Ladies and gentlemen, good day, and welcome to the Dr. Reddy's Q4 FY '19 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I'll now hand the conference over to Mr. Amit Agarwal. Thank you, and over to you, sir..

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 fourth quarter and full year ended the 31st March, 2019. Earlier during the day, we had released our results and the same are also posted on our website.

This call is being recorded and the transcript shall be made available on our website soon. All the discussion and analysis of this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. G.V. Prasad, our co-Chairman and CEO; Mr.

Erez Israeli, our COO; Mr. Saumen Chakraborty, our CFO; Mr. Anil Namboodiripad, who heads the 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 reprinted in press or media outlet without the company's express written consent.

Before I 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. Now I hand over the call to Mr. G.V. Prasad. Over to you, sir..

Thank you, Amit. Greetings to all, and thank you for joining us today for the earnings call. The fiscal year FY 2019 has been a year of turnaround for the company, its growth of 92% and 12% earnings per share. The EBITDA margin improved from 17% in FY '18 to 22% in this fiscal year.

The free cash flow also improved from INR605 crores to INR2,162 crores in the current year. In February 2019, we received the much awaited EIR of the Duvvada injectable formulation facility from the U.S. FDA, indicating further -- of the inspection with the classification under VAI status.

We continue to work towards the revolution of the warning letter for the API [indiscernible] which is not [indiscernible] internally and are focused on the quality of outcome of this in the near term. Quality has always been an area of priority for the company and will continue to remain so.

During the year, we laid out our strategies and realigned it to focus on 6 chosen segments to drive the future growth of the company. We also made some key changes in the leadership team, and we now have a very strong team in place to drive the growth for each of the key segments.

We also took some meaningful steps towards optimizing our global cost structure and also driving sales from noncore assets to strengthen the foundations for the long-term sustainability of the organization.

Going forward, the key priorities include ensuring market-leading performance in each of our chosen 6 spaces, and we will also to continue to focus on developing high-impact products in the Proprietary Products business and also build a healthy pipeline of biosimilar products for the global markets while building a self-sustaining business model for each of these businesses.

In order to achieve our strategic objectives, we will actively pursue these organic opportunities to augment the organic growth ensuring value creation for our shareholders. With this, I would like to hand over the call to Saumen to take you through the financials and the highlights for the quarter..

a, adverse forex rate in quarter four as compared to previous quarters; b, change in the business mix with a decrease in the contribution from Global Generics and a corresponding increase in the contribution from PSAI; c, higher manufacturing coverage due to certain onetime charges; and d, an impact delivered to the overhead charge on the carrying value of inventory.

The decline was partially offset by the benefit to the gross margin revenue instead of PP Derma brands. While the momentum in gross margin arising out of forex structures may continue, we believe that gross margin will improve in subsequent quarters. Gross margin from Global Generics and PSAI were at 56% and 21%, respectively.

Gross margin for interim FY '19 has been 54.2% against 53.7% in FY '18, improving by 50 basis points. The SG&A spend for the quarter is INR1,238 crores, that is $179 million, with a growth of 3% growth both year-on-year and sequential quarter basis. SG&A spend for the year is INR4,889 crore and has grown by 4%.

The SG&A cost percentage to sale declined from 33% in FY '18 to 31.8% in FY '19 due to the cost optimization measures taken by us. R&D spend for the quarter is INR366 crores, that is $53 million and EBIT 9.1% of the sales for the quarter. The R&D spend is lowered by 16% year-on-year and is flat on a sequential quarter basis.

The R&D spend for FY '19 is INR1,551 crores. That is $226 million as against $264 million in FY '18. We expect that the overall R&D for FY '20 would be in the range of $250 million to $300 million. Other income includes INR16 crores of profit on the sale of intangible assets for the [indiscernible] PP Derma brand after adjusting the associated costs.

The EBIT for the quarter is INR882 crores. That is $128 million, which is around 22% of revenue. The EBITDA percentage for the full year has been 22.2%, which is an improvement of 520 basis points over FY '18. The effective tax rates for the quarter is 25.8% and for the full year is 16.3%.

We expect that the ETR will be around 20% to 22% for the next year. ETR for the quarter is INR26.16 and for the full year is INR113.09. Operating working capital increased during the quarter by around INR373 crores, which is $54 million.

The increase is primarily attributable to an increase in receivables and deduction in payables, however, the net working capital days has improved for the last quarter. We invested INR176 crores, which is $25 million towards capital investment in this quarter. The free cash flow generated during this quarter was INR452 crores, which is $65 million.

Our net debt-to-equity ratio has improved further and is at 0.09 as on 31st March 2019. Foreign currency cash flow hedges for the next 12 months in the form of derivatives for U.S. dollars were approximately $335 million, largely hedged around the range of INR70 to INR74.3 to the dollar. In addition, we have balance sheet hedges of $363 million.

We also have foreign currency cash flow hedges of RUB 1,800 million at the rate of INR1.066 to the ruble maturing over next 12 months. With this, I now request Erez to take through the key business highlights..

a, resolutions of the warning letter at CP06; b, achieving market-leading growth for each of our businesses; c, ensuring that each business operates and grow on a self-sustainable basis; d, giving a healthy pipeline of products for all markets including differentiated products; e, driving innovation and business model for sustainable growth; and f, continue on our journey of improvement and cost structure.

I'm excited with the opportunities we have and the growth possibilities from here on. I now open the floor for questions and answers..

[Operator Instructions]. The first question is from the line of Prakash Agarwal from Axis Capital..

So first question is on the accounting on recognization of sale of assets under the Proprietary Product revenue line item. Just trying to understand how this happens, and does it flow entirely vis-à-vis the confirmation from gross margin to EBITDA margin? And the net gain that you mentioned is on the other income, which is INR16 crores.

Could we confirm that?.

All assets we are selling to [indiscernible] it's having quite an attack. But pray when we sell, this will come under revenue. And although another quarter we acquired here, and whatever is on the profit, we are overhead on other income..

Okay.

And is there anything else?.

No. There was a big ramp of INR181 crores and INR16 crores which is probably mentioned..

Yes..

INR181 crore revenue and INR16 crore in other income..

Okay, understood.

And secondly, on the R&D side, if you could give some outlook, how would be the run rate in fiscal '20 and '21 and some update on the NuvaRing as well as the biosimilar and Zenavod pipeline, please?.

So what I already explained, I already mentioned that it's between the range of $250 million to $300 million. And I will ask Erez to respond on NuvaRing..

So NuvaRing outlook, it's a -- we don't have new information. We continue to engage the agency. And then we hope to launch this product the next coming months. The -- as related for the overall R&D, this will continue to be our bread and butter and the way for us to grow.

And overall, we are -- as I mentioned the numbers, we will absolutely -- now that we made the R&D organization more efficient and -- we could handle more products with less cost, we want to continue with this plan of productivity to increase the R&D in order to ensure no fallbacks and no differentiated products..

Anil on the cost, talk about XP..

Yes. So your question regarding XP23829. We are quite excited with a successful Phase IIb study that was completed for this asset. We will be shortly announcing the key results. We are still in the process of analyzing the data, but the headline data looks quite impressive..

Okay.

And any time lines when we could finish the clinicals for clinical trials and ready to file?.

We are still in planning phase. We will have to go to the FDA and keep the guidance on the path forward..

Perfect. And last one -- it is on the Celgene -- on the Revlimid product.

Is there any update that we have already settled in Canada?.

So we have settled the Canada and it was mentioned in our press release. Yes..

And for U.S., I wanted some update on the U.S.

Where are we placed?.

On the U.S., we continued legal proceedings..

The next question is from the line of Neha Manpuria from JPMorgan..

Four for me. You commented that it seems that there are other forms -- one-offs than gross margin.

Could you provide some -- could you quantify that number, please?.

I do think there are 4 factors which has pulled down and 1 factor which has pulled up. The 1 factor that just pulled up is the sale of the PP Derma brand, and the 4 factors just pulled it down, of course, the forex Phase I compared to the previous quarter. This quarter, the U.S. dollar [indiscernible] conversion rate was lesser.

And the business exchange which has been there, if the pie of PSAI increase that pulled down the overall gross margin. And as we increased the sales in Global Generics and that we get corrected.

But the 2 specific onetime gains, which is on the higher manufacturing overhead and onetime charge, cauterized out of some [indiscernible] badge or some specific write-offs which happened. And there is also inventory that we create for launches in FY '20. So more related to that, there will be an overhead charge.

So this is the factors that contributed to net income..

I understand that.

But could you kind quantify the onetime impact? What would be the number for that?.

So as I was saying that we expect the gross margin will improve. So normally, As I told earlier also that our business already started that. We expect the gross margin to be north of 50% while basically it fluctuates between, say, 53% and 56% except for some specific quarters, this quarter one, where it has been outside that range.

But hopefully, we can get back to that range so that we -- even indications will impact that one time..

Understood. And second, we acquired the injectable portfolio in the last quarter in the U.S. It seems like a small asset. What's [indiscernible] in terms of growing that? And how can we leverage it, like, in the U.S.

for all sites?.

This portfolio, the intent is to take -- transfer it to our facilities or partner facilities. In some of the products we may need to do some complementary analysis in order to scale up those products. And of course, those products had to launch in the course of the next coming years..

And do you see the revenue potential as being significantly higher than the current share?.

In some of these products are very, very interesting, and can be very, let's say, nice addition to our portfolio..

Next question is from the line of Anubhav Aggarwal from Credit Suisse..

Sorry, sir, this question is one-off charges in the gross margin, will that impact it -- will that impact by Global Generics or [indiscernible]?.

It will impact it. Both, both. But there are -- if it is onetime hit in PSAI, again related to Global, some specific reductions. But there is also a hit in Global Generics. And that's the why the gross margin of both stood at 56% and 21% respectively, which is lower than the expected. We can deliver much bigger gross margin..

Just to get the point, would you call it sub-54 crore kind of hit or more than 54 crore kind of hit?.

So we do not get into that specific. I have given you a broad idea that what we need a normal fluctuation, we should be accustomed to in terms of the gross margin. And to whatever extent this onetime has hit this specific quarter, we hope the next quarter will sort of comeback..

Second question was on the R&D, which you mentioned was $250 million to $300 million.

Roughly how much will be the prop spend out of that? Spend on the Proprietary Products?.

So Proprietary Products, we will continue to focus on R&D for some interesting pipeline that Anil has been specifically thinking about. But on an overall basis, the R&D spend will be lower in Proprietary Products when compared to previous year.

But to the percentage-wise in spend on biosimilars as well as on Global Generics outside North America because we have been also developing products for various other markets, including China. So this will get distributed to our various [indiscernible]. But I believe that we are seeing good improvement in R&D productivity.

So we would like to focus on [indiscernible] growth of the future..

Just one clarity. So we are starting the clinicals of rituximab as well. Is that the reason a good part of the data coming from the Prop is going down, and we are at least talking about $50 million, $60 million higher spend next year..

So this will be one of the reasons..

The others reasons will come that we will develop more products to more markets. So absolutely, we want to continue to invest in R&D. As we can grow the business, we will have the relevant quotient to invest or reinvest in the business end, especially in R&D..

The next question is from the line of Surya Patra from PhillipCapital..

I just wanted to have a sense of the one specific product that [indiscernible].

What could be your [indiscernible]? Do you see this as a kind of important product for FY '20?.

We like it..

But do you see that indicating that productive possibility that includes -- it seems to be a very commoditized product and [indiscernible] in penetration history?.

Yes. The diastolic product is a very interesting product. There is a main revenue controlling basically most the market share at present. So as of now, the contribution is very low, but this is going to increase in FY '20.

Definitely, it will be a meaningful product and it will be a product which will be there for a long time because it's a very different -- the nature of the product, it will be a very good product..

Okay. Okay. And given the -- on the China strategy, can you just give out what has indicated that isn't relevant, better opportunity are going there. So what is [indiscernible]? What potential that you are seeing? And under earning participant, are there any specific trends relating to China, if you can add something..

So I'd say, we discussed in previous meetings and also in the recent conferences, China is an important space for us and we see a major opportunity in China. As China opened, especially with the changes of regulations to the kind of products in terms of quality and cost-effective that we can build to China.

We identified 70 products, 7-0 products that -- from our U.S. portfolio that reached those requirements, and we hopefully and potentially can obtain in the next coming years, new ways and strategies for them. This is a very big opportunity for us as this is significantly higher number than what we have today in China.

We are leveraging the fact that we are already 20 years in China. Naturally, as a foreign company, we never left China. So we do have management, we do have operations, manufacturing site. We do have salespeople. We do have regulatory people and we can work in there in -- with our JV partner and those relevant QAs or with other partners.

What we do now is that we are both submitting the products that already proved to be submitted and working on biostudies for those that requires local biostudy. We are upgrading our team in China and we are also going to build a new plant very close to the current plant that we have in. So overall, very exciting opportunities.

We do not share a guidance in future numbers, but it should be significantly bigger than what we have today..

Okay.

Just on the pricing, how it should be different compared to a market like U.S.?.

Today, the China system is different than the U.S. And today, to sell in China, you -- one has to go from hospital to hospital and to get the value of both physicians and the hospital management for that specific product. When you have a GA, you can compete on the slot of the innovator in the formulary of the hospital. This is a big advantage.

This is until recently was only the domain of the innovators and of the product. Now the Generics with the geo mechanism can compete on both slot. Long term, China may change their business model to -- some places may go to tenders and we are building our sales force up for these scenarios. And if and when it will come, we'll be ready for it..

Okay.

And can this be compatible to something on the Suboxone penetration trend, has been I think relatively below to the expectations?.

When I request the number of percent, it could relate from....

[Indiscernible]..

I will answer the Suboxone. Indeed, when we launched Suboxone, we launched with the four other players, plus the level of conversion initially between the innovator and the generics where less than 1 was anticipated by our customers. Having said that, we do see it changing and we do see it picking up.

So overall, we believe that Suboxone is a very, very nice asset for us, even if in the beginning, there was some slow uptick because of the level of conversions from the innovator to the generics..

The next question is from the line of Vishal Manchanda from Nirmal Bang..

With regards to the other objectives like the approval in China, could you share some impacts as to how many other players are there marketing agenda?.

I don't recall the number of players for this specific product, but it is a unique asset and this is quite a big molecule. And we waited long time for the approval of this molecule because, naturally, when we submitted it, the CFDA was under a different structure and resources. This is a very, very nice product for our Chinese market..

[Indiscernible] but it's still a very large opportunity..

To the best of my knowledge, there are a generic growth. I'm not aware of the number..

Okay.

And on DFN-02, if you could talk about how is the initial response? And has that been launched?.

Yes, let me take that question. Yes, DFN-02 or TOSYMRA, which is its brand name, we are still in preparation for launch. We expect to launch the asset in the second quarter. All preparations are ongoing.

The pre-launch activities indicate that there is going to be a bit of effectivity to the product, and we are quite optimistic of its success in the market..

And if you can any word when it comes to our with license with Galderma.

Have there been any developments there?.

Yes, that is a question that -- basically, Galderma is in the process of finalizing its strategy for this class of assets. That's all we know at this point..

The next question is from the line of Sameer Baisiwala from Morgan Stanley..

Question on NuvaRing.

Is there any pending query from the FDA? And any change to our earlier guidance on first half this fiscal launch?.

There are no specific queries and we did not get formal queries from the FDA. So in that respect, there is no changes. We -- as we indicated, some of the curves or one of the golden days when the FDA launched it, and the second with the approval is August. So we expect we are still within this time line that we discuss.

So if it will go to August, it will only be for the second half of the fiscal, but we are still between the same golden dates as we discussed last time..

Okay. And for Copaxone, I know you touched upon it.

But is there a major CRM? Are the queries quite ominous? And also, earlier on guidance on second half this fiscal launch, do you think that will be changed today?.

We do need to do some experiments in order to answer it. It's going to probably delay us by a few months..

But quite unlikely to be launched in FY '20..

Okay. And just one final question from my side.

For Duvvada non-Encore block, has it been expected in that front?.

That's probably coming soon..

The next question is from the line of Shyam Srinivasan from Goldman Sachs..

My first one is on SG&A. I think you have seen good progress on a reduction perspective. Can you give me the numbers. In the full year, it is about 32% or so. And you personally talked about continued cost optimization.

Can you just walk us through what can happen in fiscal '20 that will further kind of keep this cost line capped?.

We will continue to focus on cost. That will be this year. Most of the cost initiatives will be less on the G&A and more on the operation and the cost of goods. But absolutely, we are going to contain the SG&A as well.

In certain areas and in the market that we are planning to grow, especially the branded, we expect that the sales and marketing to grow but less than the sales we grow, which means that we are planning to increase the profit..

Productivity, we want it too..

But for the investment, does it mean -- does it mean that the investments from many of these markets are all kind of done, and then we have just now -- it's a ramp-up in the sales part that's going to kick in?.

But we are continuing to focus on new markets and emerging markets. So [indiscernible] leverage..

We will leverage. So it's a combination of new products and the new brands, plus leverage. Although, we are going to increase the productivity of our sales and marketing.

We are also making better in that, and we're improving our capabilities of both branding and sales and some cost-effectiveness that's quite interesting projects that are running out or continue to improve the efficiency of our [indiscernible]..

Just to see the way you could quantify it, do you think that 10 bps is possible, or you'd stop sort of giving any specific guidance on....

No. We don't give financial guidance. We can only give a directional statement. So directionally, we will keep on improving the productivity. Directionally, we want to grow in different businesses and different segments, but we cannot speak to the guidance..

And my second question and last question is on CTO-VI.

So what needs to be done now to kind of get the [indiscernible] results? Can you share any time lines that we can achieve and see this remuneration come through?.

Sure. So in the last, naturally it seems -- we got the room-ins until now, and especially in the last, we've changed a lot of information with the FDA that we're required to pass activities, pass out of spread and investigations that are running it for the plant. We've provided all of this information, and we continue to answer queries to the FDA.

We are going to meet the FDA soon and to see if there are further requirements or -- and if we are ready to go. We should expect reinspection of the before approval, and this should be very soon..

The next question is from the line of Ashish Chopra from Motilal Oswal Asset Management..

On India, please, how do you see the business shaping up in coming years? And is there any kind of vision that you saw in this business?.

India is a very, very important market for us. And we are absolutely going to invest in this business, and we see ourselves going forward as one of the leaders in India. And we are planning to -- in India, we want to do [indiscernible] sale in what we do, leveraging our brand and by enhancing the brands that we have and launching new brands.

Number two, this is a market that we will pursue if we can and if possible inorganic modes. And number three, this is the place you would try the new business models and innovation. For us, India is a very, very important market.

We are excited about this market and its opportunities, especially its size and the fact that this is a market that continues to grow in double digit. At least there is a number that is shown and that maybe in the future in high single digit. We are extremely excited about this..

Okay.

And to achieve your vision, do you feel there's -- you need hire more [indiscernible] or the current product basket is good enough?.

We can increase there now, but we need to increase the business model, we are increasing this [indiscernible]. So we are going to grow, and we are going to grow productivity. So we want to obtain no rupees out of the spend that we have..

Okay. Next question is on the U.S. market. So all these guys we have been talking and worrying in Suboxone. So these -- apart from big-sized product opportunities, how do you see the U.S.

market spending on in terms of, say -- are there any investing opportunities from the 20-plus launches that you are guiding for?.

We guided 30-plus, not 20-plus, and it was a nice lift and I believe that these should be very exciting. This should be very exciting news for the U.S. market as we did not launch that many products in previous years.

Also, the fact that, what we see, that the price is relatively moderate to down, we believe that the new product launches and the uptake of what we will launch since November will create a growth in the United States..

Okay. Last question, if I may, on revenue for the U.S.

markets, if you could help us know when you can next file it?.

So we are still in the proceeding. We are not discussing specific details on that proceeding..

The next question comes from Vincent Leonardo from CHR [ph]..

Actually, my question have already been answered by the previous question. It was about the generic Copaxone.

So kind of we got the thinking of potentially not meeting launch this year and most likely in FY '20?.

FY '20 is the financing year, so more likely it will be FY '21..

The next question is from the line of Anubhav Agarwal from Credit Suisse..

The question was the India business. In the second half this year, our growth has been 8%. Can you just call out some levers that has made this market a little bit [indiscernible]. But it's not what you expect for India.

What's happening for our project portfolio in general? 8% is not what we're building models going forward for the company?.

I don't know what's in the building model. The India business is growing nicely and some of the products are seasonal, and normally, the third quarter is higher than the first quarter in the case of the India business. And so we are actually very happy with the performance..

Okay. Just one question on the China market.

So when do we see -- do we expect you to file some of these oncology injectables by the end of this calendar year? Or they spill to next year? When do we see the filings happening?.

The filing is happening as we speak, and so the next 3 to 4 years, some of the products are ready to be filed because all the relevant R&D and regulatory process were done. And some will a bio study and some will require a production by the relevant oncology plant in China, and those products have been put forth..

So have we filed some oncology injectables so far?.

We filed all that in China, and we are filing as we speak..

The next question is from the line of Prakash Agarwal from Axis Capital..

A question on once, we start -- or we already started the monetization of Suboxone, and probably this year, we'll have [indiscernible]. And these are required assets. Just wanted to understand the monetization impact on the P&L..

So that will be evaluated when we launch a product. So nobody will have to wait and ping [indiscernible] our supplies. And what is the -- how many -- what is the likelihood of any of the retail coming in, and how are these figures will going to be modeled? So we cannot answer at this point in time..

Suboxone, sir?.

Suboxone, as you see, that we have already launched twice in the market, and there have been some revenue and profit coming out of that. And also, there is a ball which is there in the court because it is a legal process to go through that, and we'll be making some claims. So we'll have to wait and watch..

Okay. And secondly, on Duvvada, we have received approvals.

I mean the approval of the site, when do we start seeing the approvals of India?.

You started to see, for example, daptomycin, that we recently received approval..

30....

Yes. Go ahead. Prakash, of this 30, which you are saying have seen that we have, will need a big transfer. So that will take some time..

Can you help me how launch it for next year?.

Some of them will come from the FTO-79 absolutely..

Okay, understand. Lastly, on, Pegfilgrastim, if you can just give an update..

No, no, no, I'll try. So we are waiting for further news. Basically, from our side, everything is ready to go. And naturally, it's [indiscernible] and they need to determine the time that they want to launch the product. And for us, it's primarily -- that once we were launched, we will get our share out of that..

What kind of approval time frame are you looking at?.

I don't know.

No, I understand that. But I mean filing an approval time frame just very broadly..

Filings will be in months and [indiscernible]..

[Operator Instructions]. The next question is from Nimish Mehta from Research Delta..

I just wanted to know, now that we have a clear -- how many injectable item, injectable that we're expecting for the next 12 to 18? Are they the ones that we don't like? So do we have a bunch of that's not coming in non-extreme curriculums, some will quite be meaningful..

Some of the products have been sidetracked, and we are getting approvals from the transport side, taken back continuity process. But there are a significant number of approvals pending and has no -- the inspections happen, but we can't give you an exact number..

But with respect of the [indiscernible] the ones that were there, which will be complex injectables....

Between [indiscernible]..

Again?.

Between the two sides, the onco and the non-onco sides [indiscernible]..

Which can come in, in the next year clearing, right?.

Yes, yes, yes..

Yes..

The next question is from Saion Mukherjee from Nomura..

I know you had been working on octopus [ph] acquisition on long-acting injectables.

Have you made any progress on filing for any of these products?.

We filed some products with some of -- some of the products are still in development. Some of them have very, very long development cycles as well as clinical development. So some products have been filed and some are in development. We also work on a range of different products..

Okay. And any time line you have, like when you think this can potentially be...

When we will file, we will let you know. I mean, we don't discuss [indiscernible]..

Okay. And so just one last question, from my side, on the REVLIMID settlement in Canada.

Can you just give us the size of the opportunity and what's the time line roughly when you expect to launch the product?.

So what we disclosed in the press release is that we settled and we got a onetime of $50 million as part of the settlement in order to settle all the things. And basically, we are not going to disclose the date of launch..

[Operator Instructions]. We'll move to the next question. The next question is from Aditya Khemka from DSP Mutual Fund..

Just one on the PSAI. And so you're seeing the growth coming through a certain time in the past, the investment part, in terms of the growth that becomes available.

So how would you see this, is it [indiscernible] and going forward in terms of growth, especially now that China particularly has supply constraints while definitely capacity situation driven, how would you augment the capacity?.

So we see PSAI as one of key space for us and one of the 6 spaces that we discussed then in our strategy guidance. This is a very, very important space for us, and we do see also a tailwind that, as of China, as there is a bigger demand as a result of the changes in China.

We are growing partially as part of this and partially because we do focus on a big, better service. We believe that this business will be much, much bigger in the future. We are now ramping this up and developing more on the master side, submitting more, giving better service.

So as I mentioned, we recently launched our service programs, and overall, we believe that we will come back to where we've been many years ago. So it was a legacy business for us and we are planning to come back for a leadership position in API..

Capacity is not constrained, overall scale..

One on the capacity utilization [indiscernible] now?.

That's a difficult to question to answer because we are in the process of network rationalization. During the year, we [indiscernible] and organizing. But overall capacity is not the limiting factor for us..

We have capacity for our growth, and at the same time that we are growing the business, we are also focusing on cost and cost optimization. And naturally, we will match whatever the market made and drive cost..

Okay. Sorry, the second question I wanted to ask was on CapEx, capital expenditure.

What is the budget for next year? And where is the business going?.

So there'll be later need in the current year. For this current year, we have spent around INR700 crore. So this could be the upper limit. It could be lower than that..

And where is that going to be spent on, Saumen [ph]?.

[Indiscernible] plus various kinds of -- some we will routine CapEx, some will be very specific one, which we have started and we need to complete during this year..

Okay.

How much is our maintenance CapEx?.

It will be maybe broadly 15%, 20% of this will be routine CapEx and everything will be [indiscernible]..

We will take that as the last question. I would now like to hand the conference back over to Mr. Amit Agarwal for closing comments..

Thank you, everyone, for joining us today for the earnings call. In case of any further queries, please reach out to the Investor Relations team. Thank you..

Thank you very much. On behalf of Dr. Reddy's, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines..