arun Kumar — Executive Chairperson & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Rohan from ICICI Securities. Please go ahead.

Rohan — ICICI Securities — Analyst

Hello. Good evening. Am I audible?

Arun Kumar — Executive Chairperson & Managing Director

Not so much, Rohan, you may want to try again.

Abhishek Singhal — Investor Relations

If you could go over to mic, I mean, of the speaker phone, that will be much more clear Rohan.

Rohan — ICICI Securities — Analyst

Yeah.

Abhishek Singhal — Investor Relations

Yes, go ahead, Rohan. No, it’s still not clear. Can you come closer to the microphone, please?

Rohan — ICICI Securities — Analyst

Hello, is this clear enough?

Arun Kumar — Executive Chairperson & Managing Director

Yeah, go ahead.

Rohan — ICICI Securities — Analyst

Yeah. Okay. So I have a few sort of questions. So firstly, the current write-off in the JVs account for all the inventories.

Abhishek Singhal — Investor Relations

Pose with your questions.

Arun Kumar — Executive Chairperson & Managing Director

Rohan, your question is not very clear. You need to come over to microphone or if you could join the queue back again.

Rohan — ICICI Securities — Analyst

I will come back again.

Abhishek Singhal — Investor Relations

Thank you.

Arun Kumar — Executive Chairperson & Managing Director

Take the next question.

Operator

We have the next question from the line of Nitin Agarwal from DAM Capital Advisors. Please go ahead.

Nitin Agarwal — DAM Capital Advisors — Analyst

Hi, thanks for taking my question. On the U.S. business, given where we are and with whatever changes that you see in the landscape, I mean, how do you see in — new launches that we planning out? From an exit perspective, how should we look at where we probably at next year? Or if you have — if you able to give us some sense on that?

Arun Kumar — Executive Chairperson & Managing Director

So Nitin, one thing that we’re doing is while we are introducing that 15 to 20 products, we’re also churning out our existing products that don’t make — don’t add any sense to us given the accommodative landscape of certain products or — and that is effectively getting the company back to the traditional Strides module. So it’s not that. I’m suggesting that, 260 — 250 with 15 other products will get to $300 million next year that’s not what I’m suggesting. What I’m trying to tell you is that 65 — the $250 million being the base we want to calibrate growth from there. They are still side — we are still very focused on our $400 million play in the next two to three years. We are in no hurry to get there, but we are in a hurry to move our margins up from 57% to that 61% and that has been the focus. And we don’t want — and that is relentless and we don’t want to change that focus. So I’ll be very happy if they get to $300 million in the next 12 months, but move up our gross margins by four points and that will then give us very strong balance sheet, strong leverage and our — we will achieve our target to be significantly lower than three times on a debt-to-EBITDA. So that is our primary focus.

Nitin Agarwal — DAM Capital Advisors — Analyst

Okay. And in the slide mentioned about corporate actions, the network optimization efforts which probably shifted to Q1, so any broad color around what you have in mind on that account?

Arun Kumar — Executive Chairperson & Managing Director

So we — see, a couple of thing is very clear in this business, you either positioning yourself as being a very significant top tier player in the U.S. market, are you positioning yourself as a company, which is very focused on customer advocacy. Having products on-time, delivered on-time and then become a reliable player as what we used to be. So from 2016 to 2019, we had for example zero failure to supplies in three years, and $500 million of sales. We want to get to those kind of recalls rather than saying. We are the 30 biggest company in the U.S., so that 31 biggest or the 15 biggest. So that’s no more the focus. I mean so the network optimization, we have achieved a growth of almost $70 million of incremental revenue, with no incremental unit sales. So the question we’re asking ourselves from a network is that, do we really need so much of infrastructure to run the business of our price and although we use the infrastructure that we want to have and deliver products, which are more profitable.

The Endo acquisition allows that — allows us that luxury to pick and choose products that we want to launch, because if we — if I tell you that, I want to build this business to $600 million in the next two years, then I’ll have to be on the segment and I don’t want to be on the segment, when it comes — given the other significant challenges the industry is facing. I don’t want — I want to be a very measured player in the U.S. with the right product selection and launching it at the right price discipline. And key for me is to get the manufacturing operations in New Jersey — in New York to a profitable level, which it hasn’t in this year. So I’m actually carrying a fair amount of under recovery still from Chestnut Ridge facility in New York, and I think that we can fix that in the next financial year. So those would be our bigger focus. You would see margin uptick, I’m not so sure about revenue uptick. And that’s not my focus in the next 12 months.

Nitin Agarwal — DAM Capital Advisors — Analyst

Right. And on the debt part, so we’ve guide to about a three times debt-to-EBITDA by the end of the year. Now, over up slightly longer period, our aspirational, I mean wherever you want — I mean, how would you want an ideal debt-to-EBITDA picture — debt profile to be look like for Strides as a business?

Arun Kumar — Executive Chairperson & Managing Director

See, I’m very comfortable with a debt-to-EBITDA of under three. There is absolutely no problem. The company has got no very little-long term loans, very little long-term loans, one the other reasons why I’m not so excited about growing rapidly in the U.S. business is that any incremental dollar of revenue takes close to about 200 days of new working capital on the sales. So I would want the U.S. business today it’s already making profits for us, but it is also solving because the Chestnut Ridge facility in New York. Once that is fully sorted out in the next couple of quarters, I don’t think it will take us more than two quarters to sort that out. We will then be able to use of free cash that we generate in the U.S., the solve the growth. So I don’t want to — if I’m going to accelerate growth. I will have to increase our working capital deployment for the U.S. So it’s all — situation unfortunately, but we are very happy with the trajectory, because our other regulated markets, and more than make up for any adventures that we may be missing out in the U.S. in the near-term.

Nitin Agarwal — DAM Capital Advisors — Analyst

And last one, if I heard you correctly, the emerging market business given the restructuring we should now look it as our including the branded business, about INR100 crores per quarter. I mean, how INR400 crore annualized business are roughly speaking from modeling perspective?

Arun Kumar — Executive Chairperson & Managing Director

Yeah, that stopped because we won the contracts couple of weeks ago, we have the allocation. So I can give you comfort around the numbers, but this will be starting from Q1. We start very little supply from this quarter that is very typical that the global funds have a six-month lag between two contracts.

Nitin Agarwal — DAM Capital Advisors — Analyst

But you mentioned the restructuring bit where the business is not getting consolidated and despite that, we will end up recording — this INR400 crores is after adjusting for the restructuring which is there?

Arun Kumar — Executive Chairperson & Managing Director

Yes. So if I had not the consolidated INR400 crore would have been INR600 crore.

Nitin Agarwal — DAM Capital Advisors — Analyst

Okay. I got it. Okay. Okay, thank you.

Operator

Thank you. We have the next question from the line of Devansh Mehta, an Investor. Please go ahead.

Devansh Mehta — — Analyst

Thanks for the opportunity. So I just wanted to understand, from our portfolio build-out perspective, how should we look at the overall R&D investment for the business going forward and also given the regulated markets, business is witnessing strong growth. How are the utilization at the plants and how do we look at the capex requirement from the business to support growth plan? That’s from my side.

Arun Kumar — Executive Chairperson & Managing Director

Yeah. So the R&D spend in Strides was lower since the last one year, we brought it down from $25 million to just about $10 million and this is because we don’t need to spend new R&D monies for the U.S. as we have over 100 approved ANDAs that have not been launched. And every year we are launching 12 to 15 new products from this approved list, which does not require any R&D activities, because these are already approved products. So we’re just moving these products from Chestnut Ridge in New York to other sites within the Group. And that leads to your next question that currently we have approximately capacity utilization of only 60%, which means we have significant capacity unutilized, which is why we talk about under recoveries very often in our conversations. So there would be no new capex required for several years, even if we double our business from where we are. So that’s on the business. On the regulated business, your question specifically was on capacity, right, and the utilization. So I think I have addressed those.

Devansh Mehta — — Analyst

Thanks so much.

Arun Kumar — Executive Chairperson & Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead.

Amar Maurya — AlfAccurate Advisors — Analyst

Sir, thanks a lot for the opportunity. Am I audible?

Arun Kumar — Executive Chairperson & Managing Director

Yes.

Amar Maurya — AlfAccurate Advisors — Analyst

A couple of questions from my side, sir. Firstly, in U.S. business, as you indicated that the winter portfolio had also done well in this quarter, so what kind of like the uptick we would have got from that winter portfolio?

Arun Kumar — Executive Chairperson & Managing Director

We don’t give specifics. We have a lot of products, which — and as you probably would appreciate, we don’t have anything called summer and winter anymore. So most often, some of our seasonal products, let’s say, throughout the year were at least nine months have gotten. So we don’t callout expected number. We’re just saying that we benefited from that. So I’m not suggesting that our business will drop from the next quarter. It just gives us flexibility on what products we introduced quickly into the market for without contracts and with contracts.

Amar Maurya — AlfAccurate Advisors — Analyst

So basically, my point was, like probably, this particular product is largely having a better margin than the overall portfolio?

Arun Kumar — Executive Chairperson & Managing Director

Not necessarily.

Amar Maurya — AlfAccurate Advisors — Analyst

Okay, okay, okay.

Arun Kumar — Executive Chairperson & Managing Director

Our margin profile, if you look at has only improved from 57% to 58%. So if this product was very big, then our margin expansion would have been far greater from the last quarter.

Amar Maurya — AlfAccurate Advisors — Analyst

Okay. Okay. And secondly, sir, like you indicated that largely you are targeting operational profitability and less focusing on the revenue growth at this point of time?

Arun Kumar — Executive Chairperson & Managing Director

That’s not true. I’m saying only with regard to U.S., because in the U.S., when we hit $250 million, as we have added over $100 million of sales from last year. So we have grown 40%. Okay. Saying going forward, you will see growth coming from non-U.S. markets. So our focus this year has been to increase the U.S. was quite significantly.

Amar Maurya — AlfAccurate Advisors — Analyst

Because you already released to — if I do the annualized ration of this particular quarter number, I think you already hit to the INR250 crore — $250 million number, right? What is your aspiration for the U.S., as you said.

Arun Kumar — Executive Chairperson & Managing Director

Correct. So we have already hit. So what we’re saying is, now that we have done with that, we’ll steady the business with a large portfolio of approved products to improve our margin profile to what we have a target margin profile of 62% — 61% to 62%.

Amar Maurya — AlfAccurate Advisors — Analyst

Okay, okay. And this do you expect to happen, let’s say, in ’24.

Arun Kumar — Executive Chairperson & Managing Director

As in, the margin expansion that is our hope. I mean, but we do not how markets play out quietly, are we think that all — everything that we’re doing, we think that we will get closer to the 60% in FY’24. And that is why I suggested that our EBITDA as well are at 14%, we’ll get back to the 18% to 20% range and that’s the reason. We need to take to gross margin up by about 300 basis points.

Operator

Thank you. We have the next question from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.

Sarvesh Gupta — Maximal Capital — Analyst

Good evening, sir.

Operator

Mr. Gupta, your line is not clear. We request you to kindly come closer to the speaker phone.

Sarvesh Gupta — Maximal Capital — Analyst

Is it better now?

Arun Kumar — Executive Chairperson & Managing Director

Yes, it’s much better now.

Sarvesh Gupta — Maximal Capital — Analyst

Yeah. So first question is pertaining to the gross margin, so this quarter we saw that our institutional business actually fell off the cliff, in-spite of that on a quarter-to-quarter basis, there is no increase on the overall gross margin, which should have ideally increased a lot because of much higher mix from the regulated markets. So that is number-one. Second is that. You — there was some news reports on the reintroduction of ranitidine in the U.S., so if you can throw some color and if there are any comments on that front? Thirdly, on the Stelis, so this is the first time, I think, there is no slide, no presentation on Stelis business as —

Arun Kumar — Executive Chairperson & Managing Director

There is. There is Sarvesh. There is a big — there is very significant detail presentation on Stelis, you must have look at it.

Sarvesh Gupta — Maximal Capital — Analyst

Okay. Maybe I missed it. But now I think last quarter also you had sort of alluded that on account of this global banker, which has been appointed and we were planning a big fundraise to lower down the debt at this Stelis level significantly.

Arun Kumar — Executive Chairperson & Managing Director

Also if we look — at if you look at the debt, we will — we have appointed a banker to review strategic options — not to fundraise. The fundraise is already been done, INR650 crores of fundraise has been committed in Stelis, of which INR475 crores has already been invested.

Sarvesh Gupta — Maximal Capital — Analyst

Understood.

Arun Kumar — Executive Chairperson & Managing Director

So it’s all there in the Stelis deck. And to answer your question on Strides, the other regulated market does not have the same gross margin profile as the U.S. market. But at the same time, it does not have the same cost structure as the U.S. market. So if you see the growth of the incremental $9 million has come from other regulated markets. So the U.S. obviously runs, operates at a much higher gross margin.

Sarvesh Gupta — Maximal Capital — Analyst

Understood. And any comments on the ranitidine thing?

Arun Kumar — Executive Chairperson & Managing Director

Ranitidine is done and gone. Currently, we don’t think the product is going to be relaunched by anybody in a long while. The current regulatory framework that the FDA, as past companies to do unbranded, almost impossible. Having said that, ranitidine is coming back in certain countries in Europe, Canada, Australia. So we are watching and in these markets, we look to re-launch the product in the near-term.

Sarvesh Gupta — Maximal Capital — Analyst

Understood. And finally on the rightsizing of our infrastructure, so if you can throw some color, I mean, what exactly are we planning to do. Are we planning to sell some of the facilities? Or are we planning to sort of — is it —

Arun Kumar — Executive Chairperson & Managing Director

No. No, rightsizing can mean a lot of things. It could be operating facilities in two shifts and the single shifts. Moving plants from less efficient plants to more efficient plants, bringing products from — to U.S. to India or taking product from our group to external manufacturers, so that is what is network rightsizing is. And as it could also include, does it make sense to have so many plants. So all of that is the function of long range plans and strategy, and what our focus is to, if you have to build margins, you really don’t need to sell billions of units to improve the quality of your business. You can still sell few — less units for more outcomes.

Operator

Thank you. We have the next question from the line of Vikram Damani from Damani Securities. Please go ahead.

Vikram Damani — Damani Securities — Analyst

Hi, good evening. Can you hear me?

Arun Kumar — Executive Chairperson & Managing Director

Hi, go ahead.

Vikram Damani — Damani Securities — Analyst

Right. So one question with respect to Stelis, can we anticipate any further write-off going-forward in terms of —

Arun Kumar — Executive Chairperson & Managing Director

Everything is taken into account.

Vikram Damani — Damani Securities — Analyst

Everything taken into account. Okay, great. Another question with respect to our shareholding in Stelis, in your document, where you are refinancing the loan, you all say that Strides hold 31.5% of the Stelis, in the investor presentation, it says, 33%. So what’s our current shareholding? Or are there some outstanding, why didn’t that has impacted in here?

Arun Kumar — Executive Chairperson & Managing Director

Sorry. It’s fully-diluted because as you see on the deck of Stelis, there is outstanding capital that needs to come through, like we said out of the INR650 crore, INR475 crore has come in, when all the INR650 crore comes to Strides sort of go down from 36% to 31.5%.

Vikram Damani — Damani Securities — Analyst

Okay, got it. Thank you.

Arun Kumar — Executive Chairperson & Managing Director

33% to 31.5%.

Vikram Damani — Damani Securities — Analyst

Okay. Thank you. And one question with regards to the [Indecipherable] segment this gap that you’re seeing after two quarters, I know you’ve elaborated a little bit. I just wanted a clarification —

Arun Kumar — Executive Chairperson & Managing Director

Which segment?

Vikram Damani — Damani Securities — Analyst

In the [Indecipherable] segment.

Arun Kumar — Executive Chairperson & Managing Director

Okay, fine.

Vikram Damani — Damani Securities — Analyst

Is there are — of PQ inspection or compliance delay?

Arun Kumar — Executive Chairperson & Managing Director

No, no, no. No, so the global funds award contracts once in three years. Typically, they completely off takes in about instead of the 36 months — they complete off takes in about 30 months, so that they keep enough inventory for. And then the bidding starts in the process and they are in no hurry to stockpile, because they already have stockpile. And that is why if you look at our H1 numbers, our institutional business in H1 was almost $40 million — $35 million or $40 million. So we did the entire annual years production in H1.

Vikram Damani — Damani Securities — Analyst

Got it. Good to know. Thanks. And going forward, can we expect to maintain the same volume? Are you actually said that?

Arun Kumar — Executive Chairperson & Managing Director

We have already received the same allocation.

Vikram Damani — Damani Securities — Analyst

Thank you. All the very best.

Arun Kumar — Executive Chairperson & Managing Director

If we got it slightly better.

Vikram Damani — Damani Securities — Analyst

Thanks. Thank you, all the best.

Operator

Thank you. We have the next question from the line of Ankit Jain, an Investor. Please go ahead.

Ankit Jain — — Analyst

Hi, I’m expecting anymore write-offs in terms of values or in terms of Strides. And then secondly, how we think the margin will be

Arun Kumar — Executive Chairperson & Managing Director

Can you just speak up please, Ankit?

Ankit Jain — — Analyst

Yeah. So what I was saying, is there any —

Arun Kumar — Executive Chairperson & Managing Director

First question, we understood.

Ankit Jain — — Analyst

Yeah, and the second is how the margin will play out in the future for the acquisition that you did?

Arun Kumar — Executive Chairperson & Managing Director

Okay. So like I said, first one is on right of the slides, there is one. We don’t anticipate anything. We have a very good system there. When it comes to — the second question was on acquisition of the Endo. I did mention in my longish introduction that we will breakeven the plant in FY’24, we give a lot of actions. We have reduced our cost from $47 million to now $31 million, but that cost reduction had to go through what is called a regular one notice program in the U.S. and we will get the full benefit of that starting from Q1. So we are carrying an acquired cost and there were certain — challenges in us to make those decisions with regarding rightsizing, based on the contracts we signed up. But all that is now done and dusted. It’s in the public domain that we have issued one notice and we will have a headcount reduction, starting from 28 of this month. But we still carry certain cost till end of April. But after that we will get — we would have reduced of cost that layoff facility by about $15 million. And that is when — that is what will drive the U.S. operations to profitability.

Operator

Thank you. We have the next question from the line of Pushkar [Indecipherable] an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Yeah. Yeah, very good evening, can you hear me?

Arun Kumar — Executive Chairperson & Managing Director

Yes, Pushkar, go ahead.

Unidentified Participant — — Analyst

Okay. Yeah. So the question is that since June 2021, size to almost five quarters to come back to the historical level of U.S. revenue business then in quarter two of this FY, U.K. business went down from $40 million to $31 million. Then again into quarter three, U.S. and U.K. came back to its historical level, but this time Africa and institutional business came down. So as an investor, I have some, there is no consistency in overall business. So are we getting value to our investment because since 2017, we are not getting any value to our investments? That is my first question. The second is that you have launched 10 products in the U.S. this financial year. You have said that 20 products would be launched in this financial year. That is one. Second, you said that to $40 million will be done in U.S. in the entire FY. Are you confident about the — regarding the reaching this level?

Arun Kumar — Executive Chairperson & Managing Director

Yeah. So if we look at our exit run rate, yes. The answer is, we will reach to $40 million to $250 million that was what we we’ve guided as exit run rate. We are on-track to get there. And I do appreciate your hacks in not having created value since the last several years and that has nothing to do with one corporate dip in our business. In Q2, we had guided that the other regulated market had a one-off quarter spill, which we will completely recoup in Q3 and we did exactly that. So we guided you as an investor, due to do that, we had more — because more invoicing accounting logistics issue, which we solve for. And we are back on-track. So we are — if we have fixed — continuous quarters where we have performed in the $37 million to $40 million range, and if we have guided the market that we had a one-off issue for various reasons, I think it’s unfair position for you to take in terms of our consistency.

Second, talking about Africa, I just mentioned that we don’t — the Africa business for us is a branded business and we are doing extremely well with that. There is no lack of consistency. Probably you are not paid attention, Pushkar, to the fact that we said in Q2 that we deconsolidated our Kenyan operation. So we’re not doing a like-to-like comparison. Separately, we told you that we have already won our emerging market contracts on the institutional business, which I’ll get back our revenues back to INR400 crores in Q1. So when you do all of that, that is very standard in our business that there are contracts that you win, there are contracts that you lose, but overall, you should do well. So our focus has been on getting the company from negative EBITDA to a possibility EBITDA traction, to set the goals for the next year, where we are very confident that we’ll get back to our historical highs. And first of all, thank you for your persistent. We invested in Strides and I’m sure that these actions will give you the results that you’re looking for. Thank you.

Operator

Thank you. We have the last question from the line of the Aditi [Indecipherable], an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, Arun. Hope you’re doing well. Am I audible?

Arun Kumar — Executive Chairperson & Managing Director

Yes, you are and thanks.

Unidentified Participant — — Analyst

Hey. So basically, I have one clarification. I think, like few con calls back, it was mentioned that we’ve got — we got a total basket of about 260 approved molecule, out of which about 60 commercialized and the rest is sort of approved and yet to be commercialized, out of which, I think it was said that 80 to 100 molecules meet 60% gross margin criteria. So firstly, how has that mix sort of commercialized molecules aimed to support the $63 million U.S. run rate? That’s the first question. And then the second question is on the other regulated market. I think our peak, I mean, if I see the quarterly run-rate, the peak was in fourth quarter of FY’22, when we did about $42 million. So do we see us getting sort of to that level or sort of getting to that $42 million to $45 million level or like you’re mentioning on the U.S. market, where you said that to $240 million, $250 million annual sales is what you’re targeting. Similarly, or are we thinking on ORM also, a similar kind of overall the size for the annual revenue in terms of the exit run rate? So those are the two questions.

Arun Kumar — Executive Chairperson & Managing Director

Yes, thank you. So on the U.S., while we — a lot — you right with a number of molecules that will meet our threshold margins that we are used to, as a company. But what really happens Aditi, is that a lot of the heavy-lifting that we are done on product launches growth to support the Chestnut Ridge facility, which is under the company. I did tell you — allude that by the end of this quarter, all of the actions to get the cost to sites, which has been taken and therefore, you will see an incremental flow through. So almost $60 million to $70 million of my revenues in the U.S. goes only to support the Chestnut Ridge facility without adding any EBITDA to the group, and that’s going to change, because all the actions to cost — to right-size the cost has been taken and dusted.

So you would see the flow through of those margins actually coming through starting from May and our cost structure has reduced with all the actions we have taken. Considering these are major corporate actions, U.S. regulations require us to follow certain processes and these are not employment at will opportunities that we can normally use. Therefore there are — there’s [Indecipherable] there’s timing to get people there, there’s severance pay, you have to put for various investments to ensure that they can be employed in other places and stuff like that, all that has been done. And as of 28 of January, that will fall in effect, but we still carrying cost for three months and by 28 of April, we will get to a cost level that is comfortable that we know that the U.S. operation, which is portfolio that stopped delivering margins.

On the ORM, $39 million, $42 million, it’s a good base level, from where we would grow. I would like to believe that this business will be — will mirror the U.S. business in about two to three years, there’s a lot of focus that we’re attaching here and I would estimate the business to exit at least at $50 million in the next financial year. This is a slow growth business because it’s diverse continent with several customers and countries and languages and packaging. But it’s slow and steady. It’s very sticky. And it’s — it cannot deliver the same gross margin as the U.S. business, but it doesn’t also incur the costs that we are used to run in the U.S. business. So I think next year exit run rate this time at $50 million would be a reasonable level of guidance from us at this stage.

Operator

Thank you. That was the last question. I now hand it over to the management for closing comments.

Arun Kumar — Executive Chairperson & Managing Director

Thank you all. Really appreciate your time today and as always if you have questions, you may please reach out to me or Abhishek or our Investor Relations side. Thank you very much. Good evening.

Operator

[Operator Closing Remarks]