Transcript of the Q3 FY20 Earnings Conference Call with Analysts
Opening Remarks
On the revenue line, there is a decline of 2.7% sequentially and 2.8% y-o-y. Q2 of this financial year and Q3 of last financial year, both had other income in them. So, if you adjust for that, then you would see 1% growth sequentially and 2.9% growth y-o-y. Accordingly, the gross margin is flat sequentially and is up by 0.7% yo-y. You also see the EBITDA margin for this quarter is 14.1% as against 18.9% for corresponding quarter. The 9-month average EBITDA is 18.5%.
We hope to end the year with around 18% EBITDA, and that is where we start off from, for the next financial year. There are 2 other events that I need to share. First is the sale of Kyowa Pharmaceuticals, our asset in Japan, which was done looking at the business environment. The other one deals with impairment of intangible assets. This again goes to lighten our balance sheet and improve our ROCE, and therefore, it's a positive decision for us.
I would first want to address the 2 exceptional items that you see presented in the results and in the PR. I would explain each of these and then go to the normalized operational results for better clarity. Firstly, we had the Kyowa divestiture that was announced in November and finally, completion of the transaction took place on December 17. We see in the books, a one-time pretax accounting gain of Rs, 1,291 crores. Against this there were taxes, and the net amount of gain that you see is Rs. 997 crores for the quarter, which is a one-off item.
The second exceptional item that you see in the numbers is the impairment of the Gavis intangibles. Certain IPs of the Gavis portfolio were reevaluated looking at the U.S. market conditions, and we have decided to take a provision for impairment. The amount is Rs.1,579 crore, roughly about US$ 228 million on the pretax line. Linked to this, there were certain deferred tax assets, which we also decided to reverse in relation to the Gavis transaction. So total impairment was US$ 288 million. The tax line contains a charge of about Rs. 405 crore and the total impairment, therefore, we have taken is about Rs.1,958 crores on account of the Gavis transaction. I'm sure you would have questions on the tax line, which clearly shows that there's almost Rs. 700 crores one-off that's lying in the reported numbers.
