Saunak Savla - Head of IR Saumen Chakraborty - CFO Abhijit Mukherjee - COO Anil Namboodiripad - Head of Proprietary Products Business, IR.

Manoj Garg - HealthCo Anubhav Aggarwal - Credit Suisse Neha Manpuria - JPMorgan Surjit Pal - Prabhudas Lilladher Nimish Mehta - ResearchDelta Advisors Saion Mukherjee - Nomura Sameer Baisiwala - Morgan Stanley Prakash Agarwal - Axis Capital Shyam Srinivasan - Goldman Sachs.

Good day, ladies and gentlemen and a very warm welcome to the Dr. Reddy's Laboratories Limited Q2 FY '18 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only-mode. There will be an opportunity for you to ask questions after the presentation concludes.

[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saunak Savla. Thank you and over to you Sir..

Hi. A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy's earnings conference call for the second quarter ended 30 September, 2017. 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 the transcript shall be made available on our website soon. The discussion and analysis in this call will be based on the IFRS consolidated financial statement. Now to discuss the business performance and outlook, we have the leadership team of Dr. Reddy's, comprising Mr. Abhijit Mukherjee, our COO; Mr.

Saumen Chakraborty, our CFO; Mr. Anil Namboodiripad, who Heads our Proprietary Products Business and the Investor Relations team. Please note that today's call is a 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 on to the call I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to the conference call and the webcast. So now I will hand over the call over to Mr. Saumen Chakraborty, our CFO..

Thank you, Saunak. Greetings to everyone. I will begin with key financial highlights. For this section, all the amounts are translated into U.S. dollars at the convenient translation rate of INR 65.30, which is the rate as of 29 September, 2017. Consolidated revenues for the quarter of at INR 3,546 crores or $543 million, grew 7% sequentially.

However, marginally declined 1% year-on-year. The sequential growth was primarily driven by part normalization of the channel inventory for our domestic formulation business and the improvement in the PSAI business after a subdued quarter one.

This was partially offset by the continuing pressure of price erosion in our North American Generic base business. The revenue from Global Generic segment is at $438 million and PSAI segment is at $87. Consolidated gross profit margin for the quarter is at 53.3%, sequential improvement of 170 basis points.

Gross margins from Global Generics and PSAI were at around 59% and 20% respectively. Sequential improvement is largely attributable to our overhead leverage benefit. SG&A spend including amortization for the quarter is INR 1,103 crores or $169 million, representing a sequential decrease of 6%.

A part of the improvement reflects our ongoing efforts on optimizing spending. SG&A spend is at 31.1% of sales now as compared to 32.8% for Q2 FY '17 and 35.5% for Q1 FY '18. R&D expense for the quarter is INR 418 crores or $64 million, representing 11.8% to revenue.

Lower spend was primarily on account of deferment in some of the milestone payout towards the balance part of the year and this does not reflect any change in our R&D strategy. On an absolute scale, we expect to close this financial year in line with the previous year level that is around $300 million or so.

EBITDA for the quarter is INR 689 crores, which is $105 million and is around 19.4% of the revenues. During the quarter, we generated $130 million of positive cash flow from operations. Our net debt to equity ratio stands at 0.30 as on 30 September, 2017.

The effective tax rate is around 26.5% for the quarter however, we anticipate it to be in the range of 23% to 25% for the full year. Key balance sheet highlights are as follows; our operating working capital decreased by INR 100 crores or $15 million during this quarter. Capital expenditure for the quarter was INR 281 crores or $43 million.

Foreign currency cash flow hedges for the next 12 months in the form of derivative for U.S. dollars are approximately $240 million, largely hedged around the range of INR 65.9 to INR 68.3 to the dollars. In addition, we have balance sheet hedges of $322 million.

We also have foreign currency cash flow hedges of ruble RUB 600 million at the rate of INR 1.131 to the ruble, maturing over six months. With this, I now request Abhijit to take through the key business highlights..

Thank you, Saumen. Greetings to everybody and a warm welcome on this earnings conference call. Let me take you through the business highlights for each of our key markets. At an overall level, we are seeing a recovery on a sequential basis and we believe that we will be able to build on this further.

Please note that in the section all references to numbers are in respective local currencies. Our North America Generics revenues for the quarter are at $221 million, a decline of 4% on a sequential basis, mainly driven by accelerated price erosion of the days business.

The Generic market is underlying significant structural changes leading to adverse market conditions in the short-term. On the other hand, we have had a good year in terms of new launches with eight product launches in U.S. and two in Canada.

Many of these launches have been limited competition space and expected to contribute meaningfully to our business. We are on track to achieve our target market share of key assets like liposome and doxorubicin, bilirubin with revenue recognition reaching peak potential by end of next quarter.

As you may be aware, we launched Sevelamer Carbonate towards the end of second quarter with revenue recognition expected to begin Q3 onwards. This has been yet another significant launch for us in limited competition space and we are in the process of ramping up our market share.

The remaining part of this fiscal is expected to remain busy on few new launches. As we continue to work with agency on the approval of our assets and remain optimistic on two to three launches per quarter.

Our Europe business recorded sales of €32 million with year-on-year growth of 35% and a sequential growth of 10%, supported by new product launches. As you may be aware the quarter -- this quarter we faced marginal supply issues following the German regulatory audit at one of our formation facilities in Bachupally.

We are now focused on addressing the concerns as per committed, corrective and preventive actions. Our emerging market business performance has been consistently improving on the back of new product launches, entry into new markets such as Brazil and Colombia and supported by stable currency. Russia business grew 13% Y-o-Y in local currency.

Performance in other markets has also been in line with our expectations. We are working towards strengthening our portfolio across emerging markets with the focus on biosimilars and leveraging our strong institutions in this portfolio.

We remain optimistic of building this momentum further, leading to a healthy and sustainable growth in these markets. India business revenues are at INR 637 crores and grew 2% Y-o-Y, and 36% on a sequential basis. After normalizing for the adjustments post GST implementation, the like-to-like Y-o-Y growth would be around 10%.

While there has been gradual pick up by the channel the inventory holding hasn’t fully recovered to the pre-GST level. The PSAI business boosted revenues of 86 million and has grown 20% on a sequential quarter wise basis.

On the back of improvement in custom orders and supply situation the business has undergone strategic realignment in the last couple of years with focus shifted to value accretive segments. We believe that this shift will help to sustain the growth for the business in the long-term.

On the Proprietary Products business we continue to execute our strategy of maximizing end market portfolio in FY 2018 we saw a significant increase in the prescriber base for our lead products Zembrace, Sernivo and Triconex.

Our near-term imperative to accelerate commercial business to profitability to volume growth initiatives and manage clear strategy for business and at the same time optimization of course through selective licensing our strategies we are also focusing on the allotment of these high value states that have the potential to be transformative for the business.

Before I conclude, let me reiterate on our three key priorities as led out by our CEO in the last earnings call. First, strengthening our manufacturing and quality system, here the key task is to systematically implement our quality management system. We continue to make meaningful progress on that journey.

For our critical sites including the Saral injectable plant in Duvvada and Bachupally, the remediation activities and continuous improvement efforts to strengthen the quality processes at these sites are on track. We are putting our best efforts to resolve these quality issues in the next few quarters.

Second, focus on building a healthy pipeline of complex products. For our near-term pipeline assets sending approval we are actively engaging with regulatory authorities to address their concerns and taking all possible action to secure timely approval and launches.

Third, optimizing our cost structure, we believe we have made a firm start here and progressing well on the journey to realize significant cost savings in coming quarters. With this, I conclude my section and open for Q&A..

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We’ll take the first question from Manoj Garg from HealthCo. Please go ahead..

Hi, good evening. Congrats on the results. It’s good to see the business start to stabilize. So, I have a few questions. I'll now just go through the questions and then go back on mute.

One, can you segregate the 11% revenue decline in North America into volume and price? Two, I believe that you have a target action date for the 20 mg glatiramer acetate product in November.

Just what are your expectations there, especially in the wake of the recent Mylan Natco approval? And then three, post the EIR at Srikakulam, which was I think about a month ago, what's the status of getting that backlog cleared there? And did you have any correspondence regarding glatiramer as a backlog at that site?.

On the 11% decline, we would probably send you a breakup of the price and volume, but this is the value which has been reported. Maybe we'll come back. Let me take the other questions, which you mentioned. The second one was the target action date on glatiramer. It’s 10 November lately and for 20 and sometime in March here for the 40 mg.

I think the last we’ve heard that post-Mylan’s approval, our file is in active review.

Beyond that we can’t comment and so we hope to hear something next month in terms of, certainly there would be follow-up questions and some of those questions will also be on the -- mostly on the -- we guess in DNA side which will be applicable for the 40 mg as well and hence it will extent some of the work would be done ahead of the 40 mg..

I'm sorry -- just to interrupt. I didn't catch that.

Were you expecting questions on what aspects of the file?.

On -- the asset is very heavy on the drunk substance side. So, I think that….

Okay..

So what I mentioned is I think some of the questions, which we receive, would be also be applicable to the 40-mg asset. Your next question was on the sites.

I think you also talked about the Duvvada site or Srikakulam site?.

I asked about Srikakulam. So, the EIR was issued about a month ago, I think on September 28. So just wanted to see what the status was starting to get the backlog cleared there.

And then the follow on to that was Glatiramer also filed out of there?.

So, there are two dosage sites in Srikakulam. So, both have been through in the audits and these are -- one is an oral solid site and the second one is topical and few other dosages. So, this is not the site from where glatiramer has been fined. So, the manufacturing has always been on.

We earlier had an EIR, the audit happened and so the approved status continues, and [rental] has been launched from this site. So that continues. This is the finished oral dosage site. And you also talked about the German inspection; I think we have provided details about that.

This was watchfully site, which we had a series of adverse observations and we are at the moment sort of we've responded and we are implementing the commitments we made to the authorities. We'll have to go through another audit, maybe sometime in Q4. We wouldn't exactly be able to sort of let you know the date, and then we’ll see the cost of that.

But we're putting in concerted efforts to sort of make sure that we – we’re going to give all the solutions..

Okay. This is very helpful. Thank you for the color. And then perhaps, if later on in the call, if you're able to provide that break up in terms of volume versus price..

Okay. All right. Maybe, Saunak will respond to you separately on that. Okay..

Thank you. We'll take the next question from the line of Anubhav Aggarwal from Credit Suisse Please go ahead..

Yeah, hi. Good evening. Abhijit, just one question on the market. Several companies have mentioned that with the price erosion happening in the U.S. companies are reaching a pinpoint where returns are less.

I just wanted to get some understanding that if you look at your portfolio roughly, very roughly what would you indicated that what percentage of portfolio now, if you just put it threshold as return of capital or let’s say some return as 10% 15%. What percentage U.S.

portfolio will be making returns less than that? Just to understand that when companies say it's a pinpoint, is it just making lesser margin what they were making earlier or we come to a point were we're not even covering our cost of capital?.

I don't think we are or maybe any other companies at that point where return on capital is getting challenge. I mean where we are is compared to the industry, the margins industry were used during past has taken a severe, very severe hit.

The various companies have message the erosion based business is eroding and will continue to erode I think with more the configuration is happening.

Plus, once in a while we would have that I think Teva pretty much mentioned that in their phone call that there will be hit for every company and for them as well which are more, meaty which once in a while take a higher hit.

So, return on capital is at least for established companies is not that big an issue I would say, but certainly for someone putting up Greenfield site starting from scratch to approval that's going to be a challenge can’t speak on the behalf of the companies..

Yeah. But just to ask this further. So, my question was not on your total portfolio in the U.S. Let’s say of course there were some products like for example, dystrophin and doxil which are pretty good products.

But even if the products which are let say in quarter four or quarter three in terms of returns even are we not making money on those products or should we assume that if you are not making return you simply exiting those products already?.

It's true for every company. I think in other moment you are not making money in the sense for the moment even the gross margin dropped below a certain level I think every company tends to agree at least organized companies I think. And it’s true for us as well most are true for us..

Sure. The second question is on the India floor. So even if you take adjusted growth of 10% given these stalking this quarter, doesn't this number looks little lower. We have seen a mix trend. Some company is reporting 20% like-to-like. Most of the guys have been around 12%, 13%, so somehow this 10% number looks little low.

What happened in this quarter?.

No, I mean look, firstly I wouldn't challenge your observation. I think are we certainly be happy with the existing state of business, no. Certainly there are some parts, some division there. There is scope for improvement. But where from the lows of last quarter, I think there has been substantial catch up.

But overall India business, I think we have some more work to do. We certainly have some more work to do. Certain areas we're doing well. Oncology, MDN Assets launched, getting great deal of traction in certain parts of the business if they’re doing well. On some other parts of the business, historically Dr. Reddy’s have not been very strong.

I didn't mean there are -- there is some work to do for us in the India business, yes..

Sure. And if I can just ask one question to Saumen sir, employee cost was down 3% year-on-year this time. Historically we've seen our employee costs increasing.

Just wanted to ask that what's the outlook here? The full year number if I further give, we had one off lower sales in the quarter for last year, but like-to-like, what kind of employee cost should we be building on an annual basis?.

Well this year we have focused a lot in terms of optimizing all costs structure and that include the demand of our cost and kind of incremental which you’ve given this year is also comparatively much lower than what we thought people were used too for the previous year.

And we know there is some part of the manpower cost which is a completely performance linked and based on our Q1 performance, which is quite a bit of disaster. There will be definitely to that extend that park lift is impacted. So, we will try to control.

So, the thing is the kind of growth we are accustomed too in terms of the manpower cost, we don't expect that kind of thing to happen this year.

So, we see the design in terms of controlling, but beyond for several, the FC&A productivity we would like to improve and that 40 something which I alluded to last year that one of the key priorities is optimizing on cost structure of which we're just seeing some early development..

Thanks Sir..

Thank you. We’ll take the next question from the line of Neha Manpuria from JPMorgan. Please go ahead..

Hi. Thanks for taking my question. And sir, is it fair to understand that the U.S.

business seem neutral this quarter despite having some good launches, launches like Doxil probably didn’t contribute to much into the quarter and therefore we should expect that to ramp up fully into third quarter?.

So, one thing I would like to clarify that Sevelamer we launched on 29 of September which is beyond the cut-off date for the revenue recognition. So, there has been no revenue recognition on account of Sevelamer. Okay..

No, no. I’m talking about Doxil..

Yes. Yeah.

Neha, just last part of the question, what was it?.

No. I was talking about Doxil, sir, because I would have assumed that would be a good product to sort of start gaining ground in the quarter.

Is it fair to assume that Doxil hasn’t contributed at all or the contribution is very minimal in the quarter and therefore we should start seeing an improvement in that contribution of sales as we go into third quarter?.

No. Doxil is not insignificant this quarter. Doxil is in double digit – early, double digit this quarter. And it's been a good launch. Would it been a little more, it could be, can’t comment on that. But it is not certainly insignificant this quarter..

Okay. Got it. And sir, second on the cost savings. From what I’ve understood, well, you’ve already seen -- if I exclude the [DNEA] you’ve seen about 10% cost saving, that will be quarter on quarter. My understanding is that the cost optimization networks will be more gradual from your last call.

Is it fair to say that a lot of the low hanging fruit is probably captured in the cost saving that we’ve seen in the quarter and this is – you can’t build as much as you have or save as much as you have shown in this quarter?.

So, I’ll comment in generality first and then someone can get – add some specifics on that. I think you’ll have to look at cost savings in a broader perspective. I think there is serious effort in changing the cultural context of our spend base. Okay. And we are trying to be diligent and frugal in many ways.

The model is changing, not just in North America, in the home country as well. There is pricing pressure. So, we’ll have to realign ourselves and we are serious putting efforts. Now it's – that’s playing out in SG&A, that’s playing out in manpower, and that will play out in many other activities. It's being led by a very competent team internally.

It's very, very driven by internal managers and show interaction.

So, beyond that Saumen you want to comment on any one of the figures?.

Yeah. All the things which we try to focus on includes manpower cost, includes like travel costs or also winter games and all such things. But having said that selling cost -- therefore the fluctuations quarter wise because in some quarter -- there would be specific state of activities, which would be planned.

But there is a concerted effort in terms of structural cost, which will -- eventually get realized some of them may be this fiscal, some of them maybe -- next fiscal also. So, it'll be a continuous effort. Yes, I know, low hanging fruits are something which would have immediately given us some impact..

Well, thank you so much for taking my question..

Thank you. We'll take the next question from the line of Surjit Pal from Prabhudas Lilladher. Please go ahead..

Thanks for taking my questions. Saumen my questions actually I was going through your [INDS] -- consolidated numbers. And I have two questions. One question is that if I go by your cost items and if they see that total expenditure to say it is 90 in Q1 and Q2 it is 81. So, quarter-on-quarter 8% is quite a big jump in terms of improvement.

And if I go further I see that the raw materials I mean, all items have done. Purchase of finished goods I can understand -- things but be it raw materials or be it employee cost or be it selling expenditure, be it other expenditure everything quarter-on-quarter has now -- optimizing is one thing.

But how come it has come down so drastically, I mean, if I compare almost 50 to 60 crore on an every -- item. So that is one.

Second thing is that your receivables -- if I go by your current receivables in the last six months from March to September it has been increased by 411 crore., And if I go by first half fast year-on-year growth of your sales that is 42 crore.

Could you tell me what are source of high risk of this?.

Yes, I will take the second question first. Because of the consolidation -- customer consolidation which is happening in USA, the credit period -- there would have been various ranges. So now the moment consolidation takes place all the turns goes towards which is beneficial for the customer. So that's why the credit period itself is going up.

And any sales in USA where there is a quite a bit of cash back and all the actual receivables effectively much more than the credit period.

So that has something which has impacted because the year in terms of would be receivables, but very specifically for the quarter there is some receivables than normal which we are seen in both PSAI business and Russia business we could get corrected. But the credit period impact in terms of receivables for long-term results they have to stay. Then ….

I am sorry I want to interpret you here.

You said what is a current receivable days in U.S.?.

Oh! The credit period you know earlier there was a range but actually now most of the contract it is now 90 days kind of a credit period but the effective period that as we looking the charge backed impact we need to pay immediately it goes beyond 110 days effective of DPCO. With that, if you take 90 days it goes beyond 110 days..

Okay..

And then to come to your first question the material cost will definitely depend a lot on the business mix so that means if the digital PSAI if there is a variation in the ratio that will have an impact. And second, there is some parts which are the quality related provisions which happens.

Quarter-to-quarter there would be definite fluctuation there..

If I can squeeze….

In terms of the other improvement that you have seen there. You are just sitting so in the earlier selling expense the specific quarter is low and which does not mean the other quarters selling expense sit on the higher. As I said this will be activities which are plant for the specific and specifically for the branded business there are calendar.

Okay?.

So, from that perspective, do you want to mean is that you’re where the sales you have not book these quarter but cost you have booked fully this quarter right?.

Well no the sales and cost matching, we always explained. Way to do it will be if you look at on the India is standalone and vis-à-vis concentrated they are made the different impact. But so far as the temporary test scales are they are every dollar of sales we have to match with the cost of revenue..

Abhijit could you throw some light on Suboxone and NuvaRing current status?.

Not a great deal of change. We may say that in the Q4 we have the TAT for Suboxone on the litigation side you are aware I think we remain, fairly optimistic and let's see where it takes us. So, we have -- we have responded to the CR about four, five months back I think June -- in June I think we responded. So, we'll see how that goes.

And nearer the TAT date whether there are some more questions or where -- but we remain optimistic on the litigation front. As far as NuvaRing is concerned, our TAT is in March and any way the IP -- concerned IP is expiring in early April, or something. So, if that becomes irrelevant so it all depends on whether we'll get approval on time.

It’s a drug device combination. Again, we have responded few months back on the CR here. And let's see how that goes. So far so good..

Thanks. I will get back to the queue..

Thank you. We will take the next question from the line of Nimish Mehta from ResearchDelta Advisors. Please go ahead..

Yeah. Thanks for taking my question. Just wanted to know U.S.

GMP status on Rachanapalli knock them before actually hide back or either we have a anything of that sound that will be helpful?.

So, if you recall we had quite a few observations in that site. So, we received a query from the agency or specifically on one provision dealing with the investigation and validation and we provided that data about a couple months back.

If I recall correctly, and then we had received another follow-up to the same question some more data requests and which we are compiled and all that is going out towards the end of this week. Beyond that, we'll see how that sort of goes. So, we would just start off with the process of compilation of that data and will send it out.

So out of all the observation, [1:30] where we can more questions which we are responding which is the area of basically validation and litigation..

Give only have we not heard anything from USFDA on the regulatory status on the facility and particularly we have got OAI of that chunk. Sorry..

So still the questions is normally happens if there are more observations. There is a questions on a provisions. There is a questions of satisfactorily answered, we will not get that we were going through. So, the questions we have to answer and answer and then if the agency is satisfies then it’s sort of approval start from this site..

Okay.

Any time line are you feeling by the time you will be able to play that and also if you can give some color on the number of approvals dependent on that facility over the next 18 months, more sort of the important ones, important of course that will be help?.

The specific timing on anything we’re dealing with the agency, it will be difficult for us to comment, because our job is to turn it around on the committed date and sort of engage with them as and when any questions come up. As far as approvals and launches are concerned, we have eight so far, eight from North America and two from Canada.

It’s why I’m mentioning Canada as well because it clubbed under the same geography and give or take maybe six more or so till end of the financial year. Well, specifics we’ll not get into and we'll see how that unfolds..

I'm sorry..

You’re asking from -- I’m talking to the full company, right..

I was asking about Bachupally certificate as to how much, I mean, how many approvals are dependent on Bachupally which we expect over the next 12 to 18 months. .

That we will not be able to comment. You will have to -- I just mentioned that we have another oral solid dosage site where EIR is with us and many filings have been taken from that site. Bachupally site was our erstwhile site and we wouldn’t be able to specifically give the breakup of what else is spending.

But overall for the company there are quite a few assets between Duvvada and Bachupally and there are quite a few assess which are complete in terms of review and some of them are certainly even besides potentially which had impacted because of GMP status..

Okay. Okay. Finally, last one if I can squeeze.

The gross margin has been about fluctuating over the last two, three quarter and I understand the reasons there are many, so is this the gross margin, I mean, we can consider to be sustainable from here on, I mean obviously depending on the product mix, but is there any one-off in the gross margin or is this kind of the working capital?.

See, last time also last quarter we said that it will improve from Q1, but we cannot hope to go back to a level of like a 60% kind of gross margin that will be very difficult because of the fact that which is happen.

So, one can -- depending on the business mix and new product launches, one can see the range between say, 53 to at a very good quarter it could be around 55 that's kind of level..

I see.

But there is no one-off related to let's say, the resolution costs or any other thing, right, all I’m saying?.

We – there is a -- I said, there is a lot overhead leverage benefit which happens annual sales number. So, the first quarter the cost of the overall sales and of course the GST transaction impact in India was a major contributor there, it was low to that extent maybe impact several product..

Okay. I understood. Okay, thank you very much..

Thank you. We’ll take the next question from the line of Saion Mukherjee from Nomura. Please go ahead..

Yeah. Thanks for taking my question. Sir, you mentioned two, three launches every quarter. I'm just wondering given all the uncertainty around the sites for Duvvada and Panchupali, I mean what kind of visibility you have. Can you let's take us through mitigation steps that you would have taken.

And what kind of confidence you have on the key assets which are out of these sites that they will ultimately get approved even if let's say, there is a delayed in resolution?.

So, as I mentioned that we certainly have few assets which are with reasonable earnings potential, which are at the moment we completed and unfortunately reading on the sites. So, the priority on hand is to do very, very active site transfer not just for these but prospectively for the important assets and which is going on as we speak.

But some of this impact as we are already seeing in the current moment, but we would continue to do here onwards much more sort of proactive site transfer. Not to say that that doesn't mean that we are not, we are very, very actively working on the site. We remain eventually optimistic where we will be able to mitigate these and go to the other spot.

We will always continue to put high-focus on derisking, especially the important assets..

Okay.

And sir, if I go with this run rate, like you are talking about maybe around 15 launches over the next 18 months, how many would you say would be like high-value assets that we should expect?.

That could be difficult as I – same answer which I have been given, because first is the destiny of assets are better known after the lunches come through or the approval comes through, one.

Two, the uncertainty on even in the sites in the sets where there is no site issue uncertainty in terms of what questions you will have and what types of CR you will receive is has been varying a lot and I think from our expectation angle. And so, it will be completely incorrect to sort of comment on that how many would be high.

But the pipeline which we have continues to be very good. We have great confidence on the type of assets which we have filed. So, let's see what destiny has install for us..

Okay. Great. And so just one thing on the property product if Anil sir can answer. I mean we have talked about trying to get the sales. We have stopped the discount et cetera. It's been almost like a year now more than a year. So isn't it like for a reformulated asset that you have launch, it's taking just too long to get those sales.

I mean you talked about I think $30 million, $40 million both for Sernivo and Zembrace.

Do you see risk to that given what has happened so far in the market?.

So, let me try to answer your question by first. The first part of your question which is reformulated assets and performance in the marketplace. First of all, it is not about reformulated or a new chemical entity, it is more around the payer landscape which is changing in the United States.

It's evolving and manufacturers such as us and any others in the market need to adapt to these changing to the changing landscape. So again it's not about recompleted assets. Second, we -- so what that means is that as opposed to in previous years three, four years ago.

Today the difference is that it takes a little longer in terms of getting listed on formularies. And what we have done both with Zembrace and Sernivo is that we've made significant progress since last year. For example, if you just look at the overall Promius sales as compared Q1 to Q2, we have made a – we have jumped 30% in terms of our revenue.

Why that has happened? Well, first of all volumes, I mean, physician uptake has been catching up. Second, in case of Zembrace, we've got coverage with some of the bigger plans, in this case CBS care market is now covered Zembrace. Sernivo, we are waiting for that coverage, some of the bigger plans.

So, Sernivo slightly slower than Zembrace, but Zembrace has been doing well. So, to your question of the peak sales, it is too early to comment right now, because as we speak we are continuing to get coverage across multiple plans, and we hope that by end of this fiscal year we will have a significantly better coverage than when we started out.

The bottom line to note here is that the business has been progressing and we are seeing quarter-to-quarter differences in terms of – quarter-to-quarter increases and significant increases in terms of fees..

Okay. Okay. Thank you..

Thank you. We’ll take the next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead..

Hi. Thank you very much. Abhijit, four big T-A-Ds, TADs over next five months, so holding your breath, I guess.

So, are we looking at a blockbuster year next year or a philosophically speaking how should we think about the final approval? What FDA give out many questions to you and then again goes into multiple months, or would it be a shorter period to respond and hence approval getting quite quickly?.

Let me try to be as specific as I can within the limit of whatever we know. Broadly the two assets I already covered, I think we have answered well. But both are not need to straight forward asset. So what question they would have, we will probably know only when we get it. But overall, we feel reasonably good about the way we’ve responded to this.

And hopefully should be IF, but let’s see. Gladly, it’s more of -- I mentioned that we have done the best of our ability of based job. But then there are certainly -- this one certainly will have -- I mean some questions which we are proactively working on a few things and plying to want as much as possible.

And the rest of few are not in public domain, again we are prioritizing these activities is all I can tell you Sameer. We are prioritizing a lot organizationally trying to sort of put our best scientific minds together to sort of preempt as much as we can.

There is a lot of uncertainty today in terms of how questions are being asked at times and how those sets are progressing -- made more complex by the tight issues and all that. So, beyond that I wouldn’t be looking so much light whether we’re blockbuster or rather every year, but likely we’re very close..

Okay. And more specifically Abhijit on Copaxone. Now I'm talking about the Seethaphalam API site, why we’ve not received EIR over here. And I think the Copaxone API is coming from the site, so does that put the productive risk. And second follow on Copaxone.

My understanding is that they had got fantastic patient support system and nurse call center which is so critical to getting the market share.

So, would you be having the same?.

So, let me take one by one. So, the API we’re going by two side strategy. Let’s talk about your PDV plant in compliance status. But we're going by two side’s strategy and there is next to another site which is the TVAR and you know very soon we are -- how it's revalidation and we’re just sort of updating the file.

But having coming back to specifically about Seethaphalam sites, so what we've heard from the -- regarding that last specific audit there doesn't seem to be further question. And as we had mentioned our audit has gone well. But there are a few questions of -- further ENT1 bid regarding details about forced WL some more details.

Now those are sort of put together in the form of a questionnaire. And we are going to probably receive that in about a week or so. And we have a fixed date telecon you know the month after you know towards third week of December on that. So that will answer those telephonically once we receive those. And then we'll see where it goes from there.

But it's hopefully moving in right direction. But as I mentioned we are anyway, we are getting to a two-site strategy for GLAND and API..

And on a patient support system and nurse call center?.

Yeah. So, to that extent I think that approvals have paved the way for – we by the way, we are also absolutely ready, we know the support system. We were not sort of we will be certainly ready as an when we get through that. But with one more generic coming in I think that part will be you know hopefully smoothen..

Okay. And Abhijit on your Duvvada, facility I thought that, mentioned that you were expecting a re-inspection end of this calendar.

So, what's the update over there?.

That's by far the most important phase for us. And as I was mentioning assets which are completed review awaiting approval fewer from there. So, high management focus, substantial activity going on you know some consultant help also being sort of taken at the moment as we speak. We don't want to rush into absolutely that's not right.

We want to be absolutely certain that it's not about the complaint. It's also about the take all over the world being scrutinized very heavily. So, we want to make sure that the work, culture, the way people operate as much as we can sort of spend time on that and make grassroots improvement and we are focused on that.

Specific question on the timing about it, more like towards the end of Q4..

Okay.

Abhijit my understanding is the problem was the warning letter was for the oncology blog, but why are you not getting approval for non-onco blog Duvvada?.

You know the way agency looks at it. It's deliberate one site. So, we will have to deal with – although the other site as not being audited but we will have to get through this side, to sort of go through the other one as well..

Okay. One final question with your permission.

Renvela, I mean is it still an exciting opportunity because soon after you impacts on supply for the approval and maybe a couple of more coming? Or do you think this should get a lot diminished?.

It is significant and it is exciting and being the taken in front we have our fair market share. This is -- the entry you can see happening in a sequential manner and it depends on -- how the competition sort of looks at it. But yeah, I think it's still going to be significant and exciting..

Okay. Abhijit -- sorry, one more. ALOXI any thoughts on that? I thought it was it was IP was getting a lot resolved so approval was coming closer.

So, any update on this?.

So, decision, one of the first things my morning when opens up a mail one is looking at it. Beyond that what I can say Sameer, I mean that anytime I guess. But we don't know what the outcome is going to be of course but you know we hope to hear soon enough..

Okay. Super. Thank you..

Thank you. We'll take the next question from the line of Prakash Agarwal from Axis Capital. Please go ahead..

Yeah. Thanks for the opportunity. Sir, question on Doxil. You did mention you know you would have done about early teens on Doxil.

I'm just trying to understand what was Natco's role here? I mean the filing is in your name and so and what kind of if you can add roughly what kind of sharing agreement we have?.

So, the file is ours and we -- it was developed -- we probably had mentioned a little bit that we have put in a lot of effort in characterization capability in this company. And you know these products need a very large amount of characterization.

So, we played a big role in that in terms of sort of proper characterization and working with this institute to see that it gets approved. Specific details of the -- business we won't really share but we are the dominant of the two partners..

Fair enough. And going to Copaxone, is understanding clear that even if the TAT is there and as you said the facility -- you know the API issues us -- API facility Srikakulam is yet to be cleared.

So, what happens, I mean if the TAD is due and facility still not so do we get to -- what happens really?.

Clearly said that we -- the audit. The recent audit went well and there were no further questions on that specifically. We are answering now questions still pending questions of the last WL. So, and there is a clear pathway. So, let’s see what happens. I can't really comment on the outcome but we wait optimistically on the progress of the sites.

Having said that, as I mentioned we are certainly by another couple of months we have new API fielding along with the 30 data as well. And then we will see, depending on how can score the perfect life it does rely on the new sites..

Perfect. And one clarification on the R&D comment that you made that there has been some deferment of milestones. So, this is related to that you already paid the TEVA piece so what does this refer to….

No there will be lot about developments happen to external partners as well. So, there will be some which really regarding any specific quarter. So, and some activities planning in all so it is not eventually paid across the area but were they are to put the whole year in terms of absolute R&D thing it will be similar to debt 570..

Thanks, and Saumen lastly for you on other expenses you did mention there has been optimization measures that we've taken. I'm just trying to understand with the proprietary product expansion and new launches that are happening plus India, Russia.

So, is this the base and we should build some cost inflation here or how should we look at it going forward?.

Some of that done for example in Colombia as already being factored in terms of because we have incurred last year Brazil and now whatever the clarity these kind of countries now you've gone with a business model where you do a lot of reliance on institutional sales and on the back of complex products.

So, Americans are taking pain pills for kind of making it really difficult to get different models. So, having said that we have a lot of plans on almost every aspect of our each category is a pain. We had an amazing great detail. We are doing well and I think it's driven kind of cost optimization which will continue..

Okay.

So, this is likely to be the base about 20% to 23% of sales?.

Which one?.

The SG&A as a total group?.

No.

SG&A is at 31.1% this quarter, which actually if you see last year, it was 32.8% and in the previous quarter it was 35.5% from 35.5% which again brought down to 31.1%?.

And this 31 percentage plus minus 1% or 2% is possible I mean..

It is, that is the range we are looking at. Yeah..

Okay. Perfect. So, thank you and all the best..

Thank you. Due to time constraints we will take the last question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead..

Thank you for taking my question. Just two short ones. One on generic REVLIMID, the patent, IPR filing dates, one of them is passed October 20th I thought. Do you have nay specific strategy or how is Dr.

Reddy's thinking about this opportunity?.

Bigger set for us in litigation so obviously just early stage, we have a – I think we think that we have a good position, but too early to comment on this. As you know the product patent goes in 2010 I guess and other things in the deviation, Yeah, others in the deviation, so difficult to comment, but, yeah bigger thing for us..

Okay. So, you think it's a medium-term opportunities.

Would that be a fair comment our no?.

No..

Okay..

I’d just say, it’s a litigation..

Sure..

Yeah..

Sure. Okay.

My second question is on again Suboxone just to follow-up the TATs in Q4 you said in the District orders given it in your favor, is there if all things come through and if the FDA gives the approval, do you think there is a potential for an at launch a risk sometime next year do you think?.

I think we are very focused on the approval of the drug at the moment. As I said we remain very optimistic about the deviation part of it and what's the current focus is getting that drug approval..

But I thought that you not like -- you don't have the first to file on this one. Right? So, is there do you know how the FDA will treat this case because the other guys are all stuck up? So, any thoughts there would be helpful..

My information is as good as yours, 30 months – within 30 months approval will come through for the first time and beyond that how should we be treated is if agency is derogative..

Sure. Okay.

Last, my last question, you've given a lot of the numbers on margins and stuff, would you also venture to give us some kind of an EBITDA margin guidance for the FY 2018?.

No..

Okay. Thank you. I was just trying my luck. Okay, thank you..

Thank you..

Thank you very much. Ladies and gentlemen, due to time constraints that was the last question. I now hand the conference over to Mr. Saunak Savla for closing comments..

Thanks. Thank you all for joining the Q&A session today. In case of any additional clarifications, please reach out to the Investor Relations team. Thank you all..

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