Strides Pharma Science Limited (STAR) Q4 2023 Earnings Con Call Transcript

Strides Pharma Science Limited ( ?????? : STAR) Q4 2023 Earnings Con Call dated May. 25, 2023

Corporate participants:

Arun Kumar — Founder, Executive Chairperson and Managing Director

Badree Komandur — Executive Director and Group Chief Financial Officer

Analysts:

Abhishek Singal — — Analyst

Unidentified Participant — — Analyst

Cyndrella Carvalho — JM Financial — Analyst

Tarang Agrawal — Old Bridge Capital Management Pvt Ltd — Analyst

Nitin Agarwal — DAM Capital — Analyst

Sarvesh Gupta — Maximal Capital — Analyst

Zaki Nasir — Nasir Investments — Analyst

Chetan Cholera — Pragya Equities Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Strides Pharma Science Limited Q4 FY ’23 Earnings Conference Call. 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. [Operator Instructions]. Please note that this conference is being recorded.

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

Abhishek Singal — — Analyst

Thanks, Yousuf [Phonetic]. A very good evening and thank you for joining us today for Strides earnings call for the fourth quarter and full-year ended financial year 2023. Today we have with us Arun, Founder, Executive Chairperson and Managing Director; and Badree, Executive Director, Finance and Group CFO to share the highlights of the business and financials for the quarter.

I hope you have gone through our results release and the quarterly investor presentation which have been uploaded on our website as well as the stock exchange. The transcript of this call will be available in a week’s time on the company’s website.

Please note that today’s discussion may be forward-looking in nature and must be viewed in addition to the risk pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relation team.

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

Arun Kumar — Founder, Executive Chairperson and Managing Director

Thank you, Abhishek. Good afternoon, everybody, and thanks for joining today’s earnings call. I’m pleased today to report a very strong performance from Strides in considering how we began this year with — starting off with this focus of EBITDA in the last couple of last year. Not only did we come back very strongly but we achieved many firsts, then we have now reported our highest-ever annual sales. This is at INR3,700 crores, about 20% over last year. At INR990 crores, this is our highest quarter ever reported up 14% sequentially. At $232 million, our US business has increased from $157 million and has now surpassed the pre-COVID period sales quite significantly and we are delighted with the performance and also the calibrated reset that we have achieved in the US markets.

Also pleasing to note, led by our UK operations, the other regulated markets have done, have also achieved this highest-ever quarter at $48 million and at $157 million that again becomes the most the biggest year we have done since we have got into this market.

In Q4, our gross margins inched very close to our historical peaks up 60%. Our focus this year, prices are pulling revenues up quite significantly, whilst to — get to our historic gross margins, and I’m very happy that in Q4 we are just a few below bips below that target.

During the year, important outcomes included a revenue growth of almost INR600 crores, an absolute increase in EBITDA of gross margins of almost INR500 crores, and from INR4 crore EBITDA in the whole of last year. We have grown quarter-on-quarter focusing on costs, product launches, and the discipline that this business requires to have increased our EBITDA to INR446 crores and with Q3 EBITDA of INR160 crores. While the percentage out of that EBITDA is not yet to our target or our historical targets up 20% to 21%, but I’m pleased that we are inching very close to that and as we reset our business further and complete all the work that we commenced in April of last year, I’m very confident that we will continue to build momentum from here on.

We have reduced our gross debt by about INR250 crores during the year and that is a significant improvement on a debt-to-EBITDA ratio. In Q1 of this financial year, we started at 8.3 times coming from a very disciplined FY ’22 to an annualized exit run rate of 3.4. We did call out that we — our target will be closer to three but as you would imagine, bulk of our growth has come from the US, which as all of us know has high capital and long gestation, so consequently we are very close and later, you will see that we have guided, we will be under the previous year.

Also important that while we’ve had significant challenges with [Indecipherable] vaccines and as Stelis associates, we have reduced debt by about INR470 crores. Consequently in the Group, we have reduced debt by about INR720 crores in FY ’23 and this will continue to be our focus for the company in the years to come.

In a very difficult regulatory environment, I’m very pleased to confirm that we now compete, received close-outs, EIR for all our sites that were inspected during the financial year, namely Chestnut Ridge, New York facility, our flagship Bangalore plant, Singapore, and most importantly, the Puducherry facility, which had a warning that in 2019, although we completed remediations fairly quickly considering COVID and that the plant does not deliver any significant shortage products. We had to wait for the new USFDA regulations which allow companies to request for inspection and we are pleased that the inspection happened and we have now got the official confirmation from the FDA that they are satisfied with the remediation that we completed and the warning letter have since been lifted in the last couple of base. This will obviously lead to a few of our product approvals from the site but product approvals have never been a concern for the company considering that we still have 280-odd products filed and approved but clearly have commercialized approximately 60 products in that region.

And that is because we want to have the luxury of letting go of a product or revenue challenge for price, and this way we become, not necessarily the primary supplier most times in the US, but it allows us to keep the margin and the price discipline that we want.

We started off this year internally resetting the organization, recalibrating our growth strategies, our priorities, our capital allocation methodology, our focus on governance. All of that is explains to and I’m very pleased with the results, especially during this quarter.

So, I touched upon the revenues of the quarterly performance. So I believe that for questions later and get away to specifics in terms of the markets. Regulated markets continue to be leading the business. We currently classify our actual/institutional business, along with our emerging market play, and, therefore, you will notice the lumpiness of that business is very dependent on the contracts that we win and it is not necessarily a steady-state business, it has got lumpiness. Consequently, you will notice in the future slides, how we proposed to mitigate our commentary about going forward from this year. So that investors can get a better view on how we present our case of all of our emerging markets. In fact, adjusted for the adverse market, emerging markets is a key focus area for the Group, and it continues to grow quite, quite well.

So all markets grew well, emerging markets for the reasons that I explained a little while ago degrew [Phonetic], but the core emerging markets actually achieved significant improvements as the base being quite low. At $232 million, we are somewhere middle of $220 million to $240 million guidance up from $157 million, obviously that has been a bad year because most of you know that Strides focuses on niche acute therapies. COVID behind us obviously means that this business will come back to historical levels but interestingly we see the number of players actually dropping in smaller two therapies, where we specialize in. It has been an exceptional growth from the other regulated markets because we are very determined to ensure that our other regulated markets, catch up with the US in terms of revenues so that we have a middle market opportunity. So we like the growth and we believe that we’ll be able to continue that momentum.

It has also been a fairly good year from the institutional business. We have been awarded a slightly higher share of the wallet but the world keeps in terms of pricing pressures and other than that antiretroviral business. It’s always a business, we will conduct manufacturing recovery and overhead absorption rather than us building this into a strategic large business considering that we are not fully integrated unlike like some of our peers.

Importantly, our emerging market play, especially in Latin America and Asia is going through the filing regulatory and partnering phase, and towards that, we launched a new division within Strides called SynergICE, which is our B2B business that partners with companies where right, especially in markets where we don’t intend to front-end ourselves unless there is a foundry market of Africa where we have heavily focused on building a large pharmaceutical business considering that it is a market still unpenetrated and we have a lot of success and experience in that market.

Because we have this very large US portfolio of approved products, we see this recognition of quicker approvals coming our way because we have to do a little bit of little more work in terms of this impact of packaging formats that are sold in Latin America and Asia but we do see this payback for us to grow even stronger. These are traditional markets that we shied away from earlier, but last year we consciously invested in building out the emerging market play.

Coming to market specifics, the US at $232 million. Most importantly 19 of our 60 products that are commercialized, we are number-one. In terms of market share this is something we specialize in defining very niche and small products and then take market leadership towards a price pressure that happens for chronic and large volume products. This was traditionally our through 2019 story, we reset it to what it was and that’s playing out well.

We have 60 odd products, which are going through very aggressive improvements before we launch these products. So we are — we are very-very comfortable with — with a range of products that we have identified that will be launched in the near-term. So, most importantly, we like our market share, our price discipline, and also the ability to keep 3x concentrator of $60 million plus. That’s very important because as you know that the US working capital cycle times is about 200 and 100 plus days, and we wanted three or four steady-state quarters before we step up the gas in terms of expanding the market so that we could use that free cash that generates all of the US business for its growth.

The US business otherwise is one on it for almost $1 of new sales. Including the dividend about the working capital cycle time based on the working capital cycle time, it is a very capital-intensive business, and working capital intensive business. So we continue to stay invested SynergICE which is our partner business, it’s a larger part of our growth strategy even in the US and we combine with our very efficient front-end. We believe that we are poised for even more success with our strategy. We are just highly-differentiated from our competitors, especially India-based competitors.

The other regulated market was mainly led by a reset in the UK. We have great leadership in the UK and in our partnered business and but those businesses have gone historical high and we are delighted with the fact that in the rest of Europe, we have now partnered with marquee names and almost three of the top-five companies on our partners, which would not be the case when you are front-end access.

Strategic alliances and partnership and leading in several markets that we don’t intend to sometimes is key to our growth strategies going forward. We are also investing most of our R&D spend in markets, away from the US considering that we have very significant group portfolio. But having said that, we announced a partnership with Orbicular to develop a range of controlled substance space from our Chestnut Ridge facility, which offers those abilities to produce very complex products in mineral space and we are very excited about this partnership and look forward to the product filings and approvals in the near-term.

Our branded Africa business maintained its growth trajectory. It is subscale but we think that we have established a long-range plan to take that business to an important size and at this time not in a position to exactly give more details around it because there’s a lot these work in progress, but we are very excited about the opportunity, the margins that business provides us, and also the position — the IMS leadership position that we have in many markets, specifically in French Africa. We have now also embarked into English-speaking Africa but only in selected markets and we are also happy with the progress that is.

Now reflecting. We said we have decided going forward to restate our markets into regulated markets, Africa, and emerging markets and markets and for the benefit of our investors and the analyst community who follow us, we have recast the numbers for easy reference and going forward, we will be using this format so that you will have more granularity on both our strategy and on our numbers from [Indecipherable].

We have, we normally do guidance, but we had them considering we are coming back from a very difficult period, a, we want to give all our investors the confidence that the leadership around is very committed to build Strides to a very significant player, mostly focused on nitch portfolio and margin expansions. So we want to give comfort to our investor community that, and, therefore, we have given framework guidance where we said the continuing business will grow quite significantly but our emerging markets should grow faster as we get more-and-more products approved. We are confident of increasing our EBITDA from INR436 crores to about INR750 crores in the upper range and about 700 crores — 750 crores in the upper range and INR700 crores at the bottom of the range.

Between Strides and Stelis, we intend to reduce another INR500 crores of debt and we are now very confident that Strides’s net debt to EBITDA will be under three times. All of this will be achieved through emphasizing our network optimization, new product launches, market expansion, branded business increases in the — in Africa, and improved cash-flow generation, which will lead to stellar, a strong, if I may say FY ’24 and we are excited about our current order book and our confidence levels.

On a high level, I will also take you through the debt book and then I will leave the house for the — for questions. Debt, as you can see, we have given a little more granularity around debt Our long-term loans have reduced by about INR250 crores. Our working capital has not increased in spite of the INR600 crore increase in revenues. Our gross debt consequently, has come down. We have increased slightly our revolver because Q1 for us is about $45 million but Q2 onwards, we have been hitting approximately 65 million.

Ideally, the revolver has got no recourse to India. This could be, akin to a facility considering our loan agreements, we are obliged — not obliged but what we are doing is reporting them in that our debt book, is the right thing to do. So we continue doing that, but we just want to call out the revolver, which is renewed a couple of months ago for another five years. It has gotten more guarantees or recourse to India and our focus will be to reduce the long-term loans. Now, the ironic situation for us, our long-term loans has got a repayment of around $15 to $16 million a year. So even as our cash generation is much more than that, we’ll now start dipping our working capital loans considering some of these loans are at a good cost and that like orders today, obviously, the cost of money has increased quite significantly. So our high-cost debt is what we would reduce through a combination of strategies.

So adjusted for forex on constant currency there hasn’t been any significant net-debt increase, while the business is almost like INR450 crores of incremental gross. So overall a very solid outcome and we continue to be very bullish about the prospects of Strides and it’s continued focus on optimizing its business.

I will also address Stelis as it’s material, most importantly during the year, we reduced peak debt from INR1,200 crores to now INR660 crores at the end of March and this is in spite of a very significant impairment mainly out of Sputnik, and while we have commenced arbitration in London given the geopolitical situation. We have no clue and idea when this will get done with but we’ll keep investor community updated on progress. We have taken the hit mode on focusing on building a world-class CDMO business and we have several highs including two USF gains inspections, new GMP fresh product approvals for DTH and we have partnered in over 2019 countries covering almost about 80% of the market opportunity and we will soon be closing out our partner in Europe and expect to launch the product within this financial year.

We have added five new partners in our CDMO business and I’m pleased to let you know that three of these five new partners are amongst the top 10 companies globally and we have now some total of around 20 partners. We explained this business earlier with more graphical explanation that we start-off with what is called a master services agreement where we start work for the partner and again a master services to a commercial sale can be– can take as little as one year for a product which is already approved. Three years, if it is a filed and approved product — to be approved product.

Operator

This is the operator, may I know your name and your company name, please?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Challenges around the mismatch and cash flows for many of those things and the Stelis board has completed has appointed strategic advisors for reset. We will announce all of that outcome with our Q1 results in a couple of months from now. And also importantly, we’ve just completed installing additionally 8,000 liters of which 4,000 liters commission of drug substance, and our first multi-million contract for MSA for biologics has been secured, while we also have other customers that we have signed up.

Post our FDA approvals, our average size of RFQs have increased dramatically but like I said onboarding of the customer takes anywhere from 18 months because it’s not only GMP audits but it’s several other audits in terms of computer systems, BHG EHS, the whole lots but onboarding customers take time, but once they’re onboarded it’s obviously, it’s a very exciting business to be. So we are committed to this business. We are heavily invested in this business and we will stay invested here as we believe that the upside opportunities to stakeholders are significant.

So, based on now and I’m also pleased to let you know that our first commercial sales will start in June as one of our partners has now received two product approvals from this site post the FDA inspection. Consequently, we, while our revenues will be lumpy because our revenue recognition is a function of what can, we should be able to have complete coverage of our operations from an operation standpoint will be — we will be not only cash positive. I mean, slightly more than means, but we still will have to work on finding the last leg of the solutions related to self and we are working very hard to ensure we get that.

Bear with us, last week of July, first few days of August is when we believe that these should finally be able to present to shareholders what we think would be a very exciting outcome for the business, which is significantly valuable in the medium-term. So with that, I will — we will take questions, I have with me, colleagues Badree, our CFO and Umesh and we are more than happy to address your questions like always if, for want of time or if you have follow-on questions, please do write to us on our emails and we will be more than happy to address them. Thank you all. And most importantly to many of our investors stayed invested believing in us and believing in the story, we are delighted with our Q4 numbers and we look forward to pleasantly surprise you with more good news in the near-term. Thank you.

Abhishek Singal — — Analyst

Mr. Tanvi, can we take the questions, please?

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions]. First question is from the line of Mr. Dhruv Maheshwari, Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, this is Dhruv, a couple of questions. First one, it’s good to see our US business has maintained its quarterly run rate in line with the last quarter and our guidance. Could you give a growth outlook for the same over the next two-three years, what would be the key drivers of growth for the $232 million out of this?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yeah, so we do we have a guidance. We had mentioned that we will grow the business at around 15% with the MI Newmont is growing greater. So that is the benchmark guidance.

Unidentified Participant — — Analyst

Got it. The second one is, has the end of delivery achieved breakeven at an operating profit level during the quarter.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yes, it has.

Unidentified Participant — — Analyst

And the last one, strong portfolio build-out perspective, how should we look at the R&D investments for the business going forward.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Considering we have such a large basket of group products, we have redirected our R&D spend to emerging markets and Europe. Consequently, our R&D spend, which historically used to be about $20 million to $25 million has dropped to about $12 million to $13 million.

Unidentified Participant — — Analyst

Got it. Thank you so much. That’s all.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Thank you.

Operator

Thank you. Thank you. [Operator Instructions]. Next question is from the line of Cyndrella Carvalho from JM Financial. Please go ahead.

Cyndrella Carvalho — JM Financial — Analyst

Thanks for the opportunity. Can you help us understand the US market from our product perspective today, what has changed, which is allowing us to sustain through the ongoing market quarterly run-rate? If I look at our gross margins the impact at supported only by the US market today or do you expect this improvement to come from other markets? So first on the US market and then follow up with our strategy.

Arun Kumar — Founder, Executive Chairperson and Managing Director

So, Cyndrella you are not very audible, sir. I would appreciate if you could speak up on the phone, especially with regard to your first question.

Cyndrella Carvalho — JM Financial — Analyst

Okay.

Arun Kumar — Founder, Executive Chairperson and Managing Director

I got your second question.

Cyndrella Carvalho — JM Financial — Analyst

Is this better?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yeah.

Cyndrella Carvalho — JM Financial — Analyst

Yeah. So I’m trying to understand the US market from our product basket perspective like from our product basket how is the scenario today? What changes have happened, which has helped us to sustain the ongoing run rate and grow apart from the new launches? Is there any change, is there any supply issues, which are helping us to maintain our market share in the existing products? How should we see this and from overall our strategy in the US market has been to approach smaller-sized products, but higher than a number? So, does that work for us, or you planning to change it?

Arun Kumar — Founder, Executive Chairperson and Managing Director

No, we are not, in fact, we went back to that strategy and I think some of our challenges were we panicked during COVID as an organization and focus more on chronic where there were a bunch of players competing for market share and considering during COVID acute globally dropped over 50%, in terms of volumes because of acute was not happening, elective surgeries were not happening at that time. Considering COVID is behind us and probably we are all bench traveling and doing all the things that we are normally used to do. Acute has come back quite strongly. What is probably changed for us to be very specific to your question, if we see that the number of players has actually reduced in the smaller molecules with us all companies rationalized the portfolio because it’s expensive to produce small products. It requires a great scale in terms of how you set your manufacturing facility, changeover times, screening validation, these are all very expensive cost centers given the current expectations of the regulators globally but we have specialized producing this kind of products.

The most important thing for us as we can now proudly say when I tell you that in 19 products we are number one. We are number one by a very large margin. So we are talking at 40%, 50% market share, and we also cherish the fact that more than 70% of our number-one portfolio has got no Indian competition for several, several years. So that is a key advantage where you can set price discipline. I’m not suggesting. It just makes life a lot easier than price discipline is there, your focus on supply chain will ensure that we have rationalized the proceeds, great. We just got out of things and it’s not to blame anybody but COVID ensured that logistics got very [Indecipherable] and costly and we’ve got all the nice and affiliates to supplier partners, dramatically started coming down. We never used to have gone for almost three or four years, pre-COVID we had less than 0.5% but COVID changed that for us and a lot of companies and supply chain is back to normalcy, Rates are no more exuberant. All of this took place.

As far as gross margins. Clearly, for a combined gross margin of 60%, the US is the gross margin leader historically for us. So if the business grew in the US back from there is higher than historic COVID level so it’s just a logical reset of a business that we did well right for several decades. We’re just doing the same things. I think there would be always competition in specific products, but we are not shy in giving away market share also when we think it’s the rationale.

Cyndrella Carvalho — JM Financial — Analyst

Our investor base filings with the FDA, do you see any of them coming in over at any certain inside this year? Can you say there’s some number despite nothing of a dozen doesn’t, what in your business at all?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Historic business [Indecipherable].

Cyndrella Carvalho — JM Financial — Analyst

We were planning to come back. That’s the reason.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yes, yes, just hang on till we complete our conversations around Salix and [Indecipherable] and then maybe that would be a more appropriate time to have discussion.

Cyndrella Carvalho — JM Financial — Analyst

Overall size erosion right now how much for our formula, for the overall industry, where we have seven, maybe.

Arun Kumar — Founder, Executive Chairperson and Managing Director

If I say zero you won’t believe me, but that’s where I’m going to put my number.

Cyndrella Carvalho — JM Financial — Analyst

For our portfolio, right?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yeah.

Cyndrella Carvalho — JM Financial — Analyst

Okay. Thank you. In terms of overall cost versus over 25 and beyond. How do you think or you increase yet one or two more quarters to us in the discussion. Yes, good idea. Thank you. Thank you and all the best. Thank you, again.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Tarang Agarwal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital Management Pvt Ltd — Analyst

Hi, good evening. Mine is a bookkeeping question, I’m unable to reconcile the change in capital that’s been provided in the cash flow with the numbers on the balance sheet. For instance, increase in trade and other receivables is about negative $3,473 million for financial year ’23, but when I go to the balance sheet the receivables have not grown by that amount, it’s grown by maybe only less than $100 million. Similarly, when I go down and look at increase — decrease in trade payables by about $1,022 million, I am unable to reconcile. So can you just help me figure out what I’m missing there? I’m going to let Umesh, my colleague to address these, please. Yeah. So the major difference that is coming is on two accounts, one is we had deconsolidated here in Q2 end of Q2. So that is reflected in opening financials that is not there in the closing financials. So that is having one impact but in the cash flow it is part of the INR300 crores impact that you see on receivables, and also corresponding on inventories and payables plus, there are certain assets that have been identified as held for sale and those assets held-for-sale. It also forming part of the cash flow bridge. So those are the two major items that are causing the — that are impacting the difference within the balance sheet and cash flow. And the entire transactions pertaining to these two items will be the centered in the notes in much more detail. Okay, I’ll have a look and probably drop-in an email. Thank you.

Operator

Thank you. [Operator Instructions]. Next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Well, thanks for taking my question. Arun, congratulations on the turnaround. I’ll start with a couple of housekeeping questions, one is a, there has been a pretty sharp Q-o-Q increase in our other expenses. Any specific drivers for that?

Badree Komandur — Executive Director and Group Chief Financial Officer

Yeah, Nitin, just to answer this question. So the overall operating cost estimated to be the outcome of the exchange is that there has been increase in sales in Q4, accordingly, there has been an increase in expenses plus as a result, when exchange impact because sitting.

Nitin Agarwal — DAM Capital — Analyst

And Badree, how much would be the exchange impact be?

Badree Komandur — Executive Director and Group Chief Financial Officer

For Q4 it is INR15 crores.

Nitin Agarwal — DAM Capital — Analyst

But given, where we are in the business today. at this run-rate of about INR1,000 crores of revenues, this INR250 crores thereabouts is SG&A expense number to go with or there is a scope for rationalization over here.

Badree Komandur — Executive Director and Group Chief Financial Officer

Yes, overall, we had said that it will be in the region of $280 million, last time we had said and it will be in that range. $200 million.

Nitin Agarwal — DAM Capital — Analyst

This is across staff costs and other expenses.

Badree Komandur — Executive Director and Group Chief Financial Officer

No, both.

Nitin Agarwal — DAM Capital — Analyst

Okay. And Arun, on the other regulated markets, there has been a very sharp delta in this Q4. So is there some seasonality in this business or this is a base on which this growth is going forward?

Arun Kumar — Founder, Executive Chairperson and Managing Director

No, there is a personal impact from my Australian business, which is mainly post-COVID, the Australian government mandates a certain level of stock-keeping by the leading players in return for the previous pricing. So, we are seeing a significant uptick in Australia. We are not sure if this is, this will be a yearly function, but will it kind of be a big Q4 event every year we are not so sure but we are very confident to grow from the numbers that we have achieved in the other regulated market that funded $57 million, but affiliated player, a very significant role, but the exit run-rate is $200 million on $157 million business, which effectively means that the average last three quarters was about 35, so it is hard to be this quarter, but we are doing. We have very strong pipeline. Over the year, we will still achieve the company-guided growth even in this quarter.

Nitin Agarwal — DAM Capital — Analyst

Thanks. On the US, it’s about the fact that the US business, currently, the price ratio seems to be almost negligible on the current portfolio. So two things one is, a, is there again up element of seasonality in our US business.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Nitin, it is just, I’m not suggesting that there is no price reduction. We don’t accept price reduction. We have the luxury of portfolio insights on what we want to achieve. So if you get challenged for a $10 million product or a $5 million product or $20 million product. This is where the challenges happen mostly, we’re happy to let go because we have 14, 15 products being launched every year. If we keep, if you say that we have not lost business on our base business in the last year, that is not correct. We have because we have given away business, but we’ve also added business because we are now very focused on going back to our historical numbers, which is US business delivers closer to a 65% to 67% gross margin is also adjusted to the previous question but to get there sometimes is a challenge you have to let go business.

So I’m not suggesting there is price erosion. Price erosion is when you want to keep your market share. I’m saying, we have the luxury of letting go once challenged.

Nitin Agarwal — DAM Capital — Analyst

Right. Right. That’s understandable. And secondly in terms of the pipeline, which is not launched yet. What we already have in the market of your assessment, is there a qualitative difference in the quality of the products that you could potentially launch versus what you already have in the market in terms of pulp qualitative, I mean revenue by product retention.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yeah, so I mean the — a key element here is that the end of out of the 280 odd products almost 100 high-quality products gain from the ENDO portfolio. The challenge we had in the first two quarters of the transition was that ENDO was still marketing the products for us and we didn’t have control on products and portfolio and pricing because that’s how the deal is structured. Now that we have. We obviously have got the same level of hygiene and discipline that they are generally non for in the US market and that’s also led to an uptick because we were bleeding money in Chestnut Ridge and if I were addressing a previous question that did you make money in Q4 in Chestnut Ridge, the answer is yes. It means that we have now sold for a lot of things.

Most importantly, remember, we’ve reduced our Chestnut Ridge costs by almost $15 million during the year and that complete flow through will only happen from April — has happened only from April end so that’s almost about INR8 crores to INR10 crores per quarter, almost $1 million, $2 million per quarter, I mean as in the residual cost that we are bearing in Q1. So that also will give you an indication of what Chestnut Ridge could do.

Yeah, so we. If you look at us today. You will see us in market leadership on several products in many products, we are the sole supplier, but we are disciplined with pricing, we don’t do anything irrational but we have several products where we are the sole player in the market, but they’re small products.

Nitin Agarwal — DAM Capital — Analyst

Last two questions. When they and — when do the nasal spray portfolio that we partnered recently on come start coming to the market.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Well, I think it’s going to take a release about three years because it’s very complex, controlled substance on a very special device. So, It’s a lot of work including potentially some clinical acquired.

Nitin Agarwal — DAM Capital — Analyst

And lastly, Badree, the increased cost seems to be very high for the quarter, any specific drivers for that?

Badree Komandur — Executive Director and Group Chief Financial Officer

Yeah, so the interest cost-to-serve there are loans which has been taken in the later part of the Q3, the full impact has come in the current quarter. And second thing is, while we closed the transaction on December 25, some last week because of procedural matters, the repayment of the loan, the banks took time. So that’s the reason the interest cost is slightly higher, but overall, it will be that the INR65 crore range is what we expect going forward.

Nitin Agarwal — DAM Capital — Analyst

INR65 crore quarterly range, what we should work with.

Badree Komandur — Executive Director and Group Chief Financial Officer

It also has to do with LIBOR, right, because our Wells Fargo line is linked to LIBOR so LIBOR going up, there is 3%, 4% increase on that line, cost too.

Nitin Agarwal — DAM Capital — Analyst

Okay. Thank you.

Operator

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

Sarvesh Gupta — Maximal Capital — Analyst

Congratulations team on a good set of numbers on the pharma side. Sir, first question on Teles. Just wanted some more clarity. I think you have written that we are expecting some outcome to come from the strategic options. So are we in the next, by the next quarter or so, are we concluding a transaction or planning to conclude a transaction or are we just going to be deciding what is the way forward on what to be — on what needs to be done for a steady state that we have.

Arun Kumar — Founder, Executive Chairperson and Managing Director

It’s a more definitive way forward and hard to ensure that we become a very important CDMO company of size and scale and strategic options into that amongst other things that you mentioned. So bear with us, it’s two months away.

Sarvesh Gupta — Maximal Capital — Analyst

Okay, because in the last quarter commentary it peered as we wanted to conclude a strategic sale or something like that we have in the sort of get-out of our shareholding.

Arun Kumar — Founder, Executive Chairperson and Managing Director

You are reading between the lines, but I can’t blame me for that. When — when the Board appoints advisors for strategic options, it effectively means it could be anything. What I’m trying to tell you is that, and I think for us, in this case, is how do we build Stelis as to become one of India’s leading CDMO companies and what does it take us to do them?

Sarvesh Gupta — Maximal Capital — Analyst

Understood, sir. So that is what we are expecting maybe by the time we have the results for the next quarter, right?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Correct.

Sarvesh Gupta — Maximal Capital — Analyst

Okay. And secondly, what is the current level of corporate guarantees that Strides has given to Stelis.

Arun Kumar — Founder, Executive Chairperson and Managing Director

The outstanding debt in Strides is about INR600 odd crores of the cash — cash and cash equivalents. I think the outstanding liabilities related to Stelis is in the range of around INR500 crores because you don’t need to give guarantees on all the COVID loans. So we are in that ballpark. Although, it’s amongst the strategic options refinancing is what we want to do. Then we have shareholder approval to issue guarantees up to some request.

Sarvesh Gupta — Maximal Capital — Analyst

Understood. And now coming to the rationalization of the cost part, so we can see that our other expenses have come down, but at the same time some normative expenses would have gone up, so what is the extent to which we have gained in terms of permanent removal of the expenses from our cost structure.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yeah, so you have to assume your Q4 as the base, and like we said $200 million run-rate in for the whole year, so $50 million. We are very close to those levels. There would be a little more opportunities for us to reduce, but we don’t increase from there.

Sarvesh Gupta — Maximal Capital — Analyst

Understood. Because I think related — there were some higher expenses related to our US facility also, which were carrying till end of April ’23.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yeah. So that was when we issued warrant notice where we right size more than 50 people. There are certain regulations that leads to pay a significant amount of severance. All of that has been taken into account and that ended as of end of April. So that’s all done there.

Sarvesh Gupta — Maximal Capital — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Zaki Nasir from Nasir Investment. Please go ahead.

Zaki Nasir — Nasir Investments — Analyst

Good afternoon, sir, and again congratulations on a fantastic set of numbers. The Company looks at the cash flow turnaround in ’24, as you rightly mentioned in your presentation, sir. My two questions sir is like we did around INR1,000 crores on the top-line this quarter. Going forward, do you think we could, I mean this will become like a normalized quarterly run-rate for Strides.

Arun Kumar — Founder, Executive Chairperson and Managing Director

That’s good. Thank you for your commentary on our numbers. We appreciate that. So we did have a good bump-up on our institutional business, what we call that out in our deck there is lumpiness in that business and that’s why we have agreed on a restatement on how we. I mean, how we would present numbers going forward.

So I think that the institutional business is lumpy in nature for the whole industry for those of us who are in this business but if you take that off and we have guided numbers and on that number we — you could safely add 20%. So this is a good kind of guardrail number, if you wish but you would, I would be cautiously optimistic on the institutional business because it’s not a business in a hand that is driven by donor funding and the ability for you to deliver a short notice and stuff like that.

At this time, we are building businesses, which are more in our destiny and our strategy and while the donor business is extremely important from a manufacturing recovery standpoint, it’s not a business that it’s predictable or guidable like the rest of the business.

Zaki Nasir — Nasir Investments — Analyst

But sir, I mean, like what you’re adding new sites about the bad debt number. So what could we safely assumes 6%, 7% from here on the lower-end in terms of if you subtract a part of the institutional business also?

Arun Kumar — Founder, Executive Chairperson and Managing Director

If you subtract the institutional business you can safely count 15% to 20% if you add the institutional business, 6%, 7% is also very comfortable.

Zaki Nasir — Nasir Investments — Analyst

Okay. And sir, in terms of Stelis, the debt number is INR600 odd crores, and what would be in Strides and what would be your comfort level or going forward by the end of ’24 and ’25, what would you want these two numbers to look like, sir?

Arun Kumar — Founder, Executive Chairperson and Managing Director

That’s over 3.5 times EBITDA.

Zaki Nasir — Nasir Investments — Analyst

Okay, sir. And one last question, sir in Stelis have we taken the total write-down from the problems on Sputnik.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yes.

Zaki Nasir — Nasir Investments — Analyst

Or we still have some carry-forward things from that?

Arun Kumar — Founder, Executive Chairperson and Managing Director

None.

Zaki Nasir — Nasir Investments — Analyst

Is there any possibility of something coming back on the books?

Arun Kumar — Founder, Executive Chairperson and Managing Director

No.

Zaki Nasir — Nasir Investments — Analyst

No, I mean in some kind of feedback from the authorities or things like that.

Arun Kumar — Founder, Executive Chairperson and Managing Director

No.

Zaki Nasir — Nasir Investments — Analyst

Okay sir, thanks a lot, and best wishes to you and team Stride for ’24 and a fantastic ’25, sir.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Thank you so much. Appreciate it.

Operator

Thank you. Your next question is from the line of Srikanth Choudhary, Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, thanks for the opportunity. I guess I was a little bit. Sir, the guidance for FY ’24 is around 15% revenue growth with our target EBITDA of above INR750 crore. So could you highlight the key driver for this topline growth and margins for this fiscal year?

Arun Kumar — Founder, Executive Chairperson and Managing Director

So one is cost obviously, second continued success in the US, that is key and SynergICE, our B2B business converting, I mean customers that were converted moving to revenue recognition. Those are some of the key drivers.

Unidentified Participant — — Analyst

Got it. Got it. Thank you.

Operator

Thank you. Next question is from the line of Omkar, Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Sorry, good evening. Am I audible?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yes.

Unidentified Participant — — Analyst

Thanks for taking my question and congratulations to the Strides team for a good gross margin improvement and operating profit margin. My first question is Strides has delivered $63 million in revenue. As far as Q2 performance is concerned, there is no improvement in US revenue. Any specific reason for it? And how many products we are introducing this financial year from Endo, till Q3, 10 products got launched from Endo in the year.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yeah. So it’s not launches, it’s actually relaunch. So, like I said if we get challenged on pricing, we are happy to let go, so it’s not how much we want to grow in the US, it’s about margin expansion. And with that discipline, we have got to 60% of margin expansion, almost 59.9% and we want to focus on that. And this year is all about improving our gross margins and EBITDA and further reducing our debt to a comfortable level, which is what our focus is. So we’re not so much concerned if sequentially we didn’t grow 10% or 15% Q-on-Q. We grew 58% Y-on-Y, so if we end up the year 15% growth on $232 million. That’s what we need to look at and are we improving our gross margin beyond 59% that will be a good indicator.

Unidentified Participant — — Analyst

Okay. Thank you.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Hello? [Indecipherable].

Operator

The next question is from the line of Chetan from Pragya Equities Private Limited. Please go ahead.

Chetan Cholera — Pragya Equities Private Limited — Analyst

Well, I just wanted to know what percentage of [Technical Issues]. Is there any guidance [Technical Issues].

Arun Kumar — Founder, Executive Chairperson and Managing Director

Sorry, sorry, we didn’t. We can’t hear you, Chetan.

Operator

Your voice is low. We are not able to hear you. Please keep your headset closer to your ear.

Chetan Cholera — Pragya Equities Private Limited — Analyst

Yeah, yeah. Can you give us what percentage of promoter stake is pledged or is there any guidance for reduction reduce it?

Arun Kumar — Founder, Executive Chairperson and Managing Director

Yes, so, see, we did guide that our idea is to reduce our prices quite significantly, but considering we had a choice last year, to keep the lights on Stelis, so promoters have invested over INR500 crores, which to ensure that nothing has slowed from the guarantees that Strides is delivered and that was key to our strategy. And absolute loan book on the pledges are not increased but pledges is a function of the share price. We believe that we will be able to reduce the pledge levels by about 33% to 30% during this financial year. Right.

Operator

Thank you.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Any other questions?

Operator

No, sir. Ladies and gentlemen, this was the last question. I would now like to hand over the conference over to the management for their closing comments.

Arun Kumar — Founder, Executive Chairperson and Managing Director

Thank you. Thank you all for joining today’s call. And like I earlier alluded thanks for your confidence in Strides, and thank you for your support.

Operator

[Operator Closing Remarks]