Ladies and gentlemen, good day and welcome to the Q4 FY '22 Earnings Conference Call of Dr. Reddy's Laboratories Limited. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations. Thank you and over to you, sir..

Thank you. 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 quarter and full year ended March 31, 2022. Earlier during the day, we have released our results and the same are also posted on our website.

This call is being recorded in a playback and transcripts shall be made available on our website soon. All the discussions 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 Managing Director; Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; 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 outlet without the company's expressed written consent.

Before I proceed with the call, I would like to remind everyone that the safe harbor 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. Good evening and good morning and welcome to all of you to this earnings call. Fiscal 2022 has been quite a challenging year. It started with the severe wave of COVID in India and ended with heightened geopolitical conflicts, inflationary environment and economic crisis in certain parts of the world.

I'm proud that despite all these challenges, our team have delivered very good operational results. Over the last few years, we've been able to grow on a consistent basis.

And the key highlights of this year are healthy revenue growth with steady margins, good progress on the productivity journey, some meaningful launches of products across markets, enhanced offering of the much-needed COVID products and closure of a few significant business development deals.

Our priorities for FY 2023 will be to strengthen our product pipeline across markets, focus on enhancing our quality systems, continue with the productivity agenda and make value accretive inorganic moves. While we continue to focus and grow our core businesses, we will also invest in creating future growth drivers.

Our CEO, Erez, would cover these aspects in some detail. is another area we have made significant progress but there is a lot more to do. We are on a journey to integrate sustainability into -- sustainability into our core business strategy and the execution systems.

We have identified multiple areas where we can work towards improving the environment and the societal benefit. Shortly, we will announce our detailed ESG targets for the long term.

We continue to be driven by our credo of good health count rate and we keep the interest of our patients first and we'll continue to serve them in every possible way with utmost urgency and diligence. With this, I hand over the call to Parag for taking you through the financial performance of the company..

Thank you, Prasad and greetings to everyone. Hope all of you are keeping well. I'm pleased to take you through our results for the quarter four and full year of fiscal 2022. It is yet another year of good financial performance with growth in sales and EBITDA and a strong cash flow generation from operations.

While we faced several headwinds during the year, we mitigated these through productivity initiatives and a few onetime opportunities. Let me take you through the key financial highlights for the quarter and FY '22 in a bit more detail. For this section, all the amounts are translated into U.S.

dollars at a convenient translation rate of INR75.87 which is the rate as of 31st March 2022. Consolidated revenues for the quarter stood at INR5,437 crores, that is $717 million and grew by 15% on a year-on-year basis and by 2% on a sequential quarter basis.

The growth has been driven by all markets in our Global Generics segment and divestment of a few noncore brands. The revenues for the financial year 2022 stood at INR21,439 crores, that is $2.83 billion and grew by 13%. The growth was supported by improvement in the base business volumes and new product launches.

Consolidated gross profit margin for this quarter has been 52.9%, a decline of 50 basis points year-on-year and 90 bps on a quarter-on-quarter basis.

While the gross margin benefited from brand divestments income, the decline was primarily attributable to pricing pressure in North America and Europe, combined with the effect of increase in commodity prices. We also had higher provisioning for inventory, including for COVID related products.

Gross margin for the Global Generics and PSAI business were at 58.2% and 18.4% for the quarter. Gross margin for FY '22 has been 53.1% which is a decline of 120 basis points over FY '21. Gross margin for the Global Generics and PSAI business were 57.6% and 22.2% for the year.

The SG&A spend for the quarter is INR1,567 crores , that is $207 million, an increase of 9% year-on-year and 2% quarter-on-quarter. During the quarter, we made a provision of INR98 crores towards an old outstanding litigation with the state of Texas, U.S. Adjusted for this charge, we were in line with normalized level of strength.

The SG&A spend for the year is INR6,208 crores, that is $818 million and has grown by 14% in line with business growth. The SG&A cost as a percentage to sales was 29.0% which is largely in line with previous year.

While we will continue to drive productivity, in parallel we would also invest in markets to strengthen our brand's positioning, expand market reach in various channels and new countries, continued digitalization agenda and lesser new businesses. The R&D spend for the quarter is INR433 crores, that is $57 million and is at 8% of sales.

The R&D spend for FY '22 is INR1,748 crores, that is $230 million. R&D percentage to sales for the year stood at 8.2%. While we optimize the spend in proprietary products business, we have enhanced our pipeline and correspondingly the spend for generics, biosimilars and NCE.

During the quarter, we took an impairment charge of INR752 crores, that is $99 million. The impairments were largely pertaining to; first, product related intangible for -- from proprietary product segment, wherein the market potential has reduced.

And secondly, Shreveport subsidiary-related assets as there has been a substantial reduction in the cash flows of products forming part of the subsidiary. The EBITDA for the quarter is INR1,298 crores, that is $171 million and the EBITDA margin is 23.9%. The EBITDA for the year is INR5,140 crores, that is $77 million.

EBITDA margin for the year is at 24.0% and is closely tracking our aspiration target of 25%. Our profit before tax for the quarter stood at INR248 crores, that is $33 million and tax for the year stood at INR3,230 crores, that is $4.6 million.

Adjusted for the impairment and the taxes litigation charges, our profit before tax for the quarter grew by 37% and for the year by 17%. Effective tax rate for the quarter has been at 64.8% and that for the year has been at 27.0%. The ETR was higher due to an impact of impairment charges taken. We expect our normal ETR to be in the range of 24% to 26%.

Profit after tax for the quarter stood at INR88 crores, that is $12 million and that for the year stood at INR2,357 crores, that is $311 million. Reported EPS for the quarter is INR5.26 and that for the year is INR141.69.

Operating working capital increased by INR444 crores which is $59 million against that on December 31, 2021, mainly driven by increase in receivables and inventory. Our capital investments stood at INR374 crores which is $49 million in this quarter and INR1,466 crores which is $193 million during the year.

The free cash flow generated during this quarter was at INR482 crores which is $64 million. The free cash flow generated during this year was at INR1,157 crores which is $152 million. Consequently, we now have a net surplus cash of INR1,545 crores, that is $204 million as on March 31, 2022.

Foreign currency cash flow hedges in the form of derivatives for the U.S.

dollar are approximately $342 million, largely hedged around the range of INR76.5 to INR79.4 to the dollar, RUB9.6 billion at the rate of INR0.99 to the ruble, AUD4.4 million at the rate of INR55.32 Australian dollar and ZAR122 million at the rate of INR4.83 to South African rand maturing in the next 12 months.

With this, I now request Erez to take you through the key business highlights..

Thank you, Parag. Good morning and good evening to everyone. As Prasad highlighted, the FY '22 has been quite a challenging year, yet it is being fulfilling. We rose to the challenges and have been able to deliver a steady and sustained performance. We have revisited our strategy to cater to the new opportunities and mitigate risk.

Our financial strength of strong balance sheet creates an opportunity for us to grow in the current business environment. Let me take you through some of the key highlights of the year. One is strong growth across branded markets of India and emerging markets, steady growth across generics market.

We regained milestone revenue of $1 billion in North America generics, improved market share in most of our major markets, EBITDA and ROCE in the range of our aspirational targets, generation of strong free cash flow leading to a net surplus of more than $200 million, entered high-growth space of medical cannabis business in Germany to acquisition of Nimbus Health, exclusive collaboration with Novartis for in-licensing of key brands in India market and significant progress made in our digitalization and sustainability journey.

Additionally, we continue to focus on productivity, while simultaneously making investments to strengthen our pipeline and capabilities.

While our core business of generic and API will continue to drive growth in the near and midterm, that is what we call Horizon 1, we are encouraged to witness several incremental opportunities such as scaling up of our existing small sized businesses and creation of new business models for the long-term growth, that is for us Horizon 2.

Our financial strength allow us to grow and invest for both Horizon 1 and Horizon 2 businesses. Now, let me take you through the key business highlights for the Q4 as well as the full year of '22. Please note that all references to these numbers in this section are in respective local currencies.

Our North America generics business recorded sales of $465 million for the quarter with a strong growth of 11% year-over-year and 7% on sequential business. On a full year basis, we recorded sales of $1.3 billion with a growth of 6% over the previous years. This cost was largely led by key new product launches vasopressin for injection.

We are able to also to grow market share for many of our existing products which helped to partially mitigate the impact of the price erosion. We launched three new products during the quarter and overall 17 products during the year. We expect the launch momentum to further improve in FY '23.

Our Europe business recorded sales of EUR53 million this quarter with a strong year-on-year growth of 17% and sequential quarter growth of 11%. On a full year basis, the sales were EUR192 million and has grown by 8%, driven by new product launches.

During the quarter, we launched four products in Germany, two products each in Italy and Spain and 1 each in U.K. and France. During the full year, we had 34 new launches across our markets in Europe. We expect this strong momentum to continue in FY '23.

Our emerging markets business recorded sales of INR1,201 crores with a year-on-year growth of 36% and a sequential quarter growth of 4%. On a full year basis, emerging market sales has been INR4,567 and grew by 30%. We launched 16 new products during the quarter and 86 new products during the year across various countries of the emerging markets.

Within the emerging market segment, the Russia business in quarter four grew by 87% on a year-to-year basis and 62% on a quarter-to-quarter basis in constant currency. In FY '22, Russia business grew by 38% in constant currency.

This strong performance in Russia was partially led by divestment income of and higher Q4 sales on account of stocking up which we expect to normalize during the coming quarter. The current war situation in Russia and Ukraine raised federal business uncertainty and a significant fluctuation in the currency rates.

We have managed the situation very well and ensured the safety of our employees, continued the business operation and financially securing the near term with effective hedging. Our India business recorded sales of INR969 crores with a year-over-year growth of 15% and a sequential decline of 6%.

On a full year basis, our sales was INR4,196 costs with a strong growth of 26%. During the quarter, we launched eight new products in the Indian market. After the IQVIA report of March 2022, we are at number 11 on a monthly basis. India remains a priority market and we are committed to continue to grow this business at a healthy rate.

Our PCI business recorded sales of $100 million with a year-over-year decline of 8% and sequential growth of 3%. On a full year basis, the sales were $411 million with a decline of 5%. During the year, there was the normalization in the channel customer stopping level after in FY '21.

We believe that the customer are now back to pre-COVID level and we should witness steadier growth in the business in FY '22. On the R&D front, our focus has been on building a global pipeline of value asserted products, including federal generic injectable biosimilars. We are also selectively investing in few NC product candidates.

While the number of products filing in the current year has been slightly lower, however, we are on track to accelerate this in FY '23. Additionally, we are prepared to leverage our balance sheet strength to invest in value assertive inorganic moves.

I would like to remind that there are several factors which have an impact on the short-term performance of the company, including evolving geopolitical situation and higher commodity price. However, I'm confident that we will emerge stronger with every tonnage.

We do see opportunities in the current situation and are readjusting our strategy to cater the new opportunities for future goals. In the coming months, we will be holding our Investor Day and take you through the growth leaders for Horizon 1, Horizon 2 and are approaching goals towards ESG.

With this, I would like to open the floor for questions and answers..

Thank you very much. we will now begin the question-and-answer session. The first question is from the line of Ankush from Axis Securities. Please go ahead..

Sir, my question is that about the U.S. business.

So how much of the sale is contributed by the new launches for FY '22 and last year?.

one, our new products and I noted two of them vasopression as well as a growth in market share of existing products. And both of them contribute significantly to the growth..

So can I say that it's a $1,000 million sales in the U.S.

market for the full year that the new launches has contributed -- how much sales new launches has contributed, if you quantify, sir? And how many new products that we are looking to launch next year?.

So overall, as you know, the price erosion in the U.S. business is in double digits and that's more than offset by the new product launches and the share gains. So I can without disclosing any specific numbers, I can confirm that the new product launches would contribute in double digit to the overall revenue..

Agree.

And sir, how many new products that we are looking to launch next year?.

So the momentum will continue. This year, as you know, in North America, we launched 17 products. We expect to launch about 20 to 25 new products in FY '23..

So the last one, how -- what is the strategy for the Indian market, what -- how we are looking at the launch of new products, basically the growth in the Indian market, sir?.

We will continue to launch similar numbers of products like this year. At the same time, the main growth in India will come; first, growing of the brands that we are investing behind that will continue to generate the main growth in the markets.

The second, the inorganic moves that we already disclosed as well as additional moves that we are working on as we speak. In addition to that, we will have new products that will come as part of the pattern which are about similar numbers that we had this year. In addition to that, this is what we call Horizon 1.

As part of Horizon 2, we are going to have additional moves in the area but we will disclose more during the Investor Day but this will be in the area of activity that we have which is our outpatient initiatives as well in the areas of mutation, biologics, activities and digital.

So overall, India is a major market for us and we'll continue to be a focus market for us for many, many years to come..

Thank you, sir. Thanks for my side..

Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead..

Hi, congratulations on the good set of numbers and thanks for taking my questions. So the first question is related to the COVID contribution for FY '22.

If you can give a broader idea, what contribution in terms of revenue was from the COVID or related products, especially on India side and emerging market side?.

So the contribution, as you know, both India and emerging markets have grown this year in strong double digits. A good amount of this growth came from COVID. But even after excluding the impact of COVID portfolio, both these markets still recorded double-digit growth.

So overall I would say for the company as a whole, the contribution of COVID product sales overall is less than 4%..

Sure, ad for the India market, barring the inorganic activity which is when it happens when it happens, what is our organic growth target for FY '23? And if you can just broadly give the growth drivers in terms of pricing volume and I think new products we are already aware but would pricing be a very significant driver for us this year?.

So as you know, we are not guiding in that level of details. But we are expecting India to continue to grow organically in double-digit also next year..

Okay, thank you. And the second question is on the capital expenditure for FY '23.

This year we had some good amount of capex, I think for the Europe facility but what would be the guidance for FY '23?.

So for FY '23 -- for FY '23, we expect the capital expenditure overall to be at similar levels, around somewhere between INR1,500 crores to INR1,700 crores..

And I believe that, that would be some additional facilities.

So for which geography and for which injectable or oral solids which kind of dosage form we are looking at?.

We are not anticipating the need for additional facilities. The investment is primarily in the facilities that we have. FTO 11 which are coming out injectable facilities that we are investing in it, actually quite a lot in the last couple of years will be one place of -- so the capex will grow as well as in the biologics and digital.

This will be the main focus of the investment..

Okay, sure. Looking forward for the Investor Day. Thank you..

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead..

Thank you for taking my questions. Erez, on the emerging market business; one, if I were to look at emerging markets ex Russia and Ukraine, that seems to have come off significantly for what we were doing in the first three quarters. I understand there's some amount of COVID contribution.

Is it fair to assume that the run rate that you have done in this quarter is the base on which we will grow? Or is there any one-off or deferment of shipment that we should keep in mind?.

No one-offs in those markets. This is -- these markets are growing very, very well and will continue to grow in that level. Just if you recall, we discussed our part of the strategy is to take our portfolio globally. EM is actually doing it well, especially on the injectable side. So the EM will continue to grow, including smaller markets.

Based on the leverage of that portfolio as well as local brands but primarily the leverage. Indeed nice contributors to the growth..

And on Russia, normalizing for the stocking up that we would have seen in the quarter.

In the recent weeks have you seen any change in the demand patterns there or sales there that you would like to highlight? Or should we assume that Russia would remain on the double-digit growth path that we have seen in the last year?.

So, I believe that that we will see some normalization of what we discussed. But overall, we believe that Russia is an opportunity, especially as some of the players will not invest in marketing the products over time and we will continue to operate this as usual.

What we don't know, of course, is what will be the impact on the overall economy of Russia. This is, of course, something that we have to see..

Fair enough. And my last question is on margins. So if I were to adjust all the one-offs, we did about 21% margin in the quarter. I understand there is development that is coming in generic Revlimid that is coming through.

But core margins, excluding Revlimid, is this the base or given the investments that we have planned, do you think margin expansion from here would be tough ex Revlimid?.

We believe that the number is higher than the number that you mentioned is actually 24%. And we believe that we want to sustain the neighborhood of the guidance that we gave in the past. So we are comfortable with the 25:25 and we hope to be in that area as we want to take whatever additional resources we have for investment in the future.

So we are maintaining our ability and we believe that we can for both maintaining this level of profitability as well as to invest in the future, especially in our case in Horizon 2..

And just to clarify that you maintained the level of profitability even without -- even excluding Revlimid?.

We will -- we are not guiding with and without because naturally, first, we don't. And second, I wish I knew exactly what will happen. So you know that. But let's say, long term, no matter what will be the scenario for Revlimid, we are absolutely aiming for the same level..

Got it. Thank you so much, Erez..

Thank you. Next question is from the line of Surya Patra from Philip Capital. Please go ahead..

Thanks for this opportunity, Sir. First question is on the cost front. So despite all the challenges what we have seen, we have managed to deliver strong gross margins and all that.

So going ahead given the scene, do you think any cost challenges that we will be facing incrementally given the supply shortness that is likely to be seen given the Chinese lockdown and all that. That is one.

And secondly, you have talked about the Phase 1 growth what we have already seen and you are designing and devising a Phase 2 kind of growth sales for Dr. Reddy with new product launches and specialty offerings and all that.

So whether in the Phase 2 we'll see a kind of a challenging phase in the initial period in terms of cost given the higher expenditure around the development and all that? So something on the cost front, how would that be really shaping up? And how would will be having the impact on the overall margins for Dr.

Reddy?.

So like everybody else in the industry, we are facing some increase of cost, whether it's commodity prices as well as in things that are related to logistics, transportation and stuff like that. And it's unfortunately not the first quarter that we see that it's something that is virtually built up since COVID.

But we absolutely saw intensifying situation like that also recently. We were able to mitigate most of it by, first of all, having a very effective supply chain. So we are not dependent on any specific territories or whether it's geography or specific vendors and we are able to maintain the competitive fulfillment.

Our logistics is primarily done by sea and less by air and this is allowing us to mitigate some of those challenges. We are moving into -- over time to renewable energy. This is mostly mid- to long-term natural initiative. This is enabling us also to deal with the energy potential future challenges.

So we may see a certain, let's say the cost may fluctuate from quarter-to-quarter. But long term, I believe that we are well set to mitigate those challenges..

Okay. The second question is on the U.S. growth front. As you have been continuously mentioning that double-digit kind of price erosion that is a kind of the norm in the U.S. business front, so -- and in the recent past our trend towards U.S. also has moderated because we are prioritizing the non-U.S. market for growth.

So given that and the continuing price erosion scenario, so is it fair to believe that ex of Revlimid we may see a flattish kind of a U.S. performance? Any sense on that, sir? I'm not asking about any guidance but....

So our U.S. business will grow. And from time to time we'll have launches, in addition the other activities that we do. And that's what we also did in the last 11 quarters. So I believe that we grew 9 out of the last 11 quarters and this is before even Revlimid. And this is likely to continue.

We may -- because of timing of those launches, we may see also fluctuation in the sales in the United States. But overall I believe that on the annual basis we will grow in net sales in the coming years. In addition to that, we are investing in building platforms that are outside of the business model that allow us also to grow long term.

So we -- we want to stay in America. We believe in America. America will continue to be an important market for us. In the generics segment, likely will not grow like we will grow outside of the U.S.

but other growth drivers that we are now working on will absolutely will continue to grow as in America in the same way that we are growing in other places long term..

Okay. Just last one, sir, on the inorganic growth trend, when you mentioned about that, are you talking about only inorganic growth within India or is even you are open for this activity, also in the areas that if it is that, then the areas that you would be interested in, if you can share something there..

We are open to inorganic moves in every one of our stations. In terms of preference, that India is absolutely a preference and in terms of what kind of this development, we prefer product acquisitions as a complementary move to the spaces that we put as a focus in our strategy. So that's most of our inorganic activities were around products.

We are naturally disclosing those that are relatively big but we are all the time working to strengthen the portfolio also to inorganic and in-licensing activities. In terms of -- we are also preserving not to make a kind of a big acquisition but rather a complementary that will give us the relevant business.

We want to remain primarily in organic growth organization..

Thank you. Wish you all the best..

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

Yes, Hi. Good evening, everyone. So my first question is around the Russian market. In line with the global sanctions that the West applied on Russia, we came across many media articles in which many global innovative companies, they are either withdrawing from Russian market or they're curtailing their operations there.

So have you had any discussions with the procurement ecosystem in the Russian market that this would be a fairly structured and substantial opportunity for Dr.

Reddy's given your legacy presence in the market? Obviously, there are challenges currently but still, I mean, could this emerge as a long-term three to four year structured opportunity for the company?.

So we see that as -- we do see that as an opportunity for us. We cannot discuss now any specific discussions but it's absolutely one of the avenues that we are discussing as we see..

Okay, okay. And second question is on the broader U.S. outlook. So two questions related to the U.S.

One is on the opportunity in the next three years, excluding development, how do you see the addressable opportunity in terms of branch building exclusivity next year versus the preceding year period?.

Without Revlimid, we do see it in the same way that we saw this year. We have, in addition to that, as Parag mentioned and new launches which will not be only a sizable as Revlimid that will contribute to us. And I believe that the price erosion will continue. So in that way I don't think that things will change dramatically for us..

Okay. Got it. And then, one final question is for the U.S. market. Just now in one of the earnings calls concluded for one of your peers, this question was asked. I'm just repeating that question again. Progressively, quarter-on-quarter we've seen the margins and the return ratios getting depressed in the U.S.

market and now with the added pressure of cost inflation, any color can you give as to tell what time can the pain continue before rationality kicks in? I mean, in the past we have seen global companies withdrawing.

But do you think that even the Indian companies which today are at $100, $120 million kind of a sales pace in the U.S., there also might have to pull out or curtail their ambition in the U.S. market. Do you think we are really -- that pain has to be somehow mitigated..

I will answer this question. I think the U.S. market will always remain price competitive. There's always been pricing pressure. It's not new and it will not end. It will continue. It depends on how well you choose your portfolio, how well you execute the prices and how competitive you are to continue to establish your presence there.

And we are taking a number of steps to strengthen our portfolio, lower our costs, improve our market share and we hope to continue to grow in the U.S..

The U.S. will stay important market for us. And as I mentioned, we want to be stronger in the genomic space but we were also working on moves outside of that area..

I think, Erez, I mean, I kind of understand that. I mean, we have read your strategy quite clear. I was just hoping to get some comments on how do you see the competition reacting to the current state of affairs in the U.S. market? I mean, it fine. I mean, if you want to reserve your comments but....

I believe that this will continue. That's how we see it. We don't see significant changes coming up or disruption to the current state of this..

Great, absolutely. That's clear. Thanks a lot..

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

Yes, hi. Good evening to all. A couple of questions. Sir, first, on the COVID-related products, you mentioned this 4% contribution.

But is there any write-offs which we might have taken at the inventory level in the full year or the quarter?.

Any inventory provisions relating to COVID are -- there are some write-offs but they are not significant overall. And the overall inventory levels we are carrying for our COVID products are also not material. We've obviously stocked up adequately to meet any potential demand. But the overall levels are not material..

Okay. When you say not material, I would understand it would be under 1%..

I wouldn't put a number to it. It is not material in the overall context of our business. We will not confirm or deny it..

Okay, sir. Got it. And secondly on the propriety business that we have built over years, I understand most of the assets are largely either out-licensed or a couple of them have been discontinued.

So going forward, what is the income stream for this? One is, I understand the milestones but we don't have anything in the channel for future new out-licensing.

Would that be correct understanding?.

On the specialty side, there's nothing significant out there. There are some single-digit income streams which will continue in single digit million dollars. But beyond that, there's nothing much there..

Because if I'm not wrong, this has contributed significantly in terms of out-licensing which has flown down from gross margin to EBITDA and has contributed significantly at the margins.

Correct me if I'm wrong? And it's not in future then, given your commentary on raw material prices and etc., cost inflation, this would be an extra margin pressure point for us.

Would that be correct?.

Let me clarify. First of all, on specialty, we have two parts. We have those products that we discussed that were in the form of for the United States. As you stated rightly so, most of them were licensed or discontinued. And as we speak, we are enjoying certain levels of royalties and as well as future milestones that may come.

And then, it will be -- we will enjoy the income of those milestones at the time that it will come, especially on product like. We have also activities that are related to NCE. This is what I mentioned in my script that we have selectively invest now in certain anti-cancer products as part of our subsidiary of our gene discovery.

And this is more of a long term and in that frame we are also licensing and have collaborations with -- in the United States with partners and we are working both to license those products as well as maybe one day in the future to build ourselves.

In terms of contribution to the margin and stuff like that, I think we had indeed fee from licensing in Q2. In Q4, it was -- there was no activity as such..

The last part was not here.

Would it impact some margins?.

I don't know in margin. There are no activity, therefore no impact in the margins..

I'm not sure I got it right but okay..

Maybe I did not get your question, what effective on margin and by when?.

So in the past, what Erez mentioned is basically in quarter four there was no licensing income we have received. So the quarter four numbers are without any margin benefit..

Perfect. And that run rate is also like the INR69 crores is the ongoing proprietary sales, so that can continue..

Proprietary plus origin, it is combined sales..

Okay, okay. So that can continue and if there is lumpiness, that might not continue..

There will be lumpiness. It is not because these are milestone-driven, being driven..

Yes. Okay, okay. Got it. Fair enough. And lastly, sir, on the two good products that you have. So Vascepa and vasopressin So these have seen market share inching up but not to the level that one could have expected.

So is there a scale-up issue or we expect -- or you've already achieved a fair share and we are not able to see in the beta base?.

We believe that we have a good share in this product..

And we can't give that granular numbers today..

Have you achieved a fair share, sir, on Vascepa of 5%, 13% to 15%?.

We have a very good share on these products..

Okay. And since it is a recent launch, vasopressin, this is still under the scale of phase.

Would that be correct understanding?.

We have also a good share on this product..

Okay, Sir. Thank you. Thank you and all the best..

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

Hi, thank you so much and good evening, everyone. Sir, most of my questions have been asked but just a couple of them more.

One is, what's the current exposure to Ukraine market? And are we holding any receivables over there?.

So the level of exposure is not material and there is no any material adverse range or significant adverse events that we anticipate in the future..

Okay, great. Thank you. And, Erez, you mentioned a couple of times that for the U.S. market you are putting in some effort outside of the generic business.

So can you elaborate on that? Was it the NCE effort or is it something else?.

We will elaborate more in the Investor Day but we are, as we speak, exploring other channels that are not exposed to the current business model in the United States, of course, high level of price erosion that needs to be mitigated by product.

So we are exploring and we've been dealing with opportunities that is, let's say are not part of that business model..

Okay, great. So we will wait for the details. And the other question, Erez, is to efforts that you have put in, in India. One is Sputnik vaccine and the other is outpatient online health care platform. So if you can update us on both of these. Thank you..

Sure. On Sputnik, the main effort is on Sputnik Light. We got approval for Sputnik Light as a vaccine and as a booster for Sputnik vaccine and we are now conducting a trial that we will have the results in the next coming weeks as a vaccine for other products -- for other vaccines in India. And we hope to obtain approval for that.

This will allow us to compete on the entire Indian market potential if we get approval. The second effort that we did on Sputnikv is that we repatriate the product to India. So all the activities on Sputnik are now in India, we are not dependent on Russia in any shape and form for that effort.

In the -- sorry, the second part -- on -- we are scaling up. We are adding more and more cities in the metros and it's a scale-up mode. So far it looks very, very promising but naturally it's an early stage for these initiatives. But it looks very, very promising in the service and so far its positive..

Okay, great. Thank you so much and we look forward to Analyst Day. Thank you..

Thank you, Sameer..

Thank you. The next question is from the line of Vishal Manchanda from Nirmal Bang. Please go ahead..

Thanks for the opportunity. With respect to the two brands that you divested in Russia and CIS, Ciprolet and Levolet.

Can you share what's their contribution since sales from these brands would not recur going forward?.

Sorry contribution, I couldn't catch the question..

What is the contribution of the divestment in Russia, Levolet and Ciprolet..

That would be about INR50 crores to INR60 crores per annum..

And even without these brands coming in, contributing next year you would grow double digit in these markets?.

Yes, yes, yes..

Okay. And just one more on Rituxan and biosimilar.

Two things; one, when do you expect to file that? And second, whether you would -- whether you are trying to do an interchange on that?.

Rituximab filing, so we are looking for rituximab as a potential 2024 event. I'm talking about calendar 2024..

And are you attempting an interchangeable on that?.

Interchangeability, yes, of course..

So substitutable.

Is that right?.

This is a biosimilar that should be competitive with the rest of the biosimilars of rituximab..

Okay. And just one more on China.

Can you share how many approvals have you got under the QCE framework so far? And how many of those have been commercialized?.

This year we received -- we actually filed for 11 products and we received three approvals during the year. And overall in FY '23, we are expecting to launch about seven products..

How many, sir?.

Seven..

Okay, thank you..

Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead..

Hi, sir. Thanks for taking my question. Sir, my question is one on Voveran.

What opportunities do we see on this product given the fact that this molecule has been under some growth pressures in the past?.

Which molecule?.

Voveran that we acquired from Novartis for the Indian market?.

Yes. So we see that as an important opportunity for us. At first, we will reap up to our Indian facility and we believe that our cost structure will allow us to be competitive. And the second, it’s an area of focus for us, the diabetics as well as cardiovascular. The area of chronic the segment or disease was always a focus for us.

And this is an opportunity to bring a real brand to the physicians that we are visiting anyway. And we believe that we will -- our margins will enable us to even grow these molecules in the future..

Thanks. And secondly, Parag, in the press release you've called out for the gross margin pressure, some amount of inventory provisions.

Can you just give us some sense on what would have been the quantum of these inventory provisions that would have hurt your EBITDA margin, the gross margin this quarter?.

So overall, I would say the impact on the gross margin is not significant. It will be less than 50 basis points from the inventory provision..

Okay. Thank you and best of luck..

Thank you. The next question is from the line of Vinod B from InCred Capital. Please go ahead..

Hi, most of my questions are answered. Just a follow-up on Russia.

So could you make a few comments about how the business has changed before the war started and after that, especially in terms of logistics, payment, etc.? So are you able to get products across into Russia? And how are you managing the payments mechanism out of Russia, etcetera?.

So let's start with the basic. We are shipping products to Russia and we are getting money from Russia. And the logistics within Russia is similar to what was before. We had to adjust our channels, the airlines or other logistics means to shift to Russia but we do not see any issues with that, with asset to all consolidations for that.

And as for the payment and the stuff like debt, actually we saw no disruption as we speak.

In terms of within the market, we don't -- we are not aware of anyone that actually invest in the market, probably there will be less investment in the market but we are not aware of a new one that actually left or changed significantly the competitive landscape. It's probably something that will happen. But as we speak, we do not see it..

Okay, got it. Thank you..

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Amit Agarwal for closing comments..

Thank you, everyone, for joining us today for the earnings call. In case of any further questions, please get in touch with the Investor Relations team. Thank you..

Thank you. On behalf of Dr. Reddy's Laboratories Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines..