Can you specify as a percentage what was the actual onetime paid?
Because of confidentiality reasons, Damayanti, it's impossible to talk about specific deal bonuses or any specific line items on the call.
But this discussion on GST has been going on for some time, and industry is also part of the discussion?
But Glenmark has a unique distribution model. We have a 3-tier legacy distribution model. Most of the industry is already on C&F. That is making the big difference because of the 3-tier distribution system that we have. It's a onetime thing - from Q3 onwards, you should see sales coming back, and we've even guided to INR1,150 crores, INR1,200 crores from Q3 as well as next year, INR4,800 crores and above.
In Q3 FY '24 you had restructuring, and now restructuring in Q2 '26. What was the difference? And do you run a risk of something similar happening in future given your distribution structure?
The distributor inventories are now at very low levels, so automatically we are expecting some restocking. In the future, if there is any other change that happens, it's impossible to predict. But I don't think in the future, we will be at a disadvantage because of the 3-tier system - that is pretty clear for us as of now because the inventory levels have come down to very low levels.
You have a net cash of INR1,500 crores, INR1,600 crores now. Can you guide to what your number could be by the end of FY '26, the net cash number?
Right now we are sitting at INR2,647 crores exactly. In terms of taxation, we have brought it down to close to a $90 million of total cash outflow despite the 3 levels of taxation - Swiss, U.S. and India. So this has come down to almost 12% to 13% of the total deal value. Large part will be going in H2, balance in next year. With this, FY '26 we will be a gross debt zero. I would not commit to amount but our first target will be to have paid all the gross debt - we will still be a cash positive.
What controls and checks have you instituted within the organization to fool-proof against future write-offs related to Monroe, India, Zetia, intangibles?
We had a difficult patch as an organization - whether it's Monroe, the FDA challenges we faced, intangibles write-downs, Zetia class action lawsuits. From an operational standpoint, it's impossible to predict any of these. We have very strong controls in place, a lot of governance committees formed to look at various aspects, and a great leadership team. We have strong compliance committees now in place to oversee litigation aspects to make sure we don't have those issues again. The next 5 to 10 years should be transformational for Glenmark.
Are we done with these corrections on the legacy issues on the balance sheet and the P&L? Is this literally the end of it?
We are clearly in a position where we'll take each of the pieces. For India, we have clearly guided to INR1,150 crores, INR1,200 crores starting Q3, and next year over INR4,800 crores of sales. As far as the balance sheet changes, the pre-collections, we are pretty much done with everything. We changed the model completely, and there are no further changes in either the P&L or balance sheet corrections which need to get done going forward.
Now with that constraint eased on cash flows, what kind of changes do you think it has on the business and what flexibility does it give you going forward?
The journey for Glenmark for at least the next few years is very clearly related to continuing to be a high-growth business. We are back into a high-growth phase as an organization with an aim to grow this business around 15% as we go forward. Our focus is to grow this business organically, and free cash generation is a must-have - the business will throw a significant amount of free cash from FY '27 and beyond on a very high EBITDA, almost INR17,000 crores, INR18,000 crores top line with EBITDAs of 23-plus percent.
H1 EBITDA is almost INR1,800 crores, so we should have some generation of free cash in the second half of the year?
Yes. We are still at INR2,700 crores of cash in the books. As the business generates, we will surely be in a cash positive position. Our aim will be to have a completely gross debt zero by FY '26 - end of this fiscal. The business will continue to have cash generation, and we'll have a very prudent capital allocation going forward to grow the business.
On the INR650 crores onetime bonus and deal-related charges - is this the global norm of paying such high amount to employees as an incentive?
Employee bonuses are one part and is in line with the biotech companies where you have to actually incentivize the R&D team to continue to build the pipeline in the future. Besides that, it includes the deal expenses - data room setup, legal charges, due diligence charges, consultants involved, mostly in European and U.S. geographies which is very high cost. It also includes LCDF closure charges because regulatory-wise in these geographies, it's not easy to close the facilities, including settling employee-related liabilities and local regulatory liabilities.
On India business - if GST change didn't happen, you wouldn't have taken this write-off? Or did you use this window as an opportunity to clean up issues on the distribution side?
We thought we had an optimal inventory level in the channel. However, the GST thing came as an unknown for us, it was totally unexpected. The distributors, because of the differential in the GST rates, started reducing their inventories. Today, they've reached inventory levels which are below the threshold, and you could see some amount of restocking. But this was completely unexpected from our side.
Can you explain what is the third layer which is additional for you?
We have a super stockist structure - super stockist or distributors. Most of the other companies have a C&F model where the inventory and everything is on the company - inventory and receivable collection from stockist is on the company. Whereas for us, when we do the billing, the inventory is on the distributor and his responsibility to collect from the channel. So that's the uniqueness of the model.
But in Q3 FY '24 also, there was some intention of getting the inventory down, right?
At that point we basically consolidated some of our stock points because we had built some inefficiencies in terms of how many number of stock points we had across the country. We just thought we will consolidate some of that business. So that was a change that happened in Q3, 18 to 24 months back. What has happened this time, Glenn has explained, and we spoke about the future as well.
On the INR1,650 crores working capital, can you give the split between receivables, inventory and payables?
Inventory was up by around INR250 crores on the face of the balance sheet and debtors was close to INR400 crores on the face of the balance sheet. But the underlying is that we stopped the pre-collection. So that has actually increased the INR800 crores of the debt. Inventory levels - we'll have to keep building the inventories for the next H2 to support the growth, which is a normal inventory of INR3,300 crores today, 80 days of the inventory levels.
On India business in terms of inventory rationalization, the channel unloading - what is the quantum of it? Is it close to about INR1,000 crores?
Yes, around INR1,000 crores. Our targeted run rate going forward is INR1,150 crores plus. If you remove that INR150 crores what we have booked, so close to INR1,000 crores and maybe a little higher than INR1,100 crores sort of number we could have hit this quarter.
The INR830 crores IGI and onetime charges line item - it doesn't include the R&D associated with IGI in Q2, right?
No, it does not. It only included the onetime charge. It does not include the running expenses of R&D.
On the litigation spends for different cases, the cash outflow over next 2-3 years would be in the ballpark of INR800 crores to INR1,000 crores. Does that number hold good?
It's slightly lower than that, Tarang.
At the IGI level, the entire $700 million came to IGI - how much of it is still with IGI?
IGI will be covered for next 3 years of capex allocation, which is $70 million per annum. So almost $210 million to $225 million will be allocated to IGI. Most of that has been actually then come back because IGI is a wholly owned subsidiary of Glenmark Holding. Some of this will be dividended out in the next year as a phased out dividend due to tax planning. But for IGI capital allocation, it's only $210 million to $225 million.
So out of the $700 million, only $210 million-$220 million goes to IGI and the remaining came to other entities of Glenmark?
Yes. Basically that will flow through everything to Glenmark. And it will be parked in treasury surpluses. Physical fund wise, everything, whether it's in the form of loan or the dividend or the other flow-through, it's been under control of Glenmark.
You will transfer $70 million a year to IGI for the expenses, and this $70 million will be fully expenses passing through P&L?
Right, absolutely. $35 million for this year H2, and then $70 million every year as we committed. In P&L, you will see a revenue item of $70 million every year and corresponding expenses. So it will be neutralizing that.
On the 4 assets on the multi-specific platform - are they all trispecific antibodies or various formats? And is the 5-year time line for revenue recognition or for entering Phase I clinical?
When we say multi-specific, all these are more than trispecific, so they have multiple binding sites on the antibody. This is all next-generation programs that we are working on, which can be transformational just as we did ISB 2001. 2301 enters the clinics next year FY '27, which again is a multi-specific. Beyond that, over the next 5 years, you'll see one by one of these assets coming into the clinics. We will continuously evaluate partnerships and try to close partnerships in the next 5 years as we go forward.