Ladies and gentlemen, good day and welcome to the Dr. Reddy's Q1 FY 2023 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode. Please note that this conference is being recorded. I 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 quarter ended June 30, 2022. Earlier during the day, we have released our results and the same are also posted on our website.

This call is being recorded and the 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. 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’ll hand over the call to Mr. Parag Agarwal. Over to you, sir..

Thank you, Amit and greetings to everyone. I will take you through our financial performance of the quarter. For this section, all the amounts are translated into U.S. dollar at a convenient translation rate of IND79.02. It is the rate as of June 30. 2022.

In this quarter, we had a strong growth in our profit supported by the segment income and brand divestment while we were impacted by additional competition in key products in the U.S., caused inflationary pressure, normalization of in Russia, and slowdown in the pharma market growth in India.

The 5G challenges and , we have done reasonably well and are confident of further improving our performance from here on. Consolidated revenue for the quarter stood at IND5,215 crores that is and grew by 6% year-on-year basis and declined by 4% on a sequential quarter basis.

Sales growth has been impacted due to higher base effect as Q1 FY 2022 included sales from COVID products and Q4 FY 2022 had higher sales in Russia, driven by stocking up, which is normalized in the current quarter.

This impact was partially offset with the brand divestment income in current quarter and the new product launches across our businesses, while the price erosion has been in-line with the trend business in the last few quarters.

Consolidated gross profit margin for this quarter has been at 49.9%, a decline of 230 basis points over previous years and 300 basis points sequentially. Gross margin for the Global Generics and PSAI business were at 55% and 15.7% respectively for the quarter.

While the current quarter gross margin was supported by brand divestment income, it was impacted due to several one-offs, adjusted for which we are within the normal range. Let me explain these in a bit more detail.

Firstly, our gross margins were impacted due to significant movement in the product rate during the quarter, which we believe to normalize going forward. Secondly, the gross margins are also impacted due to increasing the commodity prices and adverse leverage on manufacturing overhead due to lower sales pace.

We expect this to normalize from next quarter with an increase in our sales. Thirdly, in this quarter, we have launched band segment in India, which is currently procured externally and has a lower gross margin. We plan to transition the three in-house manufacturing after the expiry of patents which would lead to an improvement in margin.

With the above measures planned to be undertaken, modernization of the burn-off and launch of two meaningful products, we believe that next quarter onwards, our gross margins will improve and will be within the normal range.

The SG&A spend for the quarter is IND1,549 crores, that is US$196 million, an increase of 3% year-on-year and a decrease of 1% quarter-on-quarter. As a percentage of sales, our SG&A has been at 29.7%, which is lower by 90 basis points year-on-year, however, higher by 90 basis points sequentially.

The R&D expense for the quarter is IND433 crores that is and is at of sales. We continue to drive productivity across our businesses, while also making investments to strengthen pipeline and capability development in marketing, digitalization, and people, including Horizon 2 businesses.

The net finance income for the quarter is IND235 crores that is US$30 million supported by gain on account of strengthening of during the quarter. While we have forex related benefit in finance income, which has been partially offset due to forex impact and cost impacting our gross margin and SG&A.

The EBITDA for the quarter is IND1,779 crores that is and the EBITDA margin is 32.1%. Adjusted for the one-off of settlement income, bank divestments, and growth related to gross margins, we are within our normal range.

Our profit before tax stood at IND1,456 crores, that is , which is a growth of 97% year-on-year and a growth of 490% quarter-on-quarter. Effective tax for the quarter has been at 19.0%, primarily on account of recognition of previously unrecognized before tax assets on operating tax losses pertaining to our.

We expect our normal ETR to be in the range of 24% to 26%. Profit after tax for the quarter stood at IND1,188 crores that is US$150 million. Reported EPS for the quarter is IND71.40. Operating working capital increased by the IND790 crores, which is US$100 million on March 31, 2022.

The increase was primarily driven by an increase in the in North America, which should normalize during next quarter. Our capital investment during the quarter stood at IND331 crores, which is US$42 million.

The free cash flow during this quarter was a net outflow of IND232 crores, which is US$29 million after payment of IND509 crores for the acquisition of Cidmus brand in India and the indicative portfolio from Eton Pharma in U.S. Consequently, we now have a net cash surplus of IND1,275 crores that is US$164 million as of June 30, 2022.

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

dollar are approximately US$366 million, largely hedged around the range of IND77.6 to IND80.4 to the dollar, at the rate of IND0.9204 to the ruble at the rate of IND55.8 to Australian dollar and South African rand at the rate of the IND4.82 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. Our performance of the current quarter reflects the strength of our diversified business model. We have been able to mitigate several challenges faced during the quarter by monetizing various opportunities that led to higher as an overall business level.

Let me share with you some of the key highlights of the current quarter. One, settlement of litigation for Suboxone for $72 million, which further helps strengthening our balance sheet. Completion of U.S. FDA inspection of our new sterile injectable manufacturing facility referred as FTO 11 leading to subsequent approval of the product from the site.

This enable us to commission this plant and bring on stream of additional capacities and capability to grow our injectable business. Three, acquisition of cardiovascular brand in India and the injectable portfolio from Eton Pharma in the United States. The world of in China, which will be our second product tools GPO model.

We are progressing well on product pipeline across more molecule generics by similar and efficient product. There have been good momentum in the initiative pertaining to Horizon 2 business and sustainability growth laid out during our recently concluded Investor Day.

All of this will enable us to continue to deliver on our long-term growth aspirations. Now, let me take you through the key business highlights for the current quarter. Please note that all references to the numbers in these actions are in respective local currencies.

Our North America generics business recorded sales of 250 million for the quarter, which has a decline of 2% year-over-year and 13 on a sequential basis. This was largely attributed to the incremental competition in couple of our key products to in the quarter.

The Q-on-Q decline was also driven by high base for launch injectable with normalized volumes and pricing adjustments due to the impending entry of competition on. Bearing these products, the price erosion for the base business has been within the normal trends seen over the last few quarters.

In this quarter, we launched seven new products, some of which should be ramped up in the coming quarters. We expect strong launch momentum to continue during the year.

Similar to the last three years, we believe that we can continue to grow this business on the strength of new product launches, while there will be volatility on a quarter-to-quarter basis due to the fundamental nature of generic business model. We are preparing for a volume limited launch of ANDA product in the United States during September 2022.

The specific volume limited amount of generic that we are permitted to sell between September 2022 and January 31, 2026, when we are licensed to sell in unlimited quantities of are confidential. Our Europe business recorded sales of €50 million this quarter with a year-on-year growth of 12%. However sequential quarter decline of 4%.

During the quarter, we launched nine products across various countries within Europe. We expect to continue to pay gross momentum in the rest of FY 2023. Our emerging markets business recorded sales of IND903 crores with the year-on-year decline of 1% and a sequential quarter decline of 25%.

The decline was due to higher base effect as we had COVID product sales in Q1 FY 202 and then divestment income in Q4 FY 2022. Further, the increase in stock fundings seen in Russia during last quarter due to the conflict has now normalized. However, impacted the current quarter growth – however, impacted the quarter growth.

Within the Emerging Markets segment, Sales on an basis and 60% on a quarter-to-quarter basis in constant currency, due to the same reasons. During the quarter, we launched 25 new products across various countries of the emerging markets.

We believe that on annual basis, we will be able to grow this business in-line with the past trends, adjusted for the one-offs of profit sales and the divestment income in previous year. Our India business recorded sales of IND1,334 crores with a year-over-year growth of 26% and sequential growth of 38%.

Adjusted for the brand divestment income in the current quarter and the COVID product sales during Q1 FY 2022 we have grown in as a healthy double-digit. During the quarter, we launched five new products in the Indian market. As per the Q1 report of June 2022, our ranking value terms – our ranking value terms is at Number 10.

We continue to reshape our portfolio in India business with the focus of growing big brands, acquisition, and partnerships for focused therapy areas while divesting non-core brands. Our PCI business recorded sales of $91 million with a year-over-year decline of 10% and sequential decline of 8%.

Adjusted for COVID product sales in Q1 FY 2022, the business has grown over the last year. We expect to see improvement in sales during the balance of the year.

We believe that there are several opportunities for growing our core business and , we are committed to our long-term strategy and are progressing well towards productivity improvement and making right investment choices to deliver a long-term sustainable growth in-line with our strategy unveiled on the Investor Day.

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

Thank you very much. First question is from the line of Saion Mukherjee from Nomura. Please go ahead..

Yes, thanks.

Parag, can you just quantify the impact of forex across line items? There is an income in finance income, but you also mentioned there are certain impact in COGS, so if you can just quantify the net impact?.

Yes. So, Saion, the movement of ruble and some of the other currencies has led to an adverse impact in the gross margin, which would be roughly around 150 basis points in that range. And on – in the finance income, there is the upside that hasn't recorded and that's because of the accounting standards that's.

So, overall, that's the kind of impact that our P&L has..

Okay. The second one on Russia, particularly, so I just missed the constant currency growth, if you can just indicate in Russia. And also, are you able to take any more hedges for – in Russia or the hedges that you had at the end of fourth quarter, you are just – you are running with that at the moment.

And since the hedge amount is large, for this year, what is the kind of realization that you will have on currency? And anything you can guide going forward? How should we model for Russia in terms of the currency rate?.

So, Saion, yes, let me answer. The first question is on the constant currency sales impact. So, during the quarter, our Russian business declined by 14% year-on-year in constant currency. And as we had signaled in the last quarter, this includes the normalization of the inventory stocking of that we saw at the start of the conflict.

Now, coming to the second point on forex hedging. As you know, ruble has appreciated significantly from, you know it used to be at a rate of around and it is now ranging anywhere between 1.3 to 1.45. We believe this rate may not be sustainable in the long run. And currently, the cost of hedging is extremely high,. So, we are currently not hedging.

What we are trying to do as a business is to reduce our working capital cycle, and we have had some success in that. So, instead of hedging our exposure, we are reducing the cash conversion cycle to minimize the impact on our business..

In the, Saion, just for me, if you take this normalization of inventory, we will continue to go in Russia..

Okay.

So just one more question, if I can ask? On India, you mentioned adjusted for COVID, you had healthy double-digit growth, but if you adjust for the acquisition, can you share the growth number?.

Both. So, if you take both out Saion, which is the brand divestments we take out and also the impact of COVID in the base. Then we have grown at healthy double-digit. If you look at the impact of acquisitions, if you take that out, then our growth would be in single-digit..

Okay. Thank you. I’ll join back the queue..

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

Question is on the U.S.

market, just when you talk about price erosion, so you talked about couple of products, is there any element of shelf-stock adjustment on vessel pricing also in this quarter in the ?.

Again, can you repeat?.

So when you call out, so U.S. sales are down 13% quarter-on-quarter. One is a price erosion or volume impact on Suboxone which you called out, but on , just trying to understand, is it element of shelf-stock adjustment there? Like for example, let's say, $5 billion, $10 billion, which is just artificially depressing the reported number.

And when we start the next quarter, that number, we started a higher base. That's what I want to clarify..

So, like I mentioned in my part, basically, we see the normal adjustment that is related to situation and that's what impacted us in this quarter..

Yes. And on the SSA adjustment, there was no such major impact Anubhav..

When you say SSA what does that mean?.

Shelf-Stock Adjustment ..

So, you are not saying that we happen to record higher March quarter and we were surprised with the price erosion. So, there is no limit. So, net-net $230 million that we're reporting, let's say that becomes an opening base for the second quarter for us..

We are not guiding, but let's say, we do not see any surprises the way that you described. .

Yes, I think the important point Anubhav is that the price erosion that we have seen in this quarter, in aggregate is in-line with the trends that we have seen in the last few quarters and we are not seeing any sign that is worsening. That's the point I would like to make it..

Okay. Second is in the Russian market. Now, we've seen good amount of July as well.

Has there been any element of us some market share gains, some visible signs of that happening or is it business as usual? Can you give some qualitative – what's happening in the Russian market?.

In Russian market, Anubhav, we are seeing, our operations are normal, supply normally. The flow of money within Russia and from Russia into India is also normal. There are – certain companies that have shifted their expense from above the line, which is the mass media TV to below the line, which is trade discounting and so on.

So, there are some shifts in the way expense are made, which are happening in the market. But overall, we are finding that it is business as usual. As you know, in the area of medicine, so we are very focused on making sure that patients get our medicines. And right now, I'm happy to say that our operations are normal..

Sorry, just to add – just a clarity on this. So, what I meant was, for example, with ruble to INR, conversion is much easier than, let's say, ruble to euro or USD.

So, is that benefiting you guys or in general the Indian companies who take a higher share in the Russian market? And have you seen any visible signs of that?.

So, in terms of visibility for the reported quarters, we did not have impact as such. We do not see at that moment anyone that actually live in Russia. All the pharmaceuticals company to the best of our knowledge and our visibility are working in Russia, are operating in Russia. Likely in the long-term it will change, but right now that's what we see.

In terms of our business in Russia, it’s favorable, people understand that we took a decision to continue to work in Russia. And indeed, it's comfortable for us to work and probably it will help us in the future. But as we speak, I think this is usually is the right way to give it the best transparency of what we see on the go..

Okay. Thank you, guys..

Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead..

Hi. Thank you for the opportunity. My question is on U.S. business. So, you have a sizable portfolio of injectable products in the U.S.

So, can you comment like how pricing erosion in this part of the portfolio stand against the pricing erosion in the border portfolio, which mainly consist of oral solids? And also, in terms of some of the complex generic launches, which we are anticipating in the future, what are your expectation on the pricing part? So that's my first question..

Thank you. So the happening there on the injectable business in terms of the is similar, so it's a number of – it is also an upcoming handful of customers. And also the pattern of the fulfillment is the same. So, we don't see, let's say, that’s a different.

The only, I think, difference in terms of injectables in which you can walk directly with those people, as well as to walk with the wholesalers. And of course, this is allowing you more flexibility as it's related to share and market growth.

More and more in our case, we will see more injectable coming naturally as this is where the part of the and this is where many people will go. I'm not sure I captured the second part of the question.

If you can repeat, please?.

Yes. So, we are working on various product, many of those are injectables and these products might come over next few years.

So, I was asking in terms of pricing, how do you see these products stand in terms of pricing erosion once they come in market, compared to the current portfolio, which we have?.

So, some of the products that we will launch in the future may see limited competition. And these are the products that some of them were indicated during our Investor Day. Some are in our pipeline and we did not disclose.

In general, like I said before, if there are a product, we will see similar phenomenon of price erosion also for the injectables as well. I don't think that there will be significant difference in the behavior or the pattern of the procurement of the hospital versus the retail in that respect..

Sure.

And my last question is, can you comment on the trends which you are observing in the commodity prices or logistic costs, etcetera? Has there been any change, compared to what we saw in the previous quarter? Like any sign of moderation there?.

No signs of moderation, but no sign of worsening. We see some of the commodity price still impacting, especially those with the inventory attachment, as well as shipping cost.

Naturally as normally there is some time that it takes while the oil and some other commodity price goes down and then of course in, accordingly normally in a certain period of time for weeks, two months, we started to see the impact also on our results. And of course, The real impact we can capture only we sell this product.

So, likely that any change that will happen to this market, we will see only in our case the six months from now also..

Sure. Thank you for your answers. I will get back in the queue..

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

Yes. Thanks. and thanks for the opportunity. Question is on gross margins. So, I know Mr. Parag came about 150 bps on the ruble, largely due to ruble, but correct me, if I'm wrong, that you know Rupee dollar also had a substantial movement. And you also said that there was a high base last quarter on the. So that will also come down a bit.

So, are these not also factors which led to certain decline in the gross margins?.

So overall, the forex impact I told you was in aggregate. The U.S. dollar Rupee impact isn't significant. So, the headline – the important headline is that if you take out the positives and the negatives, both which are non-recurring, then our gross margins are in the normal range.

If you look at our last several quarters, our gross margins fluctuate between 51% to 53%, 54%. And the point I'm making is that our reported gross margin is 49.9, which has benefited from divestment of brands in India, but there are a number of other one-offs which are nonrecurring in nature.

And if you adjust these as well, in aggregate, our base gross margin is in normal range. So that's the headline that I want you to understand..

And I want to add to that. We do not see a change in the pattern of our gross margins going forward as well.

So, like we discussed in previous calls, the nature of the game in which is impacted for products from inventory for etcetera, we will always be in the range of somewhere between the numbers, as far just mentioned, and this will continue also in the future.

So, we can reiterate that this is the margins that feel comfortable on the gross margin and we reiterate also what we discussed in Investor Day about our commitments for the EBITDA margin as well. So what we see is a consistent, if you wish, performance that is related to that.

Probably now we see it more on the lower part of the range, but within the range..

Okay. And trying to understand this, you know, when you met in Mumbai, the R&D day you had, so we have talked about 25% EBITDA margin. And I understand this is right.

So, are we on track for fiscal 2023, 2024 in that range, I mean given that we had a blip in Q1?.

So, we are consistent with what we discussed in Mumbai. It was only a few weeks ago. What we said, I just want to make sure that it's the same. It's not necessarily a number that we’ll achieve every quarter in the next many, many years, it will fluctuate.

What we are saying, and this is the number that on average we are going to get, we feel comfortable with which will allow us both to invest in the future and also to give the right return for the shareholders. So, this is that indeed in the case of very successful, a launch of Lenalidomide, it could be higher than this.

And after that, it can be lower than that. This will continue this kind of fluctuation on average we are consistent of what we discussed in Mumbai..

And I must also clarify that – sorry, just to clarify, the aspiration of 25% that we have stated is not including or excluding any particular product. It is the margin and aggregate for our business..

Okay understood. Okay.

And just a clarification on is, when you say launch, it includes exclusivity, as well as other strengths, right?.

..

Sorry, sir?.

Yes, yes..

That's right..

Correct..

Okay, perfect sir. Thank you and all the best..

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

Thank you for taking my questions. Parag again on the gross margin. If I look at – if I step out the brand divestment in the quarter, we are closer to what, the 57%, 57.5% margin. From your comments, it seems like the FX will normalize, but there were also expectation that commodity prices wouldn't come off.

So, what essentially will lead to normalization of this.

Would it be Revlimid launch which will essentially help improve this margin or, I'm just trying to understand what will move us from the existing margins to our normalized range that we're talking about?.

Yes. So, now there will be two, three key drivers. One is, I wouldn’t single out Revlimid. First of all, I think I would say that the margins of the new product launches, including Revlimid would be one significant driver of an uptick in the gross margins.

The second would be, as I pointed out, there are brands like Cidmus where we are sourcing them externally and we are working towards internal sourcing. And Cidmus is one example I have given you. As part of our productivity initiative, we constantly work on in-housing brands, which will lead to an improvement in our cost base.

So that is going to be clearly a second lever, which is part of our larger productivity lever. There are a series of cost improvement programs that we are driving looking for alternate vendors, improving plant yields. If you remember on the Investor Day, presented our productivity status for each of the three businesses, which is.

And where we were a few years back, where we are now, and the further headroom that we have in productivity. That's going to be the second significant lever that gives us the confidence that we'll maintain our gross margins in the normal range..

And the other is that India and Russia because of the normalization that you said, we are going to have more visibility to growth as we discussed on this some of them were one-off and some normalizations, as well as the API that is going as well. So, just to make sure, we are very confident even without Revlimid, the gross margin will be there. .

That's very helpful, sir. And second on the PSAI business, I understand the base impact in the previous year because of COVID, but if I were to look at it quarter-on-quarter also there has been moderation.

So, we feel some amount of customers de-stocking on customer inventory being high, which is limiting our ability to scale up that business? And also, on the PSI business, are we able to pass on these cost pressures that we have seen in the PSI business to our customers? Because margins there seem too have deteriorated too?.

So first, after few quarters in which we saw the decline of the API, which is a one component of the PCI. This quarter, we see that we are coming back to growth. It's a very single-digit growth, but we are growing and we believe that this will continue and we do see the pickup. And this is primarily being driven by new products.

New products and new customers in territories. The second piece that is growing for us is the activities that we are capturing under PCI. We call it API plus in which we are selling in countries in which we do not have direct access. So, we do see a pickup in this business very, very nicely and it's actually very healthy for us.

And the third part, which is also growing, although it's not yet significantly the CDMO activity on the small molecules. The fact that this appeared this quarter from the number of this product, which was there last time and this is why it looks like it declined. But overall, if you normalize it for this is a growing business now..

And, on the margin sir?.

Sorry?.

The margins, the more the API will grow. Accordingly, the margins will go up because it's a very cost base type of the business and it's very much depends on that. So, the margins will grow..

Got it. Thank you so much sir..

Thank you. Next question is from the line of Balaji Prasad from Barclays. Please go ahead. .

Hi. Thank you for taking my questions. This is on for Balaji Prasad. Just wanted to circle back on generic Revlimid. I guess, could you just provide any further color on expectations here? And also just any further color on key launches in the U.S. this year and next? Thank you..

So, like I mentioned, we are going to have a volume limited launch during September 2022. And we will have that kind of a permission to do that between September 2022 and January 31, 2026. After that, it will be unlimited. And naturally, we are ready for that and looking forward for that to happen.

As for the other launches, we will have 25 plus of other launches in the United States and overall very consistent of what we discussed with the discussion of the Investor Day, we are confident that we will continue to grow in active states on the CAGR basis with what we call the time-to-time in which we will have as it's related to the nature of the product when we would have them.

So, this quarter is a bit down, next quarter, I believe it will be up. Overall, it's in the direction that we have discussed in the past..

Thank you..

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

Hi. Thank you so much and good evening everyone. Parag, just wanted to make sure on your comment on EBITDA margins for Q1.

You did say that if you exclude one-offs, then even EBITDA margin was in the range of what you normally do, which I presume is 23%, 24%?.

Yes. Just to clarify, our reported EBITDA margin Sameer is 34%. If you take out the impact of Suboxone settlement and the brand divestment, then it's around 20%. And then I a few non-recurring impacts – adverse impact, for example, the COVID sales in the base and the gross margin.

If you adjust for that, our EBITDA is in the normal range of 21% to 25%. If you look at the last several quarters, our EBITDA margin typically fluctuates in this range. So that's what I mean by the normal range..

Okay. Yes. Parag, that’s very clear. And the second question is for the sale of brand, what you have recorded IND230 crores through revenue line items.

What's the cost against that? I guess I'm just trying to say that what's the EBITDA impact of ?.

The total amount, Sameer. It's the total proceeds of the divestment and therefore the entire amount falls to EBITDA..

Okay, got it. That's all from my side. Thank you..

Thank you..

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

Yes. So, the first question is on the ..

Mr. Patra, you voice is not very clear. Request you to use the handset..

Hi, is it fine?.

Yes..

So the first question was on the Revlimid. Sir, you mentioned about the likely launch of the product starting September.

Just wanted to have a sense what should be the competitive intensity here? And more importantly, what I was trying to understand is the limited volume condition, how result is that condition on the settlement? Because even the is also under low-single-digit or mid-single-digit kind of volume condition only where I would have launched.

But the indicate that they are having double-digit kind of percentage volume currently.

So that is why just trying to understand how is a limited volume condition for the settlement place?.

It is a rigid. In the case that we can sell exactly the amount stated in agreement and the volumes and the market share of that percentage is confidential, like I mentioned. So, I cannot discuss that. Naturally, it's a very significant launch for us.

As for the intensity of the competition, of course, depends how many players will be there and what will be their volumes as they can supply into the market at that point of time? That's yet to be seen. We will have to wait and see. We believe that it should be a very good launch for us..

Okay. Because my point was also this, if the volume limit condition is also not reserved, then then there could be a kind of a larger competition and hence the price erosion could be larger. So, that is the ultimate point that I was trying to understand..

No, I understand the question. Unfortunately, I cannot share the details of the ..

Fine. Sir, second question is on the therapeutic revenue mix, what we have said in the filing, so last year, obviously, the global generic revenue growth, if you consider, it is around 16% kind of a growth that we have seen, but the large part of the growth has come from the anti-infective as a segment.

So there was a kind of a 74%, kind of jump in this segment. Whereas the other segment remains either single-digit or muted or low-double-digit kind of trend.

So, whether that is a concern area for the growth of the current year, if we ignore the Revlimid contribution for the time being then whether that can have a kind of a moderated trend for the current year in general for branded business, let's say, India, Russia, emerging markets like that?.

I do not see a concern..

Okay.

So that's not a concern?.

I do not see a concern..

Sure. You said last question, sir, in fact, the origin licensing arrangement to what you had with of U.S.

so whether that $8 million upfront is safe that has been booked in this quarter?.

No. No, it has not been booked. It is to be amortized over the contract period, which is over four years..

But that is – okay.

Even the upfront amount is also being amortized over the period?.

That's right..

Okay. Yes. Thank you. Thanks a lot..

Thank you. The next question is from the line of Tarang Agarwal from Old Bridge Capital. Please go ahead..

Hello, sir. Good evening. Just one question, sir, on the M&A strategy. I mean, what we've observed is, we’ve recycled some of your brands in India. You've got Cidmus on one side and while you've also bought a small injectables for a couple of products.

So, just wanted to get a sense on why, what is the kind of advantage you get by getting rid of those other brands in India? Does it release decent amount of sales force, which can then be devoted into some other divisions and the thought process behind the small injectables piece that we have?.

Yes. So thank you for the question. The divestment in India, we have a clear strategy in which segment when to focus on and which segment we don't, and which brands we want to focus on and which brands we don't.

So, what you're going to see in India and on top of it, you can get very nice value for the brands that are not in the focus, which we like to monetize it. We feel that it's a better alternative for the capital allocation of the company and also for the performance of the company.

So, likely what we will have India and which we will sale brands that are not in focus. And we will actually even buy brands like we did this quarter. We will take most in the Novartis deals. So, you are going to see both.

And this will allow us to establish ourselves when we also add both the Horizon 1 and Horizon to activities in India to bring us to the aspiration of the Number 5. In the case of the United States, we are always trying to find those low competition assets, especially if they are injectables.

In order to create a better portfolio for the United States and for the. And if we do not have the means or we did not develop it in the past, we are getting it from others. That's by the way what we did at the time with Suboxone, that's what we did with our cost of funds. So, it's something that we are doing for many years and we'll continue to do so.

So, our pipeline in the U.S. will continue to be products that we develop ourselves, as well as licensing and products that we acquired..

Okay.

And just a follow-up on the India piece, does it release some kind of MR bandwidth to focus on some of the brands and the kind of maybe gross profit or EBITDA that you might have lost by virtue of letting go of these brands?.

So absolutely, it is helping us to focus our resources on the brands that we believe. This is part of what focus means. In terms of growth, we believe that on the long-term it will help us to grow.

And naturally, quarter-on-quarter, we may need to adjust for those sales that we’ll be missing and we will have to take confidence of that, but on the year's basis, we will go faster actually by focusing on the area that we believe that we have better competitive advantage. .

Okay.

And the loss in EBITDA are all by virtue of divesting these brands?.

You're not losing, you're actually gaining because if you take the EBITDA that this product would have made versus the tax that you got for it. It's a better deal for the company..

Okay. Thank you..

Thank you. Our next question is from the line of Kunal Dhamesha from Macquarie. .

Just one question.

I mean, annual basis or semi-annual basis?.

Kunal, your voice is not clear, can you repeat?.

Yes, I’ll repeat.

So in terms of volume percentage allowed for us for Revlimid, is it calculated on annual basis or calendar year basis?.

All these details are confidential at this stage..

Okay. Thanks. I just had one question..

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

Hi. Just a clarification.

So, this IND230 crores of brand sales that you generated that is part of this IND1,500 crores of India revenue that you have reported, right, correct?.

Yes, that's right..

Okay. Second, in the U.S. you mentioned about incremental competition in a couple of products.

Did you see incremental entry of a new player in any of the key products? Or is it that the existing players got more aggressive? Since I'm asking this because you specifically set to products?.

Yes, in these product, Apotex launched competition for both during Q1..

So, do you mind naming them?.

I said Apotex, the company Apotex..

Yes, do you mind naming the products?.

I said it's Suboxone and Icosapent..

Okay. Okay, got it. Okay. Great. Thank you..

Thank you. The next question is from the line of Darshan Jhaveri from Crown Capital. Please go ahead..

Hello. Good evening. Thank you for the opportunity. So, I just have one question, if I may. So, the performance in this quarter, considering all the one-offs that we have, could we take this performance as a base and sustainable quarter run rate or could you just give some color on that? That could be very helpful sir..

Yes. This is – I like to use the word consistent. So, it's very much consistent, one with the strategy in our investment and consistent also with the performance. With the understanding that we are facing sometimes a situation in the market, sometimes will be in favor and sometimes not.

But overall, all the stuff that we discussed, our growth, which will be in the U.S. single-digit, outside of the U.S. double-digit, the EBITDA and the targets that we discussed in the past, we are still there and very consistent with what we are discussing ..

So, this is to clarify things, so the revenue and margins will be along these lines only, right? So, we would see considerably around the same range in this year and maybe could you just give us some clarity on what would a normal otherwise look in FY 2024 sir?.

Again, we are not giving guidance, but I'm repeating what I said before. We said that we are continuing to grow on double-digit outside of the U.S., single-digit in the U.S. and we are aiming for about from EBITDA and ROCE. This is still there. This is still valid. We cannot guide third quarter of a specific year.

This can be fluctuate, but we will be in the neighborhood of those numbers sometimes up, and sometimes down, but we very much believe that we are in this area. And not just that, we believe that it will even allow us to invest well into the future. So, we can be consistent for many years like that..

Okay. Thank you so much. That answered my questions. Thank you so much..

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

Yes. Hi. Thanks for the follow-up.

Just on the injectable business, what is the current size annually? And are we seeing some supply challenges in terms of syringes, stoppers, etcetera?.

So, Prakash about 16%, 17% of our business is from injectables..

And we do not see right now a challenge of supply..

Okay. Because one of your peer group, I've talked about in the recent call, there have been shortages in stoppers and syringes, especially for the U.S. market? That's why..

Okay. I don't recall that..

Okay, perfect. And secondly, on this endeavors, of you recognizing in this quarter, I understand the case was won sometime back.

So, what triggers the recognition, particularly for this quarter?.

Now, the litigation that we won in the past was on the IP case. If you recall, we were injected when we launched the product in June 2018 and we were denied to go to the market for 9 months, and the $72 million is a settlement for that period of time that we were denying from coming to the marketplace..

Yes.

So some quarters back, when we won the case?.

No, the case, I’m repeating, there are two separate issues. One is to win the IP case. It means that the folks decide that we are in infringement situation and the other is to win the case that we believe that we should get money back because we will be nice to go to the market during the injunction period. So, this is for the second part..

So, this is a settlement that we have entered into in this quarter and that's why we are accounted for now..

Okay. Perfect. Thank you. That's all from my side. Thank you so much..

Thank you. The next question is from the line of Madhav Marda from FIS International. Please go ahead..

Hi, good evening.

I just had one quick question, to the India branch which we have sold like what is the EBITDA which we have sold it? So, the IND230 crores that you have recognized?.

So, I answered before..

It's a multiple. So, they have different brands. They have been sold to different companies at different multiples, but the average multiple ranges between 3.5 to 4 of sales, just to clarify. I'm giving you the multiple. Yes..

Okay, perfect. That's the only question. Thank you..

Yes. Thank you..

Thank you. Ladies and gentlemen, due to paucity of time, that would be our last question for today. I now hand the conference over to Mr. Amit Agarwal for closing comments. Thank you and over to you, sir..

Thank you all for joining us for today's earnings call. In case of any further queries, please get in touch with Investor Relations team. Thank you..

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