#SunPharma's margin continues to be driven by India, global specialty sales, says CFO C S Muralidharan.
Watch him in conversation with Monal Sanghvi.
Read: https://bit.ly/3SJFG7R
Watch him in conversation with Monal Sanghvi.
Read: https://bit.ly/3SJFG7R
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TVTranscript
00:00 Hello and welcome to NDTV Profit. I am Monal Sanghvi and we're going to discuss India's
00:05 largest drug maker that's come out with its results a day before and Sun Pharma of course
00:12 with its profit up 17% almost and margins coming in at a 27% on the bank of a strong
00:20 show in the US and India markets which make up for a total of 65% of the company's revenue.
00:26 The global speciality sales were up 24% excluding a milestone payment that it received in the
00:32 quarter. Joining us we have Mr. C.S. Murlidharan, the Chief Financial Officer at Sun Pharma
00:39 Limited. Thank you so much for joining us today, sir.
00:43 It's our pleasure.
00:46 So I'm going to pick up from the global speciality which has been attracting a lot of interest
00:53 from investors. I mean that has been the differentiator for Sun Pharma, setting the bar higher than
00:59 most other companies. Currently the segment contributes around 19% to the total revenue.
01:06 So how is this expected to shape up over the next two to three years? Can we expect the
01:10 contribution to go up in terms of revenue and also in terms of the growth rate?
01:14 In terms of the global speciality revenues, if you look at about three to four years before,
01:20 it was constantly about 7% plus or minus. And today for the quarter if you look at overall
01:26 global speciality, it's almost inched up, upwards of 20%, almost there. We have been
01:32 consistently maintaining momentum and focus on this global speciality business and growth
01:38 rates have been ranging between 20% to 25% depending on the market and depending on the
01:44 quarter and the overall seasonal fluctuation. But our continued focus remains on this business
01:51 to grow further across the markets where we participate in this business.
01:56 So can you give us what sort of a contribution should we be looking at from the global speciality
02:01 business in the coming years?
02:05 We are not giving any specific guidance on any specific business segment as such. We
02:09 generally give the overall corporate groups revenue guidance.
02:12 Okay, sir.
02:13 However, we expect this global speciality business will increase as a percentage contribution
02:19 to the overall consulted revenues as we have seen in the past years.
02:24 Sure, sir. Sir, also there's been a couple of issues on product recalls throughout the
02:31 year that we've been hearing of and issues at Halol and Mohali are very well known in
02:39 terms of the USFDA. So would you be looking at setting up alternate facilities to make
02:46 up for these two or by when can we expect a resolution on this front?
02:52 So both on Halol and Mohali we maintain that we are continuously working on the remediation
02:58 process and at this point of time we are not able to commit exact timelines when the complete
03:04 resolution will happen or the re-inspection will happen on these sites.
03:11 Okay, sir. And so what about the product recalls? I mean that's associated with plants. So do
03:16 we see those going down? Are we seeing some moves from transfers?
03:21 Yes, see, we are talking about product recalls?
03:27 Yes, the ones in the US.
03:30 I think product recalls is part of integral to this overall pharmaceutical business and
03:36 we at this point of time would not like to attribute any specific site as such.
03:42 Okay, sir. So there's been a lot of conflict around the Red Sea and there's this talk of
03:49 maybe freight prices going up, raw material costs going up. Are we going to see some pressure
03:55 on the cost front for Sunpharma?
04:00 So as far as the situation of Red Sea, we are continuously monitoring and we also mentioned
04:04 earlier in this call that our primary objective is to ensure continuity of supply chain and
04:10 availability of the medicines to our end customers. For this, if we are to move the channel of
04:17 transport, we will definitely do it. That's what we would like to comment at this point
04:22 of time.
04:23 So there's also a lot of anticipation building around Taro, since you revised the price for
04:32 the minority shareholders. What are your conversations on that front? Because from what I understand,
04:37 this could be the third attempt at acquiring the minority stake. Is it quite positive?
04:43 And if yes, if this were to go through, what would you do with the cash balance that you
04:47 will acquire from Taro?
04:51 So the process is on at this point of time. We have signed a deferred merger agreement
04:57 for acquiring the remaining stake that Sun just now owns. We have given the price of
05:03 $1.43 per share, which is about 48% premium to the unaffected price of May 25, 2023. However,
05:11 the merger agreement which we executed is subject to various closing conditions, including
05:15 shareholders approval. It's better to wait for to cross the finishing line before we
05:21 take up any other matter regarding Taro being a public company.
05:26 Sure, sir. So just trying to understand on the R&D front, what usually is our split between
05:33 the global generics and speciality? How do we allocate our budget? And are we looking
05:41 at any other inorganic opportunities as well?
05:45 So R&D split is approximately 60-40 overall I can say between generics and speciality
05:53 typically and growing more in favour of speciality as we continue to invest further in our global
05:59 speciality revenue, global speciality business as the key core driver. And for the current
06:05 year of course, you would have seen that for the quarter we are about 6.8% sales overall
06:09 R&D investments. And we expect also the full year to be somewhat closer to our lower end
06:16 of guidance of 70% which we had given earlier.
06:21 Okay, sir. So for the allocepia drug that is expected to come out, so by when will it
06:30 come out and how big is the opportunity since the time we made the announcement? We have
06:34 a couple of other competitor drugs also in the market. So how do you see this portfolio
06:40 shaping up?
06:41 So allopathy R&D we have already mentioned that we will launch on approval and the pull
06:52 apart date is of course July 24 which has been already shared and let us wait for the
06:57 approval and then take it forward from there.
07:01 So we will be launching on the timeline, right?
07:04 That's what we have maintained at this point of time.
07:09 So what kind of margins can we expect in the coming year with the India business also?
07:14 So there is a lot of conversation around NLEM seeing some drugs under NLEM seeing some pressure.
07:22 Also the overall, do you expect it, the India business to grow at the IPM levels, do we
07:28 expect to outpace the market? And on an overall basis, how would you guide for Sun Pharma's
07:34 margins in FY25?
07:37 So first taking the India related question, India business in Q3 of course grew about
07:43 11.4% year on year, strong performance across various therapeutic segments and our aim is
07:48 always to perform better than the market. However, it's very important to note that
07:53 the growth is substantially supported by the underlying volume growth as compared to the
07:58 India commercial market where the growth is majorly driven by the price.
08:02 When you come to EBITDA margin, however, we are not guiding for any EBITDA margins. We
08:09 continue to remain focused on cost efficiencies throughout the organisation. After even consolidating
08:16 the expense of newly acquired business like Concert and others, if you look at the last
08:21 8 quarters, our margins have been in the range of 25% to 26% plus. Our key co-drivers with
08:28 global speciality business, India business apart from other business have made them strong
08:32 growth momentum which is also a key factor for the resultant EBITDA margins.
08:36 Thank you so much sir, it was a pleasure speaking to you.
08:40 Thank you so much.
08:40 Thank you.
08:41 Thank you.
08:42 (dramatic music)
08:45 (chime)