Dr Reddy's Laboratories Ltd (RDY) 2025 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to the quarter two 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, ma'am.

Thank you. A very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy's Q2 FY25 earnings conference call. We have with us the leadership team of Dr. Reddy's comprising Mr. Erez Israeli, our CEO; Mr. M V Narasimham, our CFO, whom we formally called as MVN and the Investor Relations team.

Earlier during the day, we have released our results, and the same is also posted on our website. We kick off today's call with MVN taking us through the financial highlights of the quarter. This will be followed by Erez, sharing his thoughts on operating environment and business performance, post which, we open the forum for Q&A.

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. 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 statement. 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 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 MVN.

Thank you, Richa. A very warm welcome to all. It is my pleasure to interact with you for the first time and present results for Q2 FY25. We delivered a strong performance this quarter with broad-based topline growth and healthy operating margin, resulting in highest ever quarterly sales activity.

As you all know, we completed the acquisition of the Nicotine portfolio and create an upfront cash consideration of GBP458 million. We also completed the transaction with Nestle India on August 1, and all business activities of the nutraceuticals portfolio is now being carried out through our subsidiary, Dr. Reddy and Nestle Health Science Limited.

Following the completion, Nestle India was allocated share of the subsidiary, representing a 49% stake. We have also recently completed file for one-stop click following the approval from Board -- following the approval from our Board and the shareholder.

Let's now look at the financial performance of the quarter. For this section, all amounts have been translated into the US dollar at a convenient translation rate of INR83.76, which is the rate as of September 30, 2024. Consolidated revenues for the quarter stood at [INR8,016 crore], which is USD957 million and it grew by 17% on year-over-year basis and 4% on a sequential basis. All markets contributed to this quarter's year over year growth.

Consolidated gross profit margin stood at 59.6% for the quarter, an increase of 92 basis points over the same quarter of the previous year and a decrease of 81 basis points sequentially. The year-over-year increase was primarily on account of an improved product mix and manufacturing overhead leverage, particularly offset by marginal price erosion in generic markets. The quarter-on-quarter decline was on account of overall mix change.

Gross margin for global generics and PSAI were at 63% and 30%, respectively. The SG&A spend for the quarter was INR 2,301 crore, which is USD275 million, an increase of 22% year-over-year and 1% on QoQ. The year-over-year increase was primarily on account of investments in new business initiatives, building capabilities, higher freight costs, annual merit increase, and certain onetime costs related to the acquisition of energy brands.

The (technical difficulty) spend as a percentage to the sales was 28.7%, and was higher by 138 basis points on year-over-year and lower by 87 basis points QoQ.

Excluding the onetime acquisition-related costs, SG&A spend was at 28.1% of sales. We expect SG&A to be in the range of 27.5% to 28% for the full fiscal. The R&D spent for the quarter was INR727 crore, which is USD87 million, an increase of 33% year-over-year and 17% QoQ.

We are developing robust pipeline of small molecules, biosimilars and now on all India assets through internal and co-operative efforts to drive future growth. The R&D spend was at 9.1% of the sales, was higher by 115 basis points on year-over-year and 100 basis points QoQ. We expect divestment to be in the range of 8.5% to 9% for the full fiscal.

The other operating income for the quarter was INR98 crore, lower versus INR180 crore last year due to onetime product related settlement income in the United Kingdom in the same quarter of the previous fiscal.

The EBITDA for the quarter was INR2,280 crore, that is USD272 million, an increase of 5% on year-over-year and 6% QoQ. The EBITDA margin stood at 28.4% to the sale and was lower by 326 basis points year-over-year and higher by [30 basis points] in QoQ, excluding the onetime acquisition related costs as mentioned earlier, the underlying EBITDA margin stood at 29.1% of the sales.

Impairment loss of INR92 crore on intangibles related to a product in the main portfolio that was facing procurement constraints from its contract manufacturers. The net finance income for the quarter is INR156 crore as compared to INR123 crore for the same quarter last year.

Profit before tax for the quarter stood at INR1,917 crore, that is USD229 million. PBT as a percentage of revenue was at 23.9%, excluding the onetime acquisition-related costs and impairment charge has called out earlier. The underlying PBT margin stood at 25.7% of revenues.

Effective tax rate for the quarter was at 30%. Pertain to the amendment in the Finance Act 2024, resulting in withdrawal with indexation benefit. The company reversed a deferred tax asset of INR48 crore, created in earlier period of on land.

Excluding the impact of this onetime reversal, adjusted ETR for the quarter on the underlying PBT is 25.9%. We expect our normalized ETR to be around 25% for the fiscal. Profit after tax but before minority interest for the quarter stood at INR1,342 crore, which is USD160 million. PAT margin was at 16.7% of revenues.

The non-controlling interest share of profit after tax for the quarter was INR86 crore. This primarily includes the share of onetime defer tax asset recognized upon transfer of Dr. Reddy's nutraceutical brands to the subsidiary. Profit after tax, excluding the non-controlling interest for the quarter stood at INR1,255 crore, which is USD150 million. This is at 15.7% of revenue.

Excluding the onetime acquisition-related cost, impairment charge at reversal and non-controlling interest share as indicated earlier, the underlying PAT margin stood at 19% of revenues. Reported EPS of INR15.04. The EPS has been derived on the increased number of shares post the stock split and after non-controlling interest.

Operating working capital as of September 30, 2024, was INR12,066 crore, which is [USD1,441 million], an increase of INR 511 crore, which is USD61 million over June 30, 2024. CapEx -- cash outflow for the quarter stood at INR735 crore, which is [USD18 million]. The free cash flow generated during this quarter was INR204 crore, which is USD24 million. Post acquisition related upfront payout, we have a net cash surplus INR1,889 crore, in USD226 million as of September 30, 2024.

Foreign currency cash flow hedges in the form of derivatives are as follows. [USD693 million] hedged through structured derivative around rate of [83.9 to 84.1] for the dollar maturing over 12 months, which allows participation with USD strengthened and [INR5,290 million] with the minimum production rate of INR0.905 to the ruble maturing in next six months.

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

Thank you, MVN, and very good morning or good evening to everyone on the call. Thank you for joining us this time. Our gross momentum continued in Q2 FY25 across all markets. It's translating into yet another quarter of highest ever revenues and operating profit.

The quarter witnessed two milestones in our journey towards building new businesses. Our venture with Nestle for nutraceutical products in India was operationalized in August. We also completed the acquisition of Nicotinell and related brands in the Nicotine Replacement Therapy category in September.

We continue to strengthen our process and existing business by building best-in-class capabilities and commercial infrastructure to leverage our portfolio globally and by driving operational efficiencies. We remain focused on our core businesses of generics and API while also investing in our pipeline as well as growth drivers of the future in line with our stated strategy.

Let me take you through some of the other key highlights for the quarter. One, double-digit growth in revenues in Q2 at 17%. Two, both reported EBITDA margins and annualized ROCE were over 28%. Adjusting for onetime expenses related to the NLT acquisitions, EBITDA margin was higher at 29.1%.

[Net cash loss] was $226 million. This is after making an upward payment of GBP458 million toward the recently acquired NLT portfolio. Our subsidiary, origin oncology announced promising results of Phase 1 study for India first trial for novel autologous CAR-T cell therapy for multiple myeloma.

Further, the USFDA approved the IND for AUR-112, an assets developed by origin oncology for the lymphoid malignancies. We have secured a marketing authorization from the European Commission for rituximab biosimilar, our first such MA in Europe. We recently entered into voluntary license agreement with Gilead Science to manufacture and commercialize HIV treatment drug lenacapavir in 120-plus countries.

On the regulatory front, the USFDA classified three of our facilities as VAI. This included two of our formulation manufacturing facility in Duvvada and Vizag following the routine GMP inspection in May 2024 as well as our API manufacturing facility in Srikakulam, Andhra Pradesh following their GMP inspection in June 2024.

In August, the USFDA completed a product-specific pre-approval inspection of our formulation manufacturing facility, FTO SEZ PU1 in Srikakulam, Andhra Pradesh and issued a Form 483 with three observations. We responded to the observation within stipulated timelines.

In September, USFDA completed the (inaudible) inspection of our R&D center in Bachupally, Hyderabad and close inspection with zero observations. Sustainability continues to remain central for our business strategy, recognizes our focused efforts in sustainability, KPMG India awarded us their ESG Excellence Award in 2024 in the Large-cap Pharmaceuticals & Healthcare category. So further, we are featured among the top 15 most sustainable companies 2024 by Business World India.

Now let me take you through the key business highlights for the quarter. Please note that all the reference to the numbers in this section are in respective local currencies. Our North America generic business recorded revenues of [445 million] for the quarter with year-over-year growth of 16% and sequential decline of 4%. The increase in sales volume helped offset single-digit price erosion and additional generic competition in certain based products.

We launched four new products during the quarter, and we closed the full year with 15 to 20 launches. Our European generic business recorded revenues of EUR63 million this quarter with a year-over-year and sequential growth of 7%. The increase was largely contributed by revenues from new launches, partially offset by pricing pressure on certain of our products. During the quarter, we launched a total of eight products across markets.

Our emerging markets generic business recorded revenues of INR1,455 crore in Q2, recording a strong year-on-year and sequential growth and 20% and 23% respectively. On a year over year basis, market share expansion and revenue from new product launches in rest of the world markets more than offset the unfavorable. We launched 22 new products during this quarter across various countries of the emerging markets.

Within this segment, the Russia business grew by 27% on year-over-year basis and 23% sequentially in constant currency. India business recorded revenues of INR1,397 crore in Q2 with a double-digit year-over-year growth of 18% and sequential growth of 5%. The growth was primarily on account of additional revenues from the recently licensed vaccine portfolio from Sanofi and new brand launches.

As per IQVIA, our IPM rank continues to be at 10. We have launched three brands this quarter in addition to integrating the nutraceutical products under our subsidiary Dr. Reddy's and Nestle Health Science Limited.

Our PCI business recorded revenues of $100 million in Q2 FY25, year-over-year growth of 18% and sequential [growth] of 9%. The year-over-year growth was primarily on account of improvements in volumes and growth in the CDMO business, which is also reported thereunder. We filed 22 (inaudible) globally this quarter.

We invested 9.1% of our revenue to strengthen our R&D capabilities. Our R&D investment this quarter stood at [INR727,000]. Our efforts are focused on developing complex value accretive products, including several demand injectables, peptide and biosimilars, in line with our patient-centric strategy on an early access and affordability.

We have made 60 global generic filings, including two NDAs for the US market during Q2 FY25. In addition to investing in our development pipelines, we continue to strengthen our process in our core areas of business while also collaborating to build businesses in three areas, consumer health care, access to novel molecules and digital therapeutics.

We are also evaluating value creating inorganic opportunities in the existing spaces as well as businesses of the future. We are certain that this strategic investment capital with our sharp focus on improving efficiencies will enable us to deliver sustainable growth as well as profitability.

And with this, I would like to open the floor for questions-and-answers.

(Operator Instructions) Kunal Dhamesha, Macquarie.

Hi, thank you for the opportunity and congratulations on a good set of numbers. First one on the North America business. We have written that the sequential decline is primarily due to volumes. So sequentially, is it fair to assume that the pricing was stable?

The prices are relatively stable in the way we normally calculate them. We did not have a major issues on the big products that we normally discuss. As for the sequential, I would not take it too seriously, part of it is normal supply chain behavior that comes into inventory of the distributors or inventory of the retailers.

We can definitely guide that we'll continue to grow in America on both the -- also on the basic products as well. So I will not read too much into that. You'll see different numbers in the next quarter.

Okay. And this decline in sales volume, one you said is the channel inventory adjustment. And could it also be some seasonal products not kicking in this quarter?

Yeah. So it was mostly about supply chain. There is novel decline. So there is no loss of market share or anything like that. It actually (technical difficulty) gain of market share. So I will not say too much about the sequential decline. I think the (inaudible)

Sure. And then the second one on the India business. I know you have posted around 18% growth. But let's say, we remove the Sanofi vaccine business, would we be at the double-digit growth for our base business?

It's almost there. It's [9 point-something percent] even without the vaccine.

Okay. So we have improved a lot from single digit to low double digit in this quarter?

Yeah. We are in the double-digit even without the vaccine, obviously, we are well there. So it's in the right direction. But it's almost there.

Sure. And then do you think that this can again accelerate beyond what we have done in Q2 in the coming quarter? Even the launch momentum has been very strong, right? We have been launching a lot of products in India?

Absolutely.

Sure. I have more questions. I'll join back the queue.

Neha Manpuria, Bank of America.

Yeah. Thank you for taking my question. My question two part question is related to the US business. Given we have seen a host of facilities being cleared, clearing inspection in the last few months. When should we start seeing -- while we are launching products, we have not really seen high-value launches from Reddy's in the recent time. So when do you think we launched certain of these limited competition high-value products for the US business? When do we start seeing that?

And second, our R&D has stepped up a fair bit. But I did see filing momentum has been fairly muted. So when does that R&D spend reflects in higher filing or higher-quality filing, better filing and therefore, revenue?

Yeah. So on the first question, I hope that you'll see it probably in Q3, but I cannot guarantee that. It's about the ability to get approval, but we have a couple of those kind of products waiting for approval by this year and I hope already in Q3, we will see that. But let's say, the remainder of the year and for sure in effort when we see, we should see a much better take on that.

As for the filing of the R&D, we are primarily focusing on the, what I call, high-quality R&D in terms of -- we are not going for the 40 files per year. But we are spending on the, let's say, more selective type of products, but with a higher value. And we are doing globally, not just in the United States.

So every product is going globally, plus the investment in similar primarily the abatacept. So this is where the R&D money is going to. I believe that it will actually -- there is a better yield in that improvement performance of R&D, and we should eventually see it also in the numbers.

And sir, the R&D spend, how much of this would be for biosimilars in the onco asset? And any updates that we can get on the timing for our two biosimilar filings?

Sure. So out of the total R&D, 36% is going to both biologics as well as origin. Origin are our innovative arm. And the rest of it is going for the generics. The generics is about 50% of the number of the R&D and [40%] is attributed to the API.

So this is give or take the five that we have about biologics, I believe that the most important products we launched in the beginning of '27, and this is abatacept. We have a couple of licensing activities that is not impacting the R&D, but it will be impacting the portfolio that will have -- one of them is denosumab. And of course, this is on top of what we do now with rituximab and (technical difficulty)

And we were supposed to find demo towards the end of this year. Are we on track of filing demo the US market?

Yeah. So Europe is on time and also the United States will be filed also by the end of the calendar year.

Amey Chalke, JM Financial.

Yeah. Thank you for taking my question. My first question is on REVLIMID. So in first half, the whatever sales we might have booked for REVLIMID, you expect the sales to be similar in second half? Or you expect the run rate to be on the lower side?

I cannot speak about the sales of REVLIMID per se because of the agreement. But let's say, you are going to see that it will continue to be very healthy also in the remainder of the year and also in effeciency.

Sure. The second question I have, if you can tell us about the preparation for the GLP-1 products for both US and ROW markets, which are going to face expiring or where we are going to launch these products?

Sure. So first of all, on the overall question on GLP-1, it's a very important segment for us, primarily because of focus on peptides, especially on the API side. So we identified close to -- in addition to the (inaudible) et cetera, we are talking about 14 or 15 GLP-1 that are coming up.

Obviously, those mostly will be with the patent dates that will be in the next decade. But later, we are going forward for the entire segment as we speak specifically for [REVLIMID], we are planning to be on day one in all the markets that will be open and that we will have, of course, from an IP standpoint clearence to launch. And that's basically the plan, and we are ready with our internal capabilities on both API as well as our formulations.

Sure. Just last question I have on the spend. Our SG&A spend, excluding amortization or depreciation have gone up sharply over the last two to three years. I understand we have a big opportunity in US where we are generating good profits, which we are reinvesting in the business. But let's say, post FY26, you expect this SG&A spend to remain elevated like this? Or you expect some correction after?

What we -- indeed, we increased the SG&A within the year, primarily because of the mix of markets we have. We are focusing more on India on emerging markets. And these are, as you know, very profitable markets for us. And they paid well also for those SG&A.

So we are not investing in the level of SG&A, and the B2B market is obviously lower. So part of the SG&A growth is also part of the mix of the market that is changing, and it's actually changing in a healthy manner as well.

In terms of the growth of the SG&A, it will be much, much more moderated, I will say flat to moderate, it depends on the quarters and the years that we will discuss because we are -- like you said, we had an opportunity to build that kind of a franchise and infrastructure in many, many emerging markets and now, it's well established.

Once the carrier for that will be that we're naturally going for India for innovative products. We are licensing those products. Naturally, some of these products will require certain investments. So likely this will do, but I don't think it will be materially change the level of SG&A, and it's normal to happen also very soon.

So I also just want to add, if you look at adjustive onetime costs of this quarter or SG&A is 28.1% of the sales, and then we expect on a full year basis, it will be in the range of 27.5% to 28%.

Balaji Prasad, Barclays.

Hi. This is Mikela on for Balaji. Thanks for taking our questions. We're just wondering how you can leverage the situation we make in America for generics gets a stronger emphasis. And if you do increase manufacturing in the US, what would this mean for operating margin? Thanks so much.

We are not increasing the manufacturing in the US. The products that we are launching in the US will be made outside of the US, primarily in India.

If I got the question right? Sorry, if I miss something, please.

Thank you.

Harith Ahmad, Avendus Spark.

Hi. Thanks for the opportunity. My first question is on the rituximab biosimilar for which we got an EMA authorization recently. So will you be able to share some color on the timelines for launch and our expectations from this particular product?

And for the same product in the US, I believe we are awaiting clearance of our facility in Bachupally, which is last inspected in October '23. So what is the status of that inspection? Do we have a final classification from the FDA? That's my first question.

Yeah. Thank you for the question. So the European launch is in February '25. And as for the US, we did submit a response to the USFDA. And obviously, we will wait for this approvals. Likely that it will be in the first part of FY26. So, of course, it depends on when we will get the approval from USFDA.

Okay. And on generic lowering for which we've disclosed the INR90 crore impairment this quarter. So can you share what percent of the intangibles related to this product has been impaired? What I'm trying to understand is whether this product is completely out of our expectations? Or do you still expect some revenues from this product?

Hello. We have provided a full carrying value because the existing contract manufacturing organization is unable to supply the product. Hence, we have provided 100% of the carrying value.

Okay, sir. Last one with the permission. The intangibles related to the Haleon portfolio acquisition, which I believe is around INR5,500 crore. Over what timeframe will we be amortizing this? I'm trying to understand the impact in our P&L.

So largely around 20 plus years. I think, it's -- currently, we are just evaluating. I think it will be somewhere, I think 22 to 23 years range.

Damayanti Kerai, HSBC.

Hi. Thank you for the opportunity. My question is on R&D. So you mentioned you are focusing on high-quality R&D. So can you just talk us about like the segments or products which you are working on? And do you think you can launch some material products in, say, next one to two years in the US market especially, which can help you to cover up some sales lost on the REVLIMID part. So that's my first question.

So on the first part of the question, like I mentioned to [Amey], about 50% of the R&D goes to generics. So this is primarily peptides and injectable, especially complex injectables. The biologics is going primarily on the pipeline that we have but most of the money in the short-term will go on the clinical trials of abatacept.

And then we have the investment in the next set of products of first two market which will come later, this is on the API side, mostly GLP-1 type product and the oncology products of origin. So this is one.

On the second part of the question, yes, there is a healthy pipeline of about 20 plus products of that nature that have relatively higher value. Of course, most of them are approval dependent. So it's hard to know when exactly we will launch them, but we are ready for that, and they should contribute to that.

And this is including, obviously, semaglutide in which there is a patent data. We were asked before about that and which will be launched once there will be a market opens for that.

Sure. My related question is you mentioned peptide GLP-1 is one of your focus segment. So I just want to understand -- on the R&D part, I understand you are covering the entire product basket, which will open up in market in coming years. But on the manufacturing part, do you have in-house manufacturing capability or you intend to get it done through some manufacturing partners?

So we are going to make it in-house, both the API as well as the finished goods. And we are primarily dependent on our own internal capabilities.

Okay. So mostly, it will be done in-house and maybe some parts can be done through external parties?

Yeah, absolutely. The part that is not done by us is the device. Device itself, we are not making. But the API, our main strength is on the API as we have those certain technology by primarily the microwave that allow us to scale it up very nicely and this is probably our major advantage so far in this segment.

Sorry, I think I missed. So you said API is your strength, but the formulation that can be done through CMOs, is that right?

So we are making the API. We are making the formulations. We can also use CMOs for formulation, but primarily, it will be made by us. And the part that we have to buy is the device So device we are buying.

Okay. Understood. My second and last question is on the Nestle JV. So you concluded the deal in August. Like what kind of sales or any number you have booked in second quarter? And from here on what kind of ramp-up you see in terms of like putting more products in the portfolio or in terms of revenue, how should we see updates there?

So right now, it's very small. It's a intent of calls because most of the Nestle products are not yet registered and abroad to India. So the main intent of this franchises to bring the Nestle product -- Nestle brands, actually, that are very successful outside of India to India and to bring them over time.

So at this stage, we are talking about [tens of crore]. But let's say, it's not a material around. Let's say, somewhere between INR50 crore, INR60 crore. It's not significant. The main impact will come, obviously, on the ability to grow the range in the future.

So this is the kind of business that it will take us time to scale it up. But we believe that it's a very good and very sticky for many, many years to come.

Bino Pathiparampil, Elara Capital

Hi, Good evening. Just following up on a previous answer. Abatacept, you said could be a launch in early '27. Did you mean calender '27?

Yes. Calender '27.

Okay. And I was looking at the Russia growth adjusted for the currency fluctuations, it seems the first half growth in Russia is a bit muted, probably around the mid-single digits. Any particular reason? And what's the outlook for the rest of the year?

So like I mentioned, Russia is doing really, really well. So in constant currency, we grew 27%. And indeed, there is some devaluation, but I think we have also the right defence for it. So overall, this is likely what you're going to see this high level of double digit exactly what we're going to continue to see us.

You have some seasonality in Russian products. So not every quarter is growing in the same way. But overall, this is the level of growth, especially as some of our peers are not investing in Russia the way we do, and we are gaining rank as we speak.

Okay. And one last question on PSAI. There is a lot of optimism in the market around the CDMO part -- CDMO business opportunity coming India's way. Are you seeing that helping your CSAI business in any way?

So it does contribute our growth. For us, strategically, I see the CDMO that primarily as an area in which help us to build relationships and build capabilities, especially in R&D as the CDMO is working on the products of the future, and it allows us to scale ourselves both small molecules as well as in big molecules. It's also contributed to the growth.

And I hope that we will be able to see triple digit on sales of API, if not next year or thereafter, but in this range of time. So it's a nice growth. In addition to that, most of the growth in the PSAI comes from collaborations and the partners that we have across the globe, this is important pillar, strategic pillar for us as part of the B2B business.

Surya Patra, PhillipCapital.

Hello. Yeah, thanks for the opportunity. So my first question is on the Nicotinell business integration. So having completed the transaction, if you can share your thought process now about your growth plans, your integration strategy of this business across various markets and your margin and cost positioning for that business?

Sure. So we are going to get the market in a certain sequence. And just to make sure that I'm explaining it in the right way. Naturally, it's a carve out of brands from activity that Haleon is having today. So for some of those countries, we have to create the legal entity or sales force or distribution agreement or any of that.

So there is an agreement of sequence of countries in which we are going to get, in which we will be ready to accept those countries with relevant infrastructure, both internal and external. The starting market will be UK in April and in the next 12 to 14 months, we should get more than 80% of the sales managed by us. Until then, it will be managed by Haleon.

Obviously, in terms of numbers, we will start to recognize them already Q3. So from Q3 onwards, you will see the full impact of that, including some commissions that we need to pay for Haleon for doing the work for us during this period of time.

We see three types of synergies that will come once we will manage it directly. One is our ability to invest and focus on those brands, this we feel that this brand has certain lack of focus or lack of attention for several years, and we believe that by doing that, we can increase the growth. By the way, the brand is growing single digits already today.

And second, we can bring it to more markets, more countries. And number three, much more important, we appreciate that there is a lot of changes we can do in terms of innovation, different products, different packaging, different life cycle management of the range, et cetera.

So between the three, we believe that we can add value to this brand. And so, right now, focus is on the integration, like I mentioned, to get it and to build the infrastructure. And the post that, obviously, it will invest in to further.

Sure. Second question is about our CDMO business again because of the manufacturing base and positioning within ways, whether this Biosecure Act development, that will offer any kind of meaningful foot trend for our CDMO operation which has been kind of relatively muted or seeing a kind of muted performance since some time. Do you expect any meaningful kick start to those kind of momentum there?

We do see more projects that are coming on the biologics side of the CDMO which is relatively new to us, but we definitely see that the Biosecure Act that you mentioned that brings more attention to this segment. And yeah, I believe that it will translate to future business. And yes, I do see an opportunity. I cannot tell you that it's huge at this stage, but it's absolutely in the right direction.

Okay. Just last one clarification for the US business growth. You mentioned you are seeing some volume-related impact in the quarter. But is it possible to give some sense, excluding of the lenalidomide, what is the kind of -- means, some color to the growth YoY for the quarter or for the first half? What growth that we would have seen for the base business?

So again, like I mentioned to Kunal, I would not read too much on the sequential. On the -- we are growing the best business, and it's not just lenalidomide. So we are growing that. And I will not read too much about the Q-on-Q because it's not --

No, I wanted to just on a YoY basis sir for the first.

(inaudible)

Tarang Agarwal, Old Bridge.

Hi. Good evening and congrats for a very strong set of numbers. Three questions. First on Russia. The INR600 crore investment in working capital, what's driving this now?

And basically, just wanted to understand or get a bit more color on the business in terms of how working capital intensive is that business, some dynamics on the market. Some point, I think DRL had a 2.5% market share in that market. How has that moved? And what's the volume market share there?

So this is like a working capital that we have manage the working capital through factoring and short-term loans. Now, it is because of the -- it is becoming cost clear. And then as a group, when we evaluated this working capital funding as an equity from India to subsidiaries is beneficial at overall level. That's why we are infusing as an equity towards working capital requirement. And Erez?

As for the market share, I don't remember exactly the numbers, but we definitely increased market share and increased our rank in Russia. So we're clearly growing primarily because of focus. Companies that's still focusing on this market and companies that less focus, I think this is going to very much to our side.

I think that our that our overall in terms of market, I think we are in all the not on mass as well as quarters, we are growing faster than the market in all segments on (inaudible)

It is just to get a sense, I mean, how big is the covered market in Russia where Dr. Reddy is operating? And I mean, it's a sizable business now almost $300 billion. So how big is the market? And my sense is that the end market may not be growing, but from your vantage, could you expect this business to grow at the same speed as which you probably see your India business growing?

I believe so. I believe that you are going to see continuous growth. Indeed, the market itself is not growing in volume. But obviously, value, you see a growth because, of course, the situation in a country, price increases, et cetera.

Okay. Sure. Second on CapEx. Overall, if I see the trajectory over the last three, four years, we see a lot of investments in R&D buying products between market access and as intangibles. In terms of physical infrastructure, if you could give us a sense where are you in terms of your utilizations between your injectables, your oral solids and your API business?

And what are the kind of investments that you're looking in terms of expanding your physical infrastructure from here on?

Yeah. So most of our investment is in the following spaces. We are investing in our injectables. We are investing in our biosimilars. And we are investing in our API business. And most of the investment in the API business, which is about right now, let's say, take 50%, it is [50%] of the CapEx is primarily to build capacity for the GLP-1 as well as the other peptides in the pipeline that we discussed before the are many, many peptides not just GLP-1. We are gearing up for the launches of some of these products in FY25, '26, '27, et cetera.

Some of the GLP-1 in terms of API can be very, very big. And I believe that we are one of the most reliable suppliers today, not just to ourselves, but also to the entire industry of the API. And it's actually very big opportunity for us in that respect. So let's say, between the injectables, the biosimilars and the peptide is the lion's share of the physical infrastructure. And all of it is in India.

Sure. And last question on the Nestle JV. How long should the current capital contribution between you and the partner should hold the JV in good shape? I mean how far along will we see till further capital contribution of the JV?

So I believe that it will take us a couple of years to build a meaningful size and a meaningful brand recognition, primarily because the brands are new. It's not a branch that we take from India. It's a brand that we need to build. The idea is to build the number one pharmaceutical company.

Both companies see this for the long term. But unlikely that we'll see a major contribution to profit in the next coming years. So it will be -- I don't think it will be primarily investment and whatever will be likely that we'll reinvest. So it's primarily more of a longer-term type of activity. But like I mentioned before, I believe very strictly and very meaningful.

(Operator Instructions) Kunal Randeria, Axis Capital.

The first biosimilar launch in the US should be in May '24. Given that you are yet to file for it. Just wondering how many players do you expect will be ahead of you when you eventually launch.

Denosumab, it depends, of course, on the success of the others, but we should be somewhere between number three to number five, I believe.

Right? And would this be like a late FY26 launch?

It should be FY26.

Got it. Secondly, Erez, 2.5 years back when you share your --

(Operator Instructions) Anubhav Agarwal, UBS.

Yeah, thank you. Just one question on SG&A. So this year will be about 27.5% to 28%. Can you qualitatively give a sense that once I mean, more normalized stage, once the generic grave limit is more normalized, let's say FY27. Once you have ramped up by similar portfolios infrastructure for that, what would this number look like in a rough range?

So when I look at pre-COVID, you guys were doing 29%, 30%. Would you go back to that or would you retain 27%, 28%? Can you give a rough sense in a more normal stage.

Marketing would be the same range even for next year at this point of time, but it will not increase significantly.

Yeah, but next year you still have the support of generic REVLIMID. So I'm just trying to understand, one, let's say, one-off revenues are not there. On a more sustainable base business, what would this -- would you go back to recovered number 29%, 30%? Or would you still be at 28%?

Sorry, just I understand you're talking about growth? (multiple speakers)

Yeah. What I'm just saying, I think as explained earlier, our new products also kick in and thereby like a top line will come. So hence, I know we believe it will continue to be in around that range.

Sure. And you're saying that this is beyond next year as well, same range of 28% continues per year.

Around that range, we cannot give exact guidance for the next half, but it would be largely in that range.

(Operator Instructions) Vishal Manchanda, Systematix.

On rituximab biosimilar launch in Europe, would you be selling on your own or you would have a partner there? And what is -- how long would you take to ramp that up to its full potential?

We will sell on our own. We have a list of the primarily tenders that we know we can participate and hopefully, we'll be successful in them. But let's say, on the B2B side of the biosimilar, it should be relatively fast in according to the date in which the tenders will be open on the -- in Europe, you have also the physician, this obviously will have to do some network, and we will take some time. But yes, there is no reason why we should not see this as relatively fine.

Would this be a $100 million plus opportunity company?

I cannot guide that much. I don't think it will come to this range, but I'm not -- I cannot quote numbers for this.

Kunal Dhamesha, Macquarie Research.

So just for abatacept timeline that we have given, it is for the biosimilar launch, not new indication that our partner is trying. Is that correct understanding?

Sorry, I'm not sure I got the question. On the biosimilar, sorry.

So abatacept, I think we are developing biosimilar, and we have out licensed is biosimilar to [Koia] for the indication of ALS, right? So the launch time line that we are talking about is for the biosimilar version that we are developing, right?

Correct. This is not for the core product, because product will come whenever they will finish the clinical price.

And what stage of development are we on the biosimilar side in terms of the clinical trial or filing.

We are in Phase 3, and we are supposed to year up to submit and to launch it in the end of calendar '26. beginning of '27.

So as of now, let's say, patient enrollment and all will be over? Do we have that details?

I don't know if it's over or soon to be over, but in a very advanced stage.

Next question comes from Surya Patra from Phillip Capital.

Yeah. Just one clarification, sir. when we talk about the GLP-1 API capability. So here, we do say that it is complete end-to-end integrated at our end itself (technical difficulty)

So we have the API. I just want to make sure that we have the API, we are making also the finished product. So in that respect, it's completely back integrated and we are buying the device. If I got the question right?

Yeah. We believe it is capabilities (technical difficulty) complete chain manufacturing capability that we have. And hence, it is a full end-to-end integrated operation for us.

Yes, it is.

Thank you. If there are no further questions, I would now like to 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 Aishwariya or myself. Thank you once again on behalf of Dr. Reddy's.

Thank you on behalf of Dr Reddy's Laboratories Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines.