Ladies and gentlemen, good day, and welcome to the Dr. Reddy's Q4 FY '23 Earnings Conference Call. [Operator Instructions]. I now hand the conference over to Ms. Richa Periwal. Thank you, and over to you, ma'am..

Thank you. A very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter and full year ended March 31, 2023. Earlier during the day, we released our results and the same are all supported on our website.

This call is being recorded, and the playback and transcript shall be made available on our website so. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non-GAAP financial rates.

For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss its performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. Gunupati Prasad, our Co-Chairman and Managing Director; Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; and the entire Investor Relations team.

Please note that today's call is a populated material of Dr. Reddy and cannot be rebroadcasted or attributed in press or media outlet without the company's express it to consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's release also pertains to this conference call.

Now I hand over the call to Mr. Gunupati Prasad. Over to you, sir..

Thank you. Thank you very much. Good evening, and good morning to all of you. Welcome to the annual earnings call, best mission to you. I'm delighted to detail today along with the members of the executive team.

As you may have seen in our published results, this year has been an outstanding year for the company, a year in which we set all this in our reported sales, profits and generated a healthy cash flow. And we continue to strengthen our core businesses while investing in building businesses of the future.

Our sustained investments are being made to drive manufacturing excellence, strengthen our pipeline, and we build -- we continue to build efficiency and productivity in our R&D as well as operations and continue to augment reaching customers by opening new markets and new channels. Looking beyond the financial performance.

During the year, we made great progress on multiple fronts and they were recognized for these achievements. More work on these are the resolution by CNBC TV18 under the Master of Risk is Care & Pharma segment. And we secured leadership from CDP, the action on climate change and supplier engagement.

We also featured in the Bloomberg Gender Equality Index, the S&P Global Sustainability Yearbook, the DGSI Sustainability Index and emerging markets category and were also awarded by the economic times has been among the best organizations for women in 2023.

Our largest filed dosages factory was recognized by the World Economic Forum as part of its global lighthouse network. These recognitions are an endorsement of our commitment to building a sustainable, high-performance organization focused on the needs of patients as well as for 5G.

I am excited about how far we have come in the past few years and by the opportunities we have for the future as we continue to make efforts to bring to life or credos health can't wait. So with this, I'd like to hand over the call to Parag for taking you through the financial performance of the company..

Thank you, Prasad. Greetings to all of you, and I hope all of you are doing well. I'm delighted to take you through our results for the quarter 4 and full year of fiscal 2023. FY '23 has been a year of strong financial performance with the highest level of sales, record profitability and robust cash flow generation from operations.

Let me provide you with a quick rundown of our Q4 and FY '20 financials. For this section, all the amounts are translated into U.S. dollars at a convenient translation rate of INR 8.19%, which is the rate as of March 23.

Consolidated revenues for the quarter stood at INR 6,297 crores, that is USD 766 million and grew by 16% on a year-on-year basis and declined by 7% on a sequential quarter basis. Year-on-year growth was driven by growth in both generics and PSAI businesses. This was further augmented the income from divestment of a few noncore brands in India.

Quarter-on-quarter decline was primarily due to sales volatility in the energy business. The revenue for the financial year 2023 stood at ease INR 4,588 crores, that is USD 2.99 billion and grew by 15%. The growth was mainly driven by new product launches, partly offset with price erosion.

Consolidated gross profit margin for this quarter has been 57.3%, an increase of approximately 430 bps over previous year, a decline of 210 bps on a quarter-on-quarter basis. Year-on-year increase was driven by new product sales with higher gross margins and favorable foreign exchange.

Quarter-to-quarter decline was primarily due to product mix and lower operating leverage also partly offset by divestment income. Gross margin for the Global Generics and PSAI were 61.7% and 25.2% for the quarter. Gross margin for FY '23 has been 56.7%, which is an increase of 360 bps over FY '22.

The increase was driven by new product sales with higher gross margin. High government incentives and favorable foreign exchange, partly offset the impact of price erosion. Gross margin showed a global generics and PSAI were at 52.1% and 16.2% for the year.

The SG&A spend for the quarter is INR 1,799 crores, that is USD 219 million and increased by 15% Y-o-Y by it remained flat quarter-on-quarter. The year-on-year increase is largely on account of sales and marketing investments and adverse impact of Forex translation.

The site spend for the year is INR 6,803 crores, that is 808 million and has grown by 10%. The SG&A cost as a percentage to sales was 7.7% and is lower by 130 basis points over previous year due to better operating leverage. The R&D spend for the quarter is INR 57 crores, that is USD 65 million and is at 8.5% of sales.

Our R&D efforts are focused towards building a healthy pipeline of new products across our markets, including biosimilars. The R&D spend for FY '23 is INR 1,938 crores that is 238 million. R&D percentage to sales for the year stood at 7.9%. The EBITDA for the quarter is INR 1,631 crores, that is USD 198 million, and the EBITDA margin is 25.9%.

The EBITDA for the year is INR 7,308 crores at the U.S. 89 million for the year increased at 29.7%, which is ahead of our aspirational target of 25%. Our profit before tax for the quarter stood at INR 1,326 crores, that is USD 61 million, and that for the year stood at INR 6,037 crores at USD 734 million.

Our profit before tax for the quarter grew by 434% year-on-year, and for the year, it grew by 87%. Effective tax rate has been at 27.6% for the quarter and at 25.3% for the year. The effective tax rate was lower in FY '23 largely due to changes in the company's [indiscernible] mix of earnings. We expect our normal ETR to be in the range of 24% to 25%.

Profit after tax for the quarter stood at INR 929 crores, that is USD 117 million, and that for the year stood at INR 4,507 crores, that is USD 548 million. Reported EPS for the quarter is INR 7.62 and that for the year is INR 27.85.

Operating working capital reduced by INR 54 crores, which is USD 44 million against that on December 31, 2022, mainly supported by an improvement in receivables. Our capital investment stood at INR 258 crores, which is €31 million in this quarter and INR 1,132 crores, which is USD 138 million during the year.

The free cash flow generated during this quarter was at INR 1,596 crores, which is USD 194 million. The free cash flow generated during this year was at INR 409 crores, which is USD 488 million. Consequently, we now have a net surplus cash of INR 5,046 crores, that is USD 640 million as of March 31, 2023.

Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar are approximately USD 774 million, largely held around the reach of INR 32.4 to INR 84.5 to dollar 730 million at the rate of INR 1.045 to the ruble and USD 4.2 million at a rate of INR 57.8 to USD 7 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, we have delivered strong financial performance in FY '23. We closed the financial year with double-digit top line and bottom line growth with EBITDA and ROC margin exceeding the 25% level.

This impressive performance was reflected in our cash flow, and we continue to have a strong balance sheet. We progress well on our strategic priorities, and we are able to invest in our organic capabilities and business development opportunities to thrive and deliver on our purpose over the long term.

Let me take you to some of the key highlights of you. One, we witnessed underlying growth momentum in FY '20 across all businesses, adjusted for COVID products contribution during this year. Two, revenue in North America generics and branded markets of B&M crossed the $1 billion mark for the second consecutive year.

Three, we divested certain noncore brands in India to focus on strengthening the core. Our EBITDA is at 30% and ROC our ROCE is at 35%. We generated a strong free cash flow leading to a net cash surplus of $640 million. We also see positive momentum on BD/M&A with the acquisition of [indiscernible] brand into India, main pharma U.S.

generic prescription product portfolio and ION's branded and generic injectable products in the United States. Significant progress also made in our biosimilar businesses. We see a launch of biosimilar still event, which is backfill esteem by Fresenius cab in the U.S.

We completed and we saw the completion of clinical studies of rituximab biosimilars and we already filed in U.S., Europe and the U.K. MHRA. We saw the completion of Phase I study of biosimilar tocilizumab and global Phase III study was initiated.

Recently, we received approvals of 3 products in China, namely Sevelamer, Slidenafil and Carboprost and our partners [indiscernible] tablets. We are also progressing well in our digitalization as well as our ESG journey. Our diversified global presence, capability and strong balance sheet negative partner of choice.

We continue to work towards strengthening our position as a partner of choice including in [indiscernible].

From horizon 2 perspective, we signed some strategic license deal in ES2, including the below -- with cardiac care for the wearable for [indiscernible] treatment with [indiscernible] for the wearable in management of migraine with the New Zealand-based WCTL to bring the [indiscernible] cart assets for clinical trials in India.

We do see Bioscience to bring Tocilizumab tibia and other markets. We are investing in developing trials of this DTX, biosimilar assets in keeping with our stated horizon strategy. We see them as the future bodies. Now let me take you through the key business highlights for the Q4 and FY '20.

Please note that all the reference to the numbers in this section are in respective local currencies. Our North America Generics business recorded sales of $312 million for the quarter with a strong growth of 18% year-over-year and 7% decline on a sequential basis.

On a full year basis, we recorded sales of $1.68 billion with a growth of 26% over the previous year. This growth is largely led by new product launches such as lenalidomide, sorafenib tablets and Tobramycin and growing market share in certain existing products, which more than offset increased by the [indiscernible].

We launched 16 products during the quarter and overall, 25 products during the year. We expect the launch momentum to further improve in IFRS '24. Our Europe business recorded sales of $56 million this quarter with a year-over-year growth of 7% and sequential quarter growth of 9%.

On a full year basis, the sales of €210 million and has grown by 9%, driven by base business volume and new product launches. We launched 5 new products during the quarter and certified for the full year in Europe across all markets. We expect this transformation to continue in FY 1.

Our emerging markets business recorded sales of $1,114 with a year-over-year decline of 7% and a sequential quarter decline of 15%. On a full year basis, emerging market sales has been roughly flat at INR 4,550 crores. However, the sales have grown 13% adjusted for the COVID related products and divestment income in FY '22.

We launched 10 new products during the quarter and 94 new products during the year across various countries of the emerging markets. Within the EM segment, the Russia business in Quito declined by 34% on a year-to-year basis and 17% on a Q-on-Q basis in constant currency. In FY '23, Russia business declined by 9% in constant currency.

The decline is attributed to divestment of noncore brand during the previous year. During the year, there has been normalization in the channel customer stocking level after the price FY '22. We have been navigating the evolving geopolitical uncertainties and a manage the Google to currency fluctuation with effective GI.

Our India business recorded Q4 sales of 1,293 tones with a year-over growth of 32% and a sequential increase of 14%. On a full year basis, our sales were INR 4,893 with a growth of 17%.

Excluding the benefit of the divestment income and adjusted for COVID-19-related products, year-over-year sales growth for the quarter has been 11% and for the full year has been 13%. As per IQ the report, we are ranked #10 [indiscernible]. India remains our priority market, and we are committed to continue to grow this business at a halt rate.

Our PCI business recorded sales of $95 million with an innovative decline of 4% and flat sequentially. On a full year basis, the sales were $362 million with a decline of 12%. The decline was primarily due to high base effect of COVID-related products. We expect this business to grow billing [indiscernible].

Our R&D efforts are focused on developing value accretive products, including several generic injectables and biosimilars, where there is a patient need. We have done 195 global generic filing, including 12 ANDAs filed in the U.S. and 130 [indiscernible] file filing globally, including 12 drugmaker side in the U.S.

During FY '23 during FY '20, we are on track to accelerate on this in FRR24. We are progressing well in development of our similar products and working on some [indiscernible] and Horizon 2 initiatives.

Our strong balance sheet provides us financial flexibility to support future growth, invest in business development opportunities, and we will continue to maintain a disciplined approach to cash management and acquisitions. We continue to focus on optimizing workplace efficiency and productivity.

We remain focused on strengthening our core generics and API business and delivering more and more strong foundation. We are building a pipeline of products to meet an evolving need of patients and health care professionals to investment in internal R&D as well as strategic acquisitions.

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

[Operator Instructions]. The first question is from the line of Balaji Prasad from Barclays..

Just wondering if you could provide a bit more detail around your deals with just discussing what the responsibilities will look like on both ends.

And just what are we convinced you about their asset and its potential?.

Balaji, we were not able to hear you well. I'm afraid you will have to repeat the question.

Can you repeat, please?.

Sure.

Is this better? Can you hear me better now?.

Yes..

I was just wondering if you could provide a bit more detail around your deal with [indiscernible] just discussing what responsibilities will look like on both ends. And also just wondering what convinced you about just their asset and its potential..

So strategically, we are looking for Aetna, especially in India.

And we believe and we are in a great dialogue with the innovation industry in China, and we are trying to bring products that we believe that we can bring value and we believe that this product showed very, very nice results and can be absolutely considered stands of sales and where we can bring it to India in a very affordable process versus the alternatives.

And this is our purpose. We are trying to bring a great healthy affordable terms. And that's what was the main incentive behind this group..

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

Congratulations for the great set of numbers, sir. Sir, my first question is on the U.S. business front. So is it possible to share that what is the sequential growth in the U.S.

that we would have seen of resumed in the current quarter?.

So we cannot give guidance products with or without know very well. What I can see we say that we are very consistent. So likely we are going to continue to see growth in all of our spaces including the United States with and without the product.

And it will be driven primarily for the organic activities, specifically for the United States, besides the regular man, we are going to launch somewhere between 45% before as well as the contribution of our recent acquisitions and likely that we will see also additional activity through..

Sir, is it possible to give some extra color on the launch momentum that you have mentioned in your opening remarks for the U.S.

market, which you believe that to be strong in the current financial year?.

Yes, I think that the investment in R&D and especially on products that hopefully or likely to have less competition than the others is paying off. And as well as the type of patent fleet that we will see in FY '24 as well as the years after.

So right now, that's the numbers that I mentioned, 25 to 30 products are can be meaningful launches with a lesser of a competition. And we will continue to accumulate this kind of products also in the years after. So it's absolutely our strategy in the U.S., and we will continue to focus on that..

Sir, my second question is on the composite question, let's say. We are seeing a strong cash accumulation and simultaneously, we are seeing multiple M&A activities by us to improve our focus on the domestic formulation business, which has now achieved around 20% of the total revenue base.

And we are mentioning that this is going to be one of the focus market for us.

So could you share your thought process, sir, on the kind of capital allocation to build this business in the near future? And ultimately, what is the kind of a business mix that you want to make, achieve it for domestic formulation considering the put-in sale growth and all that, we can sales..

Yes, absolutely. So in India, our primary growth will come from, one, focusing on our brands. We identified focus therapeutic areas as well as the focus brands. And we have doubled down on that by increasing our footprint by going to more cities, et cetera. So this is one growth, specifically to your question.

The second one is that we are collaborating with the innovation industry in the United States, in Israel, in China and other places as well, of course, with companies and institutes in India to bring innovation to India. We are doing it as both with our own internal R&D as well as with external R&D.

Some of the ability I mentioned in my script and more to come. We are doing it both on Horizon 1 as well as Horizon 2. And our path of growth is people see us as a very attractive partner being compliant with all the international norms, given our reputation in the marketplace, and we are leveraging it to bring more and more innovation into India.

And that's also part of the capital allocation will go to a deal like tags. In addition, we are always looking for opportunity also for acquisitions. There is nothing that we can report at this stage. But it's absolutely something that we are open to do all the time.

For the initial part of the capital allocation, all of our spaces, including U.S., U.S., Europe, India, et cetera, our B2B business, we are looking for potential complementary deals. The type of deals that we are looking for is complementary. We are looking for products that we don't have or capabilities that we don't have.

Unlikely that you are going to see megadeals or this kind of stuff. This is not our compose. We are looking for primarily unmet need or complementary products that we fit the portfolio in that way. So yes, please..

So that is really great to know.

And just lastly, any color that you can add to the investing expectations in the progress post launch?.

Sorry yes, the product, as you know, is marketed by [indiscernible]. I don't have any expectation of anything that we, as a partner, have a certain arrangement with them and ask if we will be successful, we will be successful as well..

The next question is from the line of Damayanti Kerai from HSBC..

My first question is on the U.S. business, you have been obviously very consistent in terms of new launches.

But can you talk a bit more about the kind of price erosion, which we are seeing in your existing product? And my second part of the question is compared to oral solids in injectables, what kind of price erosion you are witnessing?.

So the nature of the U.S. did not change in the last quarter. It's a similar structure of the market and similar behavioral players. Specifically for the quarter, the mix of products that we had, we saw less of a price erosion that will be quarters before, but the fundamental structure of the market did not change.

So likely that when we face competition in certain products, then we'll see an erosion that's the nature. But specifically, we saw a better mix this time. Comparing injectables to over solid, both are very competitive.

It's more of a function of how many players are attracting the customers and so both injectable all as also can see a high level of erosion, but also from time-to-time product with less competition and therefore better pricing situation..

My second question is, as you continue to invest in your business and long-term growth drivers, how do you see R&D and SG&A costs moving from here on? And you obviously have a say done better than your aspirational EBITDA margin for this year. But on a more sustained basis, how do you see this like margin trajectory moving..

So we are maintaining the 25, 25 as a long term, and we discussed it in previous meetings, and there will be years and quarters that we will exceed it. There will be maybe also year that it will be below, which has happened also in the past. But we are very much there. What we are doing is that we are allocating the extra results that we invest.

And especially in R&D, the R&D likely to be somewhere between 8% to 9% also going forward. And it's naturally nominal will grow because we are growing the sales, and this is allowing us to invest in the biologics. It allow us to invest in our products that we are partners with other and we need to do some clinical trials.

And of course, very important on the generic R&D, especially focusing on products with meters products that are likely to have less competition..

We have the next question from the line of Neha Manpuria from Bank of America..

On the ROW markets, historically, if I exclude the last year because of COVID impact, we have grown that market north of 20% or 25%. As we go forward, should we see the ROW market going back to those levels of growth. And this is the excluding Russia. That's my first question.

And second, on the India business, could you quantify the divestment income in the current quarter? And excluding that, how should we look at growth? Is there more divestment that we see from the India perspective? Or do you think this is based on which we should grow? And do you think you can grow in line with the market in India?.

On the question yes, the answer is yes. We are aiming for our traditional growth and also give or take without guidance, that range of growth that we saw. And indeed, when you are taking out all the one-offs and the obsession of currency, we are growing very, very nicely.

This is primarily as we are accelerating the development and the filings of products in all these markets and also focusing on the forint, especially on the hospital business. So yes, the answer is that we will see growth and some of those markets is an accelerated growth versus the past.

As for India, the divestment was 264 calls, and that's the value we've got. And specifically, we see more, yes, from time to time, but nothing significant that we are going and what we are also very busy with is actually to bring more and more products, and we are enhancing the collaboration discussions and the BD deals that will be from India.

So it's a kind of organic plus inorganic but most of the inorganic will come from collaboration rather than kind of M&A acquisitions of other companies..

And just to extend the India question, do you think we can grow in line with the market, keeping aside the collaborations, et cetera, because that would take time to reflect the numbers just from the effort that we have been putting in the business over the last few years.

Could we see these go back to or at least try to get in line with IBM growth?.

We believe that we should be better than the decor..

In FY '24, itself..

In FY ’24 and after..

And one last question, if I may. On the Russia business, I didn't quite catch what you mentioned in the quarter. Was there any specific impact from channel inventory being cleared in the quarter? I'm not sure what you mentioned..

So Neha, the impact is actually in the base, if you remember when the conflict started at that time, we have said that yes, there was up stocking. And to that extent, in Q4, same time last year, the base was high, and that's impacting the year-on-year growth..

There's nothing specifically in this quarter?.

Yes. So nothing specific happened in this quarter. And most of the sequential decline stuff primarily timing of product. There is a specific timing of tenders of the biologic products and stuff like that. So we can sell that in Russia business usually..

The next question is from the line of Ankush Mahajan from Axis Securities..

So my question is related to the element that has an incremental revenue for U.S. business. So could you throw some light on it? What is the sustainability run rate for this police in upcoming quarters? And excluding the event, how do you see the EBITDA margins for the U.S.

business?.

So on the product sales, we want to continue to be in for product from us may fluctuate from quarter-to-quarter, but -- it is going to be there probably for the entire agreement time lines.

The fluctuation is primarily patterns of ordering, but we -- as you know, it's a limited volume arrangement, and we believe that it will serve us well to the entirety of the agreement. As for the activities outside of it, it's going to continue to grow.

I mentioned in your previous discussion all the time, we have products that have less competition than others. Natural this product is bigger than the other, but lightly, because in the future, we are going to see products a bit. And that's what we are also focusing on… so the profitability as well as the growth of our U.S.

markets will continue to be in the same range also in the years to come in quarters to come..

And sir, what are the EBITDA margins that we -- sustainable become margins?.

Like I mentioned, we are going to sustain the 25% on a long-term basis. We are not guiding for EBITDA market, as you know.

And from time to time, it will be more than that and it will be maybe times about it in terms of a function of how much we want to put into the R&D, likely that there will be higher through the time that we will have [indiscernible] and the combination of other low competitive products..

Sir, if I do mind calculation excluding redevelopment, base business is still on the lower side in terms of a growth.

So any strategy for the base business?.

I don't share that observation..

The next question is from the line of Kunal Dhamesha from Macquarie..

So the first question on our strategy to leverage our U.S. ending portfolio for Europe and other markets. And we are seeing significant growth in Europe geography over the last 2, 3 years. But in your view, how far along we are in that era journey, let's say, in U.S., we have roughly around 140, 150 products.

We know how many products you would have already launched in Europe, how many in pipelines and if you can throw some light there would be helpful..

We decided to focus on Europe when we took the decision on the diversification, this is working well for us. And in terms of we in the journey, somewhere in the beginning.

So I do see that most of the growth in Europe are ahead of us, and we are planning to launch many products in Europe in the next some years as well as to make other moves, including inorganic. So we see Europe and the focus market, especially around Germany.

So Germany will be the coal market and of course, the rest of the big countries in Europe, we believe that we have to offer, including biosimilar. So likely that you'll continue to see growth in Europe also in the next some years, including next year..

And this liberating our portfolio, when you launch same product, does it kind of become highly ROIC accretive in your view even beyond what our aspirational target is or it helps us achieve that 35% ROIC take?.

It's absolutely is because it's primarily average. So that's -- and obviously, it's a piece in the puzzle, Europe is still relatively small compared to the other spaces. But over the time, it's getting more and more positive impact on the overall average, but it is..

And the second question on the CTO 1 observation. What's the kind of nature of observation? And have we submitted the response to the U.S.

FDA? Or are we in the process of submitting at this front?.

Yes, it's a minor observation. We will address it. And we did not submit it yet. We just got it. I think we have 15 days in not mistaken. So we will submit at the of time, I believe that this will be good..

The next question is from the line of Madhav Marda from FI Industries..

Just had one question. Basically, we've accumulated a lot of free cash flow in recent times and I think have been doing for M&A activity already. Just wanted to understand that given -- I think, in general, a lot of the peers have good free cash flows and net cash balance sheet from the industry.

So when they're looking at M&A, aren't -- but very aggressively bid. We've seen well in the industry.

So I just want to understand that for a good asset, is it easy to get it at a good IRR? Or how should we think about M&A opportunities, given we have a good cash pile availability?.

So if you recall, it was part of our strategy to close the debt and the accumulated cash anticipating the situation, anticipating at the time the increase in the interest rate and inflation. So we are now looking for opportunities that one will, of course, get us strategically. And second will be a good valuation.

So now I think there are sellers a certain type of products that potentially can get a good [indiscernible] that's what we are looking for. In addition to that, we are looking for -- we are using this money for the type of licensing in a type of boosting the portfolio also for the future. And the money will be used also for that.

We are not the type of company that is taking what we call transformational acquisitions that unlikely that you'll see in our case in our case, but we will see them hopefully, more deals than we saw in part..

So basically, our M&A will be more bolt-ons in the kind that we've done in recent times as well. That's right, yes..

Let's call it business development, which is including licensing and will include product acquisitions, collaboration with customs and also M&A..

The next question is from the line of Cyndrella Thomas Carvalho from JM Financial..

Sir, just wanted to clarify this on -- sorry for asking on [indiscernible] again.

But is the higher volumes are reflected in this quarter? Or will it be reflected next quarter?.

If you are talking about the [indiscernible], we cannot share quantity numbers. And what they said is it's continued to be meaningful for us. And in accordance to the agreements that we have..

And on the -- in your opening remarks, you highlighted about the Chinese product approvals that you have received. When and where should we start reflecting these into earnings? And what is our outlook here? If you can help us understand..

This is a reflection of the efforts that we had through the years by submitting all the products in China, focusing on those products special GA status and be one of the early entry for the market. So I think getting orders in next couple of weeks. It's a bigger shipment for a company like us.

What we see is we see pick up all the time as a significant impact -- on our results, we will see them more about, let's say, from starting in effort many flow, but more likely, we see bigger numbers in 25 and 26 fiscal as the submissions and the covers and the timing of those GPs will take place. That's what we anticipate.

And right now, we are in the pace of 50 to 20 product submissions in and naturally the cycle of a profile that happened in China and the timing of the GPs, it will be moving.

But we say the strategy so far is working well because it's a leverage strategy in which we have an outlet for a very, very important markets we are very pleased from this forward..

And coming to the PSI business. Compared to your peers, we have not seen the top line growth. However, the gross margins have definitely improved Q-on-Q. So how should we see the outlook for this business? Have we been positive on growing this business.

But does anything change there at this point in time? Or is it some seasonal impact that we have seen in this quarter and we should start seeing growth from next fiscal onwards, like how should we read this?.

Yes, we will see both. We will see growth and we are seeing improvement of profitability. For us, this market also in the past and excluding also in this segment, we used to record also orbital. If I'm excluding the COVID, what we saw is at the time it was a decrease in prices of some old portfolio as well as the increase in some of the raw material.

Now we see the reverse. What we see that we are launching new products, and most of the sales are to more territories, especially in Asia. And we see also a better mix of products. And we see an ease on the supply chain and the -- to a certain extent, procurement.

So actually, now I see a positive momentum that is building on both growth as well as profitability..

But we should see this gross margin level sustained? That's the....

I hope that it will be even not just substantial, but we are aiming for enhancement..

And the top line, any number that you would like to share, like only double-digit, submit double digits? Anything -- any color that will be helpful..

No, we are aiming for double digit. We are not guiding, but we are aiming in double digits for all of our markets, including our PC..

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services..

So again, on North America, sales given that FY '23 had certain strength-related exclusivity as well or generic Revlimid and competition to some extent, kicking in FY -- in the coming quarters. So considering this aspect, I just would like to understand, would we still grow in FY '24 in MS sales North America..

I believe that we will grow not just because of the product we will grow because we are also launching 25 to 30 products, and the combination of all that mix should go up in the United..

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

I had this question since we have been maintaining this 25% EBITDA margin guidance. But if you just try to strip off some onetime big opportunities and say, some one-off nonrecurring items, the EBITDA margins on the core business seems to be lower versus what we were earlier guiding for.

So if you could help us understand for FY '24 as you go into FY '24, would you like to provide some color as to directionally or what I divestors can expect?.

First, I don't share the observation that it's less than what we guide. So that's a starting point. And we may need to clarify. We will -- are maintaining the 25, 25 message on the long-term basis, in which we will allow us both to grow with great return on the shareholders as well as the finance the future.

And what you see is that we are building a bigger and better portfolio as time goes by. And plus the balance sheet is probably the best ever in terms of both cash flow as well as no additional substantial risk that exists in the balance sheet. So this is, of course, allowing us a much better also utilization of the lot capital.

So this will allow us better or also in the future..

Yes, for enough. So lastly, on this India business, you did mention that FY '24, you expect to beat the IPM growth. And we have been acquiring asset, trying to strengthen our portfolio. What due to the confidence that FY '24, we can beat the industry growth. So just wanted to have some understanding on that..

I'm confident that we'll do it. And we need to recall this for me. I know that we are looking at external resources like acute, et cetera. But the most important for many is what is our bottom-line growth. And that should be very healthy.

So the answer is that I'm confident, and I believe that we will go on line even faster, then we'll go to the top line..

The next question is from the line of Nitin Agarwal from DAM Capital Advisors..

It is on the main portfolio that we acquired in the U.S.

Have given us some more color on what opportunities do you see in that portfolio in terms of to grow the portfolio from the current side?.

It's a portfolio the first certain level of lower level of competition, especially in women health. We are -- it's allowed us to get back to open something that was missing for us, as you know, to deals. And it's also -- I say, we have many products in the pipeline that many did not launch something that we'll be able to do in the future.

So if you wish, we have fatal impact. One, we believe that we can do well with this product. Second, we will be able to launch more products and sales that launch some of these products in other markets. Relatively, the economy of the deal is relatively attractive for us. So we are very pleased with the progress of the main acquisitions..

So I think it's fair to assume, given the new product launches that you have opportunities that you have, do you see possibilities for growing the business from where we acquired it..

That's what we are running to yes..

And from a profitability perspective, it is a business which is higher than our corporate profitability right now?.

I cannot share information about the specific profitability of products, but we believe that the nature of the products and the mix of less competition is always available versus those with a high level of competition. This is the nature of the market..

And besides the question that you made for this investment that you made in the U.S. generics, do we still are open to keep investing more money in U.S. generics by way of acquisition or this is more of a special case transaction, which came our way..

We will continue to look for forming the U.S. market, including generics, -- if it will fit to the financials and if it will be complementary to what we do. So we will continue to look forward on both organic and inorganic in the U.S., not just now also in the future. It is a very important market for us..

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

Just if I heard that, I just wanted to reconfirm that you mentioned that you expect double-digit growth from across markets, including the U.S., would that be correct?.

I do not this necessarily every quarter and not necessarily all the time. But absolutely, this is the long-term situation for us, including in the -- absolutely, that's what we are reading also in the short term, but I cannot promise you that it will happen every quarter than ever for that on every situation only..

So asking for fiscal '24 specifically, sir?.

Specifically, that's what we are aiming. We’re aiming for double-digit growth..

And excluding the acquisition with the base portfolio and some one-offs, it is possible as what you see..

I believe the past was not..

And just a follow-up on this, the U.S. generic market. I mean, many companies have been talking about while price erosion remains more or less similar. There is a lot of volume opportunities that is coming, new business opportunities, et cetera.

So would you say that we would have also got these in the last 3, 6 months, given there are some issues with [indiscernible]?.

Not so I understand the ASP comment.

Can you clarify that?.

So what we hear from some of the peers is that we are getting some volume opportunities like new business opportunities, where they need to supply a few of the products where earlier they were not contracted, largely due to the U.S. FDA issues by the peers. So are we getting some volume-based opportunities to supply in the U.S.

market?.

We do from time to time. I'm not considering it as a strategic issue, but we do from time to time have situation. So to give or tech, if I saw correctly, about 10% to 15% of the SK in the United States in some sort of a shortage from all kinds of reasons, not just [indiscernible] all kinds of reasons.

And in those situations, you are always an opportunity for onetime buys and stuff like that..

And would you -- have you seen anything incremental in the last quarter is what I'm trying to get some color on. I mean, given we have seen some large companies having to….

Yes. So nothing that ICS strategic. And we are now building ourselves on trillions of others. We are trying to build ourselves with our own capabilities..

And lastly, on the run rate that we see in the past, it was $225 million, and then it came back the base business side 250, and then we saw some big jumps. And now things are normalizing, and you still maintain it is going to be volatile, but material.

And I also understand that market share of the [indiscernible] are -- it changes, right? It increases every 6, 12 months or maybe calendar year. So would it be fair to say that with the new launches that you spoke about and [indiscernible] continuing, and this is in addition to the first question. So that is the key to grow double digit.

Would that be a fair assessment that on that development base also, you will grow?.

The growth of the United States will be from new products as well as volume from other products as well as better costing all of that will come to that absolutely. But I cannot guide beyond with and without this kind of stuff, I will not be able to do that..

And lastly, on the -- while you spoke about growth across markets, would you say that this kind of launch and product visibility across markets, these kind of margins could be sustainable?.

Yes, I believe so. I believe that that's why we are guiding for the 25, 25, which will be an able even to finance horizon 2. So if you recall, we said that about 50 to 100 basis points on horizon 2, and we are able to cater that within the margin.

And so we are strategically positioned well that we are able to finance in the future and at the same time to provide this margin and ours to the shareholders..

But we are doing better than what we are guiding, right? I mean that's what I'm asking. We'll be able to continue with this kind of performance..

Now we are doing better, and maybe there will be also a period of time that will be not better. But right now, we are doing better..

We will take that as a last question for today. Ladies and gentlemen, I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you, ma'am..

Thank you. Thank you, everyone, for joining us today for the earnings call. For any further queries, please reach out to the Investor Relations team. Thank you. Have a great day..

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..