Sun Pharmaceuticals Industries Ltd 524715
Q4 2013 Earnings Call Transcript
Transcript Call Date 05/28/2013

Operator: Ladies and gentlemen, good day and welcome to the Sun Pharmaceutical Q4 FY '13 Earnings Conference Call. As a reminder, for the duration of this conference, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Nimish Desai. Thank you, and over to you, sir.

Nimish Desai - IR: Thank you and good evening and warm welcome to our fourth quarter and FY '13 earnings call. I am Nimish from the Sun Pharma Investor Relations team. We understand that there is some delay in most of you getting our press release, but it will come to you shortly. This would also be shortly available on our website.

Let me introduce the Sun Pharma team today we have with us this evening Mr. Dilip Shanghvi, Managing Director; Mr. Sudhir Valia, Whole Time Director, and Mr. (Abhay Gandhi), President. Today they will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for the ease of discussion, we will look at the consolidated financials. Just as a reminder, this call is being recorded and a replay will be available for the next few days. The call transcript will also be put out on the website shortly.

The discussion today might include certain forward-looking statements and these must be viewed in conjunction with the risks that our business faces. I request you to restrict yourself to two questions. If you have more questions, I request that you rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today.

I'll now hand over the call to Mr. Shanghvi. Over to you, sir.

Dilip Shanghvi - Managing Director: Thank you, Nimish. Welcome and thank you for joining us for this earnings call after the announcement of financial results for the fourth quarter of 2012-13. Our sales for financial year '13 have crossed $2 billion mark and it is interesting for us to note that it took us almost 27 years to reach turnover of $1 billion in terms of revenue. At this time, I am happy to point out that we crossed the next $1 billion in another three years. So, in a way, it's a reflection of the performance of the entire team at Sun Pharma.

Also, on occasion of our completing 30 years of operation, I am pleased to announce a reward for shareholders in terms of bonus shares of one share held for each share held by him.

Now, let me briefly update you on significant events during the year. As you know, earlier this year, we received U.S. FDA approval for generic liposomal doxorubicin injection. This reaffirms our strategy for building technological strength with complex products.

We also closed two important acquisitions in the year as we had shared with you; URL's generic business and DUSA. Both this strengthen our U.S. presence and we have begun to look at ways to grow this businesses.

As of March 2013, we had cash and cash equivalent of $1.3 billion. This periodically raises expectations from investors about acquisitions. I would like to once again repeat our strength. We will share more information when there is something to share. Until then all the expectations are near conjuncture.

I will now hand over to Mr. Valia for the discussion of the full year and quarter four performance.

Sudhir V. Valia - Executive Director: Thank you Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our full year and quarter four financials are already with you.

Before we discuss the financials, let me highlight that the U.S. dollar is at the higher rate this quarter as compared to the same quarter last year. The results of the growth in rupee reported sales and profit on account of that may not be sustainable. We would like to request you to take care when you compare full year's quarter four and the year with that of the previous year. As usual, we will look at the key consolidated financials.

Q4 net sales are at INR3,071 crore, an increase of 32% over last year. Material cost as a percentage of the net sales is 17%, lower than the Q4 last year. Staff costs as a percentage of the sales were at the 14%, slightly lower than Q4 last year. Other expenditure as a percentage of net sales is 27%, higher than that of Q4 last year.

As a result of the above, the EBITDA achieved in Q4 is INR1,260 crore as compared to INR956 crore for the fourth quarter of last year, a growth of 32%.

Tax at 14% of PBT is lower than that of the fourth quarter last year. As a result of the net profit of the Q4 was INR1,011 crore, registering a growth of 23% over the same quarter last year.

On fully diluted basis EPS in INR9.80 compared to INR7.90 that we had earned for the fourth quarter last year.

Now, we will discuss the full year performance; net sales at INR11,239 crore, an increase of 40% over the last year; material cost as a percentage of the net sales is 18.5%, which is lower as compared to the previous year; staff cost for the year is 13.7% of the net sales, lower than 14.8% for the last year. Other expenditures at 24% of the net sales is almost same as that of the previous year. As a result of the above, the EBITDA for the year is INR4,906 crore, has a growth of 51% over last year.

Adjusted net profit is INR3,591 crore, a growth of 39% over last year. As we had shared earlier, out of the abundant caution we had made provision of generic Protonix. The net profit after provision is INR3,008 crore, registering a growth of 16%. Fully diluted EPS is INR29, up from INR25 for the last year.

Taro recently posted Q4 FY '13 sales of $165 million, up 14% from the corresponding quarter last year. For FY '13, Taro's sales were $671 million, up 24%. Taro's net profit for quarter four was $49 million, and $266 million for the year 2013; post provision of $22 million and $33 million respectively for the settlement of the loss contingencies, Both fourth quarter and the financial year '13 volume declined marginally.

I will now hand over to Abhay Gandhi who will share performance of Indian business. Abhay Gandhi?

Abhay Gandhi - EVP, International Marketing: Thank you, Mr. Valia, and good evening everybody. I will take you through our India formulations business. Sales for quarter four were at INR780 crores, while sale for the full year were at INR2,956 crores.

If you adjust for the extra sales, which we had done in the Q4 financial year '12, as well as for the change in treatment of expected sales returns and treatment of discounts, both of which we had shared with your earlier, then the underlying sales growth of the domestic formulation business is 16% for the quarter and 19% for the whole year.

Sun Pharma is ranked third and holds 4.9% market share in the INR70,000 crore pharmaceutical market. As far the March '13 AIOCD-AWACS report. Based on SMSRC data for Feb 2013, the Company continues to be ranked number one based on share of prescriptions with seven classes of specialties; psychiatrists, neurologists, cardiologists, ophthalmologists, orthopedicians, nephrologists and gastroenterologists. Three products were launched during the quarter, taking the total for the year to 25.

An important development this quarter was a notification of the new pricing policy. Despite this development, we continue to find the Indian market as interesting and as competitive as they were.

In this intensely competitive market with new entrants coming into the market almost every quarter, we continue to look for innovative ways to differentiate our product portfolio, build customer trust and add prescription shares.

A word about sitagliptin. With our JV partner we are also a party to the patent infringement suit on sitagliptin against Glenmark. Sun and Merck have strong arguments in this case. We would not like to comment further on this case as it is sub judice.

With this, I will hand over to Dilip.

Dilip Shanghvi - Managing Director: Thank you, Abhay. I will briefly touch upon the performance of our businesses across other segments, as well as our overall performance in the U.S. For quarter four, sales in the U.S. increased both for Sun's product as well as for Taro. Our overall sales in the U.S. for fourth quarter are $330 million which is higher by almost 63%. For the year, U.S. sales across both the companies were up 56% to $1.1 billion.

Formulation sales in the rest of the world market accounted for $73 million in the fourth quarter registering a growth of 13% over the same quarter previous year. For the full year, international formulation sales at $281 million were up 21% in dollar terms. And excluding Taro, Sun's rest of the world sales for the year was up by 32% in dollar terms.

Our API business grew by 11% for quarter four and 23% for the year. Most of the API we produce is used in-house and rest is sold to the end users in the developed markets.

R&D expenditure for the fourth quarter was INR203 crore at 6.6% of the sales, while for the full year it was INR676 crore or 6% of sales. This generic R&D spend allows us pipeline build up in all areas of our business and sometimes bringing complex or differentiated dosage forms.

In fourth quarter, ANDA for nine products were filed, while for the year, ANDAs for 22 products have been filed with the U.S. FDA. We now have 311 ANDAs approved for a total of 449 products filed with the U.S. FDA and ANDAs for 138 products await approval. On a consolidated basis, we now have 814 patent filings with 457 granted patents. In all this has been a good year.

For the financial year '13 we have guided for a strong 30% to 32% constant currency growth. As you can see, we have outperformed this guidance or we have performed more or less or slightly higher than the guidance. On this high base, we expect financial year '14 consolidated topline to grow by 18% to 20% over financial year '13 at constant currency.

R&D expenses are expected to be around 6% to 8% of sales while we expect overall CapEx at INR800 crores. We plan to file about 25 ANDAs for the financial year '14.

With this, I would like to leave the floor open for questions. Thank you.

Transcript Call Date 05/28/2013

Operator: (H. R. Gala, Quest).

H. R. Gala - Quest Securities: Congratulations for really good set of numbers. Two questions from my side. Sir, in domestic formulations you did say that the Indian market is interesting and it is turning very competitive. Can you just tell being leader in several therapy areas how the new pricing policy will affect us?

Abhay Gandhi - EVP, International Marketing: I think in the last conference calls also we had mentioned that the loss for us could be, in the worst-case scenario, around INR40 crores to INR50 crores and we are confident we would be able to take it in our strides and move ahead on the base that we have.

H. R. Gala - Quest Securities: INR40 crores to INR50 crores for full year?

Abhay Gandhi - EVP, International Marketing: For the full year.

H. R. Gala - Quest Securities: Okay. That's not a big amount.

Abhay Gandhi - EVP, International Marketing: I think in the overall config, yes, I think it is something that we can take into stride and continue to move ahead.

H. R. Gala - Quest Securities: Sir, my second question pertains to the U.S. generic business, which has been doing exceedingly well following different acquisitions that we have made. Now, looking to the general scenario prevailing in the Western world, how do you see our U.S. and rest of the world generic business shaping up over next few years.

Dilip Shanghvi - Managing Director: We remain quite excited about our business in regulated markets and we continue to make significant investments. We don't give long-term guidance, but our guidance for this year does include significant performance improvement contributed by our U.S. business.

H. R. Gala - Quest Securities: Do we have biosimilars also in this international market?

Dilip Shanghvi - Managing Director: Mr. Gala, can we request you to come back in the queue please?

H. R. Gala - Quest Securities: This is a related question to the international generic. That's all from my side, biosimilars.

Unidentified Company Speaker: We'll try and take that later. Thank you so much.

Operator: Anubhav Aggarwal, Credit Suisse.

Anubhav Aggarwal - Credit Suisse: Dilip Bhai, one question on doxycycline. I am just trying to understand what has created shortage in this market. Is it more driven by high – let's say higher demand coming to doxycycline from tetracycline or is it more of a supply issue, which could be because of unavailability of the raw material or is it like one of the player going out of the market? What has created shortage in this market.

Dilip Shanghvi - Managing Director: I don't have specific visibility of the reason. But I think our – as we have shared with investors when we disclosed the acquisition of URL is that our strategy would be to find a way by which we can bring back new products because whatever pricing opportunity you see are temporary. So, we have to focus on building a stable and consistently growing business.

Anubhav Aggarwal - Credit Suisse: Mr. Valia, just one question on receivable days. Your receivable days seems to have come down very significantly. I mean they are down to 60 days in the latest balance sheet. Which market is driving it, because for Taro reported balance sheet, the visibilities haven't changed year-on-year?

Sudhir V. Valia - Executive Director: I mean, we don't have specific numbers. So maybe this question we would need to take with Nimish off-line. But I think our focus always has been to improve the operating efficiency of businesses in ways by which we can reduce inventory, reduce overall outstanding and, what you call, improve the overall working capital efficiency.

Operator: Girish Bakhru, HSBC.

Girish Bakhru - HSBC: Just a question on Lipodox. I mean with FDA picking J&J's product on a month-by-month basis, I mean do we have any sense of why or when their process will get fully approved? If you can give an idea of how is the market split between J&J and your product?

Dilip Shanghvi - Managing Director: We remain quite excited about the opportunity of generic liposomal doxorubicin. I do not have specific split between Sun and J&J for overall market share. It is not possible for us to comment on FDA action on both what they will do in future.

Girish Bakhru - HSBC: The other question was on URL. I know you have mentioned in the press release that the withdrawn products do not appear in the statistics of number of ANDAs, but just wanted to get a sense, have you relaunched any of those products yet or how many products do you see relaunching from URL in FY '14 and where can that basically take that action?

Dilip Shanghvi - Managing Director: There is no product which is reintroduced as such till now. But we are working on bringing back a few products. It's a question of time and also some products will require extra work. There would be some products which were discontinued on financial or profitability grounds that may still remain unprofitable, so we may not bring back. Some products may have some kind of validation related issues. So we have to complete all of that before we can reintroduce those products.

Girish Bakhru - HSBC: Just on the related question, with URL there are certain products where there is some active litigation still going on. Does that really impact per se how you're deciding which products to come in the market?

Dilip Shanghvi - Managing Director: I think there is only one product for which there is a active litigation; for personal injury, but yeah, I think when we look at the product to be brought back pharmacovigilance and potential risk at the product as per future litigation will be a factor of the consideration.

Operator: Sameer Baisiwala, Morgan Stanley.

Sameer Baisiwala - Morgan Stanley: Dilip, just on the guidance, this includes the full year impact of URL and DUSA which was missing in fiscal '13?

Dilip Shanghvi - Managing Director: That is correct.

Sameer Baisiwala - Morgan Stanley: Okay.

Dilip Shanghvi - Managing Director: But we also have to consider, Sameer, the potential exposure in terms of pricing and other things before we take a long-term view about the overall market.

Sameer Baisiwala - Morgan Stanley: You are referring to some of the one-off benefits that you've got in fiscal '13?

Dilip Shanghvi - Managing Director: They are not sustained, yes.

Sameer Baisiwala - Morgan Stanley: And the second question is on DUSA, from versus BLU-U device being installed roughly 3,100 dermatologists, where do you see this number go over next two to three years.

Dilip Shanghvi - Managing Director: My understanding is that number is much lower than the 3,100 that you are referring to, but their historical performance has been adding some 300 to 350 new BLU-U users every year.

Sameer Baisiwala - Morgan Stanley: And that will continue

Dilip Shanghvi - Managing Director: I mean our effort would be to find a way to increase that, so the effort will be multi-fold – is that number of potential users we want to increase, potential number of cases that each of the user uses this treatment over the other treatment, so that the overall size of the market that the product addresses was up from, let's say, 6% that it is today to a larger number.

Sameer Baisiwala - Morgan Stanley: Why do you doubt that 3,100, because that's been disclosed by DUSA in its regulatory filing

Dilip Shanghvi - Managing Director: I know, but some of this may not be active.

Operator: (Bino Pathiparampil), IIFL.

Bino Pathiparampil - IIFT: If my understanding is correct, DUSA and URL have been consolidated for the entire quarter, right?

Dilip Shanghvi - Managing Director: Bino, URL is not for the entire quarter. If you see…

Sudhir V. Valia - Executive Director: (indiscernible), yes, it is taken care.

Dilip Shanghvi - Managing Director: Yeah.

Bino Pathiparampil - IIFT: Sorry.

Dilip Shanghvi - Managing Director: URL is for about roughly two months and DUSA will be for the full quarter.

Bino Pathiparampil - IIFT: Full quarter, okay. So, despite this consolidation, your margins excluding Taro, so the non-Taro business margins doesn't seem to match – seems to have some (indiscernible), so is it fair to assume that those two businesses are now not very far from your overall business margin?

Dilip Shanghvi - Managing Director: No, it's difficult to do mathematical calculation because, say, this quarter our overall margin will be a function of which products we have sold, because we also have a flux in the kind of products that we sell every quarter. Some products we have very high margin, some products we have not equally high margin. So, my own understanding is that it will take us sometime before we can reach the kind of margins that we have in our existing business before we can reach that margin in URL business and DUSA business on a net basis.

Bino Pathiparampil - IIFT: Second question, Taro had this settlement and contingency charges which $22 million was there in 4Q and then apparently in 3Q or 2Q they had carved out partly from the SG&A and put it in that line item in the full year numbers. What does this pertain to, and is it one-off or some form of that can refer year-on-year?

Sudhir V. Valia - Executive Director: Bino, it is related to some historic price-related litigation and we cannot be sure whether this is recurring or non-recurring.

Dilip Shanghvi - Managing Director: My sense, Bino, is that if there were liabilities, Taro will disclose this in their filings. So, since there is no disclosure beyond these two, there is no current liability at this point of time. The future liabilities related to previous actions is difficult for us to predict.

Bino Pathiparampil - IIFT: When you said historic, you said like before Sun took management control or post that?

Dilip Shanghvi - Managing Director: Previous to – I think these are historical (IR) figures..

Operator: Prakash Agarwal, CIMB.

Prakash Agarwal - CIMB: Just had a question on this India demerger business. Basically, how should we read into it, I mean why that move and is there a possibility of hiving off a part of it?

Dilip Shanghvi - Managing Director: No, there is no plan to hive off that business. But the plan is to focus on that business as a self-standing business unit, so that we can focus and grow that business significantly faster than market.

Prakash Agarwal - CIMB: But consolidation and spinning it off, I mean does it really matter as a company? Just wanted to understand that piece.

Dilip Shanghvi - Managing Director: Well, I think the idea would be to structure it as a self-standing business with its own resources, so that it can be run as a business within business, decision-making process becomes faster and ability to respond to market requirement becomes quicker. So the challenge for us, as we grow our business is that how can we remain responsive to market requirements and to customer needs in spite of our sales.

Prakash Agarwal - CIMB: Second question, you talked about $1.3 billion of cash. So Sun's balance sheet would have, what, $750 million and the remaining Taro would have or–?

Dilip Shanghvi - Managing Director: Yes, like that.

Abhay Gandhi - EVP, International Marketing: Yeah, approximately that would be the correct number.

Prakash Agarwal - CIMB: So, basically, just wanted to understand, I mean – so if you're looking for acquisitions, can we actually utilize Taro's cash or…?

Abhay Gandhi - EVP, International Marketing: No, first it's an independent company and it requires its independent directors' approval or shareholders' approval as the event maybe.

Operator: Nimish Mehta, Research Delta.

Nimish Mehta - Research Delta: Two quick questions. Have we taken any price increase in DUSA's product?

Dilip Shanghvi - Managing Director: What is the question?

Nimish Mehta - Research Delta: Just wanted to know about any price increase in DUSA's product.

Dilip Shanghvi - Managing Director: No.

Nimish Mehta - Research Delta: And can you comment on the exclusivity on Januvia? I mean, does some – is it fair to assume that some hold FTA exclusivity on Januvia?

Dilip Shanghvi - Managing Director: It's far away.

Nimish Mehta - Research Delta: Sorry?

Dilip Shanghvi - Managing Director: It's far away.

Nimish Mehta - Research Delta: Yeah, I mean the exclusivity expire – I mean the expiry might be far away but what about the exclusivity, sir?

Dilip Shanghvi - Managing Director: I mean generally we don't comment on FTAs. So I think we want to continue to remain that way.

Operator: (Ranjit Kapadia), Centrum Broking.

Ranjit Kapadia - Centrum Broking: Hearty congratulations for good set of numbers. My question relates to CapEx of INR800 crores which you have said and what is the guidance for the next year?

Dilip Shanghvi - Managing Director: That is the guidance for the next year.

Ranjit Kapadia - Centrum Broking: And where it will be utilized if you can give some details?

Dilip Shanghvi - Managing Director: I think expansion of various manufacturing facilities.

Operator: Rahul Sharma, Karvy Stock Broking.

Rahul Sharma - Karvy Stock Broking: Sir, we wanted some clarity on what type of URL numbers have been accounted in terms of dollars in the quarter and for the year?

Dilip Shanghvi - Managing Director: We do not break down the overall numbers of different businesses and that all of that will come within the Sun U.S. business.

Rahul Sharma - Karvy Stock Broking: Could you tell us how much – what was the revenue when you all acquired it, on a standalone basis, the generic business of URL?

Dilip Shanghvi - Managing Director: It will help you, But since it's a public company – I mean, a private company when we brought and when we brought we signed certain confidentiality agreements, we will not be able to disclose specific numbers.

Rahul Sharma - Karvy Stock Broking: Is it upwards of $100 million?

Dilip Shanghvi - Managing Director: We can go from upward of $100 million to $110 million or $90 million and continue further, but I think it was not a significant business.

Operator: Sameer Baisiwala, Morgan Stanley.

Sameer Baisiwala - Morgan Stanley: I have a follow-on. Dilip Bhai, after the FDA's response letter on SPARC's lead compound Levetiracetam XL, has there something you had a dialog with FDA and what could be the way forward?

Dilip Shanghvi - Managing Director: What is the question Sameer?

Sameer Baisiwala - Morgan Stanley: After the FDA's response letter on SPARC's lead compound Levetiracetam XL, has there been a communication with the FDA and what could be the way forward?

Dilip Shanghvi - Managing Director: I think people are – our regulatory people are discussing about the way forward, discussing options with them.

Sameer Baisiwala - Morgan Stanley: Generally, in these cases, where there is a bioequivalence that's been proven in the fast conditions but not in the fed, do you think the chances are bright for the product to finding it approved looking at the past history of other such cases?

Dilip Shanghvi - Managing Director: Generally, no, but also there is no reason for not being able to pass the next study. Because you can always change the number of volunteers and you have a fair chance of passing the study. So, that's one option.

Sameer Baisiwala - Morgan Stanley: But apparent with the other cases in the history, this I just said, it may not differ.

Dilip Shanghvi - Managing Director: Pardon.

Sameer Baisiwala - Morgan Stanley: Both things stand, I think A, is this problem can be overcome by increasing the number of patients, at the same time.

Dilip Shanghvi - Managing Director: That's one option, yes.

Sameer Baisiwala - Morgan Stanley: But at the same time you're saying that if you look at the past, in history, with products with the same case – with same issues they have not made a cut and they have not been approved.

Dilip Shanghvi - Managing Director: I don't think we have enough visibility on previous actions by FDA, but in this case, I think that is their concern.

Sameer Baisiwala - Morgan Stanley: Just one more question on – Taro is number one product that's nice set and prime combination, have you seen Sandoz get back in the market, are you seeing them active?

Dilip Shanghvi - Managing Director: My understanding is that they are back in the market.

Operator: Sonal Gupta, UBS Securities.

Sonal Gupta - UBS Securities: Just one on – in terms of the R&D side, I mean, you've given a pretty wide R&D range of 6% to 8% and what does this pertain to? Could you highlight I mean what are the areas in the U.S. generic space that you think got sort of attractive. I mean Taro is clearly pursuing the derma space, but – and you have built a strong pipeline on the oncology side. Is there anything else that you think is attractive within there and that's my first question.

Dilip Shanghvi - Managing Director: Well, we think there are many attractive things, the only issue is I can't share it with you. So, historically I think we have never shared our filing plans for any future products. We don't talk and share product pipeline or our filing plans. The idea is that we do not want to build future valuation into current stock prices.

Sonal Gupta - UBS Securities: Right, but just on the wide range on 6% to 8%, is this from clinical trials et cetera which could drive this up or down? Is this something like that?

Dilip Shanghvi - Managing Director: I think complex products require large investments. So that is the reason why I think some of the R&D adjustments keep on going up.

Sonal Gupta - UBS Securities: My next question is on like…

Nimish Desai - IR: Can you come back in the queue please?

Sonal Gupta - UBS Securities: Okay.

Operator: Alok Dalal, BNP Paribas.

Alok Dalal - BNP Paribas: What is the tax rate guidance for FY'14, sir?

Dilip Shanghvi - Managing Director: It should be about 12%.

Alok Dalal - BNP Paribas: 12%, one two?

Dilip Shanghvi - Managing Director: No, no, I think there is no change in the overall tax rate for the Company that we are expecting – I think current tax rate is now much around 18% to 20%? So that is what we'll consider.

Alok Dalal - BNP Paribas: Any update on the Protonix litigation?

Dilip Shanghvi - Managing Director: There is a, what you call, trial starting from 3rd of June, so it's a two-week Jury trial and we expect judgment to be delivered soon after the trial.

Operator: Krishna Prasad, Kotak.

Krishna Prasad - Kotak Securities: Dilip Bhai, just one question on one of the areas where you've been focused in the U.S., which is, controlled substances. You've had a lot of effort in that area. I mean from, let's say, the next couple of years point of view, do we see anything significant launches happening from this particular segment?

Dilip Shanghvi - Managing Director: So, we continue to work with the objective of becoming an important player in the controlled substance business, but that business has large number of operating, what you call, bottlenecks in terms of Company's ability to get additional quotas. So it's a business which builds over time.

Krishna Prasad - Kotak Securities: Right. So, that's a bit of a chicken and egg. I mean it's a question of clearing the approval and then getting the quota. So how does it clearly pay out for us and what is the – given that we had spent some time in this market now, how do we view the opportunity there?

Dilip Shanghvi - Managing Director: It's an important opportunity for us (for quota).

Krishna Prasad - Kotak Securities: Sure. My second is relating to the Apotex tentative approval for the Levetiracetam extended release tablet, the one gram tablet and do you think you have taken ANDA route to get the tentative approval, any thoughts around that?

Dilip Shanghvi - Managing Director: I think any product which is a higher spend product than the currently marketed product have an opportunity to be brought in both as a, what you call, through a generic route or through a 505(b)(2) route. They have followed, what you call, generic rules. The difference would be that the approval timing for both the products will be different. There is no clock for the generic filing. There is a clock for 505(b)(2) in terms of timelines. But within a certain number of months it needs to be approved.

Krishna Prasad - Kotak Securities: Sure. But how does this really impact our opportunity, given that we've been – we'd have thought that Sun would – or PARC rather would be the only player in this market. How do we see the scenario where more generics get into the higher strength that's in release (indiscernible)?

Dilip Shanghvi - Managing Director: Sure. I think we haven't seen their product. We have to see the product and understand what's the size of that tablet and various other issues before we can comment on that.

Krishna Prasad - Kotak Securities: So you would think that the ANDA product would actually be a slightly – a variant of what we have?

Dilip Shanghvi - Managing Director: Can we stay focused on Sun products actually?

Operator: Vivek Agrawal, MP Advisors.

Vivek Agrawal - MP Advisors: Sir, my question is related to URL portfolio. Sir, URL have filed ANDA with Para IV on Skelaxin in 2003 and there is also (indiscernible) delayed litigation that is going on, so I just want to know whether URL is still seeking the approval of that ANDA or (indiscernible)?

Dilip Shanghvi - Managing Director: Which is the product?

Vivek Agrawal - MP Advisors: Skelaxin, (indiscernible) Metaxalone.

Dilip Shanghvi - Managing Director: I think that product has been withdrawn.

Vivek Agrawal - MP Advisors: Withdrawn?

Dilip Shanghvi - Managing Director: Yeah.

Vivek Agrawal - MP Advisors: Sir, how much return you are earning on the cash?

Dilip Shanghvi - Managing Director: Return on the cash, you say it's the bank deposits you are talking about?

Vivek Agrawal - MP Advisors: Average return on overall cash that you have in the balance sheet.

Dilip Shanghvi - Managing Director: Generally, it's between 8% to 10%.

Sudhir V. Valia - Executive Director: If it's in India. If it's internationally than it will be 1%.

Vivek Agrawal - MP Advisors: Okay. I have one more question. That Sun is conducting trial for Exenatide, so I just want to know whether it would be a substitute of a product or you will file NDA for that.

Dilip Shanghvi - Managing Director: That's our issue is that we don't comment on future products because that trial doesn't indicate that we file the product. We don't know what will be the outcome. So it's better for us not to talk of products which will potentially come very long in future.

Operator: Kiran Sharma, (indiscernible).

Kiran Sharma: Congratulations for your performance. Sir, can you elaborate on the tax rate that is 22%, why it is less?

Sudhir V. Valia - Executive Director: Look, we have all international accounts; it's a consolidated figure. So there are countries in which we got a lower tax, there are countries where we do not have tax burden on account of income not being enough. So there are various combinations which leads to disposition.

Kiran Sharma: One more question. Sir, I'm new to this field. Can you please explain your distribution footprint in U.S. markets? I mean, what are the efforts that you make in that?

Dilip Shanghvi - Managing Director: It's difficult to explain that on the call, but I think if you speak to Nimish, he will explain this to you.

Operator: Krishna Prasad, Kotak.

Krishna Prasad - Kotak Securities: So just another question is really around the margin. I know you don't provide a specific guidance around that, but if you could just give us your broad thoughts on how you see the margin progressing for FY '14?

Dilip Shanghvi - Managing Director: I mean we want to make more money, so we will try. But I don't think we have any assurance or any predictability on how much we will make. We want to protect our current margin and find a way to be in that margin.

Krishna Prasad - Kotak Securities: But in the current assumption, are we looking at current margins to be sustained?

Dilip Shanghvi - Managing Director: No, I think that is the reason why we don't give guidance on margin. There are things which are not in our control. If you see over last so many quarters because of pricing flexibility, Taro margin sales moved up in terms of both gross margin as well as EBITDA margin. Now, if there is a change in pricing, that will change.

Krishna Prasad - Kotak Securities: My second question is around potential acquisitions. I know in the past you've talked about, U.S. being the largest market for us and that'll be the focus area. But if you could talk a little bit about whether U.S. brands in specific – large acquisitions in U.S. brands, would that also fall under our sort of focus or how do we now view it given that now we have done one acquisition in U.S. brands?

Dilip Shanghvi - Managing Director: We look at our ability to grow our specialty business in the U.S. as an important opportunity.

Krishna Prasad - Kotak Securities: I mean, is our approach towards brand – has it changed? Have we have become more positive around this segment after DUSA and has there been any sort of change in thought processes?

Dilip Shanghvi - Managing Director: There is no change in the process; we always like branded business. I think that is not the issue. The issue is that all businesses that we look at have to meet some broad financial objectives.

Operator: Chunky Shah, Credit Suisse.

Chunky Shah - Credit Suisse: Dilip Bhai, just one question on (indiscernible). Can you just update on the progress of this product so far? When I visit the chemist stores I never find this product there.

Dilip Shanghvi - Managing Director: Where are you based?

Nimish Desai - IR: Bombay.

Chunky Shah - Credit Suisse: Well, yes.

Abhay Gandhi - EVP, International Marketing: So you are not finding it, because we launched this in the month of May and we have launched it in select cities to get a feel of customers and Bombay is not one of them. I think we are pretty optimistic about this product. The responses that we are getting from doctors are very good. I think in the next few months we will then probably roll it out pan-India.

Chunky Shah - Credit Suisse: Just one clarity on the financials. The money that Sun has paid to SPARC on Doxil, where is that included? Is that included in the other expenses line item?

Dilip Shanghvi - Managing Director: What your question is?

Nimish Desai - IR: The money paid by Sun to SPARC for Lipodox, where would that appear. It would appear in the other expenses or it might appear in R&D expenses.

Sudhir V. Valia - Executive Director: That is an intangible rights acquired.

Nimish Desai - IR: Where will it come? As an expense item it will…?

Sudhir V. Valia - Executive Director: It will be asset.

Nimish Desai - IR: It is an asset acquired – acquisition.

Sudhir V. Valia - Executive Director: It will be amortized over a period of time.

Chunky Shah - Credit Suisse: So it has no P&L impact? The entire amount paid to SPARC has no P&L impact, because my sense was it was…

Sudhir V. Valia - Executive Director: It will be amortized, that rights has been acquired.

Chunky Shah - Credit Suisse: So milestone and royalty whatever you pay…

Sudhir V. Valia - Executive Director: Royalty will continue to be a part of P&L.

Chunky Shah - Credit Suisse: Royalty is part of P&L and that would be part of other expenses?

Sudhir V. Valia - Executive Director: Yes.

Operator: Prakash Agarwal, CIMB.

Prakash Agarwal - CIMB: Follow-up actually again on the India demerger piece, so just wanted to reconfirm, so there is no intention to do a partial (sale there)?

Dilip Shanghvi - Managing Director: No, there is no intention to do a – I mean, I don't – no is a very absolute term, but as on today that is not the purpose for demerger of the India business.

Prakash Agarwal - CIMB: At the end on acquisition side, I mean we had taken shareholder approval and Board approval for INR80 billion, so is there a possibility we use that in this current fiscal '14?

Dilip Shanghvi - Managing Director: INR8,000 crore of equity.

Prakash Agarwal - CIMB: INR80 billion.

Dilip Shanghvi - Managing Director: And also some INR30,000 crore of…?

Sudhir V. Valia - Executive Director: Yeah, it's for the debt. So that will happen…

Dilip Shanghvi - Managing Director: Enabling resolution.

Sudhir V. Valia - Executive Director: Enabling request, and it will continue year after year as we are looking and shopping into the market.

Prakash Agarwal - CIMB: So, a partial could be obviously there or maybe a full, I don't know; maybe you can highlight it?

Sudhir V. Valia - Executive Director: No, no, see, all these are enabling resolutions where it will be required only when do any equity, otherwise it will remain. So this approval is for a period and we may continue to revert…

Dilip Shanghvi - Managing Director: It's not possible for you to factor this into any of your calculations.

Prakash Agarwal - CIMB: So, a point that I was trying to ask is whether we are looking for any large acquisition per se where we are positioning our India business would be merged, and then we have this enabling resolution of INR80 billion and the cash utilization. So I'm just putting things…?

Dilip Shanghvi - Managing Director: I think we are not very adventurous, so whatever we will do we'll ultimately look at our ability to manage that business effectively and also meeting certain internal financial criteria.

Operator: Girish Bakhru, HSBC.

Girish Bakhru - HSBC: Just wanted to understand situation on Reclast. I understand your plea on Zometa was probably not heard but what is exactly blocking the Reclast approval?

Dilip Shanghvi - Managing Director: I don't have immediate response; I am not ready to give you. Maybe Nimish will be able to…

Nimish Desai - IR: Actually we don't comment…

Girish Bakhru - HSBC: No, but idea was just to get the clear sense whether it just 30 months delay or is it something beyond '13?

Dilip Shanghvi - Managing Director: No, there may be some patent issues; there may be some settlement issues. I am not very sure of I have all the details to be able to respond.

Girish Bakhru - HSBC: Just on the topic about spray approval, are you – I mean, given that the ANDA approval is (indiscernible), the idea is to shift prescription from the cream and the other ointment-based formulation to spray, I mean, given that you may have competition in those formulations?

Dilip Shanghvi - Managing Director: It's a Taro product, so it's not good for me to respond, but my understanding is that generally the spray is used for, what you call, areas which are not really you to reach with creams and ointment. It's a relatively different product, but there may also be some switch from creams and ointments to spray because of more, what you call, functional product.

Girish Bakhru - HSBC: So market for this would be smaller right, that's the right (assumption)?

Dilip Shanghvi - Managing Director: There are existing sprays that can give you some idea.

Operator: Abhinav Chandak, Ratnabali Capital.

Abhinav Chandak - Ratnabali Capital: I just wanted to know this 18% to 20% revenue guidance that Dilip Bhai just gave, whether this factors in any inorganic sales as well or is it as is where the situation is?

Dilip Shanghvi - Managing Director: It does not factor in organic growth.

Abhinav Chandak - Ratnabali Capital: As for as this generic Protonix is concerned, you said that June 3rd there is some trial which is likely to begin within two weeks, so by end of June do we expect any judgment of the same?

Dilip Shanghvi - Managing Director: I'm not a lawyer, so don't hold me to this, but I think there would be a judgment by end of this month; I mean end of June.

Abhinav Chandak - Ratnabali Capital: So you mean to say next quarter either we have INR584 crores reversed or we have bigger impact than this?

Dilip Shanghvi - Managing Director: That's correct.

Operator: Ladies and gentlemen, due to (time constraints), no more further questions can be taken. I would now like to hand over the floor back to the management for closing comments.

Nimish Desai - IR: Yeah, thank you, everybody for joining us on this call. If any of your questions have remained unanswered, request you to please send them across to the Investor Relations team. Thank you.

Operator: Thank you. On behalf of Sun Pharmaceutical, that concludes this conference. Thank you for joining us and you may now disconnect your lines.