Kedar Upadhye - Former Director G V Prasad - Chairman and CEO Saumen Chakraborty - President, CFO and Global Head of IT&BPE Satish Reddy - Vice Chairman and Managing Director Abhijeet Mukherjee - President, Generics.

Balaji Prasad - Barclays Prakash Agarwal - CIMB Chirag Dagli - HDFC Mutual Fund Neha Manpuria - JPMorgan Girish Bakhru – HSBC Anubhav Aggarwal - Crédit Suisse Sonal Gupta – UBS Surya Patra - Phillip Capital Surjit Pal - Prabhudas Lilladher Sameer Baisiwala - Morgan Stanley Alok Dalal - Motilal Oswal Manoj Garg - BofA Merrill Lynch Saion Mukherjee - Nomura Securities Krishna Prasad - Franklin Templeton.

Ladies and gentlemen, good day, and welcome to Dr. Reddy's Laboratories Q4 and FY '14 Earnings Conference Call. (Operator Instructions). Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Upadhye. Thank you, and over to you, sir..

Good morning, and good evening to all of you, and thank you for joining us today for Dr. Reddy's earnings call for the fourth quarter and full year-ended March 2014. Earlier during the day we have released our results, and the same are also posted on our website.

We are conducting a live webcast of this call and a transcript shall be available on our website soon. Just a reminder the discussion and analysis in this call will be based on IFRS consolidated financial statements. To discuss the business performance and outlook we have the leadership team of Dr. Reddy's comprising Satish Reddy, our Chairman, G.V.

Prasad, Chief Executive Officer and Managing Director, Saumen Chakraborty, Chief Financial Officer; Abhijeet Mukherjee, Chief Operating Officer and Investor Relations team. Please note that today's call is copyrighted material of Dr.

Reddy's and cannot be rebroadcasted or distributed in press or media outlet without the company's expressed written consent. Before we proceed with the call I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call and the webcast.

After the end of the call in case any additional clarifications are required, please feel free to get in touch with the Investor Relations team. Now I would like to turn the call over to Saumen Chakraborty, our CFO. .

Our working capital balance decreased by $45 million over the previous quarter and is largely in line with expectation. Capital expenditure for the quarter was $32 million. Our net debt-to-equity ratio now stands at 0.12.

Foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are approximately at $335 million, largely hedged around Rs. 58 to Rs. 62 to a dollar. In addition, we have balance sheet hedges of $660 million. With this I now request Satish to take us through the key business highlights..

Thank you, Saumen. Greetings to everybody and I extend a warm welcome to you on this earnings call. We ended the fiscal year for 2014 on a good note with strong sales growth in our key markets accompanied by a healthy margin expansion. In several ways we demonstrated steady progress towards our strategic goals.

Notable accomplishments during the year include the strong injectable product franchise in the U.S. first wave of differentiated product launches in India and continued scale up on our presence in the emerging markets. Our development engine continues to prioritize on complex generic assets across identified dosage forms and therapies.

We are also investing aggressively to build best in class manufacturing infrastructure to service future demand across the markets. While the U.S.

generics influenced the current quarter's performance and the annual performance to a great extend our key emerging market geographies and India also contributed despite a challenging micro economic environment. The PSAI business had a tough year though the fourth quarter performance improved in the back of better off-take from our key customers.

Now let me take you through some of the business highlights for each of the key markets for the quarter. Please note that in this section all references to these numbers are in local and respective local currencies. Revenues from North America Generics for the quarter were $244 million.

As you would recollect we had alluded to a possible sequential decline in Q4 due to bunching up of some customer orders and initial billings for a couple of new accounts. This played out as expected resulting in the Q4 year-on-year growth of 14% and the second half year-on-year growth of 30%.

Our key launches for the year mainly Zoledronic acid, Azactidine, Decitabine, Donepezil 23mg and Divalproex ER consolidated the market shares supported by seamless supplies coupled with lack of significance competitive activity.

As you are aware we launched Sumatriptan auto-injector, Amlodipine, atorvastatin combination and [moxitoxicin] during the quarter for which we are working towards garnering a fair market share in the coming period. Revenues from India were Rs. 410 crore and recorded 18% year on year growth.

This was on account of strong volume expansion in our NLEM portfolio, revival in some of the key therapeutic lines and also lower base effect. We continue to introduce new differentiated products to enrich the portfolio mix and address existing unmet medical needs for the market.

We believe that with better field force execution enhanced portfolio and presence in the growing institution business India can consistently grow faster than the market. On the emerging market front Russia revenues were at $60 million for the quarter and grew by 4% in Ruble terms.

While January and February saw healthy in-line double digit growth the market was quite volatile in March due to the currency headwind and the resultant liquidity issues. This financial year we have been the fastest growing company among the top 20 Russian pharma companies.

OTC sales are 37% of the total sales in Russia and as per IMS we grew by 10% during the year compared to the market growth of 1.4%. We gained five ranks during the year over the previous year. In spite of the ongoing geopolitical issues and currency devaluation our emerging market rates witnessed faster than market growth.

Our thrust on these territories continue and we believe that there is enough head room to grow our market shares. Our PSAI business declined 42% on a year-on-year basis mainly due to the higher base though sequentially it grew by 31%. Past few quarters have been challenging for the business. However we continue to identify improvement opportunities.

In addition PSAI continues to provide strong support to our global generic new product launches. On the biologic front we continue to commercialize our product in emerging market as we progress our pipeline towards approval in the U.S. and Europe. This strategy allows us three distinct advantages.

The first, ability to provide improved access to life saving medications for patients in significantly underserved emerging markets. The second, real world experience and data on our products, and the third it allows us to capitalize on early revenue opportunities while we make progress on developing our assets for approval in mature markets.

We filed a U.S. IND for the proposed biosimilar rituximab in July 2013 and permission to proceed with the Phase I trial under this IND was received during the year. We also filed a U.S.

IND for the proposed biosimilar of pegylated filgrastim which is peg GCSF, in December 2013 and the permission to proceed with the Phase I trial in normal healthy volunteers under this IND was received in January 2014. At this time we are in the midst of planning, designing and executing the studies under these INDs.

Against this backdrop of financial year 2014 the year 2015 presents us with its own set of opportunities and challenges. We’ve made significant progress in our journey towards operational excellence during the last four years.

There is also a strong focus on enhancing the portfolio of complex products and targeting a greater share of limited competition opportunities. As you are aware it is not our practice to provide any forward-looking quantitative guidance.

However we are quite optimistic on opportunities across the board in branded and unbranded generic markets as well as our ability to execute on operational agenda. We expect the growth momentum to continue. We believe the journey in fiscal 2015 and beyond will be quite interesting and rewarding to our stakeholders.

So with this I would now like to open the session for Q&A..

(Operator Instructions). We have the first question from the line of Balaji Prasad from Barclays. Please go ahead..

Hi, thank you. Good evening everyone and congratulations on the performance. May I also offer my congratulations to Satish and Abhijeet on your new roles and wish you the best. My first question is on you U.S. growth this quarter. So when I analyze your U.S.

sales data it seems that decitabine and azacitidine contributed around 70% of incremental growth this quarter, is that a fair estimate?.

Both assets are doing well but Q3 was -- year-end we messaged in the last call there were some additional sales in Q3. So Q4 was not as good but as far as competition is concerned, both assets have been doing well..

Sure thanks. So is this -- well it's good to note that both the products are doing well, is it a concern that incremental growth was largely dependent on these drugs or especially considering that launches in fiscal '15 don't seem to be comparative to fiscal '14..

So launch on fiscal '15 is a different topic but Q4, we didn't have any large launch of [inaudible] and sumatriptan and get to -- both are reasonably good products but not in the league of [Docogen] or VIDAZA. FY '15 has just started, certainly let's see how this plays out.

There are a few products, some of this will be known as we launch how many players get into the market and so on and so forth..

Understood thank you. My second question is on Nexium just wanted to see if you see there is any possibility of an earlier than day 181 launch in any of the scenarios which can play out..

So I don't think FDA is the principle of honoring first to file is still valid, you've seen [diavram] and it's more than two years. We saw in [repamun] as well it's now six months almost and we are not able to launch because it's the -- first to file hasn't launched.

It may not be very different in Nexium unless there is some change in legislation or specific decision making with FDA..

I understood. So you are think that the probably is high that the launch would only be a day 181 launch for you..

I guess so, yeah..

Understood. Thanks very much, all the best..

Thank you. The next question is from the line of Prakash Agarwal from CIMB. Please go ahead..

Yeah thanks for taking my question. Question is on the R&D side. I mean from a year basis, we did 9.4% and fourth quarter particularly was a heavy quarter in terms of the number of filings also went up.

So could give A, the guidance in terms of what you are looking at for next year and year after? And also which broad buckets are we having an incremental filing into?.

So this year we ended about 9.4% of sales and we expect that to be double digits next year. So It will be anywhere between 10% to 11% of sales. That's what we expect in terms of R&D spend.

So if you see the three parts on which the spend is classified in this point of time there is global genetics and PSA on one count and then there is biologics and then there is proprietary products. I mean roughly you can take it as 65%-35% kind of, global generics and PSAI on side and then the balance on biologics and proprietary products.

So in terms of spend what's going up is because of the movement on the clinical files for the biosimilar products that I just talked about, two of them, that increase in spend. There is also the proprietary products, progress on some of the products.

But the biggest increase will also come from the global generics pipeline because there is a mix of complex generics products as well as some external partnerships. So this is a significant increase in our likely spend. So all put together we see quite a substantial increase..

When you filed say the filing has been in the range of 12 to 13 products, would be able to give what portion would be the complex side or which broad buckets there would be oncology injectables or what kind of buckets we should look at?.

I don't think we can go into that level of classification at this point of time. .

Right, and second question is again on the U.S. side we saw nine product approvals.

So would you say about '15 and '16 similar kid of product approvals? And with GDUFA increasing their action would you expect better approval run rate going forward?.

Going forward it's difficult to say at the moment, I think it's pretty much in the same rate of receiving deficiency and approvals. We don't so far -- we haven't seen great deal of increase in the speed of approval or the files going ahead..

And in terms of your number and quality of products versus launched last year?.

Last year was a little skewed with some great products beginning of the year if you would ask the same question we wouldn't have been able to answer that. We have such -- it played out much better than we thought. It may happen in one or two products this year as well, difficult to say that how it will play out but we have launches.

We already launched a few we have few launches in Q1, Q2 as well. So let's see how these play out..

And last one if I may add on the Russia piece you talked about the last month that is the March month seen some disturbance I mean have you seen any structural change because we saw Teva also talking about warm winter, political disturbances which has hit the OTC market.

So could be a little more elaborate on what happened and do you expect fast growth to come back?.

So the net of all these effects the pharmaceutical market has slowed down. The whole year has ended IMS reports 2% decline in the market. So all this is playing out in the result of all pharmaceutical companies in Russia. Having said that is this, how long is this likely to continue difficult to say. The year has started in a good knot.

We are doing very well. We are actually in the top 20 companies in IMS. We are growing the fastest. The improvement in rank in OTC is five ranks increase in OTC so we are doing well in this somewhat adverse situation. Let's see how the market sort of plays out. .

Right, I have more questions I will join back in the queue. .

Thank you. The next question is from the line of Chirag Dagli from HDFC Mutual Fund. Please go ahead. .

Yeah, thank you. Sort of any thoughts on how gross margins, how sustainable the 57% kind of gross margins are especially given that FY '14 has been driven by some niche launches.

So any thoughts on how we should think about the future?.

So the way we always put our business model is to ensure that we are having north of 50% of gross margin or something that we will definitely we would like to protect.

And so if we do not get a very favorable currency kind of thing keeping the same gross margin would be challenging but at the same time with the new product launches and if we are getting better price increase in some of the products that we have seen in U.S. Generics we have got last year, then it would be favorable to us..

Okay.

And second question sir on the tax rate with higher R&D how should we think about tax rate?.

We can for modeling purpose you can have anywhere between 22% to 23% of tax rate..

Okay, sir. Thank you so much. .

Thank you. Next question is from the line of Neha Manpuria from JPMorgan. Please go head..

Thanks for taking my question sir.

Sir, on the R&D spend when we talked about proprietary products and biologics one, could we mention the sort of investment that we're looking in both of these businesses and my second question on this is for proprietary products specifically, if you could give us an update on sort of pipeline we're looking at what areas we are focusing on and when we should expect any launches from the investment that we are making?.

So biologics already Satish mentioned that there are two INDs which have been filed during FY’14 and which have been accepted by U.S. FDA where more development will start. We are at the design phase and we have an alliance with [inaudible] for that.

Proprietary product we can expect all that investment that we’ve been making in proprietary products there are early participation and we expect some good progress. At some point of time during the financial year we will disclose all the proprietary product portfolio in greater detail then you will have complete idea..

And would you like to, I mean are we looking at like upper limit to investment in these areas specifically in bigologics?.

We have an upper limit in terms of total cumulative cash that gets consumed by the business in terms of -- because in biologics also we get some earnings out of the revenue from emerging markets. For biologic we have taken upper limit of $150 million.

So within that we expect that we get to breakeven and start contributing to the profitability of the company. Proprietary product definitely we are in higher development it looks like it will be around $300 million kind of investment that we’ll be willing to put for..

Got it.

And so an update on Cymbalta when are we expected to launch it?.

Soon in six to eight weeks maybe..

Got it. Thanks so much..

Thank you. The next question is from the line of Girish Bakhru from HSBC. Please go ahead..

Follow up on the previous question, you said $150 million for biologic containing how much portfolio like how many assets are there in that?.

We have actually four currently and of course there are more in the pipeline in terms of development which is going on..

This would be your share apart from the Merck Serono share right?.

Yeah..

But just comparing to say what bigger guys like Celltrion are spending $200 million per product, you don’t see that kind of investment necessary for these products in the regulated markets right?.

I said about the cumulative cash gap which is getting consumed because we have already launched some of the product, some biologic in emerging markets. So we get revenue and profit out of that. So it is the net cash consumed that will….

The scale of investments will be similar but we’re developing this through partnership and we will limit our cumulative additional cash flow to $150 million for the horizon of the three to four years. After that we expect the business to be self-sustaining. .

Right, that’s helpful. And on the U.S. side again just wanted to get a sense of OTC business in U.S. and specifically on Cloderm there seems to a generic launch there by your -- by Dr. Reddy itself.

What has happened there exactly?.

We’re trying to maximize the penetration of the molecule and being in more generic and the brand gives us an advantage. We have seen this experience in our other product also which is the ISOTRETINOIN we have brand as well as a generic. So we have figured out how to maximize penetration through a combined approach..

And how much would be OTC in the U.S?.

The store brand OTC is somewhere in the range of $140 million..

Okay, and just lastly on the R&D side, just wanted to get clarification, there is no spend going on the sit up in-between molecule right, this is the MCA spending at – is there anything -- MCA spend happening right now?.

There is a small spend for the early stage pipeline but it is quite small..

Okay. Thank you. .

Thank you. The next question is from the line of Anubhav Aggarwal from Crédit Suisse. Please go ahead..

Thank you. Just clarification does the Merck partnership include PEG GCSF as well. Somehow I don’t know I had the impression that Merck partnership is mainly for….

Yeah, Merck partnership doesn’t have PEG GCSF.

So, PEG GCF what’s the future like?.

Sorry, sorry. .

We're not disclosing the full portfolio. There are multiple products of this. .

No, so the clarity here is you have got two INDs, one is Rituximab, second is PEG GCSF.

So what's the future of PEG GCSF is this what you will spend alone or with Merck?.

We're not disclosing that..

Okay, and just going to quarter call, you have been saying that your R&D expense will increase but earlier you were at least indicating about 9% to 10% with let's say more expectation of reaching towards 10%.

What has changed in one or two quarters that you are thinking about 10% to 11%, is it more spend towards the generic side or more spend towards the biologic side.

Is it getting two INDs approved has changed towards higher R&D?.

You see it's not easy to predict at a very accurate number what the spend will be.

This depends on the timing of the clinical trial, the ability to accelerate sometimes the pipeline; so a combination of factors including expansion on the generic side there we're getting into more products which have a component of the clinical trial to their movement, and changes in how the clinical development happens in our biologics and proprietary products with the raise in R&D intensity.

But as you could see our margins are also expanding. So we believe that we can finance this additional R&D spend and we believe it is wise to do so today. .

And just one more last clarity on R&D. So sequentially your R&D expense increased by almost 100 crores and given the state of your molecules which are in biologic side, biosimilar now I think you will be still recruiting the patients.

So this…?.

We're not going to give you a break up of where that went.

All of it didn't go into biologics?.

Didn't go into biologics that's what you are saying. .

All didn't, some did..

Okay, just shifting gears. Just a couple of let's say one clarity on the U.S. pipeline. On reclassed do you expect -- when do you expect -- Marksman's hearing is right now on reclass status. Do you expect -- there are about four players in the market today, five haven't got the approval.

Do you expect that as and when the competition gets approval they will be there in the market?.

Yeah, no messaging heard so far in the market but certainly if they get approval they will come in. .

And what about the hearing status for your Markman going on.

Is there a timeline for the final hearing of the case?.

We haven't tracked that so closely, we haven't tracked that so closely. .

Okay.

Last clarity about VIDAZA and [Docozen] anything have you heard about any chatter in the market that at least for this quarter you are safe without anymore incremental competition?.

That we wouldn't be able to comment on. I said so far so good. .

Thank you very much. .

Thank you. The next question is from the line of Sonal Gupta from UBS. Please go ahead..

Hi, good evening. Thanks for taking my questions.

I mean just starting off with India, what's your field force right now, did you add anything and how much was the addition during the year or anything?.

It's around 4,000 some. .

4,000.

And just in terms of the -- in terms of Russia what was your local currency growth for the full year?.

It's 11% some….

In primary?.

In Ruble terms, yes. .

Okay, and how many products you plan to launch in Russia in FY'15, FY'16 I mean what's the pipeline like in terms of ?.

Roughly five or six products..

I mean over two years or every year?.

No, no probably over a year four or five or six products in different therapies, we're in various therapies, so one or two products per therapy. .

Okay, and okay and just coming to the R&D side, I mean if you are saying like $150 million of cumulative investment in biologics and given that I mean right now your biologics portfolio is pretty small. So I don't think there is a lot of net revenues coming or net profits coming from there to support the rest of it.

So I mean in that sense it doesn't look like you are going to spend more than $50 million a year on the biologic side. So if you are looking at R&D spend which is now touching almost closer to $250 million to $300 million. I mean that's a lot, right.

So where is I mean is it all -- I mean going to generics and how do you can you just give some clarify and I mean because and how much of your R&D spend is really being done by outsourced R&D, I mean is there a split that you can give?.

There is no split but I think as we have said overall generics R&D is also increasing year-on-year every year, it's going up we have said that the product complexities are increasing. There are product moving in clinical trials we are funding those, there is increase in generics R&D..

No.

I but I mean if you if you're saying you will not spend more than I mean roughly it what looks like $50 million and you are saying you're spending $150 to $200 million in generic R&D, is that how to look at it?.

Yeah..

Yeah, but slightly lower then but yes..

Okay, and just in terms of number of filings I mean 13 seems a bit low in that sense is there some for the full year so, I mean how do you see this going forward really speaking do you see this sort of a run rate or do you there is some step-up which is going to be there?.

So I think tracking number is not a game we are playing. We have a pipeline in development, cost of developments vary, complexity of development vary so one is not equal to other so the number 13 doesn't mean much to us. The value is what we track..

Okay.

And would this would they partnered product or partners would be filing on their own and then you will help them commercialize that?.

So there are quite a few partnered products but the principal which we follow is we will file. It's sometimes developed, sometimes some of that aspects of development is done outside but eventually we would own and file every product..

Okay, thanks. I'll come back in the queue..

Thank you. The next question is from the line of Surya Patra from Phillip Capital. Please go ahead..

Thanks for this opportunity. On this IND filing that you have made for the rituximab and philgrastim, what are the route that you are following for U.S.

market whether it is 505 V2 route or the biosimilar what is that, can you give us some clarity?.

It's not by 505 V2, it's the biosimilar route most likely but it's too early for us you know comment on it..

Okay.

And in fact whether you have initiated similar efforts means what is the progress regards to the filing of product for the European market whether you have already done that or what is your thought process regards European market?.

I think European market and the US will go in parallel..

Okay, so means that you have already filed your file for starting the clinical trial there?.

Yes..

And regarding that amortization this full year the amortization number has declined y-o-y whether we would be seeing a kind of reduced kind of amortization amount here on or whether we have revalued the timeline of the asset?.

Yeah, we have a schedule of amortization asset by asset. .

Okay..

So the (inaudible) goes in line with that schedule actually..

Okay, and lastly in fact can you give some idea regards that for your U.S.

based business in terms of what is the kind of momentum in terms of price and volume that you are seeing for your base business?.

For PSAI or which?.

Generics business only..

There is a lot of consolidation on the customer side and hence it's having an impact on the price of product, there is erosion. Also there is it's counterbalanced to an extent by new share gain in certain products which we are aiming to and sometimes by country.

So I think on both sides there is downside in one on one side and partially compensated by the two things I mentioned..

Okay, and just last question on the margin front since you are seeing that okay there could chances that the gross margin cannot be maintained at this level and also on the other end the R&D is also increasing gradually.

So then whether it is kind of difficult task for us to maintain the kind of margin what we have reported for the current financial -- last financial year. .

No, I think the margin was talked about on the basis of the currency benefit that we got. Right so it is all with that particular currency effect because it really depends on how the situation is going to be. So outside of that we see….

Yeah out of the currency fluctuation I think we are optimistic but it also depends you asked the question on how quickly we will see competition in some of the products. So those things will matter a lot. Overall I think the business is still quite healthy. .

Okay. Thank you, thanks. .

Thank you. Next question is from the line of Surjit Pal from Prabhudas Lilladher. Please go ahead..

Thanks for the opportunity.

My first question is that how long can we see the pain in PSAI scenario to continue and if you can throw some light to understand that how this business you are planning to evolve considering 2015, '16…?.

So I think the reasons for why the business didn't pick up is something we had discussed earlier, so if you see the order book kind of lock-ins that we have with the customers, that's the one we will track very closely and especially the order book is something which is now on the positive side.

So even sequentially that's why if you see from Q3 to Q4 there has been an improvement but still lot more needs to get done before we see the full effect of the turnaround which we expect may be in a quarter or two from now. .

But do you think this turnaround is sustainable given the basket of product is dwindling every quarter or every year?.

It is, again if you look at the overall PSAI business, right so there is the EPA part of it and there is the CPS part of it. So in terms of the traction that we see on both the fronts, and then if everything falls into place we should see the sustainable business ensure from now on.

But having said that I mean some of the things that we slipped up on the last year that correction part of it I am saying will take us a little bit more time than what we anticipated but from '14 it is sustainable business..

I mean I have observed in the PSAI business typically it is that in Q4 there is a quite a bit of bulk, I mean if you compare rather Q1, Q2 and Q3 I mean in both the year you got the highest average per quarter sales, always in Q4 I mean.

Is there any kind of seasonality in PSAI?.

It is not there -- that is not to be taken as a trend, it's could have just been a bunch of orders kind of a thing but it is not a trend that you should note….

Okay, in your presentation you said in [Heparin] you put up a plant I mean could you throw some light on that whether the plant is now operational and you are under filing how many products you were targeting and out of them how many of them are patent challenged?.

Which product again, I didn't get that? Surjit Pal - Prabhudas Lilladher Heparin-based drugs. .

I don't think we've mentioned any such thing. .

We have not mentioned anything on Heparin-based drugs new plant or….

Heparin based plant you said in that presentation this Q4. .

It would be some investments….

Which presentation you are referring to?.

That press week presentation you have made. .

I don’t think so..

You have given that plant description of all those plants you have made investment recently. .

No, I don't think we've made any such thing because Saumen made the presentation to the press. I don't think he mentioned….

Check that again -- sorry you should check back again because we don't have it in our text. .

So we'll come back Surjit on that, there will be some investment but not a dedicated plant….

We didn't mention a product…. .

Okay.

In biosimilars I mean currently that regulation is presently ongoing and they are coming out with some of the suggestive papers, do you think that where the final outcome will come and then as you have already started clinical trials will they need if other kind of trials post that finalization which is expected 2015 end? Is it a possibility?.

What is the question, can you repeat that in biosimilars is it or?.

Biosimilars. .

Yeah so what is the question, can you repeat it?.

My question is that you have already started clinical drugs with certain parameters in mind. Now the question is that when biosimilars say by 2015 end which is expected in the market that the concrete the total phase of how they are going to allow biosimilar, biogeneric. In that case your total the plan of clinical trials for biosimilar drugs in U.S.

does it require or there is a possibility of requirement of other trials to match those requirements in U.S.? Could there be any possibility in that area?.

Hello, excuse me sir can you hear us. Participants please continue to stay connected while we reconnect the management. [Technical Difficulty]. Participants we have the lines connected back to the management. Mr. Pal you may go ahead with your question. .

Yeah my question is that in biosimilar you have already started clinical trials in U.S.

Now the question is that if in-between say 2015 end when the clinical trials on biosimilar might be concrete and finalized, now in that case if those requirements you need additional investment in terms of matching those parameters if there is anything different what you have done correctly or you have been doing?.

We are in close talks with the regulators, taking their guidance at every step and we don’t see any deviation from how we are planning the trials and what the requirements will be. And we are in early clinicals now which means to go to the large phase III trials it’s still some way off, we are in close talks with the regulator on this. .

And how much time does it require two to three years?.

Yeah..

I mean and the last question on this biosimilar is that, just to understand your understanding about that.

Is that if they don’t allow any R&D unlike generics do you believe that there will be similar kind of interest from the generic companies to enter into biosimilar?.

R&Ds are available..

No, so there is a strong debate over there whether they will be allowing them or not. R&D to the branded drugs like the way you do in generics.

I mean do you think will it be interesting for the generic company to put such a kind of huge investment to get into that market?.

I am little confused by your question but if I understand it you are asking me whether is it first a biosimilar at all.

Is that the question you are asking?.

Yeah. .

We obviously believe it's a very high value proposition and that is why we are investing in that. It's not going to be a game that everybody can play because it's a very large investment and it's also a lot of complexity in matching all these.

But we believe that these -- the companies which navigate these challenges will make a lot of money in this portfolio. .

Okay. Thank you..

Thank you. Your next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead..

Yes thanks. Good evening everyone. Just on the U.S. base business progression, Abhijeet I think on roughly a $900 million sales base that you had for fiscal ’14 now we are assuming that there is no supply disruptions or additional competition just the base business as it stands.

What is the -- I mean what could be your guess? Would there be a price deflation for this business and has the full impact of customer consolidation felt by the company or is more to come?.

Large part of it is as we speak large part of it is true. But they are downsized on account of customer consolidation partly to quite some extent being made up through share gains and some price increases. So there is a last bit, some more to come I guess on the last public domain consolidation that is not yet through but 75% of it is through..

And what would be your expectations for the base business as it stands right now going to next year -- going into fiscal '15?.

Again same figures specifics will be difficult to get into but as I said, erosion is being handles through share increase and some price increases..

Okay.

The second question is could you just update us how many products from proprietary filing which I recognize 505 (b)(2) based products are in clinical trials right now and when do you expect the first filing to happen?.

Did you say NDA, are you talking about….

Yeah, yeah that's right. The proprietary filings 505 (b)(2) based. I think last call you mentioned there were two in clinical trials..

Yes there are two. I think we expect the first NDA to be filed in 18 to 24 months from now..

Okay. And just one final question and I think it's more to do with Satish. Satish, is the understanding correct that with your elevation now to being a Chairman, it would be far less executive if at all any executive role that you will be playing..

That's correct, it will be much lesser, yes..

Okay. And what's driving this because it's quite unusual in the context of Indian promoter at such a young age..

No Sameer, I think the main thing is like we explained in the notes that see clearly in terms of separation of the role of Chairman and CEO, was something that we've been studying for quite some time to see when we can do it.

So I think the timing is at this point of time especially when we look at it from the point of governance on one side and also providing internal growth. I thought this is the time to do this. So that's how we think of that. So as for my age, what can I do, I just happen to be young..

Okay, okay. Thank you very much..

But was there any other question Sameer…?.

Well I mean I was trying not to get in but isn't it a reflection of lesser commitment by the promoters in the business..

Not at all. In case you are assuming my involvement in the company is going to be little, actually it's going to be different but not less. So that's the change..

Okay..

Yeah..

Thank you very much, yes..

Thank you. We have the next question from the line of Alok Dalal from Motilal Oswal Securities. Please go ahead..

Yes, good evening everybody. On U.S.

now that you've crossed $900 million in sales and you have about 62 ANDAs pending approval, do you think this 62 ANDAs is kind of enough or you are satisfied with this number to drive growth over the next two three years?.

Numbers do not drive growth, it's the quality of the assets that would drive growth. So what we have in those 62 and how we get those approvals are going to be important so the overall numbers, I don't know whether that would mean anything..

So I mean just to add to what Abhijeet is saying, if you correlate the way we are spending on R&D, the acquisitions we are making and the overall focus of the company, the focus is clearly on complex products with sustainable revenue and you've seen first few launches of that in the last fiscal year.

So that's the choice that we have made and we're going to continue to deepen our commitment to the choice..

Sure, sure. The reason of asking that question was that some of your peers with a similar base have higher number of pending approvals and now everybody is focusing on difficult-to-manufacture products, complex, generics et cetera.

So I was just trying to understand how you are thinking about it?.

So we are committed to it, we are committed deeply committed to complex generics….

Sure, okay.

If I heard you correctly on India, you mentioned that you've launched first wave of differentiated products, is that kind of a game changer now when that comes to India?.

I think it's too early to say it's a game changer, but it's a direction we're going to take. We will try to add values to the products through innovations and that's how we will create a little differentiation but it's very early to say that we hit a new wave or what….

But Mr.

Prasad in which areas have you launched these products?.

A couple of them are in cardio we -- and the blood pressure management and then we will also launch a range of gastro product for pediatricians, for children so on so forth so there are various products and we are increasing the breadth of the portfolio of in terms of therapy.

We are trying to broaden the therapy so that's where these products are coming in..

Sure. And last question for CapEx for FY'15.

Is the CapEx going to 1,000 to 1,500 crore?.

That is the range we have given this year we spent 1,000 crore and there are quite a few project which is going on so likely spend would be higher in FY '15 comparative..

Okay.

So Saumen should we assume that with this size this $2 billion size company would require such kind of recurring CapEx going forward?.

Not a recurring CapEx but all the capacity that we were required to do for all the areas that we are getting into so, I think in another couple of years we'll more or less will be done with that. Recurring CapEx will be much lower..

So that big project for [inaudible] availability in Vizag which not only reflects a new site but also new technologies also new philosophies in the site and so requiring a much higher CapEx what normal plants would be and here we are investing in making those plants better in terms of quality compliance, robustness and safety..

Okay, thank you. Thank you for taking my questions..

Thank you. The next question is from the line of Manoj Garg from BofA/Merrill Lynch. Please go ahead..

Yeah, good evening to all of you and thanks for taking my question.

Hello?.

Yes, go ahead, Manoj..

So, just want to know like you know what are the R&D investment which we have started doing for the differentiated approach is largely being attributed to last one and half years and where the dividend of the same will be over the line for next two or three years but do you believe in between maybe for the next you know 18 to 24 months we probably will have more consolidation of the business in the U.S.

and again starting taking off from thereon..

It is hard to predict. One or two assets launched can make a huge different so the average value of our assets is going up dramatically.

Given all that I think it will very lumpy and it's hard for me to say that the business will go up or down but we remain confident that the products that we are working on are very interesting, the overall journey will be sustainable and….

Okay, because for where I am coming like if you recall in 2013 you know when you were expecting some of these launches which ultimately happen in FY'14 sir you used to indicate that probably we will have one or two years of consolidations.

Now has outlook changed from thereon?.

Outlook has been changed but the timeline uncertainties remain in this business..

Okay, and so, like just looking from the long-term aspersions.

How do you see the margin going over the next two or three years?.

See if you exclude our investment sales of the product, the modify expense in all our businesses..

I'm sorry your voice is breaking so, sorry I didn't heard you properly sir..

So, if you exclude the investment that we are making for the future for R&D and things like that the gross margins are expanding..

Right, and do you expect the trend to be continued?.

Yes..

Okay, okay. Wish you all the best..

Thank you. Participants due to time constrains we will take last two questions. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead..

Yeah, thanks for taking my questions. A few of them so, actually first on the biologic front Prasad, I mean a few years you used to mentioned about one biologic every year in India, we haven’t seen that.

So I mean can you just throw some light on the development programs that you have for the emerging markets like India? And how should we think about launches in India and other emerging markets going ahead?.

I think we were a little [true off] in the statement we said one product a year but we do have a number of products in the pipeline and at least in the near term there are two products getting into the clinic. And these two are both nice and they should launch in the next two years in the emerging market.

And as we are also debating how we focus on developing a global program of developing products both for the emerging markets and telescope the same trials for the regulated markets. And we are developing the strategy for our portfolio and we will clarify to you as and when we go down. .

Okay. So the test case of rituximab which was launched in India a few years back and then when you are now going for the U.S. market and also for the European market.

Is there a big difference I mean the product that you have for India and what you?.

No, so incrementally we are developing the products we’ll have one product for the world. And we have had some learnings from rituximab in terms of how to do the trials ? How to sequence the trials? How to do the biosimilarity characterization in a way that we don’t have to redevelop.

So putting all those learnings into our R&D programs and that is why our R&D programs are taking a little longer. But that learning will help us I the next wave of launches in the….

And for rituximab in Russia you are on track you are seeing for a fiscal ’15 launch there?.

We hope so but it's in the hands of the regulator. .

Okay. My second question Prasad again you mentioned that you know the average value of asset is significantly higher.

So I mean when you look at those 60 odd products which are there in the pipeline in the U.S., you think per product revenue on an average will be materially higher than you what we have in the market currently?.

I need to verify that this was a comment but the average value of the assets that we are developing have been raising with new market risk..

So compared I think what Prasad went through was more when we compare with value per asset which we launched few years back to what it is now it's literally doubled. So that’s what he was trying to mention, not so much measured from the outside in perspectives. .

Okay.

And sir any update on for fexofenadine have you heard from FDA any response letter any update if you can share on that?.

No can’t share the details but we reiterate the quality of filing is very good and it's in hands of FDA at the moment and it's progressing step by step..

Do you see possibility of an approval this fiscal ’15 do you see a possibility?.

Can’t comment on that..

Okay. Sir one last question on the Indian domestic market. You mentioned that for the [Analian] product there is a significant volume expansion that you saw in Q4.

The question is how sustainable is that and is that something which was seen across all I mean industry as such for those products the prices have come down the volume have expanded? Or it is limited to some very specific products of Dr. Reddy's? Thanks..

No I think overall it will play out for some other companies as well. But we also I think it's not uniform across all products, I mean depending on some products it seems larger falling growth some products not to that extent..

Okay. Okay thanks a lot sir and all the best. .

Thank you. We’ll take the last question from the line of Krishna Prasad from Franklin Templeton. Please go ahead..

Hi. Thanks for taking my questions. One question relating to the global consolidation of the specialty pharma generic void.

If you could just share your thoughts around what how is Reddy’s viewing the situation and if we choose to act at this point in time? And a related question would be, is your decision to sort of hike R&D spend and invest more related to what you see as relevant assets to actually buy at this point.

So it is the risk reward changing on buy versus build? Thanks. .

So broadly our approach has been to focus on organic development in the last few years. We have not as an aggressive consolidator, we are building the capabilities through partnerships, acquisitions and own R&D investments and we expect this trend to continue. We remained open to acquisitions but we are not an active acquirer as of now. .

Right, and you don’t think this has really changed given the external circumstances?.

Oh, I don't see any reason for it to change correct. .

Sure and if you could just give an update on our rituximab approval in Russia where are we at this point?.

We are awaiting approval we don’t have any updates now. We hope to launch it in FY '15 but that depends on the regulator..

Sure. Thanks and good luck..

Thank you. I now hand the floor back to Mr. Kedar Upadhye for closing comments. Thank you and over to you sir..

Thank you all for joining Dr. Reddy’s senior management for our Q4 FY ’14 earnings call. In case of any additional clarification please feel free to communicate with our Investor Relations team. Good day to all of you and thank you..

Thank you. Ladies and gentlemen on behalf of Dr. Reddy’s Laboratory this concludes this conference call. Thank you for joining us. You may now disconnect your lines. Thank you..