Marksans Pharma Limited (MARKSANS) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Marksons Pharma Q2 FY27 Earning Conference Call hosted by Systematic Institutional Equities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call? Please signal an operator by pressing star, then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Manchanda from Institutional Equities Limited. Thank you, and over to Mr. Manchanda.

Thanks, Adant. On behalf of Systematics Institutional Equity, I welcome you to the Q2 FY27 Earnings Call of Marksense Pharma. We thank the Marksense Pharma Management for giving us an opportunity to host the call. Today, we have with us the Senior Management of the company, represented by Mr. Mark Saldana, Chairman and Managing Director, and Mr. Jitendra Sharma, Chief Financial Officer. I will now hand over the call to the company management for opening remarks. Over to you, sir.

Thank you, Vishal. Good afternoon, ladies and gentlemen. Thank you for joining us for Markson's Pharma Q2 and H1 FY27 earning conference call. We appreciate your continued interest in the company and your support. I'm pleased to share that we have delivered our strongest quarterly performance. Q2 was a record quarter for us with a revenue from operation reaching 940 crores, representing an year-on-year growth of 30.5%. More importantly, this growth was accompanied by strong improvement in profitability. EBITDA increased by 48.3% to 214 crores. And our EBITDA margin expanded by 274 basis points to 22.8%. What is particularly encouraging is the breadth and quality of this performance. Our growth is not dependent on a single geography or acquisition. We have seen strong momentum across Europe, UK, and continue to grow in North America. And the increasing traction in Australia and New Zealand. Even excluding the contribution from clinic, underlying business delivered a growth of approximately 25%. At the same time, we maintained a healthy profitability despite higher rate and input cost. This gives us confidence that the investment we made in our portfolio, commercial capabilities, and geographic expansions are translating into sustainable growth. Our performance also demonstrates the strength of our geographically diversified business model. North America continues to provide us with a large and resilient base, while UK, Europe, and Australia and New Zealand are emerging as increasingly meaningful growth engines. The diversification provides us with multiple avenues of growth and reduce our dependency on a single market. Let me begin with UK and Europe. We have seen a particularly strong performance. Revenue from this region increased by 65% to approximately 405 crores. As many of you can recall, in FY26, it was a relatively subdued year for our UK business. We used this period to work on fundamentals, strengthen our portfolio. Preparing new product launches and improving our market position, these efforts are now beginning to reflect in our performance. Even excluding the performance, the contribution from the acquisitions, our business in the region grew by 49% in Q2. Alongside the growth in our existing business, we are making progress in important strategic priorities. Building our own commercial infrastructure in key European markets. This will bring us closer to customers and give us better control on how we take our portfolio to the market. Clinic in Netherlands contributed approximately 84 crores for the first half, while ABC and Marks and GmbH are strengthening our platform in Germany. These businesses are important building blocks of our European strategy, and over time, Should increase the opportunity to introduce a wider portfolio and scale up presence across the region. Turning to North America, which remains our largest market and contributed 44.8% of the revenue, we recorded our highest ever quarterly revenue of 421 crores. Our order book remains healthy and continues to build, giving us confidence that as we look ahead in the coming quarters, price erosion in our prescription products, although being in single digits, we are still looking extremely optimistic in the U.S. market. In Australia and New Zealand, revenue grew by 64% to approximately 101 crore. We are seeing good traction from the strategy we have pursued to build branded prescription business under NOAA. Our Rx division is growing at a strong pace, and the growth we are now delivering in these markets is meaningfully ahead of the levels achieved in the previous year. We are encouraged by this progress and remain positive about the opportunities ahead. Our rest of the world business remained impacted in the quarter by ongoing geopolitical distributions in the Middle East and other regions, which affected the timing of certain shipments in the region. Importantly, this was largely an operational and timing-related impact rather than a change in underlying opportunities in these markets. We continue to monitor the situation closely, and as the condition nominalized, expect shipments activities to recover progressively. As we look into the second half and beyond, our growth priorities remain clear. We will continue to deepen our presence in the existing market, scale our new established urban platform, expand our product portfolio, And selectively enter markets where we see an attractive opportunity. A healthy order book, expanding commercial capabilities, and strong financial position gives us confidence and ability to sustain profitable growth. Importantly, we are pursuing these opportunities from a position of financial strength. A strong cash generation and a net... Cash balance provides us the flexibility to continue to invest in our product pipeline and commercial capabilities while selectively evaluating acquisitions that offer a compelling strategic and financial fit. We remain disciplined in capital allocation, focused on execution, and committed to creating a sustainable long-term value. With this, I hand over to Jitinder to take you to the financial performance.

Thank you, sir, and good afternoon, everyone. I will take you through the venture performance for the second quarter, followed by the first half performance. Starting with Q2, total incomes to debt for Rs. 928 crores, registering year-on-year growth of 29.2%. Revenue firm, operation, was Rs 920 crore, up 30.5% year-on-year, and 11.8% sequentially. Looking at the geographic mix, North America contributed 421 crores, representing 44.8% of the rate. UK and Europe contributed Rs. 105 crore. Thank you. Thank you.

Some sort of disturbance from the line of Mr. CFO. Just a moment.

Today, Dindra?

Thank you. Thank you. 31% right. Thank you. In addition, our German business incurred initial startup costs of a couple of crores. As we prepare these operations for the next phase, against this backdrop, delivering a record quarterly EBITDA and maintaining an EBITDA margin of 22.8% is particularly encouraging. It reflects the operating leverage in our business and improving product and geographies mix and disciplined execution across our markets. Profit before tax for the quarter was Rs. 194 crore, up 45.1% year-on-year. Profit after tax increased by 44.8% to Rs. 144 crore with a net margin of 15%. Profit after tax declined sequentially to Rs. 144 crore compared with Rs. 159 crore in Q1. Primarily due to higher depreciation and amortization following the commencement of amortization on acquisition-related intangible assets. Lower other income as currency movements stabilized and a higher effective tax rate of 25.8%. Moving to the first half performance, total income stood at Rs. 1,825 crore, up 33.4%, while revenue from operations increased by 32.9% to Rs. 1,781 crore. Gross margin improved by 137 basis points to 58.8%, supported in part by the lower average cost of inventory consumed, particularly during Q1. EBITDA grew by 74.7% to Rs. 427 crore, with the margin expanding by 574 basis points to 24%. Profit after tax increased by 92.5% to Rs.303 crore, with a net margin of 16.6%. The first half had also benefited from the higher other income. Cash generation was another important highlight of the first half. Cash generated from operations was at Rs.322 crore, compared with Rs.75 crore in the corresponding period last year. Cash conversion measured as operating cash flow as a percentage of EBITDA, improved to 75.2% from 30.7%. After capital expenditure of Rs.46 crores, free cash flows stood at Rs.275 crores. We also continued to make progress in working capital management. The working capital cycle reduced to approximately 128 days in the first half of the year from 138 days in FY26. During H-1, we deployed around 95 crore towards acquisitions and paid dividend of around 41 crores. Even after these outflows, our net cash position increased by Rs. 135 crore during the period. As of September end, cash balance and current investments stood at Rs. 1,124 crores. Our net cash position was therefore at Rs. 1,095 crore, while net worth stood at Rs. 3,367 crores. Our return ratios have also improved meaningfully. On a trailing 12-month basis, return on capital employed increased to 24.7% from 18.7%, while return on equity improved to 18.6% from 13.6%. For H1, R&D expenditure was 2.6% of revenue. To conclude, the first half reflected strong growth in revenue and profitability. Healthy cash conversion and continued improvement in capital efficiency. Thank you. We will now be happy to take your questions.

Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Ahmed Madha from Unifi Capitals. Please go ahead.

Yeah, thanks for the opportunity, and congratulations on a very good set of numbers and institutions. Personally, on the US side, if you look at the growth in terms of constant balance, it is relatively low in the first half. How should one think about it in terms of... Have you been able to penetrate more volumes in the second half? And in general, how does the order book look like? There are some comments on the consumer sentiment in US. How do you see the market and growth in the second half and in general for the US business?

Obviously, seasonality being number one. Substantial amount of our portfolio is seasonal, which is obviously more tilting towards a cold season. The cold season has yet to, normally comes in October, November, December is the season. That said and done, obviously, when we talk of sentiments, we talk about the geopolitical scenarios where we talk of inflation, crude oil, everything of that stuff having impact on affordability in the U.S., obviously, cost going up. I think medicines are literally the last priority on everyone's mind. Obviously, food and gas becomes the top priority for everyone else. So, all this coupled with seasonality, I mean, we have grown to some extent, and we will continue growing in the U.S. market. We are quite optimistic on achieving our objectives. We still believe within the next three years, we should reach 300 million order book status. The U.S. is concerned.

The overall render rate is now close to almost 1,000 crores probably next quarter or so. You reach that. So in terms of organic capacity expansion, how do you think about it? Obviously, there are a lot of cash available. So do we go into a major KPEX cycle next year or so?

So again, like I've said, our outlook is more longer than with immediate outlook. So we do believe we are trending and we are working and trending towards achieving 5,000 crores in the next three years and possibly doubling our revenue from where we were last year within the next five years. So we are working towards that, and that would need, obviously, infusion of CAPEX in terms of manufacturing infrastructure to support that growth phase. Today, you're right, we are trending at 1,000 crores a quarter, very close to 1,000 crores, but you can round it off to 1,000 crores a quarter. That gives us some visibility on a 4,000 crore mark. Today, we don't talk about 4,000 crews. We are already planning for 5,000 crews, and for that, we are looking at opportunities in terms of expanding our infrastructure. It may be adding on another manufacturing block or acquiring another plant.

We are in active dialogue on both sides.

Got it. Thank you, sir.

Thank you. The next question comes from the line of Irwin from Unified Capital. Please go ahead.

Sir, congratulations on the good set of numbers. Could you explain how revenue growth looks in the other regions, particularly the UK? With the UK's low base from last year's price were ending from Q4, what growth do you expect here at the overall level? Can you brief on that?

So, UK looks very promising, Arun, and I must say it has overcome the last year's slow revenue stream. We have introduced newer products, newer launches, pretty much like I've always said. You've got to just wait for the business model sometimes to unfold. We add a lot of products in the pipeline. We have a lot of products under filing, under registration, and under approval. So as and when these approvals do happen, and we are expecting quite a few approvals every quarter, they will unfold revenue streams. New revenue streams, new penetration of these molecules into the market. So, UK is looking promising, but also Europe, because we are now looking at Europe, both from a geography as well as from an expansion of our IPs that we have traded. So we are exhaustively looking at creating those infrastructures to market our products across Europe. And we are seeing some good results, although it's just the start. It's been a couple of months since we are in Europe, but it's looking extremely promising. So if you ask me my outlook of... UK and Europe, they will still continue to grow over the next couple of years and will be very important geographies to hit our objectives of 6,000 crores.

And historically, H2 PAT has been higher than H1, and given that the importance of Q3 for our products, do you expect that trend to continue this year? Will H2 PAT be higher than H1, given that H1 has already benefited from the lower cost inventory and forex gain?

Yeah, it's a very good question. Like you rightly said, the first quarter obviously benefited from a lot of low-cost goods. While, because of the crude oil and because of everything, the cost has gone up, and while we keep depleting our stocks, we have to basically purchase new inventory. We believe we'll be range-bound overall for the year. Like I've always committed, I think our performance Thank you. And I'm quite confident of our setting objectives, and I think our EBITDA should be pretty much in the range bound of, you know, 21, 22 percent, whatever we performed this year, this quarter. So I do see our overall EBITDA being in that same range. The PACT, with regards to PACT, I think, you know, besides provisions of different taxations and depreciations, I think our pact will be pretty much in line with what is expected.

Got it. Thanks. That's it for myself.

Thank you. The next question comes from the line of Saksham Tyagi from Desvallado Advisory. Please go ahead.

Hello, am I audible? Yes. Okay, so first of all, thanks for the opportunity, sir. My first question is that, like, in the investor presentation, you have mentioned Europe to be the key growth driver in the upcoming quarters. So, I just wanted an insight on that. Like, how is it going to be the key growth driver in the upcoming quarters?

Because it's got a very low pace today, and we are working hard in basically generating revenue. So these all are going to add to both our revenue streams, which was not factored over last year. So definitely it is adding to being a growth driver presently. So we are literally starting from zero where Europe is concerned. I do see Europe, over the next three years, shaping up very well, being a very prominent player, prominent contributor to our overall scheme of our objectives, like I mentioned to our own previously.

Okay, so it might take up to three years to see the visible changes, right?

Well, we have already seen some changes. They may be small today, but they will grow every year, and we do see growth happening in ABC now, we do see growth happening in what, even in the clinic, our Netherlands company, so, and then we have, we are looking and exploring on more M&As in Europe, and we do hope to conclude a couple of them down the line, hopefully, within the next 12 months.

Okay, sir, understood. And, sir, my next question is on the expansion side. Since we are aiming to expand the Indian capacity to 16 billion units per annum, so I just wanted to know how are we going to achieve that and how much time is it going to take?

So, uh... I think expansion will happen in two-folds. One is within our facility, within our infrastructure that we have, within the Teva plant, we are planning to add in a couple of blocks to expand dosage forms as well as some capacity, de-bottilnetting. But we are also looking at expanding of acquiring a plant which will give us more, which will basically fuel more. Potential of revenue as well as volumes, which is needed. So, we are basically in dialogue with two companies today, but nothing concrete. But we are looking at basically expanding manufacturing capabilities, hopefully, which will probably need a year down the line or so, but maybe a year, year and a half down the line.

Okay, so is there any expected timeline for that?

I would probably put 12 months.

Okay, sir. And lastly, I wanted to know that since you have acquired 100% stake in Axel Health Aid in Dubai, so can you give some colors on that, like how is it going and what would be the contribution? And also I wanted to know if there are any acquisitions lined up in the UAE region.

Presently, we are looking at the geopolitical scenario. There is no M&A's acquisitions planned in the Middle East. I think Access Health Care is holding its own right now, taking into consideration all that it's been through for the full year. The war has impacted the Middle East, but we are still very profitable. It's still generating enough of cash, although the revenue is extremely small in the overall context of our turnover. But it is, we are working, even in these scenarios, we are working on increasing our pipeline by ten-folds. So we are busy working on filing products and trying to grow that basket as only as possible.

Okay, sir. Thank you very much and all the best for the upcoming program.

Thank you. The next question comes from the line of Meed Bhuwa from Integrity Ventures and Partnerships. Please go ahead.

Yeah. Hi. Congratulations on a good set of partners. I have a couple of questions. First question is on the volume growth side. How would be the volume for this quarter?

The volume will be strong. It depends on what volume are you talking. Are you talking from the Indian point of view or are you talking from the global point of view? The volume should be strong from all angles, but again, I think seasonality, we are waiting for a strong winter, and we are hoping for that. But the third quarter is normally the stronger quarter for us, so we are hoping that we will see good volumes.

So, see, our entire growth, so if you see the first half of the current year, our revenue has grown by 32.9%, and the substantial part of this has come through volume growth only.

Mm-hmm. Okay, okay. Got it. And could you please give the mix between RX and OTC for this Quattr and H1?

Yeah, it was broadly very much similar. I think between 70 to 75, around 75% OTC and 25% will be Rx.

Okay. Okay. Thank you so much.

Thank you. Thank you. The next question comes from the line of Sandeep Ben from MoneyGrow Asset. Please go ahead.

Yeah, good evening. Thanks for the opportunity. So, given the substantial cash balance on the book, is management considering any kind of shared buyback program or any acquisition? So, I just want to know more about the capital allocation.

Sandeep, we are allocating a decent amount of capital on two fronts. One is obviously CapEx, and the second one is M&As. So we have been in dialogue with companies, and we continue to be in dialogue with companies. So we are looking at growth being fueled in Europe. So we do look at a couple of more M&As that may come across Europe, but again, the size. May differ. Some may be small, some may be larger in size, but we look for opportunities to grow, and that's where the funds are kept so that we can consummate those M&As. But till then, we are now looking at acquiring facilities in India, which we would probably need a decent amount of... Plowed out there on those funds. Buyback is always an option, and we are, we have. We will continue evaluating as and when we feel that nothing else is happening. That could be a possibility also.

Thank you. That's it.

A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Herschel from AskWellPredvisors. Please go ahead.

Congratulations on a good set of numbers, sir, and thanks for the opportunity. Sir, actually, in the initial part, I missed your comments on the U.S. market. So, I just wanted to know how to look at the U.S. markets, especially in the context that we've got a mid-single-digit price erosion going wrong, which I believe could be the case going ahead also. But overall, with respect to growth prospects, outlook, how should it be for the second half and probably FY28 as we go in? Do we have any launches, like any number of launches lined up and maybe any comment on this from your side would be helpful.

We have about, you know, we are filing, every year we are filing A&Ds. We have about, I'm hoping within the next, within this next year, within the next couple of months, till March, we should be filing another five or six A&Ds. So this is a, this is a non-stop process, right? So we continue to. We are increasing our product portfolio in all directions. We are quite optimistic on the U.S. market. I know geopolitically it was a bit in a mess from all that was created, but there is some silver lining. So we are hoping for good news. We are hoping for corrective actions to be taken. You know, the elections, the midterm elections just was concluded. So I'm quite confident that, you know, the U.S. market will still be a goal driver. I don't think we have to evaluate it on a quarter-on-quarter basis. I think we have to look at it from a medium term to long term because a lot of investments are going in terms of filings. So if you ask me my visibility for the next three years, I think we are still... We're still moving towards a $300 million order book status over the next three years.

Okay. So, you're trying to say a $300 million order book kind of over the next two to three years. Is that correct, if I have heard it correct?

Yeah, three years. Within the next three years, I do believe our order book will increase from $225 million to $300 million. Okay, okay.

So, it will be from $225 million to $300 million.

Yes, sir.

Okay, okay, okay. That's there, and so I just also wanted to have your listing onto the, to the raw ROW markets, wherein, you know, the geopolitical issues and all are there. You did allude to your initial comments also that you're monitoring the situation, but is there any view that you would want to share, like the run rate should be as it is in first half, or any slight improvements you would be envisaging over there?

I see improvement. I still see us, you know, doing quite well for the emerging markets. The first half was a bit of a struggle because, you know, it affected transportation, it affected, you know, vessels were not obviously were all stuck in the Red Seas and everything, there was chaos related to logistics. I think that is slowly easing up, and I do see a better movement happening even in this month, in the last month. So I do see us making up for some lost ground. Obviously, we can't make up for six months, but we are making up for lost ground. And I do believe that we'll be on track, hopefully, by the end of this year and come back to what we had envisaged for these markets. We still are focusing on, you know, our filings, our product registration in these markets. So from our outlook, I mean, these are small bumps that one has to overcome because of the situation which are beyond our control. But I think we don't look at it in quarters, like I mentioned. We look at it more from a long-term point of view.

Got your point. So, sir, about 25-odd crores run rate per quarter is something that we could expect towards the end. They talk at 527 for the ROW markets.

Is it safe to say that or no? It's difficult looking at, again, we are all hoping for a better, if you had asked me this question, maybe a quarter back, I never thought the war would last this long. I was hoping that the war would be over before the election because of the pressure of the election, but who knows? It didn't happen, so I don't have a crystal ball to predict on geopolitical scenarios. But if things ease up, then I would say, yeah, I mean, very close to 25 crores, maybe 20 to 25 crores is double.

Right. Got that. Got that. Okay, so thank you, and all the best. If there's anything, I'll come up for a follow-up. Thank you.

Thank you. The next question comes from the line of Mihir Damania from Freedent AMC. Please go ahead.

Hi, thanks for taking my question. So my first question is, you alluded that you are looking at manufacturing assets in India. I wanted to get a bit more color on what exactly you are kind of looking at. So historically, we've been very strong in portal solids. So are we looking at similar assets which can give us a lot more capacity or are we looking at different modalities like probably going into injectables or maybe a backward integration kind of an asset which can help us control costs better? I just wanted a bit more because you alluded that this might require a substantial amount of investment versus all of other operations in the past.

Yeah, I mean, for us, we are looking at different dosage forms, not injectables, but we are looking at expanding dosage forms where we believe we foresee some constraints in terms of capacity, maybe two years down the line. And tablets and solid oral could be a part of it also. Definitely, whatever we do, there's always solid oil around it. So, but yeah, we are looking right now at expanding, you know, manufacturing capabilities.

Let's move on, backward integration. You're not looking at...

Backward integration, as on date, looking at what's happening globally, we have just, we are not getting into that right now.

Oh, got it. And my second question was on the depreciation bit. Let's want to look at a bit more colors because frequently there has been almost like a 6-7 crore depreciation increase while a crosswalk hasn't been. So I understand that it's because of some intangible accounting, but I wanted to understand whether this is the entry to kind of take for it because on a 100 million, or sorry, 100 crore kind of an acquisition, a 6 crore quarterly depreciation increase seems slightly higher. So, if we get a bit more color of what depreciation we can kind of expect going ahead, that would be very important.

Yeah, I'm here. So, we have changed our accounting treatment for depreciation on intangible assets from this quarter. And earlier, like, you know, we were just testing it for impairment, and we were taking indefinite useful life for, like, you know, for arriving at... So, from this quarter, we basically are taking intangible asset as a finite, useful life, and we have started depreciating it over a period of 10 years. And the reason for increase in this figure was, you know, we have also started providing for depreciation on acquired intangible assets from Clinique and ABC Now. So, this impact has come largely from the acquired intangible assets also during this year.

So, fair to assume that this will be the going rate for the next couple of hours? Thank you.

Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Akshet Shetty from Manjit Kothari Family Office. Please go ahead.

Hello. Am I already one? Yeah. So, congratulations on the strong performance, and thank you for taking my question. My first question is on U.S. OTC. In the second quarter of FY27 presentation, you mentioned your ambition to double U.S. store brand OTC revenue, supported by an expanding product pipeline. And one interesting trend is that U.S. store brands are increasingly competing on product quality and innovation rather than just price. So in this changing environment, how is Marksons strengthening its position with large retailers beyond being a cost competitive manufacturer? So, do you see opportunity to become a strategic product development and a supply chain partner for these retailers?

Yes, Akshet, we are, and we are already in some of the retailers, we already positioned there, where we talk of launching first to market, or we talk of innovations. So we always have dialogues with them on innovations, and quite a few of our retailers, we look at us for those directions.

Okay, got it. I have one more question regarding the European region. In this same presentation, you highlighted the contribution from QLinkQ in the Netherlands and the consolidation of APC now in Germany. So, with this expanded European presence, could you explain how you plan to use this local distribution platform to introduce Markson's existing product and future launches across multiple European markets, and do you see this creating a meaningful new growth channel beyond the existing UK business over, say, next three to five years?

Yes, the answer in one word is yes, number one. Number two is these... It's centric on the country or the geography that we've acquired them on. So when you talk of clinic, it is Netherlands. You talk of ABC, it's Germany. So these markets does not represent the whole of Europe, but it does represent that country. And that's where our inorganic growth strategies of M&As will continue in other countries in Europe. But they will add significant growth, both tangibly and intangibly, in what we do in Europe, as well as what we do in that particular country. And both countries are quite potential, and Germany is a big market also.

Okay, got it, got it. Thank you for answering my both questions, yeah. Thank you.

Thank you. A reminder to all the participants that you may press star and want to ask a question. The next question comes from the line of Pranav Gupta from Value Advisors. Please go ahead.

Hi, thanks for the opportunity. I have a couple of questions. Firstly, Australia views 64% year-on-year. Just wanted to understand how much of it came from the NOVA division, and how do we see the next few quarters shaping up?

Well, Australia 100% comes from NOVA. We don't market anywhere else. So, NOVA is a subsidiary, and it's a front-end, so we market all our products through them. And we see Australia growing over the next three years to $100 million subsidy.

And just to follow, like, is our Europe target of the top line of about 1,000 crores in five years still valid? Yes.

All right. Thank you.

Thank you. The next question comes from the line of Tanvi from Mera Capital. Please go ahead.

Hi. Am I audible?

Yes.

Firstly, congratulations on a great set of numbers, sir. I have a couple of questions. Firstly, I wanted to know, is the 4,000 crore revenue target in about two years still on track?

I think next year we should touch 4,000 crores. So, I mean, we are trending right now very close to 1,000 crores a quarter, so I think very comfortably we can say that next year we will hit 4,000 crores.

Okay. Thank you. Secondly, I wanted to ask, since the UK market has grew significantly after a flat year of FY26, is it sustainable?

Yes, it is sustainable, and because of the product pipelines, and we can see visibility on approvals coming in, I do believe it is sustainable. So, it will show growth. I mean, it's not overnight go to double its revenue, but it will grow significantly well.

Okay, thank you. Lastly, I just wanted to ask, what is the dividend policy for FY27, given the net cash position currently?

We have to now evaluate that.

We had a lot of things on our plate right now.

Historically, like, you know, one-third of our free cash flow generation, we have been distributing as dividend. So, broadly, it will be in line with that.

Okay. Thank you so much for taking my questions.

Thank you. A reminder to all the participants that you may press tab and 1 to ask a question. The next question comes from the line of Arun from Unify Capital. Please go ahead.

Thanks for the opportunity again, sir. A question on API costs. So, we have been seeing reports of API prices, especially paracetamol and ibuprofen, being at elevated levels. So, have prices peaked or started to cool or are they still elevated? And given Q2 gross margins of 58.5%, what should be the margin that we should expect for Q3 and Q4? Closer to 58% or to the usual guidance of 55% to 56%?

I will probably maintain it at 55-56%. Again, these things can change very rapidly. If the crude prices come down, you will see it going down. If the war goes from bad to worse, then obviously everything is out of all projections, go for a toss. But we are quite optimistic on the outlook. This is very prevalent to what's happening in the midterm elections. So we do see things cooling down a bit. And if you've seen the last couple of days, the crude has improved a bit. So I do see that prices should cool down maybe in the next 30 days or so.

Got it, sir. And if prices fall, would it quickly reach a gross margin or the retailers would ask for a price cut? How does it usually happen, sir?

Retailers will not ask for a price cut, but a gross margin will increase, obviously, or will come back to its historic numbers if we see prices, raw material prices coming down. Obviously, raw material prices go up, you know, then, like I said, everything, you know, all calculations have to be, everything has to be recalculated. But we are looking at it more from a positive angle, and we are working towards achieving our objectives, because we know this is literally a short term, it's not sustainable. And, I mean, like I said earlier in the call, I was actually hoping that the war would have ended before the midterm elections, it didn't, but, you know, I had a strong feeling that it should have, for whatever political reasons, but that said and done, we're still hoping that it will end soon.

Got it, sir. And one last question. I see that our lease liabilities have gone up by 120 crore. Is it due to consolidations of the acquisition, or we have taken a new lease?

Yeah, we have taken a new lease in UK, and it has come from that geography. Got it.

Yeah. Thank you. Thank you.

Thank you.

Thank you. The next question comes from the line of Mr. Vishal Manchanda from Institutional Equities Limited. Thank you. Please go ahead. Mr. Manchanda, please go ahead.

Mr. Manchunda, please, can you go ahead and unmute yourself?

Sorry, I was on mute. So, I wanted to understand if you can break up your organic growth between existing products and new launches for the year. And also, if you have seen any price increase or decrease in our base portfolio.

So, Vishal, it just depends on geographies. Again, if you look at U.S., a substantial amount of our growth will come from organically, and a small portion will come from inorganic. But if you look at the U.K., a decent amount will come from new launches. And obviously, in Europe, a substantial amount will come again from new launches. So Australia will also be fueled by new launches that would come. This is over and above what we are doing. So we are at a decent size, we are at a decent base. So definitely in our strategy to hit new heights, new launches play a very important role.

But generally, if you could kind of give an indication as to what percentage of the growth usually is the new launches that contribute, like if it is 20% of the growth that comes from new launches, 10%, some broad indication.

In UK, it will probably be 20%, but in Europe, it will probably be higher, maybe 50-60%. In US, it will probably be 10%.

And the focus area for your new launches is oral dosages or oral solid dosages or you are trying to kind of get into new dosage forms?

It is quite diversified, but we are not into injectables, so that is not the case. But as of today, the maximum portfolio is obviously oral dosage as we speak. But we are diversifying slowly, but irrespective of the diversity that we are planning, it will still be the largest segment for us.

Okay. And are we witnessing any price increases in our base portfolio?

Are you talking of finished product or are you talking of raw products?

The finished products.

No, we are not witnessing any of it.

And any changes in competitive intensity? So, are you seeing the competitive intensity coming down? Your competitors, maybe they're facing cost challenges, and you are probably seeing competition coming down over years.

Yes, we do see that, but every time we see something coming down, something goes up, right? So, we don't actually pay a lot of attention to all that because we basically grow on our strength and on our strategy, so we've been growing very strategically in our portfolio as well as in our geographies that we've planned out, and we've seen good results in what we are doing, so, but, you know, it's a nature of the beast, you'll always have competition, so if we start looking at... Who's doing what? We tend to get bogged down on that. But when we are picking our product selections on what we have to do, then we obviously do our research just to see how many players are into that market. But beyond that, we don't bother what companies are basically on competition.

And with respect to our R&D efforts, have we identified any focus area, or we are targeting products, we are just kind of trying to target products where we don't have a presence in? Is that the way we are looking at new launches or specific areas we would have identified?

Yeah, R&D is mainly on new niche molecules, let me put it this way. And as we grow, we get into a bit more complex molecules, which may involve paraffo challenges or first-to-market type of strategies. But this is all a part and parcel of us evolving to more prominent players in those markets. So our R&D focus today is going into all development of niche molecules, molecules where a number of competitors, like you say, or players are less. For molecules which have more complexity in formulation, that's our focus point right now.

But is this largely focused around oral solids, or you have kind of put a team around...

It's not only oral solids, it's on particles, it's on liquids, it's on various other segments also.

Sorry?

It's on topicals, liquids, it's on various other segments also.

Got it. And all your revenues that you do comes from your own manufacturing, or there is also a portion of contract manufacturing that you rely on?

No, I mean, obviously, we have plants all over, you know, in the US and UK and in India, most of it, I would say 98% of it or 99% of it comes from.

Okay. I think you highlighted in your presentation a few nasal sprays you launched in Australia. I think one nasal spray or two nasal sprays. So, are these in-house manufactured or these are outsourced?

No, they are not in-house, but will soon be in-house. But as of today, they are not in-house.

Okay. And with respect to the kind of you are also looking to acquire manufacturing assets. So, would this be any specific dosage form that you would be looking at? Good morning, everyone. Again, it would be more oral solids-related manufacturing capacities.

Yes, there are different dosage forms we are looking based on what we believe our capacity would basically fill up and fill up fast. But irrespective of whatever dosage forms we do get into, we will always ensure there is a solid oral block in and around that place. Because at the end of the day, no dosage form comes close to the solid or dosage forms.

Understood.

And you highlighted, like, probably you are seeing some capacity constraints around coral solids. Did I interpret that correctly, or that's not the case?

No. So far, we are good for the next two years, two to three years, but, you know, you always want additional capacity.

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

Thank you. The next question comes from the line of Harshal from Ask Wealth Advisors. Please go ahead.

Thanks for the follow-up, sir. I just missed out on one point, actually, wanted to have your views. So, on the margins front, we've done a good 23% in Q2, and, you know, towards the end of cool year, we had guided somewhere around 21 or something. But, sir, is there a possibility that we could kind of, you know, have something higher than 21?

It's always a possibility, but for that you've got to call the president and call of the war. Okay. It's as simple as that.

Okay. Okay. Got it. Got it. Thank you. Okay.

Thank you.

Thank you, ladies and gentlemen. As there are no further questions, we have reached the end of question and answer session, and now hand the conference over to management for closing comments.

Thank you, everyone, for spending your time, a valuable time, and attending this conference call. I want to wish you a good evening, and be safe. Thank you very much.

Thank you. On behalf of Markson's Farmers and Systematics Institutional Equities Limited, that concludes this conference. Thank you for joining us. You may not disconnect your lines.