Dr Reddy's Laboratories Ltd (RDY) 2023 Q1 法說會逐字稿

Ladies and gentlemen, good day, and welcome to Dr. Reddy's Q1 FY '23 Earnings Conference Call. (Operator Instructions). 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.

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, 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 will be made available on our website too. 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 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 outlets without the company's expressed written consent.

Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now I hand over the call to Mr. Parag Agarwal. Over to you, sir.

Thank you, Amit, and greetings to everyone. I will take you through our financial performance for the quarter. For this section, all the amounts are translated into U.S. dollars at a convenient translation rate of INR 79.02 which is the rate as of June 30, 2022.

In this quarter, we have a strong growth in our profit, supported by the settlement syndrome and brand divestment while we were impacted by additional competition in key products in U.S., cost inflationary pressure, normalization of stock holding in Russia and slowdown in the pharma market growth in India. Despite these challenges and adjusting for the one-offs, we have done reasonably well and are confident of further improving our performance from here on.

Consolidated revenue for the quarter stood at INR 5,215 crores, that is USD 660 million 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 '22 included sales from COVID products and Q4 FY '22 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 the 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 year and 300 basis points sequentially.

Gross margin for the global generics and PSAI businesses 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 movements in the Forex rate during the quarter, which we believe to normalize going forward. Secondly, the gross margins were also impacted due to increase in 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 chronic brand Cidmus in India, which is currently procured externally, and has a lower gross margin. We plan to transition this to in-house manufacturing after the expiry of patent, which should lead to an improvement in margin.

With the above measures planned to be undertaking, normalization of the one-off and launch of a few meaningful products, we believe that next quarter onwards, our gross margins will improve and will be within the normal range. The SG&A expense for the quarter is between INR 1,549 crores that is USD 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 spend for the quarter is INR 433 crores, that is USD 55 million and is at 8.3% 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 for Horizon 2 businesses.

The net finance income for the quarter is INR 235 crores, that is USD 30 million, supported by a gain on account of strengthening of ruble rate during the quarter. While we had Forex-related benefit in finance income, which has been partially offset due to Forex impact and costs impacting our gross margin and SG&A.

The EBITDA for the quarter is INR 1,779 crores, that is USD 225 million, and the EBITDA margin is 32.1%. Adjusted for the one-off of settlement income, brand divestments and those related to gross margin, we are within our normal range. Our profit before tax stood at INR 1,466 crores, that is USD 185 million which is a growth of 97% year-on-year and a growth of 490% quarter-on-quarter.

Effective taxes for the quarter has been at 19.0% primarily on account of recognition of previously unrecognized deferred tax assets on operating tax losses pertaining to our 6 entities. We expect our normal ETR to be in the range of 24% to 26%.

Profit after tax for the quarter stood at INR 1,188 crores that is USD 150 million. Reported EPS for the quarter is INR 71.40.

Operating working capital increased by INR 790 crores, which is USD 100 million, again that on March 31, 2022. The increase was primarily driven by an increase in receivables in North America, which should normalize during next quarter.

Our capital investment during the quarter stood at INR 331 crores, which is USD 42 million. The free cash flow during this quarter was a net outflow of INR 232 crores, which is USD 29 million after payment of INR 509 crores for the acquisition of Cidmus brand in India and the injectable portfolio from Eton Pharma in U.S.

Consequently, we now have a net cash surplus of INR 1,275 crores, that is USD 161 million as of June 30, 2022.

Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar are approximately USD 366 million, largely hedged around the range of INR 77.6 to INR 80.4 to the dollar, RUR 8,155 million at the rate of INR 0.9204 to the ruble. AUD 3.2 million at the rate of INR 55.8 to AUD and R 95 million at the rate of INR 4.82 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 highest ever profit as an overall business level.

Let me share with you some of the key highlights of the current quarter. One, settlement of impending litigation for Suboxone or $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 renew stream of additional capacities and capability to grow our injectable business.

Three, acquisition of cardiovascular brand Cidmus in India and the injectable portfolio from Eton Pharma in the United States. The world of Abiraterone tender in China, which will be our second product towards GPO model.

We are progressing well on product pipeline across more molecule generics biosimilar and inflation product efficiencies. There have been good momentum in the initiative retaining to Horizon 2 business and sustainability goals laid out during the 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 this section are in respective local currencies.

Our North America Generics business recorded sales of $230 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 a couple of our key products, gSuboxone and Copaxone in the quarter. The Q-on-Q decline was also driven by high base for first-to-file launch, that's a procedure with normalized volumes and pricing adjustments due to the impending entry of competition on day 181.

Bearing these products, the price erosion for the base business has been within the normal trends in over the last few quarters. In this quarter, we launched 7 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 3 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 Lenalidomide ANDA product in the United States during September 2022. The specific volume limited amount of Generic Lenalidomide that we are permitted to sell between September 2022 and January 31, 2026, when we are licensed to sell an unlimited quantities of Generic Lenalidomide are confidential.

Our Europe business recorded sales of EUR 50 million this quarter with a year-on-year growth of 12%. However, sequential quarter decline of 4%. During the quarter, we launched 9 products across various countries within Europe. We expect to continue to pay growth momentum in the rest of FY '23.

Our emerging markets business recorded sales of INR 903 crores with a 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 '22 and brand divestment income in Q4 FY '22.

Further, the increase in stockholding 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 market segment, the Russia business declined by 14% on a year-on-year basis and 16% 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 an annual basis, we will be able to grow this business in line with the past trends adjusted for the one-offs of COVID sales and brand divestment income in previous year.

Our India business recorded sales of INR 1,334 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 products sales during Q1 FY'22, we have grown in a healthy double digits.

During the quarter, we launched 5 new products in the Indian market. As per the Q1 report of June 2022, our ranking value in terms -- our rent in value terms is at number 10. We continue to reshape our portfolio in India business with a focus of growing big brands acquisition and partnerships for focused therapy areas while divesting non-core brands.

Our PSAI 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'22, the business has grown over the last year. We expect to see improvement in the sales during the balance of the year. We believe that there are several opportunities for growing our core business and leading new avenue costs. 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.

(Operator Instructions) First question is from the line of Saion Mukherjee from Nomura.

Can you just quantify the impact of ForEx across line items. There is income in finance income, but you also mentioned there are certain impacts 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 on the gross margin, which would be roughly around 150 basis points in that range. And in the finance income, there is the upside that has been recorded, and that's because of the accounting standards, the subscribe method. 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 or in Russia or the hedges that you had at the end of fourth quarter, you're 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, let me answer. The first question is on the constant currency sales impact. During the quarter, our Russian business declined by 14% year-on-year in constant currency. And as I -- as we had signaled in the last quarter, this includes the normalization of the inventory stocking 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 -- it used to be at a rate of around INR 0.9 to INR 1, and it is now ranging anywhere between INR 1.3 to INR 1.45. We believe this rate may not be sustainable in the long run. And currently, the cost of hedging is extremely high. It's prohibitively 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.

And Saion, just from me, if you take this normalization of inventory will continue to go in Russia.

Okay. Sir, 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 our science, which is the brand divestments we take out and also the impact of COVID in the base, then we have grown at healthy double digits. If you look at the impact of acquisition, if you take that out, then our growth would be in single digits.

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

Question is on the U.S. market. Just when you talk about price erosion, so you talked about a couple of products, is there any element of share stop adjustment on resilient also in this quarter in the U.S. sales?

Again, can you repeat?

So when you call out -- so U.S. sales are down 13% quarter-on-quarter. One is the price erosion or volume patterns Suboxone and Vascepa, which you called out. But on Rituxan, just trying to understand, is there an element of share stop adjustment, they are like, for example, which is $5 billion, $10 billion, which is just artificial depressing the reported number. And when we start the next quarter, that number -- we start at a higher base. That's what I want to clarify.

So like I mentioned in the -- in my part, the -- basically, we see the normal adjustment that is related to day 181, the situation, and that's what impacted us in this quarter.

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

When you say SSA, what does that mean?

Sale stock adjustment operation.

So you're not saying that we happen to record higher since the Rituxan in March quarter, and we were surprised with the price erosion. So there is no element. 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 questioning. So that's the point I would like to make.

Okay. Second is in the Russian market. Now we've seen a 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?

The Russian market, Anubhav, we are seeing our all operations are normal -- supply normally the flow of money within Russia and from Russia into India is also normal. There are certain companies -- have shifted their spend from above the line, which is the mass media or TV to below the line, which is state discounting and so on. So there are some shifts in the way spends 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, 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 company to take a higher share in the Russian market? And have you seen any visible signs of that?

So in terms of visibility of 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 pharmaceutical companies to the best of our knowledge and our visibility, are working in Russia, are operating in Russia.

Lastly, that 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 business-as-usual is the right way to give you the best transparency of what we see on the go.

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

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 broader portfolio, which mainly consists of oral solid? 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 factor? So that's my first question.

So we have on the injectable business in terms of the erosion is similar. So if the number of competitors are outcoming and phasing a handful of customers, the price erosion is the same and also the pattern of the procurement is the same. So we don't see less a different behavior. The only -- I think big difference in terms of injectables in which you can work directly with the hospitals as well as to work with the wholesalers.

And of course, this is around new, more flexibility as it's related to share and market growth. More and more in our case, we will see a more injectable coming naturally as this is where the partner group 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 complex generic products, maybe 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 we indicated during our Investor Day. Some are in our pipeline that we did not disclose. In general, like I said before, if the multi-vendors of our COVID product, we will see similar phenomena on Horizon and also for the injectables as well. I don't think that there will be a significant difference in the behavior of 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, et cetera? 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 who have inventory attach as well as shipping costs. Naturally, as the -- normally, there is some time that it takes while the oil and some other commodities go down and then, of course, accordingly, normally in a certain period of time from weeks to months, we started to see the impact also on our results. And of course, the real impact we can capture only we sell these products. So likely that any change that will happen to this market, we will see only now cash 6 months from now or so.

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

Question is on gross margins. So I heard Mr. Parag saying about 150 bps on the ruble, largely MEGA ruble. But correct me, if I'm wrong, that rupee, dollar also had a substantial movement. And you also said that there was a high base last quarter on the status. So that would -- that has also come down a bit. So are these not also factors which led to some 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 nonrecurring, then our gross margins are in the normal range. If you look at our last several quarters, our gross margin 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 not recurring in nature. And if you adjust these as well, in aggregate, our base gross margin is in a normal range. So that's the headline that I want to -- 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 Forex from inventory, from price erosion, et cetera. We will always be in the range of somewhere between the numbers that I have just mentioned, and this will continue also in the future.

So we can reiterate that this is the margins that we feel comfortable on the gross margin, and we reiterate also what we discussed in Investor Day about our commitment 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 REVLIMID at Mumbai is the R&D day you had. So we have talked about 25% EBITDA margin. And I understand this is X-REVLIMID, right? So are we on track for fiscal '23, '24 in that range, I mean, given that we had a blip in Q1?

So we are consistent of what we discussed in Mumbai. It was only a few weeks ago. The -- what we said, I just want to make sure that it's the same, it's not necessarily a number that we will achieve every quarter in the next many, many years. It will fluctuate. What we are saying is 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 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 with 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 in aggregate for our business.

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

Correct.

Sorry, sir?

Yes, yes.

Yes, that's right.

Correct.

Our next question is from the line of Neha Manpuria from Bank of America.

There's on the gross margin. If I look at -- if I took out the brand divestments in the quarter, we are closer to the 57%, 57.5% margin. From your comments, it seems like the FX will normalize, but there was also an expectation that commodity prices wouldn't come off. 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 a normalized range that we're talking about?

Yes. So Neha, there will be 2, 3 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, we have brands like Cidmus, where we are -- we are sourcing them externally, and we are working towards internal sourcing. And Cidmus is one example I've 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 setting game, which is part of a 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, Sanjay presented our productivity status for each of the 3 businesses, which is Our Generics, API and Diovan. And where we were a few years back, where we are now and the further headroom that we are in productivity. So that's going to be the second significant lever that gives us the confidence that we will maintain our gross margins in the normal range.

And the other is that the TMA will knock EM, India and Russia, because of the normalization that you say, we are going to have more visibility to growth as we discuss 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's been moderation. So are you seeing some amount of customer destocking or customer inventory being high, which is limiting our ability to scale up that business? And also on the PSAI business, are we able to pass on the cost pressures that we are seeing in the PSAI business to our customers because margins there seem to have deteriorated, too?

So first, after a few quarters in which we saw the decline of the API, which is the one component of the PSAI, 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 is that is growing for us is the activities that we are capturing under PSAI. We call it API plus in which we are selling doses 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 a very healthy growth.

And the third part, which is also growing, although it's not yet contribute significantly, this the CDMO activity on the small molecules. The part that disappeared this quarter from the number this COVID, which was there last time, and this is why it looks like it decline. But overall, if you normalize it, it 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-based type of a business, and it very much depends on that. So the margins will go up.

Next question is from the line of Balaji Prasad from Barclays.

This is Nakeva 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?

So like I mentioned, we are going to have volume limited launch during September 2022. And we will have that kind of permission to do that between September '22 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 during the discussion of the Investor Day. We are confident that we will continue to grow in the United States on the CAGR basis, with what we call the time to time in which we will have blips ups and blips down as it's related to the nature of the product when we would have them. So this quarter is a bit down. Next what I believe will be up. Overall, it's in the direction that we have discussed in the past.

Next question is from the line of Sameer Baisiwala from Morgan Stanley.

I 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. So to clarify, our reported EBITDA margin from maybe 34%. If you take out the impact of Suboxone settlement and the brand divestment, then it's around 20%. And then I spelled out a few nonrecurring impact -- adverse impact for happen the COVID sales in the base and in 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 structures in this range. So that's what I mean by the normal range.

Okay. Yes. That's very clear. And the second question is for the sale of brand, what you have recorded INR 230 crores through revenue line items. What's the cost against that? And I guess I'm just trying to say that what's the EBITDA impact of this number?

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

The next question is from the line of Surya Patra from Philip Capital.

Yes. The first question is on the...

Mr. Patra, your voice is not very clear. I request you to use the handset.

Okay. Is it fine, sir?

Yes.

So the first question was on the REVLIMID. Sir, you mentioned about the belightly 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 reserve is that condition on the settlement? Because even the SVAAS launch is also under low single -- or mid-single digit kind of volume condition only they would have launched. But the precision trend indicates that they are having double-digit kind of percentage volume currently? So that is why just trying to understand how resid is the limited volume conditions for the for the settlement players?

It is rated in a case that we can sell exactly the amount stated in agreement and the volumes and the market share, that potentially be confidential, like I mentioned, so I cannot discuss that. And actually, 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 resid 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, sir.

No, I understand the question. Unfortunately, I cannot share the details of that all to you.

Sir, second question is on the therapeutic revenue mix, what we have said in the 20-F 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-Infectives as a segment. So there was a kind of a 74% kind of jump in the segment whereas the other segment remain either single digit or lucid 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 market like that?

I do not see a concern.

Okay. So that's not a concern?

I do not see a concern.

Sure. Just last question, sir. In fact, the origin licensing arrangement to what you had with all layman of U.S. So whether that $8 million upfront, they said 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 4 years.

But that is -- okay. Even the upfront amount will also be amortized over the period?

That's right.

The next question is from the line of Tarang Agrawal from Old Bridge Capital.

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 you've also bought small injectables, 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 a decent amount of sales force, which can then be devoted into some other divisions and the purposes behind buying the small injectable space that you have?

Yes. So thank you for the question. The divestment in India, we have a clear strategy in which we segment want to focus on and which segments we don't and which brands we want to focus on and which brands we don't. So what we want 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 are going to see in India in which we will sell brands that are not in focus. And we will actually even buy them like we did this quarter, we treat most and then about these deals. So you're going to see both. And this will allow us to establish ourselves when we also add both the Horizon 1 and Horizon 2 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 our injectables. In order to get better portfolio for the United States and for the customer at the United States. 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 why the way what we did at the time with Suboxone. That's what we did with buprenorphine. 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 developed ourselves as well as licensing and products that we acquired.

Okay. And just a follow-up on the India piece, sir. Does it reach some kind of bandwidth to focus on some other 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 go. And naturally, quarter-on-quarter, we may need to adjust for those sales that we'll be missing. And we will have to be covalence of that. But on the year basis, we will grow faster actually by focusing on the area that we believe that we have a better competitive advantage.

Okay. And the loss in EBITDA or gross profit by virtue of divesting these funds?

We are not losing, we're actually gaining because if you have the EBITDA that these products would have made versus the tax that you got for it, it's a better deal for the company.

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

Just one question. Again, on the bandwidth piece, the volume percentage that is allowed for us for revenue update, is it going to be calculated on annual basis or calender-year basis?

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

Can you repeat?

So in terms of volume percentage allowed for us for revenue to-date, is it calculated on annual basis or internal basis?

All these details are confidential at this rate.

The next question is from the line of Bino Pathiparampil from Incred Capital.

First, just a clarification. So this INR 230 crores of brand sales that you generated, that is part of this INR 1,300 crores of India revenue that you have reported, right, correct?

Yes, that's right.

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 said 2 products?

Yes. In these 2 products, Apotex launched competition for both during Q1.

Okay. Do you mind naming them?

I said Apotex, the company.

Yes, yes. Do you mind naming the products?

I said Suboxone and Abraxane.

The next question is from the line of Darshil Jhaveri from Crown Capital.

Sir, I just have one question, if I may. Sir, 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 would be very helpful, sir.

Yes. This is -- I like to -- I like to use the word consistent. So it's very much consistent, one with the strategy and our investment and consistent also with the performance. With the understanding that we are facing sometimes the 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 ROC targets that we discussed in the past, we are all -- we are still there and very consistent with what we are discussing at us.

So sir, just kind of wanted to clarify things. So there are 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 our normal otherwise look in FY '24 or something, sir?

Again, we are not giving guidance, but I'm repeating what I said before. We said that our -- 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 25%, 25% on EBITDA and ROC. This is still there. This is still valid. We cannot guide third quarter or first specific year. This can be fluctuated, 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 definitely we believe that it will even allow us to invest well into the future. So we can be consistent for many years.

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

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

So size 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 has talked about the recent call that 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 endeavor of you recognizing in this quarter, I understand the case was won sometime back. So what triggers the recognition particularly for this quarter?

No. The litigation that we won in the past was on the IP case. If you recall, we were in injunction 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, but we were denying from coming to the market.

Yes. So this is some coming quarters back when we won the case.

Not the case, I'm repeating, there are 2 separate issues. One is to win the IP case. It means that the court decide that we are in conflicting situation. And the other is to win the case that we believe that we should get money back because we were denied 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.

The next question is from the line of Madhav Marda from FIS International.

I just had 1 quick question. So the India brands, which we have sold. Like what is the easy sales or easy EBITDA at which we have sold it to the INR 230 crores that you recognized?

So it was answered before.

It's a multiple. So there are different brands. They have been sold to different companies at different multiples, but the average multiple range is between 3.5% to 4%. Australian just to clarify. I'm giving you the sales multiple...

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 disconnect your lines. Thank you.