Ladies and gentlemen, good day and welcome to the Dr. Reddy's Q1 FY '24 Earnings Call. [Operator Instructions]. I now hand the conference over to Ms. Richa Periwal from Investor Relations team. Thank you. And over to you ma'am..

Thank you Darwin. 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 ended June 30, 2023. Earlier during the day we have released our results and the same is 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. The discussion today contains certain non-GAAP financial measures.

For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have our CEO, Mr. Erez Israeli and our CFO, Mr. Parag Agarwal, along with 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'd 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. Parag Agarwal. Over to you, Parag..

Thank you, Richa. Greetings to everyone and a warm welcome to our Q1 FY '24 earnings call. We had a strong start to the year with robust sales and record profitability. I'll start today with an overview of our financials for the quarter.

For the section, all the amounts are translated into USD at a convenience translation rate of INR 82.06, which is the rate as of June 30, 2023. Consolidated revenues for the quarter stood at INR 6,738 crores, that is $821 million and grew by 29% on year-on-year basis and by 7% on a sequential quarter basis.

Adjusted for brand divestment income on a rebate comparator, the underlying growth was higher at 35% on Y-o-Y basis and 12% sequentially. The growth was driven by the generic business, mainly in US MLD markets and Europe.

Excluding the one-off gains from brand divestment, loss of revenue for divested portfolio and NLEM related price reduction, India business registered a high single digit growth. Consolidated gross profit margin for this quarter has been 58.7% an increase of 880 basis points over previous year and 150 basis points over previous quarter.

The improvement in gross margin was primarily driven by favorable product mix, supply productivity savings, better manufacturing leverage, partially offset by brand diversion income during previous period. Gross margins for the global generics and PSPI were at 63.9% and 15% for the quarter, respectively.

The SG&A spent for the quarter is INR 1770 crores, which is USD 216 million, an increase of 14% year-on-year while a decline of 2% quarter-on-quarter. The year-on-year increase is in-line with business growth and is on account of investment in sales and marketing, digitalization and other business initiatives.

The SG&A cost as a percentage to sales was 26.3% and is lower by 340 basis points year-on-year and 230 basis points quarter-on-quarter, due to better operating leverage. The R&D spend for the quarter is INR 498 crores, that is USD 61 million and is at 7.4% of sales.

Our RND efforts are focused towards building a healthy pipeline of new products across our market, including bio-similar development. The EBITDA for the quarter is INR 2137 crores, that is USD 260 million, and the EBITDA margin is 31.7%. This is largely driven by gross margin expansion and productivity initiatives across the value chain.

Our profit before tax for the quarter stood at INR 1846 crores, that is USD 225 million, an increase of 26% year-on-year and 39% over previous quarter. Effective tax rate has been 24% for the quarter. The effective tax rate was higher than the previous year, mainly due to changes in the company's jurisdictional mix of earnings.

We expect our ETR to be in the range of 24% to 25%. Profit after tax for the quarter stood at INR 1403 crores, that is USD 171 million. Reported EPS for the quarter is INR 84.22. Operating working capital increased by INR 710 crores which is just [ph]$ 87 million.

Against that, on March 31, 2023 mainly due to an increase in receivables and inventory, our capital investment stood at 362 crores which is just USD 44 million in this quarter. The free cash was generated before acquisition related payout during this quarter was at INR 674 crores which is USD 82 million.

Consequently, we now have a net surplus cash of INR 4985 crores that is USD 608 million, as on June 30, 2023. Foreign currency cash flow hedges in the form of derivatives for the USD are approximately USD 783 million largely hedged around the range of INR 82.7 to INR 84.4 to the dollar.

RUB 6775 million at the rate of INR 1.2 to the ruble and AUD 3.7 million at the rate of INR 67.9 to AUD maturing in the next twelve months. With this, I now request Erez to take us through the key business highlights..

Thank you Parag and a warm welcome to everyone participating in our earnings call today. As always, we appreciate your interest in our company. We have commenced fiscal 2024 with a robust first quarter performance. Our sales for quarter one grew 29% and EBITDA grew 20%. Writing the strengths of our portfolio and well diversified geographical spread.

Adjusted for settlement income in the current and base period and brand divestment in base period, our sales for quarter one grew 35% and our EBITDA grew 111%.

We improved the drivers in our core business for sustainable growth through productivity improvement, market share gains and new product launches, we're making considerable progress across our strategic priorities. Let me take you through some of the key highlights of the quarter.

One sustained strong revenue growth driven by momentum in the US and Russia markets. Two generate healthy EBITDA at 32% and annualized ROCE at 39%.

High cash generation leading to net cash shortcuts of more than $608 million at the end of the quarter, after paying the consideration towards main portfolio acquisition for completion of commercial integration activities and launch of many pharmacists acquire generic prescription portfolio.

Five received approval for four products in China, including our partner products since April '23, 6th embarked trade generics in India and launched a dedicated trade generic division. Through this initiative, we will be increasing our participation in retail pharmaceutical markets.

Seven entered child nutrition space in India with the launch of Cellar Healthcare Gummies. Eight biologics license application for purpose biochemical [ph]Aritucina candidate DRL_Ri, accepted by US FDA, EMA and MHRA for review. This the key milestone in our global biosimilars journey.

Nine for raising to fast growing OPC wellness space in the US with the re-launch of recently acquired brand of Premama, a portfolio of high quality dietary supplements designed to support the entire [indiscernible].

Ten collaborate with Mark Cuban Cost plus drug Company and then increasing access to essential medication for Wilson disease patients and enter into in-license agreement with Tenshi Kaisen for launch of Lorapidine for private label offices.

Business eleven enter into agreement with Bill and Melinda Gates Foundation to develop injectable contraceptions drug for low and middle income countries in Asia and Sub-Saharan Africa, including India. This initiative will threaten our portfolio in the women's healthcare space.

Twelve successfully conclude the USFDA inspection of the following four facility recently our API site CTO-1 and CTO-3 at Bolaram. Our formulation site Ftox is FTU 2, and our API site, CTO-6 at Srikakulam. We continue to maintain a state of constant vigilance and compliance at our manufacturing sites.

Serfin released our first integrated report which webs together the material aspects of our business and their interplay with our purpose, value, strategy, governance, performance and outlook. The Financial Times of London named us as the ICF Pacific Climate Leader of 2023.

This award is to appreciate companies that have achieved the greatest reduction in their greenhouse gas emissions intensity and made further climate related commitments. Now let me take you through the key business highlights for the quarter. Please note that all references to the numbers in these sections are in respective local currencies.

Our North America generic business recorded sales of $389 million for the quarter with a strong growth of 69% and a 25% increase on sequential basis. The growth was bolstered by Lina Dolemide sales.

New product launches such as Riga Denson injectable Cyclos Rinse capsules, integration of main portfolio and market share expansion in certainty existing products which more than offset price erosion. We launched eight new products during the quarter and expect the launch momentum to continue during FY 24.

Our Euro business recorded sales of EUR 57 million this quarter with year-on-year growth of 13%. While working flat sequentially, the growth is attributable to increase in base business volumes and supported by new product launches. We launched ten new products during the quarter and expect the launch impetus to continue during balance of the year.

Our emerging market business recorded sales of INR 1155 crores with a strong year-over-year growth of 28% and sequential increase of 4%. We launched 27 new products during the quarter across various countries of emerging markets.

Within emerging market segment, the Russia business grew by 77% on year-on-year basis and 7% on sequential basis in constant currency. The growth is driven by pickup in allergy season and further aided by lower base.

Our India business recorded the sales of INR 1140 crores rupees and reported the growth of 14% include excluding revenue from end divestment, loss of revenue from diversified portfolio and an NLEM related price reduction into business grew in a very high single digit.

India remains a priority market and we are progressing well on our innovation model. We have signed two innovative deals in this quarter and expect this to be an important growth driver in the years ahead.

We are creating several growth engines for India business, including ramping up growth of existing portfolio, scaling up recently acquired brands, continuous improvement of field for productivity and foreign into trade generics. Our PCI business recorded sales of $82 million with a year-over-year decline of 11% and sequential decline of 14%.

This has been due to lower volume pickup by customer for some products during the quarter. We expect sales to improve over the next couple of quarters on the deck of increasing volume pickup, launch of new products and collaboration opportunities.

Our R&D efforts are focused on developing value operated products, including several generic injectable biosimilars where there is a patient need. We have five four NDS in the US during Q1 of FY '24 and we are on track to accelerate on this balance in the year of FY 24.

We are improving our operation and processes to increase efficiency and overall productivity. Our strong balance sheet provide financial flexibility to support future growth and we will continue to maintain a disciplined approach to cash management and acquisitions.

I am confident we will continue to grow the growth momentum, strengthen our core business and build a pipeline of products to shape a healthier world. And with this, I would like to open the floor for questions and answers..

Thank you very much. [Operator Instructions]. The first question is from the line of Kunal Damesha from Macquarie. Please go ahead..

Hi, good evening. Thank you for the opportunity and congratulations on the good set of numbers. First, on the US revenue growth. So on a sequential basis, we have seen a significant uptick as well.

Would you be able to give us some color as to which were the primary driver? Was it the acquisition? Was it the Lenalidomide uptake, in order of their quantum, if you can provide, even qualitatively would be very helpful. .

Yes. So this quarter we had several growth engines. So it's not just we grew market share in key products. This was, let's say, more than previous quarters. We saw relatively less price erosion that we normally do. We had the main acquisitions that contributed that and Lena. So it's a combination of all of them.

Even without Lina, it was a very healthy growth in the US..

Sure. And just continuing on that, in terms of price erosion, I think across companies there is now consensus that the price erosion has reduced. But do you see that this reduced price erosion to continue for some time? Or is it more of a transitory phenomena which could kind of….

The model hasn't changed. So in terms of price erosion, it's obviously a function of how much competition you got for your baseline on products that did not yet if you wish erode to their potential. So I believe that in our case we probably will see something similar also the next coming quarter..

Perfect. Thank you. I have more questions and join this session..

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

Hi, thank you for the opportunity continuing the US business. So you mentioned even without Lena, the base business has grown very well for you sequentially. So can you elaborate bit more whether you are seeing lot of supply opportunities emerging in the market due to problems at some of the competitors, et cetera.

And do you believe these opportunities will sustain for next few quarters? That's my first question?.

So it's a combination of timing of RFPs, combination of set of situation that happened to products in which we could supply more, not necessarily supply shortage, but it could be service or other supply disruption situation that happens and also activities that we did with certain customers and as well.

So overall, let's say it's primarily volume based growth based on agreements that we have with customers..

And do you believe this volume based growth opportunity will continue at least in near term?.

I believe that the trends will continue..

Yes. Okay.

My second question is in your RND initiative, so biosimilars you mentioned, can you talk about update in your global portfolio, which is for all the markets where you're focusing?.

So biosimilar is global initiative for us. We are planning to be in all the markets, including the United States with our portfolio. We are working on about eleven biosimilars as we speak that some will be launched before 2030 and some after 2030, starting probably in the beginning of 2027.

At the time, I don't want to discuss specific products, but let's say that it is a very important initiative for us and we believe that it's a place that we want to be a serious player..

Sure.

And my last question is how do you see your EBITDA margins moving up in next few years excluding revlimid if you can provide some color on it?.

So I'm maintaining and for me, we've been in this discussion in the past, I'm not taking this product out or another product because every year we have those products that contribute more to our performance. I'm still maintaining long term average of the 25-25, knowing that right now with Limo Dylamide, we will probably be above it.

But overall this is the area that I'm still maintaining that we feel very comfortable, that will allow us. To fully finance all of our growth aspirations. So what we are moderating now is the level of investment that we want to put naturally. The more we have, the more we can invest into the future, which what we are planning to do.

But let's say in the next coming quarters, as long as we have this limited volume agreement in place, likely that it will be above the threshold..

Okay, thank you. I'll get back in the queue..

Thank you. We have the next question from the line of Balaji Prasad from Barclays. Please go ahead..

Hi, this is Michaela On for Balaji. Thanks for taking our questions. Can you just talk a bit more about what led to the growth seen in Russia and how sustainable this growth is? Thanks..

In Russia we grew part of it. We have most of our businesses in retail and we are also playing in the biosimilars. So in these specific quarters we enjoyed the seasonality of the allergy as part of it as well as the growth of big brands there. I believe that the growth momentum will be in Russia. We are expecting a good year.

In that respect we are also, I think so far hedged well on the ruble and protected it well. So in that respect that the combination of investing in our brands and enjoy the growth momentum that comes from the relevant products that we have, plus a good defense on the global help us to achieve these results. .

There is also impact of a low base. In the growth that we have reported this quarter. And as you know, by its very nature, Russian market is volatile. So there will be fluctuations from one quarter to another. But we are going ahead of the market..

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

Yeah, thanks for the opportunity and congratulations for the great set of numbers. So my first question is on this managed portfolio that has been acquired.

So what is the kind of size that we would have seen this quarter out of that? And also if you can give some clarity about the profitability of this portfolio? I'm asking this question because it looks like excluding the rev limit performance, your base business has seen a sequential improvement.

So from that angle, I was just trying to understand the contribution from the acquired operation in the US and its profitability versus the company's blended base business profitability. .

So indeed our base business did well even without Lina Dulimount. We closed the deals and practically started to sell at the end of April and we are actually launching product after product through this period of time. I believe that the main pickup will be in the next coming months when customers will open their bids and we will be able to bid more.

So overall, let's say that the contribution of main. Will be more significant in the next quarters come than it can in this quarter. .

Okay, so is it kind of still a $100 million annualized high..

Yes. In that range..

Okay, sure. The second question is that regards the linear leader mine. So we have almost kind of approaching who finished the first year of supply. And obviously, as per the prescription trends, we see that okay, we have already kind of achieving 6% kind of volume share now.

So is it fair to believe this is the kind of first year number and we should see a progressive improvement in the volume share going ahead?.

So, you know, we cannot share a specific number on these products. We are in agreements in which volume..

This is there in the public domain in terms of the RX volume. So that is why I'm asking questions..

I appreciate the question, but I cannot share I have the full knowledge of the quantities, obviously, and I cannot share that as per our agreement. But what I can say that these kind of levels of sales of linodolamide likely to continue and fluctuate from a quarter to quarter based on orders and based on preference of customers.

But we believe that it will continue to play to be an importance against products until the end of the agreement, which is likely to be in January 26..

Sure. Seth, my last question is about the PSI business. We have seen sequential correction in the revenue as well as the margins there. And you have also mentioned in an opening remark that there is inventory rationalization trend that is ongoing.

So do you think this is a kind of couple of quarter or more kind of situation? And generally, the APIs and manufacturing supply opportunity kind of business are likely to face this inventory destocking kind of a trend and could have impact on the margins generally in the near term. .

I think during the quarter, we have a certain pickup that is related to timing of picking up the orders primarily. So I believe that it will cost itself actually relatively fast already from next quarter, from Q2. So overall, I'm confident that our API business will grow this year..

Sure, sir. I have a couple more. I'll join this..

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

Thanks for taking my question. My first question is on the India business. I look at the number that we reported in fourth quarter and strip out the brand divestment. Based on that, we've seen a pretty sharp increase on that base in the first quarter.

Did the trade generic? I know we officially announced the launch in July, but was there any contribution at all of the trade generic business in the first quarter? Or if you could give us some color in terms of what's driving the improvement that we are seeing and how much more can this continue to I know you talked about a bunch of initiatives, but how should we look at growth in this business from the high single digit that you point it in your opening remarks?.

Yeah, thank you for that. The traditional did not yet contribute much because we just recently launched.

So most of the growth happened from our branded genetics, our key brands that we are focusing on, these trends likely to continue also progress and actually going to improve the activities I mentioned and we discussed quite a few occasions on our journey for top five.

It's a combination of both the innovation as well as the investment in the portfolio that we have, including the private. So most of the deals that we sign and going to be signed, we have actually quite a few deals that are in discussions is to bring innovation to India.

Actually horizon two that we have discussed in the past is all about to bring innovation to India, mostly in licensing, in some product acquisitions, and some potential partnership with other players. These partnerships and that will likely to have an impact from FY '25, FY '26 onward, FY '24, which I believe we will grow.

Significant will come primarily by the current brand, generics focused brands that we have. Sorry for the long answer..

Yeah, understood. Thank you so much, sir, for that second on in your remarks, you also mentioned approvals in China.

Now, if I look at my row business, excluding Russia CIS, we have pretty much in the range that we've been doing for the last four or five quarters, the 400 crore range?.

When do we see meaningful contribution start from China, or when do we see how does the step up from this level happen in the emerging market business. Yes, all the EM markets are actually growing in double digits. Obviously, Russia being a very big market in that space, when it's growing, 77% overshadow the others.

So all of them will go double digit, not just with Russia as specifically for pickup in China. We are now starting to see the results, or likely that these trends of approvals will continue.

Most of the values will start to see if you call it a leap or more significant growth in FY '25, but we will see already in FY '24 a certain growth, but the level that we have discussed in the past of our aspiration in China, likely that we will start to see for next year. .

Understood.

And my last question in terms of our investments in the business, should we expect our absolute SGNA and INR and D spend to trend up from the current spend that we are seeing for FY 24? I understand this will obviously continue to increase, but is this level of investment, what that we have seen in the quarter enough to sort of sustain the growth that we have envisaged, or should I expect an increase from the current levels?.

We are continuing to invest behind multiple levers, as we have been talking in digitalization, behind our brands, in sales and marketing, I would expect a slightly higher trend in absolute terms, as a percentage to sales.

Of course, it will remain very positive because of our top line growth, we'll see the benefits of operating leverage, but in absolute terms, you will see a marginally upward trend. .

Thank you so much. Thank you. The next question is from the line of Cinderella Carvalho from GM Financial. Please go ahead..

Thank you so much for taking my question. And congratulations on a great set of numbers. Bringing a question back to India, you mentioned about the innovative products. Two products that you have signed for India. You mentioned about mother and child. You spoke about if and the generic division.

So what kind of investment are we envisaging in all these three different categories that we are talking, which is consumer, health, generic, generic business, and getting the Enlightened product.

And in what range should we see this over coming two to three years?.

So we are not going to see more investment than what you see already. And, like paral just a little bit, maybe a slide up. Some of it is what we call balance sheet money, meaning that we will sign a deal or require a product, and it will be a balance sheet move rather than move it. So it's relatively not expensive or not going to require much.

And I'll try to explain why most of the stuff that we are bringing to India is a late stage innovation. The product is already there. The product also proved itself in other markets. In most of the cases, it's got approval already either by the US. FDA or by European authorities.

So the activity that requires are either licensing fee, some local trials, registrations, and we are mostly going to leverage our teams in India for doing that. So if you wish, it's a marginal investment that, give or take, we are already spending the last couple of quarters and maybe marginally up the more deals that we will do.

But I don't anticipate a major use of cash or cost in that element. It's actually pretty straightforward in that respect..

So the returns will be fairly high, is what you're trying to tell with the minimal investments. But in terms of revenue, how should we see these like, if we divide into three segments, how sizable these. Each segment could be for us agent, generic, innovative, enlightened.

So how big these could be from a brand perspective, I understand you have something like INR 150 crore per brand size in your mind over three to four years.

But what it could mean to the entire India business?.

The intent is to bring a significant number of products to the Indian market in the next coming years if everything will be successful. We are talking about tens of agreements like that which we believe will be the main lever to bring us to top five.

So if top five means that we need to double ourselves, give or take in the next coming years, that's expectation that the innovation will bring most of that value come into play and the rest will come from the normal growth of the brands that we will have as well as the trade degenerative.

So the innovation will be the key focus and the main growth drivers in terms of timing as we sign the deal. Then of course we need to allow sometimes time for a clinical trial, registration time and then of course the pickup of the brands as we are introducing it to the healthcare community. So it will be kind of a pickup of a brand.

So every one of these brands will take a few years before it will come to its peak sales. But the beauty about it, these are true innovation. They are not switchable and are bringing a real. A real solution for places that we believe that there is no such a solution or the solution where we need much better..

Okay thank you and just one last question we've seen lot of Dr. Eddie's name in terms of shortages products in US.

Are you seeing some opportunities meaningfully for us over coming few quarters or are you planning to participate in some of them which could be potentially large for us?.

We do from time to time but to be honest I don't enjoy when we are growing on the expense of others. I actually want the supply to be there for the patients so whenever it comes we are taking it but I don't see it as a strategic growth liver.

I'm happy to supply if it helps patients but I actually wish that all the companies will be able to sell normally and not to see it as a little goal but it is coming to us as well from time to time. .

Thank you. We have the next question from the line of Tushar Manudhane from Motila Lospal Financial Services. Please go ahead..

Yeah, thanks for the opportunity, particularly on the trade receivables as I see there has been a good jump of almost INR 400 and INR 450 crores both year-over-year or even quarter over quarter.

Is this more or less linked to North America business and is this more to fill up the channel and so the sales could moderate to some extent in the coming quarters?.

The increase in receivables is broadly in-line with the growth in business and the normal fluctuations that we see depending on the timing of supply and the credit terms there is nothing unusual and it's in-line with the business growth. .

Okay and secondly. On the overall gross margin used to guide for at least in the past before rev limit in the range of 52% to 55% for the base business and since launch of revenue we've seen good at least 250 to 300 bits improvement in the gross margin. So if you could just indicate the gross margin guidance for say '24 so..

Yeah, first of all we can't describe a certain portion of a gross margin of the gross margin to a specific product. As you know we manage the business on a portfolio basis and we are launching new products all the time.

This quarter again we have launched eight new products and in the next two or three quarters in this year we are going to launch more products so we have to look at the gross margin as a composite.

Overall the drivers of gross margin as we know are the price version obviously brings it down but we are seeing softening of solvent prices, we are seeing softening of phrase waste and so on and we're also seeing favorable product mix. So overall I expect our gross margin to range between 56% to 59% in the next few quarters..

Interesting. And just on extending to your launch aspect or other two products, if you would like to call out, which could be interesting launches over next twelve to 15 months in North America. I don't want to call out specific. We're trying to avoid it because after that we have a lot of discussion on these products.

But what we can say is that we believe that we can sustain also the level of activities in North America. Even cost linodulamide because we have quite a few of very high value products that we can bring to the market..

Thank you. We have the next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead..

Good evening and thank you for taking my question. I'm just looking at the sales mix for the quarter. When I look at it, 57% of revenue is coming from the US currently 17% from India. I remember we had some kind of an aspirational goal to narrow this over time, but we seem to have gone the other way.

I know there is a linear denied in there which is probably skewing things but it is just your broad guidelines of a more diversified geographic mix. And I'm a little also confused with the India strategy because we keep divesting things like the Eris life sciences or the JB Pharma.

So how do we get to top five if we keep divesting? And you mentioned innovation to kind of help you double but I'm just wondering what are these opportunities? Shouldn't it be more like a transformative M A where we acquire assets like our workout deal perhaps few years back? Right.

So there are small so just want to understand your thought process on this. .

Sure. Thank you so much for the question. Indeed. Minodule might make the US obviously in proportion more than before. I'm a realtor our commitment to the new market actually being a very important market for us and also reiterates the aspiration to bit of five. Now how should we go to bit of five? It's not because we are going to buy number six.

I wish I could, but first, it's not available. And second, it's too expensive. And I don't think our shareholders want us to do that. The way to do that for us is by launching innovation. So we saw that in India there are two trends that are coming up. One, some of the branded generics will have a headwind it in the future.

Either because of the trader generic, either because of the digital channels, there will be certain level of potential switches also. And when we looked at our portfolio and we saw what brands we believe are long term for us, we decided to focus on them and to divest those that we decided to not to focus on.

At the same time, we have a major effort to bring a lot of innovative solution to. And once this will pick up, this will bring us to the desired level. Even without acquisitions, acquisition, I'm happy to do with a reasonable price, with a reasonable risk, but we are not building on it. We can be top five even without..

Got it helpful. My second question is on the cash pile. About 50 billion of net cash sitting now on the balance sheet.

What are your top priorities in terms of capital allocation at this point of time? What is the rank out of things that you would be using that cash file for?.

So obviously we want to use it for driving business development. M-A-I think in terms of priority, I would say first of all, it has to be a strategic fit. We have a clear strategy for every segment in our business, for every geography. And secondly, it must come at the right price.

So we are not going to chase acquisitions just because we have cash on the balance sheet. Within these boundaries. I would say that acquisitions in India and emerging markets would probably rank higher. Having said that, if there are good opportunities that come up in us, Or Europe also we will grab them. Like the main acquisition that we did recently.

I think it's a great fit. So, yes, we are taking acquisitions. I believe that instead of seeing a large acquisition, we will probably see a series of smaller acquisitions. So a string of false strategy, but it depends on what kind of opportunities are available at the right price..

Thank you. The next question is from the line of Sayon Mukherjee from Nomura. Please. Go ahead..

Yeah, hi. Thanks. So if you can talk about what's the revenue base in China currently and you mentioned about the significant growth from FY '25 onwards. So I understand you're getting, like, 10 to 15 approvals per year now.

So, from a three year perspective, with 30 40 products added to your basket in China, how should we think about revenue in China in three years time? And how does per product revenue potential you see in China versus, let's say, in US? So I'm wondering, can it be like 200, $300 million more in revenues in China? If you can give some color on.

How should we think about the growth trajectory in that market?.

So I see any number of. Around 2X in the next three years. This is the time, the baseline that we are talking but I'm talking about in market sales, not necessarily. The way we report is around $180,000,000 a year..

Okay, so it means like additional 180,000,000 is what you would book?.

Let's say three years down the line is a fair number to look at in China. It's in this range could be even more.

Understood. Okay. My second question would be around RND.

I think you mentioned run rate of around 500 crores a quarter, right? Is it possible for you to sort of indicate how much of this is going into, say biosimilar development at this point? And secondly, at the time of analyst day you talked about new Horizon initiative, horizon two initiatives having an impact of 1500 basis point on your EBITDA margin.

That's the kind of investment you are doing.

So what's the number at this point in time? If you have anything to share on that?.

Yeah, so Sayon, on the second question right now we are in this range, 5200 basis points on an annual basis is what we are investing behind Horizon Two. And of course, going forward, depending on how many of these succeed, it might start inching up. But we'll obviously discuss that subsequently in the subsequent call.

Your first question was regarding Buy mind. Right now our R&D behind biosimilars would be approximately 20% of the total and we expect it to progressively go up because we are investing behind biosimilars. Some of the products that you've discussed in the past tosi and. Facility map about accept and so on. So we expect it to progressively go up.

And this 5200 basis point that you mentioned does not include or does it include the Biosimilar investment? Do you consider it as part of horizon two or this is like separate no. So this 5200 basis points does not include the INR and D investment in Biosimilar. .

Thank you. The next question is from the line of Binopati Parampil from Ilara Capital. Please go ahead. .

Hi, good evening and congrats on a great set of numbers. Just a couple of questions. One on Rega Denison. Could you please help us understand the competitive landscape there? I know a couple of you guys have launched, but there are more approvals.

How many competitors are there in the market right now?.

So for Regular Renaissance, it's a multiplayer product, right? We've launched it in April and we've seen good progression in terms of our market share. We are happy with the way things are progressing for us..

Okay, and any update on your products which you have outlicensed, that is Peg, Phil Grassim and the novel product E Seven.

Any update regarding timelines?.

So on the first one, it was already launched. Whatever is, the considerations will come. Of course, with the progression of share of this product and up for equal seven, likely that in the next quarter or the third quarter, depends. It will be December, January. We should expect to see whether it will get approval or not. .

Okay.

And any milestones or any royalties included in the current quarter from the first product?.

No. Sorry. It's a low single digit number in absolute terms..

Okay. It's not material. Not material, okay.

And finally, on generic map, now that Fe has accepted your filing, what sort of timeline can we look forward to if everything goes fine, would you be looking forward to launching it in twelve months, 18 months or something like that?.

Yes, this is the timeline. Somewhere between twelve months to 18 months. Depends, of course, on the approval by the US FDA. Once it is getting approved, we will launch it. Now, it depends if response letter will come or anything like this, but likely in that time. .

Thank you. We have the next question from the line of Ankush Mahajan from Access securities. Please go ahead..

Thank you, sir, for providing me the opportunity and congrats for good set of numbers. Sir, this is extension of the question that our base business is improving. And from the number that the base business in the US market that has improved a lot, can we say, sir, a high single digit growth K 1 Q in the base business.

And I would like to really appreciate if you tell us that. What are the factors behind that the base business is improving? What is happening in the US market, sir, at this time? In the genderic..

So I mentioned part of it is timing of RFPs agreement with customers, shortage of some products and relatively lower than normal price erosion on the base. So it's a combination of all of it..

Can can we expect this trend will continue?.

It should, yes. So this quarter, sir, there's a high single digit growth Q-on-Q on base business. I would just say that it is healthy growth. Even after excluding lina as well as main, it is healthy growth. .

Thank you very much. Thank you. The next question is from the line of Kunal Damishha from Macquarie. Please go ahead. Hi, thank you for the opportunity again. .

So, just coming back to the licensing opportunities for the India market or the innovation that we have talked about, how does those opportunity fit into our 25 25% framework for EBITDA margin and Roc? Are they accretive, neutral or would you say diluted?.

That's absolutely part of it. So we should reach those margins with the investment. It means it's included. That's why right now we have debt and we have even higher margin than debt. And I use the 25 always as a kind of benchmark of where is our comfort zone. It doesn't mean that we necessarily get it quarter.

Likely that in the next couple of quarters it will be higher than that, including that investment. And likely that the 25 anyway needs to include all of that as well, so it will not be below sure. And second one, the trade gen. Yeah. Just to clarify, 25% EBITDA, obviously is for the entire portfolio across. All Geographies.

So there are business segments which will be higher and there are business segments that will be lower than that. 25% is our overall aspiration. And that modeling model includes certain part of portfolio which will be enlightened. .

Sure. Perfect.

And secondly, on the trade genetic business, can you provide some details as to we have launched this division how many people have we kind of hired for this? How many products that we are expected to launch, let's say over the next two to three years and which are the geographies that we are targeting or any particular therapy areas that we are targeting for this business?.

So we are not participating in about 50% of the Indian markets. So when you look at our portfolio today, there are certain therapies and segments that we are not participating, which is about half of the market. So we are targeting, obviously, a place in which we believe there is a meaningful play in those areas that we are not participating.

We will launch it all over India. So geographically wise, it will be in all the states of india. In terms of number of products that will be I don't have the exact number, but it's few tens of products that will be launched in that direction. As for the pickup and stuff. We probably need to see the response of the customers to that at the moment.

We can offer we probably need to wait a quarter. .

Thank you. That was our last question, ladies and gentlemen, I now hand the conference over to Ms. Richa Periwal for closing comments. .

Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with the investor relations team. Thank you so much. Thank you on behalf of Dr. Reddy's Laboratories Limited. That concludes this conference. Thank you for joining us. You may now disconnect your lines..