Dr Reddy's Laboratories Ltd (RDY) 2025 Q1 法說會逐字稿

Ladies and gentlemen, good day, and welcome to Q1 FY25 earnings conference call of Dr. Reddy's Laboratories Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Richa Periwal. Thank you, and over to you.

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 quarter one FY25 earnings conference call. We have with us the leadership team of Dr. Reddy's comprising Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; Mr. M. V. Narasimham, our Deputy CFO; M. V. Ramana, our CEO for Branded Markets and the entire Investor Relations team.

Earlier during the date, we have released our results and the same is also posted on our website. We will begin the call with opening remarks from the management, following which we'll have the forum open for a Q&A session. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlet without the company's expressed written consent. This call is being recorded and the playback and transcript 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. 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 Parag.

Thank you, Richa. And greetings to everyone. Thank you for joining the call today. I hope you have received a copy of our earnings release document and press presentation uploaded on our website. It's my pleasure to present results for the first quarter of 2025. We recorded a steady performance during quarter one FY25 with a double-digit revenue growth and stable EBITDA margins and return on capital employed. For this section, all the amounts have been translated into US dollars at a convenience translation rate of INR83.33 which is the rate as of June 30, 2024.

Consolidated revenues for the quarter stood at INR7,673 crores, which is USD921 million and grew by 14% on year-on-year basis and 8% on a sequential basis. The growth is mostly driven by the generics business in the US and recent in-licensing of Sanofi’s vaccine portfolio in India.

Consolidated gross profit margin stood at 60.4% for the quarter, an increase of 170 basis points over the same quarter in the previous year and 183 basis points sequentially. The year-on-year increase is on account of favorable product mix and overhead leverage, partially offset by price erosion and generics markets.

Gross margins of Global Generics and PSAI were at 64.7% and 23.1% respectively. The SG&A expense for the quarter is INR2,269 crores which is USD272 million, an increase of 28% year-on-year and 11% quarter-on-quarter. The year-on-year increase is primarily on account of continued investments in new business initiatives, increase in freight rates, annual merit increases and building capabilities to enhance operational efficiency.

The SG&A costs as a percentage of sales were 29.6% and is higher by 230 basis points year-on-year and 57 basis points quarter-on-quarter. We expect our SG&A to be in the range of 27.5% to 28% for the full fiscal year. Our in-house R&D efforts are further supplemented with collaborations to create a robust product pipeline for small molecules, novel oncology assets as well as biosimilars to drive future growth.

The R&D spend for the quarter is INR619 crores, which is USD74 million, an increase of 24% year-on-year and a decrease of 10% quarter on quarter. The R&D percentage, the R&D spend is at 8.1% of sales and is higher by [68 basis points] year-on-year and lower by 164 basis points quarter on quarter. Over all R&D continues to be a cornerstone of our growth strategy, and we expect the investment to be in the range of 8.5% to 9% for the full fiscal.

The other operating income for the quarter is INR47 crores lower versus last year due to a one-time settlement income in the base period. The EBITDA for the quarter is INR2,160 crores, that is USD259 million, a growth of 15% quarter on quarter and 1% on a year-on-year basis. The EBITDA margin stood at 28.2% and is higher by 172 basis points quarter on quarter and lower by 357 basis points year-on-year.

The net finance income for the quarter is INR84 crores as compared to INR78 crores for the same quarter last year. Profit before tax for the quarter stood at INR1,882 crores that is USD226 million. The PBT stood at 24.5% of sales. Effective tax rate for the quarter is at 26%. We expect our normal ETR to be in the range of 24% to 25% for the fiscal [year].

Profit after tax for the quarter stood at INR 1,392 crores, which is USD167 million. The PAT percentage stood at 18.1% of sales. Reported EPS for the quarter is INR83.5 operating working capital as on June 30, 2024 was INR11,555 crores, which is [USD1,387 million], an increase of INR262 crores, which is USD31 million over March 31, 2024.

Our capital investment in this quarter stood at INR491 crores, which is USD59 million. The free cash flow generated during this quarter was INR227 crores, which is USD27 million. Consequently, we now have a net surplus cash of INR6,731 crores, that is USD808 million as of June 30, 2024.

Foreign currency, cash flow hedges in the form of derivatives are as follows. USD858 million has around rate of INR83.7 and INR84.1 to the dollar maturing over the next 12 months [the Nicotinell] available which allows participations anyways, these strengthen. The ruble [6,175 million] with minimum production rate of INR0.899 to the ruble maturing in the next six months. AUD5.5 million at the rate of [INR66.12] to Australian dollar maturing in the next nine months and GBP458 million at a rate of INR1.267 against dollar.

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

Thank you, Parag. Good morning and good evening to everyone. Continuing the momentum of the previous fiscal, we have commenced FY25 on a positive note with yet another quarter of highest ever revenues stable margins. Our approach to growth continues to include both seeding new businesses and strengthening of prices within existing spaces in line with our stated strategy. Let me take you through some of the key highlights for the quarter. One double digit growth in revenues in Q1 at 14%. Reported EBITDA margin stood at 28% and annualized ROCE stood at 33%. Net cash surplus was $808 million.

This quarter witnessed a significant milestone in building global consumer health care business with the acquisition of Nicotinell and the second largest brands as well as related market-leading brands in the Nicotine Replacement Therapy category in markets outside of the US.

The transaction is expected to close in early Q4 of the calendar year 2024 in operations will transition to us in a phased approach. You may remember that's another step taken towards building a robust consumer healthcare business in India was the nutraceuticals joint venture with the global FXCG joint Nestlé. The JV operation is expected to go live soon.

Strategic collaborations are an important part of our growth story. We have recently signed follow-on deals. We license the Takeda’s novel gastrointestinal the intestine and drug, Vonoprazan for commercialization in India. We partnered with Novartis Pharma to this to the [tools level] a leading anti-diabetic brands: Galvus and Galvus Met in the Russian retail market receive exclusive rights from Ingenus Pharmaceuticals to commercialize a Cyclophosphamide injection in the US collaborated with Alvotech for commercialization of denosumab biosimilar candidates in the US on an exclusive basis as well as in Europe and the UK.

Nerivio the drug-free migraine management device is now available in five countries namely India, Germany, Spain, UK and South Africa.

Our CDMO always in pharmaceutical services inaugurated the 70,000 square foot state of the art CDMO biologics facility in Genome Valley, Hyderabad, India. On the regulatory front, in May, the USFDA completed a routine GMP inspection of two of our formulation manufacturing facility in Duvvada, Visakh in issued a Form 483 with 2 observations. In June the USFDA, completed the GMP inspection of our API manufacturing facility in Srikakulam, [Andhra Pradesh] issue, a From 483 with 4 observations. We will address and resolve the issues within the stipulated diamonds.

We continue to be recognized for a focused effort in ESG. We are the only Indian company to be featured in the 2024 list of global 500 most sustainable companies by Time Magazine and Statista. For the second consecutive year, we were named Asia-Pacific Climate Leader in 2024, by Financial Times, score is the highest among Indian pharma deals. We won the Masters of Risk, the award for Healthcare and Pharma at the India Risk Management Awards. In total, these efforts towards sustainability, we endeavor to [contribute] to the well-being of our patients, our people and our planet.

Now let me take you through the key business highlights for the quarter. Please note that all references to the numbers in this section are in respective local currencies. Our North America generic business recorded revenues of $463 million for the quarter, with a year-over-year growth of 19% and sequential growth of 18%. The increase was largely volume led coupled with higher market share in certain products, partially offset by pricing pressure in some key products. We launched three new products during the quarter, and we expect to launch momentum to continue in the balance of the year.

Our European generic business recorded revenues of $59 million for this quarter with a year-over-year growth of 4% and a sequential growth of 1%. The increase in base business volume and contribution from new product launches during the quarter helped offset price erosion. During the quarter, we launched a total of 12 products across markets. Our innovative market generic business recorded revenues of a INR1,188 crores in Q1, of a year-over-year growth of 3% and a sequential decline of 2%. On a year-on-year basis, market share expansion and revenue from new products more than offset the unfavorable forex. The constant currency emerging market grew at 9.8% on over the business.

We launched 17 new products during the quarter across various countries of emerging markets within this segment, the Russia business grew by 12% year-on-year basis and 10% sequentially in constant currency. India business recorded revenue of INR1,325 crores in Q1 at double digits year-over-year growth of 15% Q1 and in sequential growth of 18%. The growth was primarily on account of additional revenues from the recently in-licensed vaccine portfolio from Sanofi and new launches as per IQVIA, our IPM rank is 10.

We have launched certain brands this quarter in addition to integrating Sanofi's vaccine portfolio. Our PSAI business recorded revenue of $92 million in Q1 of FY25, a year-on-year growth of 12% and sequential decline of 7%. The year-over-year growth was primarily on account of improvement in volumes as well as new product launches. We filed 11 Drug Master Files this quarter.

Our R&D investment this quarter stood at INR619 crores, up 24% on a year-over-year basis, driven by our biosimilar products pipeline. Development efforts across generics as well as novel oncology asset in origin. Further, we will continue to complement our in house efforts with partnership and collaboration to develop innovative solutions.

We have done 22 global generic filings, including [1 ANDA] in the US during Q1 of FY25. We continue to focus our core business of generics, biosimilars in APIs were invest in gross variable of the future in three areas [Consumer Healthcare's] access to novel molecules and digital therapeutics. We are confident that this strategic growth initiative, coupled with our disciplined financial management investments in our people and driving operational efficiency, will enable us to deliver sustainable growth in coming years.

As you may all be aware that Parag Agarwal will be retiring effectively on August 31, 2024 and will be like to devote his time for making meaningful difference to the lives of voice this anymore, I want to thank Parag for his four years of service to Dr. Reddy's as CFO and for the impact he has had on the company as well as our stakeholders. Parag is living and strategic vision for the company, which is a place to activate this strong position for future growth.

I am pleased to announce that M V Narasimham also popular and known as MVN, which currently serving as Deputy CFO, will take over as CFO from August 1, 2024. MVN has been associated with Dr. Reddy's since fiscal 2000 is already a member of the management council any season, strategic and financial leader. Please join us in wishing both Parag and MVN the very best in the new journey ahead. And with this, I would like -- I would request MVN to say a few words, and then we'll open the floor for questions and answers.

Thank you, Erez, and greetings to everyone. I would like to thank Parag for his invaluable leadership and mentorship. He has been instrumental in Dr. Reddy's financial sector and I look forward to building on the strong foundation that we have created. I also look forward to meaningful engagement with all of you, and [it's] committed going forward. Thank you.

Yeah, we can open the floor for Q&A now.

(Operator Instructions)

Kunal Dhamesha - Macquarie Capital.

Hi. Thank you for the opportunity and congratulations on a good set of numbers. First one on the cash flow from operations, which seems to have come down meaningfully despite working capital is largely similar to the last quarter, right? So what is driving that sequential moderation in cash flow generation?

Hi, Kunal, thanks for that question. As a reason to free cash flow, it a bit on the growth side is because of fluctuation and factoring. We do the factoring in various markets largely in the US depending on the interest rates and the benefit we get. And because of that, we have rolled back factoring a little bit in this quarter. But overall, the operational cash flow generated from the business is in line with the normal trend.

Sure. So it should pick up going forward right?

Yes, absolutely.

Sure. And second one on the SG&A expense, while you highlighted that we are incrementally investing, [in the news] of Horizon growth levels, et cetera. There is a step jump in SG&A expense. So is there any one-off included in this quarter's SG&A expense?

So, I said that in my opening comments on earlier. In this quarter as usual, we are investing in new business initiatives. There are also some one-offs, slight increase in freight rates because of some root issues in the Red Sea. Also a few one-offs [Synthon]. And this is the normal fluctuation that happens from one quarter to another, depending on the sales and the level and the phasing of investments. Overall, we are confident that our SG&A percentage is going to be within the range of 27% to 28% for the full year. So yeah, this is pretty much normal. Is just quarter on quarter fluctuation.

And the percentage will describe this including the amortization?

No, that's not material. That's the normal amortization of intangibles that we always have. The normal level of amortization is included. What is -- one-off, I would say is a spike in the fixed cost, as I said, and a few other one-offs.

Amortization, Kunal will be primarily afterwards because most of it will not be relevant before [leaving].

Sure. And one for [Reddy's] on the launch momentum in the US. I think you have launched three products in this quarter. And I think that the usual guidance is around 20 plus products, right? So are we on track to achieve that. And secondly, we also mentioned that we have roughly [25 plus 2] filing according to estimates out of this 25 how many of these are expected to be launched in, let's say, next two to three years?

So the answer to the first part, yeah, we are on track. How many executives to file, anybody knows? I don't know executive to tell you Kunal, we'll come back to you. I don't recall the number off the top of my head, but make sure few of them will be there, but I don't remember how many exactly.

Sure. Thank you and all the best.

Neha Manpuria, Bank of America.

Yeah, good evening, everyone. Hope I'm audible.

Yes. Please go ahead.

Okay. Thank you so much. My first question is on the [OPGPs] now with the acquisition of [DNRT] portfolio, the Nestlé JV, going online? And how should we think about the potential size of the [OTC] business, let's say, in fiscal '27, '28, how big do you think this business can be? And as you know, are there any more acquisitions or capital allocation that you see in the Consumer Healthcare business to make it larger.

Yes. So the OTC and consumer care in general, it is a focus for us despite of the some -- thank you, Neha and building on your questions we will have basically primarily four spaces. One of the B2B generics we are there is a renaissance in innovation. The third one is consumer care and the forces biologics. So the best part is about a in a little bit more than about $320 million currently, a spread a long in North America, Europe, India, Russia et cetera.

The most of the new acquisitions was come will be somewhere around the $300 million. So altogether, it's $600 million-plus a growing. So naturally, it's going to be an important part of the business. Lastly, that we want to build on the platform of [NorthStar] and to add more assets in the future. So we see that's obviously business, definitely speaking billions in the future, but there is no obviously. It will be very much depends both on the growth as well as our ability to buy more assets.

Do you think we can get to that billion dollar mark, with the existing asset, with [demoslate even] the NRT asset and with large existing base by fiscal '27, '28, would that be a fair assumption? Or do you think you need more to get to that billion dollar number?

So the billion dollars you will need to buy more.

[You will] need to buy more. Okay. Got it. And my second question is on the four growth levers that you mentioned biologics. I think you mentioned denosumab near-term opportunity. We also have a budget that. If you could give us some color on the time line for filing of these assets. And therefore, when should we expect launch of these products?

You're talking about the denosumab CD --

The deno and [abatacept] to both of them.

So the denosumab business next year. And what are the other products this year, sorry.

[Abatacept].

Abatacept, should be December '26, hopefully. And that depends on the approvals of marks a beginning of a '27 calendar. (multiple speakers) so we filing should be [click sale before that].

Sorry, Erez, I missed that. So you said about the filing should be in --

(inaudible) filing should be the end of the calendar '25, but [launch would be] the end of calendar '26. Assuming approval of that.

Okay. Got it. Thank you so much.

Amey Chalke, JM Financial.

Yeah, thank you for taking my questions and congrats on the good set of numbers. The first question I have on the US business for the quarter, we have seen a good quarter on quarters, [in Jan], of almost $50 million to $60 million.

Is it possible for the management to give some breakup? How much would be contributing from the new product launches which we have recently done? And how much would be from the base business [in poor back]? Thank you.

So most of it is from the base business. Most of it is the core business that we have before and the contribution of the three products to a healthy growth, but the launch of the growth came from products that we had before.

So going ahead, how should we think of the quarterly US run rate. Is it normalized of front year or do you expect it to maintain at effect of [both $50 million]?

No. What I'm expecting from the US is to continue to grow. And so the -- I kind of within the discussions that we had in the past, we have the capability and an exclusive live and [lenalidomide] this kind of discussion to grow in single digit spending to compensate for any price horizon on year-to-year basis. That's what we did in the last six years. And this is what we are going to do.

And from time to time, we have those upsides. I can't forecast the market of the specific situations. Right now, it looks like that's the North America PBT should continue to grow throughout the year. Q quarter to quarter, it's hard to say, and it's always fluctuating. So I cannot guide on quarters, but I can absolutely say that we are going to continue to grow through out the years.

sure. The second question I have on the India business growth, which is around 15%. In the opening remarks, we said that some of it is coming from the vaccine business which we acquired. Is it possible to quantify how much was the base business growth?

Yes. So we say, let's say, without a vaccine, it's probably mid-single digits without it.

Sure. Thank you so much. I will join back queue.

Damayanti Kerai, HSBC.

Hi, thank you for the opportunity. Continuing on India. So I just want to understand now Sanofi vaccines contributing meaningfully in your India numbers. Is this the current base, which we should assume that you will be going from the base of 1Q in coming quarters? Or how should we look at India growth in near-term as well as in medium-term?

The baseline of India without acquisition will be double digits this year.

Okay. And this base of business, you said it do in single digit during the quarter. Extruding --

It was mid single digit and it will be double digits and for the year and for sure and for the next quarters.

Sure. And can you update us on Nestlé JV, how that is progressing?

Progressing very nicely. And we hope that in the beginning of August, we can announce [day] one. And likely August 1, but we will announce when it will come.

In August.

August 1.

Okay. And my second question is on your biologics effort. So can you let us know what is just spend you are doing for this line of business. And you earlier mentioned meaningful trends could be starting from '27, right? So between now and '27, if you could just talk on the cost part for your biologic efforts?

Yes. So on biologics, we have just, maybe just to frame what we call biologics in the company. We have biosimilars, which is about, I think if I was to be spending 20%, no, of the R&D. About 20% of the R&D and about a 10% of the CapEx. This is on the -- in addition to that, we are ready to scale up our [capacity] to launch in India and we are working on that as well. There we normally don't classify. I'm assuming that you ask me about the biosimilars.

Yes.

This is also very, very important activity for us. In addition to that, we are engaging in licensing in (inaudible) the various markets. So we mentioned, [denosumab] have already, but we have also local activities in which we are licensing products for specific markets, especially emerging market. Is likely that the until the end of the decade. We will have a significant number of deals that we are working for those markets.

And then after the denosumab, the next global products for us will be -- and we took some of the costs that we've got recently, the approval of [Nerivio]. And we hope and we will get there later in the [year of] the for the US, we will have a data set, like I mentioned to Naha before, likely the end of '26, beginning of '27.

Okay. And all these products which are coming, say in '26 and beyond, you will be marketing on your own right or the way the previous two products has gone (multiple speakers) --

[Beside the] rituximab, the fix a partnership with the Fresenius, the registration we will do by ourselves, including United States.

Okay, there. Thank you for the response.

Tushar Manudhane, Motilal Oswal Financial Services.

Yeah, thanks for the opportunity. Sir, just again on the [North] America sales. On the base portfolio, mid-late stage namely mode. As you highlighted, the price erosion is in the range of high single digit. And despite that the sales paid year-on-year or even quarter on quarter, there has been a very reasonable jump. So just to understand if there was any specific product opportunity, which would have because of the product shortage of some competitor going away? Or how should we think about the base business and the sustainability of [level] great?

So first, I did not mention the number that you're saying, so please don't force me because I did not say. Second, yes, it is going to be consistent and we will see that this [quarter] is not profitable product, it's actually multiple products primarily because of great service that we are getting in the United States to customers.

Yeah. Got it, sir. And on the India base business are growth has been quite moderate, [it's] Sanofi. So how do you think of, are scaling up this growth?

As I mentioned, the growth will be double digits even without the inorganic and inorganic will be on top.

All right. Thank you.

Surya Patra, PhillipCapital India Private Limited.

Yeah, thanks for the opportunity and congrats for the great set of numbers. So my first question is on the origin of biologic facility is what we have inaugurated. So what are the kind of or how big is the investment there? And also wanted to understand, is it for the biosimilar pipeline, what we have created by Dr. Reddy's or it is targeted towards the CDMO opportunity what we would be thinking and that we have been talking. First can give some clarity on this.

Yeah. That specific investment is for the CDMO [opportunity] of the biologics for Origin. So that's the primary purpose of this. The level of investment is a [INR300 crores] adoption (inaudible) almost.

[INR300 crores] you said, sir.

Yeah, in terms of CapEx.

Okay. Is it backed by any generally CDMO business is generally -- in many times that we find that it is backed by some contract or some negotiation or some kind of collaboration with our non-target parties. So is it as of now currently backed by that. And when you think that regulatory clearance of this plant that [fund] should expect.

So it does -- we do have contracts that pay for this investment. These are all early stage, a project that comes from innovations. So it doesn't require now any specific regulatory activity. And naturally, if it will continue with this kind of traction, we will need to have a scale-up and then discussion.

And this is will come probably later two years. Right now, it's primarily for R&D activities. So it's more of the [deep] of the CDMO rather than the manufacturing.

Okay. And my second question is on the volume share is as per the settlement in case of lenalidomide. Whether, you have seen that volume share raised, which was indicated as part of that contracts, sir?

In say the product is growing exactly in accordance to the contract. The volume is not is impacting primarily by the type of agreement and this about capturing market share on [selected] in the -- so far, so good. Therefore, we are selling the product exactly in accordance to the contract.

Sure, sir. So just one small clarification. You guys have [state] cost in what you have mentioned Parag sir. So how serious and critical is this a cost issue for the quarter end? Is it fair to believe that this is likely to continue at least in the next couple of quarters the way that trade is happening in US, China.

So most of it is related to obviously the conflict in the Middle-East. We need to [see a scale] in Africa and in some of the cases because of the time and only to [fly fusion] instead of shipping it by state. So obviously, it's -- this is a primary issue. So obviously, I wish I could know what by when this conflict will end, hopefully, full end. The impact is a few tens, of course, as I remember exactly how much, but let's say (inaudible).

Okay, is it fair to believe that the [0.6%] -- less than 1% kind of full swing sequentially, what we have seen SG&A. Large part of that is because of this freight cost.

I will not say large part. It should be around INR50 crores or INR60 crores, something like that. So I don't see large part. The main part is the investment in capabilities in new product and new business initiative. We are a leveraging effect, that we have if you recall our previous discussions we want to be give or take which never that activates. The sweet spot in which we are delivering in -- for the shareholders, but also investing in the future. So we are absolutely using the opportunity to invest more in the business, whether it's R&D or CapEx or new businesses and the SG&A. [If you wish] lined out is that but yeah, also freight costs and other one offs also there like Parag mentioned.

Sure. Yeah. Thank you, sir. Wish you all the best.

Thank you.

Shyam Srinivasan, Goldman Sachs.

Yeah, good evening, and thank you for taking my question. Just is lean (technical difficulty) [you generating] about or [$220 million, $230 million, $240 million] per quarter in terms of cash flow a quarter, we have a lot of the cash equivalents we're going to pay for this NRP, which I think the upfront payment will likely be happening. But even after that, we seem to have lots of cash and cash flow generation. So just want to understand (technical difficulty) the next two, three areas will likely --

Srinivasan, sorry, you've sounding muffled in-between.

Yeah. So all of us are thinking about capital allocation and $1 billion of cash and cash equivalents and probably cash flow generation of [$200 million] per quarter will likely pay for the NRT therapy coming up next. But even after that, we are going to have significant cash and cash flow generation. So the question is around the two to three years. What has the mix which are the areas we're going to likely continue to invest. I believe it is in your comments on India, you said that excluding [acquisitions] will grow double digits. So maybe in India, which are the areas we are likely to look at (technical difficulty)?

Yeah. So thank you for the question. The very important strategic question. First, we believe that we have about $2.5 billion that we can invest inorganically. That depends of course, on the time and the time, but [let's say], we have enough financial capacity without isn't changing dramatically ratings or anything like that should not impact the rating at all.

We want to invest in each one of the first places that I mentioned, we do want to invest in our B2B generics in our innovation, in our Consumer Care as well as in the no biologics. That primarily the way to use it is less of mergers and acquisitions and more about in collaborations, licensing it from time to time, we will buy also assets or rights to the assets.

So our preference is to have access to products, product or products that are complementary to our portfolio that allow us to give -- to be in a very comfortable strategic position in each one of the segments in each of the geographies. Largely we are aiming for a high level of [fire out] in the [fall show] a better than the cost of capital that we have for the company.

In addition to that, we are using the cash for internal activities. So we are investing in CapEx, especially in a company like biologics and the CDMO, in our injectables. We believe that we have a very interesting pipeline for the future, primarily contained of injectables, and the primarily in many [peptize] products. So this is where the capital allocation will go.

And there we are building the growth of the next five years, '26, '27, et cetera, as we speak. And we are using the relatively comfortable financial position that we have now in order to invest and to build that position into the future. Hopefully, that address your question.

Yes. Thank you, Erez. Thank you for that. Just one follow-up in the past in terms of deals in India, valuations have been a hurdle. Do you think our philosophy will likely change now if you were to look at transactions in India, recently many of your peers have done [can I say], high valuation acquisitions or is it something that Dr. Reddy's will be also willing to look at?

Yeah. We are looking at all the deals in India. India, so let's just to be very clear. India was, is and will be [aware there] is a very important market for us and for sure, a very important country for all the activities of Dr. Reddy's. India is absolutely a focus. And we are going to invest in India.

We feel bit the effect that the amount of this branded generic market is now single digit plus the cost of capital went up orders [this]. A present situation that if you have a cash transaction, at least we don't see a reason to buy EBITDA in which only the interest that you pay to the banks will be more than the EBITDA that will be [get]. For this kind of transaction we would not do. If the [deal] is better than our cost of capital, absolutely, we will do it and India will be absolutely a priority.

Got it. Think you, Erez and all the best.

Abdulkader Puranwala, ICICI Securities.

Hi, thank you for the opportunity. [From] my first question is pertaining to the vaccine business, where, of course we have a license to fund from Sanofi. So could you help us understand, how the growth profile has been in this particular segment and what are the investments you will have to do to grow this business?

We acquired this business from Sanofi as what we call the bridge heads. [Each and ankle] products will allow us to bring to this segment in the future additional products. So when we identify a space that we want to claim, we are trying to build what we call the anchor activities that will allow us the capability with product management for the sales force, whether [know how the] product, et cetera. So the intent is to buy to grow it's in the best way we can the current business. But to add on its over that period of time, additional products that will come from licensing in from other companies.

Okay. I'm just wondering, have you also taken some [amount] which are all just really pertaining to some of you would be not in our payroll Or how is that [anything clear]?

We got also the sales people from Sanofi.

Okay, sir. Thank you.

Jainil Shah, JM Financial.

Hi, thank you for the opportunity. So my question is related to the NRT acquisition so early on in the press release, you mentioned that the gross assets related to the acquisition of GBP413 million. So if you can explain why is it so high. And is it fair to assume that large part of this will be goodwill?

[Mr. Shah] I did not say personally see the [Allianz] balance sheet, so you probably need to ask them. I'm assuming that it's mostly intangibles.

Okay. Thank you, sir.

Kunal Dhamesha, Macquarie Capital.

Thank you for the opportunity again. I just wanted to understand, has there been any business impact from the Microsoft outage that was there last week for us?

No zero effect on it.

Sure. And secondly, on the Nestlé JV, I didn't understand what will start from August 1. I think we have incorporated JV as of now, but you are saying the operational activity will start from August 1?

Yes. So we, the day one is the day in which the JV will work together and the whatever the [whether call to whether call] what we have seen now plus what Nestlé used to have before that.

So it's basically, adding our current products like Celevida, et cetera, into the JV is the way to understand, right.

Yes.

And then Nestlé product. Sure. And I think the Asian activities is to customize the product, Nestlé product, global products for Indian market, et cetera, right? For that we'll have to invest. So this investment will be part of P&L investment or would this be more like balance sheet investment, which will capitalized? And we commercialize those products.

So let me clarify maybe. First to your first part, yes, the product [facilities] and the other products that we have. We will add to it the Nestlé activities. And both of them will be part of the JV in starting from August 1. As related to investments and all the stuff, the intent is over time to bring additional brands, primarily from Nestlé, [Methylcobalamin JP] and to introduce them to India and to grow them. Specifically in the -- at the very beginning, I don't participate the impact on the P&L for sure, not in a significant way.

Sure. That's very helpful. And the last one from my side, I think, we also undertook the expansion of our biologics facility, right. So is that complete now or is it that completion if you can help it be current capacities? Is it more than enough to cover us for the next two, three biologics, a biosimilar that we have in pipeline.

We are still investing in our back-to-college facility and the intent is to become a something like 50 kilo liter in that facility. This probably would take an additional two years to reach that level. So you're going to see additional CapEx in [batrupolic] facility the instances become a something like 50 kiloliter. In that facility this probably would take two years to reach that level. So you've gone to see this additional CapEx in batrupoly at least for the next two years.

Sure. And [50 care] is the, like the future capacity. What is the current capacity?

I think [15] if I remember [15 care].

[15 care to 50 care]. Okay. Perfect. Thank you and all the best.

Thank you. As there are no further questions, I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you.

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 once again on behalf of Dr. Reddy's.

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