Torrent Pharmaceuticals Ltd (NSE:TORNTPHARM) Q2 FY23 Earnings Concall dated Oct. 21, 2022
Corporate Participants:
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Aman Mehta — Chief Executive Officer
Sanjay Gupta — Executive Director
Analysts:
Damayanti Kerai — HSBC — Analyst
Prabodh Dasari — Tattva Capital — Analyst
Kunal Dhamesha — Macquarie Capital — Analyst
Saion Mukherjee — Nomura — Analyst
Neha Manpuria — Bank of America — Analyst
Karan Vora — Goldman Sachs — Analyst
Harsh Bhatia — IDFC Mutual Fund — Analyst
Mehul Sheth — Axis Capital — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Q2 FY’23 Earnings Conference Call of Torrent Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sudhir Menon. Thank you, and over to you, sir.
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Thank you. Good evening, and welcome to Quarter Two FY’23 Earnings Call.
Quarter two revenue growth was around 7% which was aided by performance of the branded generic markets which constituted around 70% of the total revenue and registered a y-o-y growth of 13%. Growth in the branded generic market was driven by new launch momentum and performance of the top brands. In terms of financial performance during the quarter, revenues were INR2,291 crores, up by 7% on year-on-year basis. Gross margins was 72% and as we improved on a sequential basis. There is a one-off income of INR7 crores in the line item operating income. And adjusted for that, the operating EBITDA stands at 29.4%.
I now hand over to Aman for — to take us through the India performance.
Aman Mehta — Chief Executive Officer
Thanks, Sudhir.
India revenue at INR1,224 crores grew by 13%. As per AIOCD data, Torrent’s growth in Q2 was 19% versus the IPM growth of 13%. Torrent’s growth was aided by new launches, performance of top brands and market outperformance across our focus therapies. As per the end of the quarter Torrent now has 12 brands with more than INR100 crores sales as of the MAT September ’22 dataset and 17 brands in the Top 500 of the IPM.
A few highlights from the recent new launches, Sitagliptin was launched in July and Torrent is ranked first of the new launched brands in July. We expect to launch momentum to continue and are positive on maintaining our leadership position in this market. Rest of the launches in the earlier quarters continued to perform well with leadership positions. Our acquisition of Curatio Healthcare was completed on 14th October 2022 and it’s been about a week now since the business has been integrated and we will based on the progress of integration by the end of next quarter.
I will now hand over to Mr. Sanjay Gupta for the international business.
Sanjay Gupta — Executive Director
Thanks, Aman.
Starting with Brazil, which is our largest branded generic market outside of India. Brazil revenues were at INR185 crore, were up by 19%. Constant currency revenues were at BRL121 million, up by 10%. During the quarter we experienced enhanced competition on one of our key launches Rivaroxaban and another cardio product, which led to price reduction substantial price deduction. So there are currently 13 branded generic players in Rivaroxaban. And adjusted for this price reduction, our growth for this quarter would have been close to 20%. On Rivaroxaban our market share is progressing well and it stood at 4% in August as compared to 3% in June.
So as per the secondary dataset from IQVIA, Torrent’s branded generic business is currently growing at 14.4% as compared to a branded generic market growth of 12.1%. Our CNS field force is being expanded in a phased manner. We currently have 306 sales reps in Brazil, including 41 CNS reps that were added in November of 2021. Result of this expansion have been positive. With the market growth of high-single digit to double digit, we expect Brazil to continue its growth momentum backed by performance of our top brands, new launches, field force expansion as well our generic positioning.
Moving on to Germany. Germany revenues were at INR220 crores were down by 12%. Constant currency revenue was EUR27 million at the growth of 5%. Revenue bottomed out in Q4 of last year and have grown slightly in Q1 and Q2. Relative stability and a slight incremental growth is coming from new launches, of which we had four in Q1 and we also had six launches in Q2. Recent launches including — included one day one launch in Q1 and four day one launches in Q2. Q2 day one launches were towards the end of September, so the positive impact will be seen in subsequent months. We expect our sales in Germany to continue on a positive trend at a modest pace until major 10 — when you start to kick in towards the end of the year.
Moving onto the US. US revenues were at INR292 crores were up by 3%. Constant currency revenue was at $37 million. During the quarter, USFDA inspected our manufacturing facility at Indrad, Gujarat. And at the end of the inspection we got a Form 483 with three observations. Torrent has already responded to the USFDA within the stipulated time and we expect to hear back from the FDA in the next 90 days.
To conclude, I would say that we expect our growth momentum to continue in branded generic market, particularly in India and Brazil, backed by new launches, market our performance, field force expansion and the acquisition of the acquired portfolio. Germany should continue on a modest positive trend.
Operator, we can open the call to questions, please.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Damayanti Kerai — HSBC — Analyst
Hi, good evening. Thank you for the opportunity. Sir, my first question is in India business. So first, can you split part of growth into price volume and new launches? And continuing question on India business is, you have seen very healthy 13% growth in 2Q as well as in the first half. So do you see like sufficient lever to sustain this kind of growth? Or do you think we can move to higher growth trajectory with Curatio portfolio coming in some of the previous initiatives working for the segment?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
So the AIOCD data reflection shows 19% growth. So obviously that’s slightly higher reflection this quarter than the reported numbers, but the breakup of the 19% is 6% volume, 9% price and 4% new products. We believe that the internal growth is pretty much in line with the earlier quarter and the market trend. So maybe by next quarter there should be a better reflection of the AIOCD dataset in terms of volumes and new products. In terms of sustaining this growth, we think we are confident of maintaining this level of double-digit growth, 13%, 14%, last quarter was 14%, this quarter was 13%. So no reason to think that there is anything that could change over here, as long as the market remained at this level. And of course by the end of this quarter, there should be just over two months of the Curatio sales that will come in. So that will be a — again one-off base impact that we should see. But at underlying level, this level of double-digit growth for India is something that we are confident of sustaining.
Damayanti Kerai — HSBC — Analyst
Okay. My second question is on Germany. So if I’m not mistaken earlier you mentioned the new contracts will open up somewhere in September, October of this year. Apparently that was not the case. So when you’re hoping to bidding new tenders with better prices which you have worked on?
Sanjay Gupta — Executive Director
So I think, earlier we’ve communicated that we would start seeing the impact of new tenders from Q3 onwards. So you would see a slight impact in Q3. You’ll also see the impact of the four launches we had towards the end of September. And then you’ll see a larger impact in Q4 of the new tender wins.
Damayanti Kerai — HSBC — Analyst
So majority of improvement should be visible in the last quarter of this fiscal for Jubilant business?
Sanjay Gupta — Executive Director
Correct.
Damayanti Kerai — HSBC — Analyst
Okay. Thanks. I’ll get back in queue.
Operator
[Operator Instructions] The next question is from the line of Prabodh from Tattva Capital. Please go ahead.
Prabodh Dasari — Tattva Capital — Analyst
Yeah. Hi. Thanks for the opportunity. So just wanted to — this is a question regarding Curatio. So just wanted to understand, see as for finance bill 2021, amortization of goodwill has been developed for claiming reduction in income tax. So how exactly are we going to treat the excess consideration paid — book value for Curatio?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
So I think as a process, there is a purchase price allocation, which will be carried out. And as you rightly — or as goodwill is concerned, yes, it cannot be amortized. But if you are creating intangibles, which are in the form of brands and maybe non-competence stuff, those amortizations are still available.
Prabodh Dasari — Tattva Capital — Analyst
Understood. Thanks. Yeah. That’s all from my side.
Operator
The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.
Kunal Dhamesha — Macquarie Capital — Analyst
Hi. Thank you for taking my question. Sir, just on the Germany, when you are expecting good ramp up from Q4, would it be on the back of the new product or gaining back share in the older product?
Sanjay Gupta — Executive Director
So it’s a cumulative impact, right. So the impact is coming essentially from some tender wins that we had already had those wins and the sales will start in Q3 and Q4, plus the impact of new launches of which we’ve launched 10 products in the first half of the year and expect to launch five to seven more products more in the second half of the year.
Kunal Dhamesha — Macquarie Capital — Analyst
Okay. And how does the competitive intensity there, in terms of when you say, basically one we tender for some of the products? Was the pricing be very similar to what we would have seen last year or whenever the last tendering happened or is it very fixed right now?
Sanjay Gupta — Executive Director
No, the competitive intensity in the generic market goes up every year, so the pricing tends to go down. So Germany is not very different. The rate of pricing acceleration is slightly lower than in the US and also the business is more stable because most tender wins are for two year periods. And generally, there is no switching within the two year window. Hence the market is more stable, but the trends are in line with other generic markets.
Kunal Dhamesha — Macquarie Capital — Analyst
Okay. Yeah, that’s it from my side. Thank you.
Operator
[Operator Instructions] The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Saion Mukherjee — Nomura — Analyst
Yeah. Hi. Thanks. On the US market, one is like, what is the intensity of price erosion, any comments there? And on Indrad side, how many ANDAs are pending from there? And in case — and if you can throw some light on the nature of observations? And in case, if that’s clear, what would be — which mean for our business, any interesting high value launch that can come through?
Sanjay Gupta — Executive Director
Essentially, from ANDAs we’ve about 19 projects — products which are pending approval. So we would hear back from the FDA in 90 days. So I would not like to speculate on what the FDA’s decision making would be. I mean, we have responded to the best of our ability with the cap that we proposed on the three observations. And once the FDA if it converts the status from OAI to VAI or NAI, we can expect approvals to trickle in. The approval for the 19 currently pending projects, and that would take after January between 6 to 12 months. So it won’t be an imaginary switch on type of scenario. And these approvals would come in a typical manner. And what we would expect is that, there is already a high degree of competitive intensity on most of these projects. So the economic impact for Torrent would be limited, but there are still a few products with — which have potential for revenues. But let’s see how it goes. But first we have to do FDA clearance and then get approvals and then launch in the market context at that point in time.
Saion Mukherjee — Nomura — Analyst
And can you comment on the pricing environment in the US?
Sanjay Gupta — Executive Director
Pricing wasn’t continuing, so I would say, at a substantially higher level, so Torrent, as we have only a base older portfolio is not essentially had new launches since March of 2019. We would be disproportionately impacted. So I would say that, a mature portfolio like ours is double-digit price erosion, it continues. And so we are compensating it with some of the volume increases as well as some of the few launches that we’ve had in the last two, three years from external parties. But no change in the price erosion trends.
Saion Mukherjee — Nomura — Analyst
Okay. And another question, if I can ask upon the cost. So Sudhir, can you throw some light as to what, how different cost items have moved, where are they versus last quarter and how do you see costs the key cost item panning out going forward?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Saion, compared to quarter one, say quarter two is looking quite stable. There is no major increases which we are seeing in the cost side.
Saion Mukherjee — Nomura — Analyst
And I mean, is it coming down or is it still at a elevated levels?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
No, I think as far as the key raw material part is concerned, there are pockets where the prices have gone up and there are pockets where the prices have come down. But on a overall portfolio basis, is what I’m saying, is looking quite stable. The other big impact item for us was on this logistics cost, which still has not come down at the same level as quarter three of ’21-’22, I would say.
Saion Mukherjee — Nomura — Analyst
Okay. So overall, you see the margin profile to sort of remain at the current levels, sir, quarterly gross and EBITDA margin levels?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
I would think so, because I don’t see any major change happening, decrease in quarter three.
Saion Mukherjee — Nomura — Analyst
Okay. Thank you. I’ll join back. Thanks.
Operator
[Operator Instructions] We’ll move onto the next question, that is from the line of Neha Manpuria from Bank of America. Please go ahead.
Neha Manpuria — Bank of America — Analyst
Yeah. Thank you for taking my question. Sanjay, on the Brazil market, you mentioned price competition in two of your products, leading to lower growth versus what we would have ideally issuing. Just wanted to understand was this not expected and hence will be surprised by the price erosion, because it’s a branded market. So was this is like a one-time division in pricing that we saw just getting some color on that?
Sanjay Gupta — Executive Director
Especially, Neha, I would say that, when we launched the product that was not expected, because we were amongst the first five people in launch and besides after — we lost about eight new companies have come to the market at lower and lower price points. So at some point in time the launch price becomes non-sustainable. So that was one of the reasons why we took a major price decrease on Rivaroxaban which as you know is one of the largest market in Brazil. And so we are seeing that, I mean, initially our priority remains to penetrate the market to get some of the originator’s share. And we call that the price reduction in this point would may keep us competitive. So — but we were surprised by the large number of players who ended subsequent to our launch.
Neha Manpuria — Bank of America — Analyst
And given that a large part of the business strategy that we talk about, is based on new launches coming through and driving that double-digit growth. Is the existing scenario probably example of how the other launches could also pan-out and therefore could growth in Brazil be slower than what we were expecting, given the competition that you’ve seen in the current quarter?
Sanjay Gupta — Executive Director
I have launched seven products in the last — let’s say 18 months. So it’s a little bit all over the place. So if you take the largest products that we launched which is Rivaroxaban, they’re taking place. The other products we launched is Desvenlafaxine where there are 11 players. But we’ve also launched products like Ticagrelor, where we are the only generic on the market. We’ve launched ribavirin where we are the only generic, we’ve launched bisoprolol, we are number three in the market, three players. Lacosamide, we’re are the second generic. So it’s a little bit all over the map, right. So the biggest products tend to attract a lot of competitors, but mid-size or smaller products, obviously they will find opportunities where it’s not double-digit number of competitors.
Neha Manpuria — Bank of America — Analyst
So therefore, we’re feel confident about growing the Brazilian business double digit, based on the pipeline?
Sanjay Gupta — Executive Director
Absolutely. And also in the most competitive categories we are used to having — so the current business we have is not in, I would say, by any chance in limited competition market. Our biggest product is Rosuvastatin, where we sell more then INR100 crores of Rosuvastatin in Brazil. And I stopped counting competitors after 20.
Neha Manpuria — Bank of America — Analyst
And in the product you seen higher competition. Have you been able to retain share or grow share despite the higher competition that we’ve seen?
Sanjay Gupta — Executive Director
So I would say, the answer is categorically a yes. So if you take the largest road I just mentioned, Rosuvastatin. So obviously that is to have a share with you, okay, it’s double digit share that we have on Rosuvastatin. Rosuvastatin, yeah, I don’t know I’m going to share with you, but it’s in the mid-teens. And we’ve also don’t share in a large products like Amlodipine, Venlafaxine, Lamotrigine and the brands very strong. So yeah, certainly we continue to perform them in large competitive markets.
Neha Manpuria — Bank of America — Analyst
Understood. Aman, on the India market, could you give us some color on how the trade generic is progressing? We were supposed to launch more SKUs in the trade generic, how has that done in the quarter?
Aman Mehta — Chief Executive Officer
Yeah. That’s on track. I think the growth has been quite robust last two quarters as well. And we believe that this target of 2.5% to 3% contribution in the near term is something that would be possible and sustainable. And it is a very stable, steady trend in the business that we’re seeing.
Neha Manpuria — Bank of America — Analyst
Okay. So the contribution even in this quarter would have been in the 2.5%, 3% range?
Aman Mehta — Chief Executive Officer
That’s right.
Neha Manpuria — Bank of America — Analyst
Alright. Got it. Thank you so much.
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Neha, just to complete there, on the market share that we were discussing, on rosuvastatin, for example, we have a market share of 23%, nebivolol we’ve 47%, duloxetine we have almost 70% market share, donepezil 28%. So market shares are quite healthy across the board.
Neha Manpuria — Bank of America — Analyst
Understood. Okay. Thank you so much sir.
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Thanks.
Operator
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.
Damayanti Kerai — HSBC — Analyst
Hi. Thank you for follow-up. Sir, my question is in US business, from a slightly longer-term perspective. So it appears that the market will continue to remain very challenging and then we have other challenges, such as regulatory or other compliance, et cetera. So is there a possibility that few years down the line you plan to, I’ll say, curtail your presence in US altogether, that part of the business and then focus better on the branded generic market?
Sanjay Gupta — Executive Director
No, I don’t think we are considering that possibility right now. What we’ve done over the last few years is rebalanced by investments. So we are not making new manufacturing-related investments to the US. We had the last investment was Dahej. And so after that, we believe we have a substantial capacity for the next several years. So there is no new capex being done for the US market.
In terms of R&D also, we’ve decreased the number of projects that we do for the US. We’ve increased the complexity, but the goal of the company is no longer to file high double-digit number of ANDAs, and these kind of rebalanced R&D investment more in favor of more markets like Brazil and Germany. So all that kind of rebalancing has already taken place. So in the future, this trend is continuing but I would just like to say that there is no plans to become non-competitive or to reduce our presence in the US.
Damayanti Kerai — HSBC — Analyst
Okay, that’s helpful. So going ahead, you will continue to focus mostly with India and branded generic market from capital allocation perspective. So Curatio was one recent deal. So any other plans, which are in say near-term 12 to 15 months, where you plan to add ons?
Sanjay Gupta — Executive Director
Correct. Sudhir, can you comment on that?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
No, I think currently, that’s it. I mean, Curatio, we did. Nothing which is there in pipeline.
Damayanti Kerai — HSBC — Analyst
Okay. And my last question on India businesses, do you have any contribution from PLI scheme in current numbers?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Yeah, but it’s very insignificant, Damayanti.
Damayanti Kerai — HSBC — Analyst
Okay. And will it be meaningful anytime in near-term?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Possibly from next year, I would say.
Damayanti Kerai — HSBC — Analyst
Okay. Thank you. I’ll get back in the queue.
Operator
The next question is from the line of Karan Vora from Goldman Sachs. Please go ahead.
Karan Vora — Goldman Sachs — Analyst
Yeah. Thank you for taking my question. Am I audible?
Sanjay Gupta — Executive Director
Yes.
Karan Vora — Goldman Sachs — Analyst
Yeah. Also actually even I wanted to ask more on the capital allocation front. So from a three to five year perspective, say if you’re allocating INR100 of capital, so how would you allocate it or what is the thought process of allocating it between your geographies? So that is my first question.
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
So inorganic will remain, India is a priority. So I would think that looking at INR100 in the next five years maybe minimum INR90, even up to INR100 could be in India for inorganic growth. Organic will obviously depend on the geographical need and maintenance capex, which will be insignificant. But for acquisitions or inorganic growth, India remains the only focus right now.
Karan Vora — Goldman Sachs — Analyst
Okay. So now given that, you don’t have any capex requirements, like if your business will continue to churn a lot of cash. So can we assume that you will be actively looking out for more inorganic or you would pay out dividends, like how, what is the cash allocation, how will it be used?
Sanjay Gupta — Executive Director
Sudhir, you want to take that?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Yeah. So I think if the cash is not getting utilized or allocated for incremental growth, then yes, what you say is right, it will come back as dividends to you.
Karan Vora — Goldman Sachs — Analyst
Okay, fair. And lastly on the basically on India, US or India, Brazil and Germany. So in terms of growth prospects for the next three to five years is this understanding correct that India and Brazil would be double-digits and Germany could be high single digits or you think you can push the double-digit barrier for Germany as well?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
So, India, Brazil, depending on how the market growth continue, which we believe that this double digit — close to double digit market growth should continue for both. Then yes, there should be this continued delta of 3% to 4% above market growth that we should be able to deliver.
Germany, I’ll hand over to Mr. Sanjay Gupta.
Sanjay Gupta — Executive Director
Yeah. Germany, we looking at, I would say, a single-digit growth, that’s more like it. And in the mid- to high-single digits, we get results for more tenders. So we bid for many more tenders recently, and we’re waiting results. And if these come out on the right side, then they would accelerate it and will come out on the wrong side that will slow down. So it’s a little bit, I would say, mid- to-high singe digit in the 13s.
Karan Vora — Goldman Sachs — Analyst
Okay. Thank you.
Operator
[Operator Instructions] The next question is from the line of Harsh Bhatia from IDFC Mutual Fund. Please go ahead.
Harsh Bhatia — IDFC Mutual Fund — Analyst
Yeah. Hi. This is Harsh from IDFC Mutual Fund. So I just wanted to get a sense on the Sitagliptin market right now, particularly at a broader level from the diabetes space, what really is happening at the Type 1 and Type 2 levels from a glimepiride or gliptin perspective as it relates to insulin. So that is one. And just wanted to get a sense on the strategy for our Sitagliptin products, because I think so the pricing is not too different for the players who have launched at the genetic level. So just your thoughts.
Sanjay Gupta — Executive Director
So the new wave of launches in DPP-4 and SGLT-2 Sitagliptin being one of the latest DPP-4 launched in the market. There is a clear wave of a shift in preference of prescribers to these molecules. And while — since all of the existing brands or molecules, such as SUs from earlier or chronic therapies, so they cannot see any major disruption. We believe the long-term trend already shows that there is a shift to the newer generation molecules. And seems to be so far, that Sitagliptin is one of the biggest benefactors there. And so we had undertaken an expansion last year for the chronic divisions where Sitagliptin was one of the reasons where we had to focus on additionally. So I think that’s where we have been able to have an edge for some of the competition.
Harsh Bhatia — IDFC Mutual Fund — Analyst
Right. So would it be fair to say, for example, in one of our top 10 products OsmoLax, which is a Glimepiride of at home. So there you see enough stability to continue in that product itself?
Sanjay Gupta — Executive Director
Yeah. Mid-single digit is what we are seeing and even for the market it’s been slowing down, but it’s not looking like it’s going to degrow from here. It will remain at this level, because either patients continue on existing brands or this gradually shift when they go back to see the doctor, if there is some additional diagnosis required. So it’s a very, very gradual shift and you’ve seen this happen earlier also that earlier we have SGLT-2 launched, the shift was very gradual. But the benefit that Torrent as diabetes company can get that we’re relatively a small player in diabetes and right one. So for our diabetes base is new launches can add a significant amount.
Harsh Bhatia — IDFC Mutual Fund — Analyst
Sure. It helps. Just one last bit on the gastro portfolio. We are seeing a lot of tailwinds since we have exited — I won’t say exited, but since we are at the fag end of COVID. So anything particular trend wise you’re seeing in the gastro space for rabeprazole or esomeprazole or anything in particular could you share?
Sanjay Gupta — Executive Director
So these brands and — so these markets did see a continued uptake even post the delta we’ve last year. So which would be Q2 last year and so that continuation of that base made sure that the market for the full year was growing very fast. Obviously that growth would get normalized this year, and hence the absolute growth numbers may look slightly low, but overall the market is going quite well. Our brand Nexflo is a leader brand, INR365 crores on a net basis, this quarter has grown about 14%. And Velosef, on the other hand, is growing at about 20% which is nearly INR200 crore brand. So our PPIs together next one to Velosef, which are now nearly INR550 crores to INR600 crores, we believe high double-digit growth, high-teens growth is something that will be sustainable there.
Harsh Bhatia — IDFC Mutual Fund — Analyst
High-teens at the normalized level?
Sanjay Gupta — Executive Director
High-teens at the normalized level, that’s right.
Harsh Bhatia — IDFC Mutual Fund — Analyst
Alright. Sure. Thank you.
Operator
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Damayanti Kerai — HSBC — Analyst
Sir, hi. Thanks for opportunity again. So now since you have completed the Curatio deal, can you provide some more clarity on the funding part of the deal? In the call you mentioned that it will be likely funded through debt, but now do you have better clarity on that part?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Yeah. Damayanti, is substantially debt.
Damayanti Kerai — HSBC — Analyst
Sorry, the entire funding will be through debt?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Yeah. Substantially through debt, I would say.
Damayanti Kerai — HSBC — Analyst
Okay. And the average cost for that debt will be?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Should be around 7.2, I would say.
Damayanti Kerai — HSBC — Analyst
Around 7.2, okay. So this year you will be adding on debt purchase funding. On the existing debt you had earlier like planned to, what is it, pay-off debt substantially — so for this year how much less production which were based on the best part?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
So the existing debt, which will be paid off is INR900 crores. And then on the top of that, this 2,000 comes. So I think there would be a net addition of roughly 1,100, 1,200 at the year end.
Damayanti Kerai — HSBC — Analyst
Okay. So INR900 crore debt payment on the existing obligation. And then this Curatio will add on, so net debt base is around 1,200 you were saying?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Correct.
Damayanti Kerai — HSBC — Analyst
Okay, sir. That’s helpful. Thank you.
Operator
The next question is from the line of Mehul Sheth from Axis Capital. Please go ahead.
Mehul Sheth — Axis Capital — Analyst
Thank you, sir. Sir, just one question like the AIOCD Q2 grew to somewhere in range of like 15% to 18%. And then your reported numbers are around 13%. So why there is a 3%, 4% of difference between the reported and the amount pretty much there. Is there any specific reason for this?
Sanjay Gupta — Executive Director
No, it’s not really clear, but this is something that happens occasionally. I mean, even in the previous quarter, the market was showing 2% growth and even the normalized — COVID normalized market was showing mid-single digit growth. But compared to that, our growth was 14% reported. So, I think if you probably look at the AIOCD growth on a MAT or even YTD basis right now which is showing about 7% for the market, as against that Torrent’s reported growth is about 13%, 14%.
Mehul Sheth — Axis Capital — Analyst
So one question on your other income trend, which is lower for this quarter. Any specific — is there any forex settlement in other income, sir?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Correct. So I think that’s a moment which you’re saying is basically because the forex gains have come down this quarter.
Mehul Sheth — Axis Capital — Analyst
And also you’ve mentioned about some turns and one-offs in other operating costs, is it related to — against which part of the business?
Sanjay Gupta — Executive Director
No, it’s related to US part. And it’s not INR12 crores, it’s INR7 crores.
Mehul Sheth — Axis Capital — Analyst
INR7 crores, sorry.
Sanjay Gupta — Executive Director
Yeah.
Mehul Sheth — Axis Capital — Analyst
Okay sir. Thank you, sir.
Operator
The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.
Kunal Dhamesha — Macquarie Capital — Analyst
Thanks for the follow-up. A very basic question again. So between, let’s say the Brazil branded generic market and India branded generic market, how would you know — basically what would be the key difference in the way the business is conducted in both of this markets?
Aman Mehta — Chief Executive Officer
So, India and Brazil are intrinsically similar markets because they’re both through physician coverage. And we have a field force in both markets meeting doctors. We have divisions. The regulations are slightly different compared to India, in Brazil. For example, there is the NLEMPs that we have in India as one regulatory framework, which is slightly different in Brazil with Germany, Sanjay can explain a bit more. But broadly speaking, the market dynamics are quite identical in terms of sales and marketing in terms of market potential, in terms of competitive positioning.
Sanjay Gupta — Executive Director
Correct. That’s the reason why Brazil was one of the first geographies we chose outside India, because it resembles India tight closely. So it’s just helping market our patients treat for most of the health issues and health and doctor prescriptions are expected a lot. So essentially you build liquidity with physicians and that’s what we’ve managed to do over the last 15 years in Brazil. So it’s a long-term game and we are playing the branded generic business quite along the same as quickly as we do in India.
Kunal Dhamesha — Macquarie Capital — Analyst
And can you just elaborate the difference on the NLEMPs, how they’re different?
Sanjay Gupta — Executive Director
Yeah. So Brazil is slightly different, in the sense that all products have some kind of price regulation. So what the government does is differentiate the products into three categories, based on the intensity of competition. So category 1, 2, 3: one being the most competitive; and two being the least competitive. So the least competitive tend to get lower price increases, authorized price increases every year in the most competitive get higher prices. So also — these are list price increases, and after that companies are free to do whatever they want in terms of the actual price increases that they take on any particular product. So that’s all the difference in India NLEM in Brazil, there is no finite list, all products are subject to price regulation, I would say. And the price regulation takes place through annual increases that are allowed, but different level of increase by category of the market.
Kunal Dhamesha — Macquarie Capital — Analyst
Okay. But isn’t it little bit counterintuitive like most competitive would be about higher pricing, because people will not take it, because of the business dilemma, is the way to put it?
Sanjay Gupta — Executive Director
Yeah. So the market is going not concentrated, it is diluted. So there are 10 players they allow a higher price. Yeah, we think that the competition will drive the price down lower.
Kunal Dhamesha — Macquarie Capital — Analyst
Okay. Perfect. And let’s say, slightly longer-term question. From the India chronic therapy segment, right, so I think currently as per IQVIA 36% coming from the chronic, and I think maybe 15% is semi-chronic. But when I look at just the chronic fees, 70% is the fee therapy cardio like anti-diabetes and then CNS. Do you see, let’s say 5, 10 years down the line, there will be significant shift in the proportion from different therapies emerging therapies like derma, onco and maybe accounting for higher proportion, if yes, then how much that proportion?
Aman Mehta — Chief Executive Officer
Yeah. So, chronic therapies will remain to be the dominant, I would say growth drivers for the IPM because of increasing prevalence in lifestyle diseases particularly diabetes and cardiac. Given the kind of new launches that have now come on the market at affordable prices, that should also lead to further expansion in the diabetes segment because more and more patients can get access to high quality drug, which was not the case before. So that market should also see a pretty good volume expansion. And we believe that over the medium to long-term, there is still a big under penetration in the overall wellness space through VMN or skincare which as disposable incomes increase awareness increases. That segment should also increase from where it is right now. So hard to give a proportion of where it would go, but these are at least two-three areas that we are quite confident about that over the next five-year horizon let’s say, they should increase in contribution.
Kunal Dhamesha — Macquarie Capital — Analyst
Perfect. Thank you.
Operator
The next question is from the line of Karan Vora from Goldman Sachs. Please go ahead.
Karan Vora — Goldman Sachs — Analyst
Yeah. Thank you for the follow-up. Yeah. So firstly on US, what is the current capacity utilization for across all your plants catering the US?
Sanjay Gupta — Executive Director
So I think — Sudhir, you want to take that?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
So I think the plants are fungible, all plants put together, the capacity utilization is roughly 54%, I would say.
Karan Vora — Goldman Sachs — Analyst
54%?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
Yeah.
Karan Vora — Goldman Sachs — Analyst
Okay. And like how do you see this moving in two years, three years?
Sanjay Gupta — Executive Director
I think at this point in time, we feel the capacities are enough for the next three years. So no major expansion to be planned.
Karan Vora — Goldman Sachs — Analyst
Yeah. No, so I meant can this go to 70, 80 or like how is in that way?
Sanjay Gupta — Executive Director
No, I think the higher volumes have to come from generic businesses, right, which is essentially, Germany and US. So we have to see how these play out over a period of time. But yes, I mean, there is potential of bringing in large-volume products out of Germany into the manufacturing capacities we have. But that will happen in a gradual way, based on the cost competitiveness, right and instead of business.
Karan Vora — Goldman Sachs — Analyst
Okay. Secondly on the Brazil you mentioned that you entered Brazil because the market was broadly similar to India. So are there any other geographies you think branded generic geographies like maybe Philippines or any other which you think are interesting? And you may have wanted to have a look at it, if you could name some of them which you think are interesting?
Sanjay Gupta — Executive Director
So, Poland is already present in several branded generic market, so generally we don’t comment upon them because the size is much smaller, so Brazil — Philippines roughly a business of about $40 million, Mexico about $15 million. So those are BG markets of the future where we are investing, and we are continuing to grow. So I would say there are at least 7 to 8 BG markets that we have decent momentum.
Karan Vora — Goldman Sachs — Analyst
Okay. But no plans as of now to like make something meaningful out of any of those specific geography?
Sanjay Gupta — Executive Director
No. Don’t get me wrong, we have plans to make it meaningful, it’s on the way. As soon as it comes like financial we will start communicating on it. So it’s the work that is done, which is not putting the public eye yet, because it’s still, I would say quite modest in terms of overall price.
Karan Vora — Goldman Sachs — Analyst
Got it. Okay. So you can’t name one or two — Philippines and Mexico would be the one or two which you refer?
Sanjay Gupta — Executive Director
Yeah. I can — we are pretty decent in Malaysia. We are good in Thailand. We are building in Kenya. So South Africa is another country, Russia we’re doing efforts. So all of these are more in the — let’s say $10 million range countries. So I would say that, we will give them prominence once they come across the $15 million threshold.
Karan Vora — Goldman Sachs — Analyst
Okay. Got it. And last on the forex hedging part, like what is the general company policy, like what percentage of revenues — forex revenues are hedged and like for how long, what period?
Sudhir Menon — Chief Financial Officer & Executive Director, Finance
So we do 12 month forward cover every month on a rolling basis. So at any point in time we’ve covered for the next 12 months. 100%
Karan Vora — Goldman Sachs — Analyst
Okay. Got it. Fine. Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sanjay Gupta for the closing comments.
Sanjay Gupta — Executive Director
To conclude, I would just say that we expect our growth momentum to continue in the branded generic markets, particularly in India and Brazil. This will be backed up by new launches, market outperformance of current brands, deals for expansion and acquisition of the acquired portfolio. Germany should continue on a modest positive trend. And with that I would like to conclude and wish you all a Happy Diwali and a good break coming next week. Thank you.
Operator
[Operator Closing Remarks]