Kedar Upadhye - Head of Global Generics Finance & Investor Relations Saumen Chakraborty - Chief Financial Officer Abhijit Mukherjee - Chief Operating Officer.

Balaji V.

Prasad - Barclays Capital Nimish Mehta - ResearchDelta Advisors Prakash Agarwal - Axis Capital Neha Manpuria - JP Morgan Surya Patra - PhillipCapital Girish Bakhru - HSBC Anubhav Aggarwal - Credit Suisse Ranjit Kapadia - Centrum Broking Sameer Baisiwala - Morgan Stanley Manoj Garg - DSP Merrill Lynch Chirag Dagli - HDFC Mutual Fund Prashant Nair - Citigroup Nitin Agrawal - IDFC Securities.

Operator:.

I now hand the conference over to Mr. Kedar Upadhye from Investor Relations team of Dr. Reddy's. Thank you, and over to you Mr. Upadhye..

Good morning and good evening to all of you. Thank you for joining us today for Dr. Reddy's earnings call for second quarter of fiscal 2016. 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 Saumen Chakraborty, our Chief Financial Officer and Abhijit Mukherjee, our Chief Operating Officer; along with the Investor Relations team. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlets, 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 marginally increased by $7 million over that of the previous quarter and is largely in line with our expectations. Capital expenditure for the quarter was at $45 million. Our net debt-to-equity ratio is 0.02. Foreign currency cash flow hedges for the next 18-months in the form of derivatives and loans for U.S.

dollar at approximately $300 million, largely hedged around INR61 to INR65.4 to $1. In addition, we have balance sheet hedges of $135 million. We also have foreign currency cash flow hedges of RUB960 million at the rate of INR1.16 to RUB1 and €6 million largely hedged around INR75.47 to INR77.185 to €1 maturing over next nine months.

With this, I now request Abhijit to take us through the key business highlights..

Thank you, Saumen and greetings to everybody, and I extend a warm welcome to you on this earnings conference call. Overall, we’re quite satisfied with the performance of this quarter, considering the multitudes of challenges faced across the businesses. U.S.

business continues to face competitive headwinds on base portfolio coupled with lower number of approvals. However, we’re able to sustain the momentum in injectables and other key molecules which supported the performance. Emerging market geography sustained the performance despite the continuing sluggishness in the effective markets.

Second quarter performance in Russia was healthy compared to the significant year-on-year decline in the first quarter. India business continued its predictable growth journey. Now, let me take you through some of the business highlights for each of our key market for this quarter.

Please note in the section all reference to numbers are in respective local currencies. Our North America revenues are $290 million and grew by 26% year-on-year. This can be attributed to low base effects to some extent and sustained pricing and market shares for most of our molecules.

As you are aware, we launched Esomeprazole this quarter, although revenues will start reflecting from next quarter onwards. In view of lower number of launches in the balance part of the year, we need to worry of competitive pressures on the base portfolio. On the OTC side, Habitrol is well integrated now and continue to target new accounts.

During the quarter, impact of macroeconomic factors prevailed on most of our emerging market geographies. In this situation, the team is focusing on broadening of product portfolio in existing countries and entering new countries to a leverage of our global portfolio. Russia revenues are 45 million for the quarter and declined 29% year-on-year.

However, it grew by 11% year-on-year in constant currency, which is a significant change compared to 22% year-on-year decline in the first quarter. On Venezuela we continue to be cautious and have calibrated our supplies. The focus is on building our business model, which can out lift the current macroeconomic situation.

India business revenues are INR526 crore and grew 14% year-on-year. Portfolio acquired from UCB has been fully integrated into our supply chain, because of transport strike in the quarter-end and a weekend around the date of cut off sale, some part of the dispatch spilled over to the month of October.

Normalizing this impact, the overall growth is very satisfactory and in line with the recent trend. PSAI business posted revenues of 90 million with a marginal decline year-on-year. You would notice the sequential gross margin improvement of approximately 200 basis points.

We are building our order books, we’re calibrating the business in an attempt to derive more value out of it. Before I end, I would like to give an update on our API facilities. We have learned that during the month of October two of our API customers received ANDA approval revision letters from U.S. FDA.

The ANDAs of customers were approved in January and February 2015 post U.S. FDA's inspection of our API facilities. Each revision letter site at our API facilities was classified as potential OAI on the date of approval of ANDA.

We continue to cooperate with USFDA in connection with the pending 4A3 observation and await for the advice from the agency on this matter.

We take the matters of E&P compliance very seriously and investing significantly in terms of resourcing and managerial bandwidth to strengthen our quality processes, operations and culture across the organization. With this, I open the floor for questions and answers..

Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question is from the line of Balaji Prasad from Barclays. Please go ahead..

Hi, good evening everyone. Congratulations on the results.

My first question is on Srikakulam, considering that the ANDA approvals have been [signed] (Ph) for you customers, does this change your thoughts on the progress that you thought you had to achieved and or potentially where you are thinking of approaching the FDA reinspection?.

The answer is we don't know. This is for the declaration, now we have received this in the month of October and we thought it is important to sort of let everyone know. These were approved after the audits in these facilities and out of the two, it is one is that we ourselves did not get approval.

So, we are presently surprised to see someone else got approval, but I think this is being corrected. And hence the revision letters have come, but the revision letters clearly mentioned potential OAI, which is certainly a concern for us, but we continue our journey, we are updating U.S. FDA.

We are in terms of resources as I said, we are being a significant resources in improving the systems and quality, but when will the audit happened, what is the next course of action, really can't comment on it..

On the subject. Thank you. Can you also just help me understand Abhijit if what exactly does FDA mean by potential OAI.

They have three levels of classification of a inspection observation, where does that potential OAI stand in that sense? Is this national to FDA classification?.

So, OAI stands for Official Action Indicator, potential OAI, which is basically means that they are considering the observation, see this is a standard term. this is not something which specifically designed for other things.

So in any case, you are aware that we are not getting approval from the facilities and so in that context it is - that classification is expected, how they will move ahead in future is more important which is still unknown to us. We are engaging with them and at the moment, we can't comment on it..

Actually, you are asking where does it stand, actually if it is voluntary, it is better..

Yes Saumen, so what I was trying to understand was is this a new classification or something that the FDA uses internally and.

They use internally..

Yes. So there is VAI, which is Voluntary Action Indicator and there is OAI, which is Official Action Indicator these are the normal terminologies, which is not anything specific for us..

Understood. So my second question is on Venezuela, I seem to see sense of change in those of times before where you are quite willing to grow brief calibrated.

Now we're seeing that you are more cautious, what kind of drives that change and secondly on Venezuela itself, where are your current considerable now and how was the progress in the last three or four quarters?.

So the cautious approach come from the fact that we have not received anything meaningful after our last discussion, which automatically leads us to be cautious and what we have decided as I had mentioned a figure that we will not exceed certain level.

We are sticking to that and at the moment we will not be producing anything more, but we have some stocks at the moment in a calibrated way, we are setting in the market and if you don't get remittances before that runs out will have to sort out slowdown or even phase out.

But the important update which I want to give you in this context is we have signed a deal with actually though that we know part of government of Venezuela on some critical care products which they want tech transferred into one of their facilities, which intern will reduce their healthcare cost and also provide us a new line of business, which of course will be government assured business.

And we have just signed the deal and we will progress in that direction if that helps us in recovering the money which is not being remitted then the whole thing starts allover to again, but yes we are still optimistic, but much more cautious from our last update..

Great, Abhijit that helps.

Just on that question itself, I ask [indiscernible] progress in last couple of quarters?.

Currently, it is standing at around 61 million..

Got it. Thanks, Saumen. I'll jump back to queue..

Thank you. Our next is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead..

Yes. Thanks for taking my question. First of all, if you can just explain the sharp increase further in gross margin that will help, I mean is it because of the currency where we have seen U.S.

dollar appreciating quite a bit quarter-on-quarter or what is that?.

No, I think largely, firstly is the strength of the portfolio, the U.S.

assets, we've been fortunate to have [indiscernible] of the portfolio and some of - there were launches in second half, few of them built shares, there were some product where they will gain market share, of course consolidation of the channels have led to some erosion as well, but broadly the margin consolidation is business oriented, there are few smaller issues which have also helped, but largely it’s business oriented..

Right this also contributed as well as there has been some leverage out of the manufacturing overhead and specifically yield improvement and all has also contributed..

For very [indiscernible] improvement over the last quarter..

Yes..

Yes, understood. Okay, second on the U.S. pipeline two questions again, we've seen that the case against Novartis on Gliveec has been settled. So if you can you know please help us know the date of the launch of that product that would be great..

Date we will not be able to give and public domain Sun and us we have settled. Certainly being the you know company having settled after Sun the date is few quarters after Sun's launch, but beyond that we'll not be able to give you an exact date..

Understood, and do you expect this to be a potentially big launch for you as in you expect more competition, I guess some color would be....

It depends on how many other people are - there are other files, I'm sure they are negotiating, there would be.

We don't know, just not in public domain and there could be other settlements as well and if everyone settles at various dates then as usual like in all generic assets the value will be lower than what we think, but certainly it's a big product for Sun, but for us I can't comment..

Thank you. Will this be bottlenecked because of the Srikakulam facility or this is from a different facility..

No, it's not. The API is from another source, Indian source and no, the answer is no..

I see, and the second product I wanted to know was about FOSAMAX PLUS D that is alendronate plus cholecalciferol, where again there are no patents, but any timeline regarding your launch would be fruitful..

I'm not sure, are you talking of North American market?.

Yes..

So Nimish, we won't be able to comment on the product..

But I mean, is it going to be an important product for you. Some color would be good..

They are also discussed separately which….

Not to the best of our knowledge no..

It won't be an important. Okay, thank you very much I'll join back again..

Thank you. Our next question is from the line of Prakash Agarwal from Axis Capital, please go ahead..

Yes, thanks for the opportunity and congratulations on good set of numbers. A question first on the U.S. business you talked about some official gains but if I could see your key assets which is the injectable portfolio, Dacogen and Vidaza there as per the market share it seems like market shares have dropped.

So are we seeing that or the other NDA approvals have seen market share gains and maybe injectables are coming off, if you can throw some light there..

So Vidaza, the drop is fairly negligible actually. In fact, you can read it as just error in the sort of quarter-to-quarter, but Dacogen yes there is some drop, but having said that we're fortunate that we are where we are actually.

So it’s still pretty high and sustaining so let’s see how competition comes in and there are of course other few products which have done well, Cirolimas is scaling up, few other products as well, yes..

Okay and would it be fair that there has been price hike across the portfolio given that not much of approvals, but still we are sustaining this run rate despite some base business price erosion due to channel consolidation..

Nothing significant. Nothing significant..

Okay thanks, and secondly moving to Russia, we saw very positive commentary about 11% constant currency growth and some demand coming back. So I mean exactly what's happening there, our understanding was due to oil crisis demand has also been weakened.

So are you seeing demand coming back or it's more of channel filling again and it's one time sustainable constant currency growth..

So, I think the turmoil is over, that's the good news. There was complete chaos when the currency sort of you know broke the barrier and sort of got devalued. And then that led to a series of confusion in the market, the retail trying to increase price and basically on a wallet which was getting leaner it was a double whammy.

So all that the channel is corrected, we have increased the channel connect and sanity is back and we always did reasonably well in Russia. Having said that, Q3 is still - Y-O-Y will see the currency devaluation, but coming from quarter four, I think we will see the usual business.

Having said that the base naturally will have to get calibrated in the new dollar rate but you know certainly the geography is getting back..

Understood.

Secondly on the nexium opportunity, I saw some comment from the management about the expectation so if you could give us ballpark how do you think about this asset because believe that some competition is building up?.

So being the fourth player we have just about say share, erosion has been there no doubt, I mean certainly we would have liked to get in month back, which probably we would have had Srikakulam thing did not come up, but having said that it's still a sizable asset for us pretty sizeable and hope that it sustains with more players coming in, hope it sustains..

Sir, I mean there is a comment about $50 million?.

North of that of annualized..

Annualized. Okay and last question on the SG&A side we have seeing substantial improvement, I mean is there any currency related savings, I mean how should we think about it, I mean because the business is growing across the board.

So how should we think about SG&A going forward?.

Some of the things is of course a result of all the initiatives we have been taking in terms of cost control. As such if you compare with our peers, our SG&A cost as a percentage of sales always has been on the higher side.

So there are still lots of opportunities in terms of improving the SG&A productivity, we are [indiscernible] but we are taking a sense in all front, in terms of manpower, on sales and marketing expenses, on travel, freight and multiple aspects we have been trying to improve the things.

So it is 200 basis points improvement in terms of SG&A as a percentage of sales..

And this is sustainable..

We hope so..

Thanks, I have more questions. I'll join back the queue..

Thank you. Our next question is from the line of Neha Manpuria from JP Morgan. Please go ahead..

Thanks for taking my questions. My first question is a comment that you made that on the EM front we are probably looking at one broadening the portfolio and also possibly entering new markets.

So two part question there; one, what are these new markets that we are looking at? And would that strategy be more organic driven or are we looking at potential M&A to build that presence in your markets?.

So two markets which we have already sort of gone ahead in an organic way to build a little bit of skeletal team and filing product in Brazil and Columbia which largely will be targeting the institution sector, I mean so banking on the oncology and other institution and product which we already have in the global portfolio.

So that’s one organic approach. But having said that, we will certainly look at inorganic opportunities. To supplement that, nothing to report as of now.

Apart from that on emerging markets, I think we are trying to look at also biosimilars now trying now that we are beginning to have more data on some of the products and some of the regulatory bodies are sort of willing to accept the files.

We would scale that up, may not be meaningful in a very short-term other than Russia maybe in few quarters, but that’s a key initiative in the emerging markets..

Got it and second on the U.S., if you could just highlight what has been the base business size erosion that we have seen so far versus last year given the ongoing consolidation, et cetera?.

Reasonably steep, in the sense dozens products have been - some products wherever there is competition coming in the one being I can mention [indiscernible] has sort of substantial erosion of values, some of it will play out in the second half.

Apart from that, the channel consolidation is also leading to a fair degree of steeper ask from the channel, which is becoming a bit of a challenge for not just us, most generic companies. So all that is playing out, so there are some headwinds for sure for all companies..

So would this be in high single-digit, would that be a fair assumption or probably higher low double-digits?.

I wouldn’t put a figure, you can put - probably you are talking to most companies, draw average from what you had between the lines..

Sure and my last question, you highlighted some amount of slippage in the India business into October would you want to give some quantum as to how much this balls?.

So, roughly what we are reporting as 14% would have been close to 20% and that equivalent amount will flow into Q3..

Got it. Thank you so much..

Thank you. Our next question is from the line of Surya Patra from PhillipCapital. Please go ahead..

Congratulations for the good set of numbers, just a clarification whether we have seen any price correction sequentially in the U.S.

portfolio?.

Happening product-by-product, depending on whichever product is seeing completion with the [PDUFA] (Ph) some of the old files and of course they are not under PDUFA but there are approvals coming up which are pretty old once in a while.

Whenever that falls in the category whichever company’s name, it is either sort of a correction and retention of the account or giving of the account. So those things are happening.

So the impact is varying from companies and so far we have been [indiscernible] for the products we mentioned and couple of other smaller products, but going ahead this will intensify I'm sure..

Is that the broader base business there? Can you say that what is the kind of decline or whether you have seen or not seen sequentially in price correction for the boarder portfolio?.

Yes, to a certain extent it is happening, again product-by-product. So to a certain extent it is happening. It is happening to a certain extend..

And secondly whether we have apart from the Srikakulam API unit whether we have any other API unit which is capital for developing or manufacturing this injectable products, sterile products?.

There is nothing about Srikakulam where this intjectable still have to be manufactured. APIs are APIs, so they can be made in whichever site. Now if it’s an oncology product we have another factory where there is oncology product, the third oncology factory is being set up in our APZ which is due for audit hopefully in six months to eight months time.

So all these are flexible and fungible to some extent..

Last quarter what were comment that we had made about Srikakulam unit, I think that after having a site transfer application for five odd....

Mr. Patra your voice is not audible sir..

Am I audible?.

You will need to come a little closer..

Yes okay. See in fact I'm just trying to understand one thing, last quarter we have commented one aspect that after having filed site transfer application for five odd ANDAs or drugs, so we’re seeing that the Srikakulam unit is going to be de-risked.

So whether considering this recent development on that particular plant front, so we’re remaining are we’re maintain the same stance?.

I don't exactly recall five, but we’re continuing for the future approvals, continuing to site transfer, but we’re concerned about - so irrespective of de-risking, irrespective of any issue, we've to be mitigate and move on with life and so there is certainly concern, as a company we want to be ahead in terms of all compliance aspect.

So this is an area of concern for us for sure. Mitigation and all that is a separate issue in terms of de-risking those things are going on I mean that’s part of business I guess..

Just last question I have on Aloxi. We've recently settled the Aloxi ANDA that [indiscernible]..

We haven't, you're talking about the 505J. We've two fives, one is 505B2 and 505J yes..

I believe the ANDA opportunity is still there in the second half?.

It's not in the second half, that’s what originally a couple of quarters back as what we thought the litigation is getting delayed and as much as we are trying to bring it up, but everything is not in our control. So we would like to sort of bring it up as and when possible, but certainly second half is not possible, no..

So that is what - definitely it is much before the settlement date for the genetic product?.

Well it depends on the litigation actually. If you can bring it up and we think at least in our view it's a good thing to pursue, very strong thing to pursue, but till it comes up we would be able to comment on it..

Oka, any update on [indiscernible] why we’re not getting the approval for that?.

[indiscernible] is CTO VI impacted, I probably mentioned last quarter. So it's impacted because of CTO VI..

[indiscernible]..

Yes. So the file is in progress. Again, we can't really comment, but maybe two quarters more if everything goes okay..

Okay, yes thank you. Thanks everyone..

Next question is from the line of Girish Bakhru from HSBC..

First of all on the Europe side, in the interaction improving on back of few launches, can you share some color on if there are more launches planned for Europe? How is a pipeline looking there?.

We’re selective, but whatever - there was a time when we were trying to launch anything and everything going after Penta business all that has gone, so [indiscernible] could be the next one and couple of others who follow in next couple of quarters..

Where does COPAXONE fit in Europe?.

The guidance is not very clear, we are not pursuing COPAXONE for Europe, let's sort of try and sought things out in U.S. but….

But is it true that you have launched that in some of the emerging markets?.

Not the product..

So you are saying the Europe you are not at all pursuing at the moment?.

Not at the moment..

The second one was on the [indiscernible] again, I mean you recently bought the IPR, what was the rationale behind that?.

Because there were a profit share with this company and we thought - the profit share was in the range of middle to high single-digit. So compared to that we thought the value we paid was reasonable.

And more importantly I think we wanted to move on, so rather than we wanted to sort of take the assets to various other markets and it's an interesting asset in all emerging markets. So time derive value out of this..

Right and if you could also I mean update on the NDAs filings, I mean given that PDUFAs are approaching closures.

So any update on that front?.

On the site?.

On the proprietary products?.

Yes. So the asset is progressing, we will - so far nothing negative to sort of report. There is - one asset has little bit of litigation, but otherwise assets with the agency is progressing well. I think January, February should be the time we would probably share more about it..

And you're confident again that Srikakulam will not have any bearing on the event?.

Not these assets, these are all U.S. CMOs. So none of these three assets..

All right. Okay, thank you..

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

One question Abhijit sir, can you update on progress of COPAXONE application with FDA? And any potential delay in Srikakulam clearance, will it impact this progress or you have already site transferred that product?.

So in the scheme of things, the bottleneck is resolving the characterization expectation. We are still working on it, it will take some more time, site transfer can be faster and easier and being planned, but I think in the scheme of things the bigger science challenge is the bottleneck at the moment..

Do you expect, I mean roughly I know it’s tough, but can we even get approval of this product in FY17?.

That I wouldn’t be able to comment, we will take certainly at least couple of quarters to sort of resolve the issues and then we respond and then let's see how that goes there on. So two, two and a half quarters at least for us to resolve and hopefully respond..

Okay that’s helpful.

Second question on Aloxi 505B2, let's say if you win the litigation it's approved your launched, will it be substitutable product?.

So you can litigation right and I wouldn’t comment on any of these things at the moment. We are pursuing it actively, rigorously, but again litigation date is not in our control of pursuing it..

I just - and let's say….

I understood your question, understood whether it is equivalent or not, we hope it will be, so that’s an agency decision, so we’ll see..

And just one more clarity [indiscernible] on SG&A year-on-year increases 4%, but if you can just roughly indicate what would be the constant currency increase in SG&A?.

1% difference would be there..

Okay. Thank you..

Thank you. Our next question is from the line of Ranjit Kapadia from Centrum Broking. Please go ahead..

Congratulations on a good set of numbers.

My question relates to the [indiscernible] of opportunities, if you can throw some light, what is the potential market size for this? And my second question relates to the Indian business, that we have integrated a UCB business and we said that we have - 6% of revenue have been delayed, because of the transportation strike.

So what sort of growth is expected in domestic market going further?.

So the first question will be a difficult one to answer because depends on which product you are talking about, I mean not that we will be able to immediately give you a percentage or what are the other expectations with the asset, but [indiscernible] can be single entry or a dual entry all depends on which asset, which product we are talking about.

So overall this year it's sending your question I think this year we will be filing at least 30% more products than what we did last year. Coming to India, I can tell you about this quarter, this quarter [indiscernible] Q3 going in - again wouldn't exactly give you the percentage growth, but momentum is strong..

Okay. Thank you very much and wish you all the very best..

Thank you..

Next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead..

Abhijit is it possible for you to tell us what the outlook for the U.S.

business over the next few months and few quarters in terms of new approval?.

Not very exciting, and as I have already mentioned I think there will be hopefully few approvals, but you know well the U.S. market it's not a number of approvals but what approval actually. So I think if you don't have headwinds in terms of competition it's probably the best tailwind we can have..

If I remember correct quarter back you said that you have three to four niche products for which you may get approval and they are not linked to Srikakulam and the niche I imagine they are meaningful product does that stand or that doesn't?.

Some of them are litigation one we just discussed. So the litigation is getting delayed. Initially we thought some of those will come up this year, but litigation is getting delayed. There could be one or two approvals, but as I said, it is extremely saving probably not in the second half..

And when do you expect into get better is it four quarters away or what would you say?.

Next quarter is not bad, there are some P3s which I can't discuss, which P3s and P2s which are not in public domain which is not bad but again Sameer I'm shy of really predicting anything because there is so much of uncertainty on approvals et cetera, but next year is not really bad..

And there is some couple of products, which is one is on Gleevec, you said that you're settled to launch few quarters after Sun.

I would have said you had said two quarters after Sun, no?.

I never said two quarters..

No, no you said few quarters?.

I said few quarters. So certainly not close to Sun it's beyond that I wouldn't say, there is a quite a reasonable few quarters gap between Sun's launch and our launch.

And there could be other thing between as well, I don't know, because not everything is in public domain there could be other negotiations, can't comment on that, but this is great product for Sun as I said and I don't know what it'll be for us, but stay optimistic..

Okay and second is on COPAXONE.

Are you doing the characterization work and site transfer simultaneously? Or would you do site transfer after two quarters?.

The bottleneck characterization we’re working very hard on it, not just internally but through several partners and several [indiscernible]. And we’ll get there. Site transfer would hopefully not become the bottleneck..

Okay and just one final from my side if I may.

On Srikakulam the existing business that you are doing from there and I imagine there are couple of very important products, have they been a [descent] (Ph)?.

Existing business?.

Yes..

One or two yes, but that’s not something which is not immediately for consideration, but certainly one or two yes..

Abhijit just on that if you get an import alert over there what could be the magnitude of loss of existing business that you are running currently in the U.S..

So wouldn't quantify that Sameer, certainly not because this is not probably the right time to think in that direction, I thought you are a well-wisher. So let's do the right thing, let's sort of work on it, and then let's see what happens..

Okay. Thank you so much..

Thank you. Next question is from the line of Manoj Garg from DSP Merrill Lynch. Please go ahead..

Good evening to all of you and thanks for taking my question.

Abhijit like apart from Srikakulam do we have any pending 483 on any of other facility as of now?.

So there are pending 483s on few other facilities as well, and being addressed, being we’re engaging and being addressed..

Okay. And the second thin like this is for Saumen. If we look at in terms of Venezuela and we see the sequential numbers, I think that hit which you have taken on account of exchange conversion it's almost 40% of what we have taken in Q1.

So it is fair to assume that probably the supply which is going this quarter in Venezuela was 40% to supply that we have made in Q1?.

Yes, supply has been missed, I will not say exact proportion, I think supply has been missed..

And the last question from my side, ex- UCB in India, there would have been the growth for the base business adjusting to whatever the postponement of supplies or dispatches, like we are seeing the 20% growth including UCB.

If we exclude UCB, what could be the growth?.

It’s quite different and UCB we had, when we acquired we had in mind some kind of [indiscernible] about 150 crores. So we are proceeding in that direction to get that..

Wish you all the best..

Thank you..

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

Thank you for the opportunity.

Have we taken any price hikes in Russia or in the CIS countries?.

Yes, I mean one or two megabrands we have. We have..

So when you say this 11% constant currency, how much would this have been impacted by in terms of pricing?.

Mostly it is volume growth..

Yes, I mean there is some pricing, I mean exact percentage I will not break it up, but it's a mix of the volume and pricing..

But you have been able to take some price hikes?.

Yes, I mean look the rule is, the law is essential drugs cannot be price hiked, but non-essentials you are free to take a price hikes..

And second question was on the [indiscernible] post the 180 day - where you are expected to come in the market.

Do you think in your assessment this will be like a multi player market meaning more than three, four, five players in the market or do you think there will be a phased out kind of genetic entry?.

Enough data is not there in the public domain, there are filers as we know, so what’s happening and the negotiations, et cetera we don’t know. Some people may be pursuing litigation. We exactly don’t know, the scenario has not been clear. Certainly I mean, there will be more players for sure, but I don’t have the answer..

In your assessment, how many filers would be there?.

Again four to five at least I guess, but when and how they have - one would - they would come in, I can’t really say..

Okay. Thank you so much..

Thank you. Our next question is from the line of Prashant Nair from Citigroup. Please go ahead..

Yes hi. I had a question on the PSAI margins, I think you alluded to it briefly in your opening remarks, so how sustainable are the levels achieved in first-half? The reason I am asking you, I think last year also first-half was 20% plus and then it dipped in the second half.

So is this seasonal or do you think this can now sustain at these levels?.

The direction of the business has changed. We are approaching it from a different angle, different strategy, different construct. So I wouldn’t think that the margins would drop. We would continue to make it value accretive.

Important thing is to build sales further on the back of high margins, so that part we are still working on, but certainly we will not look at the margins dropping..

All right. And just one more question on Srikakulam.

In view of the recent development, I mean would you want to start looking at site transferring some products which I would say further out on the timeline, I mean are you at stage where you are beginning to look at that or you think you still want to wait for some more time and see what the FDA response is?.

So irrespective of what we want there is - based on bandwidth that is I mean bottleneck, so we’ll keep doing on priority I guess and rather than long-term, mid-term, short-term and such things. So based on our bandwidth we are continuing to address things.

Now naturally I mean assets depending on asset the priorities change and hence the focus and the amount of effort will also change. So we will first focus on the meaningful ones and then see where it goes..

Okay. Thank you. That’s it for me..

Thank you. Next question is from the line of Nitin Agrawal from IDFC Securities. Please go ahead..

Thanks for taking the question.

On the channel consolidation bit that you alluded to earlier during the call, I mean in your experience what you have seen, I mean are there any specific products which have been subject to more pressure in the consolidation or particular characteristics of the business is getting more impacted in this process?.

Well channel consolidation is not product specific, it is product agnostic. Channel consolidation is the negotiation of the channel with supplier companies on different terms, more steeper terms of discount and so on and so forth. So that would be on the portfolio of the entire business..

You have not seen instances where [indiscernible] products I mean especially not product specific it’s pretty much across the portfolio for everyone?.

Yes. I mean the discussion is between the channel and the supplier. So it'll be on the whole business one is doing with that specific channel whenever that is happening..

Thanks and secondly on our business I guys over the last four to five quarters barring the recent approval for Ezomeprazole you haven't had too many approvals especially on some of the larger products and we don't seem to be looking forward to too many of them really coming over the next couple of quarters also.

So apart from the litigation let delay - important big products or some products just probably got delayed because of Srikakulam.

Are there any other reasons why are we looking the launch schedule being a little softer than it was say in FY 2015?.

Yes, it is based on - as I said second half is not going to see very exciting launches, but having said that as I just mentioned [technical difficulty]..

You could go ahead with your question..

Could you please elaborate on Dr Reddy's biosimilar opportunity in U.S. considering potential competition from South Korea and U.S.

companies?.

Biosimilars are few years away, still in terms of the Phase III data, the studies are commencing and but it's still a few years away. The more important thing I wanted to share, which we are all excited about is how do we sort of globalize the portfolio in the emerging markets.

And I think maybe in hindsight we could have moved a little faster a few years back, but better late than never and we’re putting efforts to trying to see what we can do in making this reasonably meaningful in next two years to three years..

Okay but Dr.

Reddy's has planning to spend the better amount of R&D expense in the biosimilar segment and how do you expect to monetize this going forward?.

I think this is certainly going to be useful and still personally I'm very, very optimistic about the potential of biosimilars even in the emerging market and correctly monetize and correctly marketed. I think the R&D expenses can be recovered even for the emerging markets.

While as a regulated market [indiscernible] partnership continues and in due course, we’ll have benefits out of it, but on total percentage in terms of R&D they are not increasing anymore, I think.

Saumen you want to comment on the R&D expenditure on biologics?.

No. As a proportion biologic still is around say 15% of total R&D spend that we have and that is continuing at that rate only. And as what Abhijit said even in the emerging market itself where there is a huge focus going on, we would more than recover that R&D spend that we had in biologics and anything we get [indiscernible] in U.S.

and Europe that will be really will be a bonanza for us, but that is still if reoccurring..

So what is the count of our market size which are looking at in the emerging markets for biosimilars?.

Yes, the bigger markets we will look at, we will look at Russia, we will look at out licensing on all the bigger markets. The Asian countries have large populations, these are drugs which are needed in all countries and government eventually will make sure all patients get the drugs.

There is always cost pressure especially in oncology area and I think all this will add up meaningfully, but how we execute is a more important question, the opportunity is there..

Okay. Thank you..

Thank you. We will take one last question from the line of Balaji Prasad from Barclays. Please go ahead..

Thanks for taking my question again. Just two things; one would be intangible assets seems to have grown so you can take this quarter.

What is the composition of this rate? And secondly, you said that you reclassified one product from [indiscernible] proprietary segment, I presume that this is not large in size, am I correct in understanding so?.

So of course we had the [Technical difficulty] and the generics to proprietary products is that brand that we are [indiscernible] so that is not a very significant amount..

Saumen, I mean the first part of your are response on the intangible assets composition?.

Hashtech deal that we announce of course IT product, that is going to intangible..

Okay.

Does it fully explain that right?.

So Balaji if you are talking about increase in amortization year-on-year that is on a count UCB and Habitrol [indiscernible]. In the last year, we didn’t have UCB amortization and we had….

Speaking about the intangible assets in the balance sheet Kedar?.

Which is Hashtech Balaji which is [Technical Difficulty] for proprietary products..

Okay. Great. Thanks and all the best..

You are the first and the last caller Balaji. Thank you..

Thank you. I would now like to hand the floor over to Mr. Kedar Upadhye for closing comments. Over to you sir..

Thank you all for joining Dr. Reddy's senior management for Q2 FY 2016 earnings call. In case of any additional clarification, please feel free to revert to us. Thank you and good day..

Thank you very much members of the management. Ladies and gentlemen, on behalf of Dr. Reddy's that concludes this conference call. Thank you for joining us and you may now disconnect your lines..