Dr Reddy's Laboratories Ltd (RDY) 2015 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Laboratories Limited Q4 and FY 2015 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Kedar Upadhye. Thank you and over to you, sir.

Thank you, Shyama. Good morning and good evening to all of you. Thank you for joining us today for Dr. Reddy's Q4 FY15 earnings call. Earlier during the day we have released our results and the same are also posted on our website.

We are conducting a live webcast of this call and a transcript shall be available on our website soon. Just a reminder, the discussion and analysis in this call will be based on IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising, Saumen Chakraborty, our Chief Financial Officer; and Abhijit Mukherjee, our Chief Operating Officer; along with the Investor Relations team.

Please note that today's call is 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 we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call and the webcast. After the end of the call, in case any additional clarifications required, please feel free to get in touch with the Investor Relations team.

Now I would like to turn the call over to Saumen Chakraborty, our CFO.

Thank you, Kedar. Greetings to everyone. Let me begin with the key financial highlights. For this section, all the amounts are translated to U.S. dollars at a convenient translation rate of INR62.31, which is the rate as on 31 March, 2015.

Consolidated revenues for the year are at INR14,819 crore or $2.38 billion and grew by 12%. Consolidated revenues for the quarter $621 million and grew by 11%. It was a relatively moderate quarter considering currency volatility in emerging markets and seasonal moderation forced the high Q3 uptick in US and Russia.

Revenues from our global generics segment for the quarter are $497 million and grew by 13% year-on-year. This growth is primarily a factor of full-year benefit of injectable launches in the US, coupled with significantly higher contribution from Venezuela market.

We have seen the impact of sharp currency movement in emerging markets, though the currencies seem to have stabilized recently. Our India business delivered above market sales growth which was in line with our expectations. Revenues from our PSAI segment are $119 million and grew 12% year-on-year.

Consolidated gross profit margin for the quarter is 54.8% and declined by 240 basis points over that of the previous year. The gross margins for global generics and PSAI are 62.8% and 23.1% respectively. This margin decline captures the impact of unfavorable currency situation in emerging market territory.

SG&A spend including amortization for the quarter is $162 million and decreased marginally over the previous year. As alluded in the earlier call, this reflects early benefit of the operating leverage and steps taken by us in optimizing various cost items.

R&D expenses for the quarter are at $83 million at 13.3% revenue versus 11.4% in the previous year. R&D spend and increase versus sequential quarter is in line with our planned scale-up in activity. In February, 2015 the government of Venezuela introduced a three-tier currency system. We determined that it is appropriate to use the SIMADI rate which is VEF193 per US dollar to translate the net monetary assets other than those which qualify for the CENCOEX rate of VEF6.3 per US dollar. Accordingly, the foreign exchange loss on translation of such net monetary asset of $14 million as on March 31, 2015 is recorded in the financial statement.

EBITDA for the quarter stands at $129 million which is 21% of the revenues. Tax rate for the quarter is 13% however the annual effective tax rate is 21.2% within our guided range.

Key balance sheet highlights are as follows. Our net operating working capital decreased by $21 million during this quarter. The credit period for customers in various markets as well as the days sale outstanding receivals have remained largely same compared to the sequential quarter.

Capital expenditure for the quarter was at $39 million. Our net debt to equity ratio is at 0.03. Foreign currency cash flow hedges for next 18 months in the form of derivatives and loans for US dollar are approximately $440 million, largely hedged around INR60 to INR64.5 to a dollar. In addition, we have balance sheet hedges of $291 million. We also have foreign currency cash flow hedges of RUB1,760 million at the rate of INR1.16 to a ruble maturing over next 12 months.

We are maintaining a close watch on the macroeconomic situation in various emerging markets and wherever appropriate we are calibrating the scale of our business and working capital investments.

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

Thank you, Saumen. Greetings to everybody and I extend a warm welcome to you all on this earnings call.

FY 2015 has been a mixed year for us in our biggest market which is US generic with very strong market position for (inaudible) and injectable franchise. We also enhanced our OTC portfolio by expiring and launching Habitrol, the transdermal nicotine patch. In addition, increasing market shares across key molecules for the notable accomplishment. Initiatives like these help offset the impact of delay in new product approval and the price erosion on base business.

On the emerging markets front, while we delivered strong performance in key countries in terms of local currencies, we continue to track the macroeconomic situation. For the India business you'd notice the trend of predictable and sustained performance. At the company level, we increased R&D spend by design across verticals and entered into a number of synergistic deals across markets. The recent announcement of the acquisition of UCB brand for India business is a step in the same direction.

Now, let me take you through the key highlights for each of our key markets for this quarter. Please note that in the section, all references to numbers are in respective local currencies. Let me start with North America generics, we crossed the important mark of $1 billion of sales in fiscal 2015. The team continues to improve market shares for products such as (inaudible) Divalproex SPR, Lamotrigine XL, Metoprolol ER, Sumatriptan Autoinjector and Ziprasidone.

As per IMS, we are ranked ninth in terms of total prescriptions for the quarter ended 31 March 2015. During the year we continued to strengthen our supply chain which benefited in the form of market share gains that I referred earlier.

For the quarter, sales performance is sequentially flat at $279 million. Considering the seasonal purchasing uptick in Q3, the Q4 performance was stable on the back of sales of Valganciclovir, Sirolimus. Also, we had a full quarter sales of Habitrol brand.

On the emerging market front, Russia revenues are $42 million for the quarter and grew by 3% y-o-y in constant currency. Q4 performance is moderate considering large seasonal sales in the previous quarter. On an annual basis, Russia revenues are $244 million and grew by 13% in local currency. Our team continues to explore the opportunities for portfolio expansion. As per IMS March 2015, our OTC business grew by 17% versus market growth of 12% in constant currency.

Out of the other emerging market geographies, Venezuela delivered better than expected growth on the back of continuing volume upside. The contribution from Venezuela has been quite meaningful throughout this year. We're ranked 20th in value terms and 12th in unit terms, which clearly highlights our endeavor to provide affordable medicines to patients.

Our actions to be guided by the long-term strategic view of this market. However, we continue to watch currency and funds repatriation situation very closely.

India formulations business posted revenues of INR474 crores for the quarter and grew 16% year-on-year. On an annual basis, India revenues are INR1,787 crores and grew by healthy 14%. Our growth and ranking in prescription terms is improving. We believe that steps taken over the last two years on portfolio, training and expansion of field team, new launch productivity and the focus on mega brands have started benefiting us.

The year has also seen key BD deals culminating to closures which will potentially lead to value generation in coming years. We continue to work with UCB team in closing the earlier signed definitive agreement and soon start the integration efforts. PSAI business posted revenues of $120 million and grew 9% year-on-year and 19% on a sequential basis. Considerable efforts are being put to achieve the twin objectives of sales growth and healthy margins. We are also looking at newer technologies and platforms to revamp our product offering and move higher on the innovation scale.

Our development again continues to prioritize on complex generics assets across identified dosage forms and therapies. We are also investing aggressively to build best-in-class manufacturing infrastructure to service future demand across the market.

You'd have noted the announcement of filing of three NDAs by our proprietary product team. This key milestone towards commercialization of the differentiated product formulations pipeline. The interaction with our senior team during scheduled Investor Day on 18th May at Hyderabad will further help in clarifying on the commercialization potential of our pipeline. Thanks. And with this, I now open the call for question and answers.

Thank you very much, sir. Participants we will now begin with the question-and-answer session. (Operator Instructions) [Manoj Kot, Health Co.].

Just a couple of questions on facilities updates. One is, can you provide an update on the latest communication between yourself and the FDA on your API facility?

So we had the audit during the middle of November. We responded. We sent the first update probably in January if I recall right and then in March or April we sent the second update as well. So we are continuing to send updates to FDA. Beyond that we can't provide any further this thing. But by and large the commitment which we had made in our first response are on the verge of getting closed.

Okay, and It's my understanding that you started the site transfer process for Esomeprazole. So can you confirm for us whether new bioequivalent studies are necessary for the site transfer?

We have completed the site transfer. We have validated and submitted our update to FDA from new API site. As far as bioequivalence is concerned, we have no idea whether this would be required or not. This is a tech transfer like to like same process, same raw materials, similar equipment into another plant.

Okay, great. And then last question. So, you mentioned that the FDA had provided an update. Just wondering, have you responded. I'm sorry, has the FDA responded to your update?

Not yet.

Is there any general timeline on that?

We have submitted and we are in touch. There is one or two things which they have asked which of course being responded as [we speak].

[Pratheek Bolsario, Capital Metrics]. There seems to be some problem with his line. He is out of the queue. We will proceed with the next question. Nimish Mehta, Research Delta Advisors.

Sir, on the Srikakulam update, so based on that if you can give us any color on how many products you expect to launch in this financial year. And like if it is again cleared let's say in the first half then how many and if not, or if in the second half then how many that kind of would be very helpful.

In generics business, the total numbers wouldn't matter. I mean, first of all it will not be fair on my part to give you a number of products which we will launch because we don't know how many will get approval. But what is important is which one of those are going to get approval and probably a few, maybe four or five which are meaningfully important, meaningfully in terms of scale and whether we get approval of those and one we just discussed in the previous question and a few of the others. We wouldn't like to go into specifics into this, few are in litigation which you can take a look, but otherwise we wouldn't like to give further details on this.

I see. I understand. So we were expecting to launch Nexium as for the last quarter, so that color would be helpful. I mean, I know you don't --

We just explained that we filed in March from another site after tech transfer, similar process, similar equipment, similar raw materials. Beyond that we don't know how this will progress. This is completely for FDA to decide how they view it and how quickly they sort of take it ahead.

Understood. Okay. So next question on -- in the press release today you also mentioned that you had realized or recognized some revenue from Curis deal with Aurigene. So that has mentioned as about $23.5 million, but will be recognized upon Aurigene's realization of the work. So how much is it for the quarter and how can we forecast it?

For Curis deal there was an equity participation in Curis for the [text] that we have given to them. And there have been some appreciation of the Curis stock, but whatever the mark-to-market valuation of that will normally sit in the other comprehensive income in the balance sheet unless and until you decide to dispose of that and then only it can come in P&L, otherwise it remains in the balance sheet.

And if there are other milestones, then those again comes under revenue recognition consideration but that also doesn't come straightaway. It will be recognized over the period of time that the services are to be performed by Aurigene.

No, I'm talking about the equity that is given to Aurigene because of the deal and that has been -- as per one of the notes in today's result it is mentioned as being recognized and that's worth about $23.5 million, but I couldn't understand how and will it be recognized. I'm referring to that, I'm not referring to the mark-to-market gains or any of those things.

What has been written in the note is that the fair value of this equity share on the date of the agreement was $23.5 million.

And it has also been recognized as a part of revenue also written there.

Nimish this note in the (inaudible) that you are referring to, it talks about the fact that we have bought this equity under the deal. There is no recognition in this quarter. Typically this upfront payments are recognized till the time you have a continuing management involvement with the partner, which is a period as long as 8 to 10 years. So in this specific quarter there is no recognition of income from this deal.

I think it's written in the note very clearly that recognized over the period in which Aurigene has continuing performance obligation. (multiple speakers)

And that would be about 8 to 10 years over the period of --?

We cannot disclose specific time frame, but yes in a ballpark figure you are right.

Neha Manpuria, JP Morgan.

My first question is on Russia. We had mentioned in the last quarter that we have taken price hike there. Now with the currency situation stabilizing, have we seen market share in existing product given some of our peers mentioned that they haven't taken price hike to avoid market share erosion. Just wanted to get some color on underlying growth in terms of volume versus value share.

The impact of the economy has certainly had a bearing on the way of purchasing, the way patients are purchasing medicines, and there is certainly some erosion in terms of moving from brands to generics and stuff like that which has some impact, not just us, but other companies as well.

But this -- the reversal of currency and its impact of economy, I mean it's yet to play out. It is just sort of recovering recently. Let's see how things go. We stay put in the geography, we stay confident. And Russia I think the major part of the turbulence is hopefully behind.

Fair enough, sir. My second question is on the R&D spend side. I've noticed that nowhere have you mentioned how should we look at R&D. Is it still 11%-plus or would you take that up further? And second, housekeeping question on R&D, what percentage of the R&D in FY 2015 was genetics versus innovative and biophramacueticals?

So the proportion remained almost same. I mean 60% of our R&D spend is still for global generics including API. And 40% is towards proprietary products and biologics. Our ballpark figure of R&D spend is around 12%. So this year we ended it with 11.8%. It can fluctuate a bit because this year -- this particular quarter it has gone up quite a bit because of also with the three NDA filings right at the end of the quarter.

So it's fair to assume that it would be close to the average that we have done for the year?

Yes.

Okay. And my last housekeeping question, the FX loss related to Venezuela, the translation loss, is that across various lines above the EBITDA or is this below the EBITDA in the other interest income line?

No, EBITDA got impacted. Otherwise our EBITDA would have been INR890 crores this quarter.

Okay. And this is across the lines in above the EBITDA.

In the ForEx line.

Anubhav Aggarwal, Credit Suisse.

One question on the European market, your presentation mentions that you launched some new products and the sales seems to be going up. Can you talk more about the launches and which geographies this launches has happened?

So we are present in two countries. The launches were in these two countries and these are CNS drugs which went off patent, very specifically (inaudible). Having said that, this is certainly a good sort of beginning of -- we look forward to a much more sustainable outcome from Europe. But the main part of the strategy would hinge on some of the similar products, injectables et cetera which we are filing for US to come through in due course in Europe as well and will be not as lucrative as US, but certainly would provide a better and more sustainable picture.

So this was largely UK, is it?

UK and Germany.

And this was outside the insurance contract. This was in Germany outside the insurance contract, right?

Yes. Outside the tender. Yes. So insurance is -- people will have insurance. You asked outside the tender --

And just one question on this margin decline sequentially for global generics segment, you mentioned the currencies had a role to play. I completely agree with that. But the extent of margin decline does suggest that it cannot be that -- like 300 basis point decline sequentially cannot happen unless your US margin gets impacted as well. So anything particularly in US got impacted, some of the key products or anything more than the usual inventory write-offs, something?

Of course there will be some inventory write-offs and those are there. But bulk of the thing comes from the Russia and CIA there is a major one. And then of course this Habitrol acquisition has also had some impact.

So you are saying that Habitrol margins are significantly lower than the average gross margin?

Gross margins are lower, Anubhav, but net margins are [attractive].

And one more clarity on Venezuela, so your last repartition was in December, 2014. It's been almost five months. What's your strategy here, how long do you wait for (inaudible)?

Last one we received about 10, 12 days back. So it has started again. In between there was period for which we were not --

And, sir, what will be your exposure which is outstanding? When you received 10 to 12 days back what's the exposure which is outstanding now?

Around $37 million, $38 million.

Mehul Sheth, PhillipCapital.

This is Surya and thanks for this opportunity. Just wanted to know about this -- Venezuela again what was the ForEx loss that we have booked? Whether this is relating to this particular quarter or this is for the entire year?

So this as on a particular date whatever balance sheet that you will have in our Venezuela subsidiary. In terms of translating to the consolidated result of the company we have decided to take a SIMADI rate instead of the official exchange rate of VEF6.3. So this has been our decision to take that as an abundant precaution.

On the ForEx thing, again one clarification. For the full year there is in the note also you have mentioned FY 2015, there is an incremental ForEx gain of something like $1,430 million and ForEx loss relating to Venezuela $843 million. So all total -- and you are saying this Venezuela split is in there in the above the EBITDA line.

There is a ForEx thing that have multiple things that we do. One is the cash flow hedge that we do, another is a balance sheet hedge what we do. And balance sheet hedging is done more dynamically whereas a cash flow hedge for different markets, we have different kind of a policy. For US dollar, we do up to a maximum 18 months kind of thing between 40% to 60% of forecasted cash flow. And for Russia, we have taken a view that we will go up to a maximum of 30% of forecasted cash flow or a maximum period of 12 months. But the balance sheet one, since it is dynamically managed almost squaring up at the end of the month, so there would be a lot of ForEx gain which happens out of the buy and sell decisions that you take at the end of the march.

Okay. So is it fair to say that, okay, the net of these two amount is the kind of net impact of a ForEx swing in the numbers for the full year?

Yes, Surya, yes.

Okay. And regards injectable, I must say that, okay, congratulations for attaining top 10 position in US during calendar 2014 as per IMS data, but whether it is the three lead product injectables that is (inaudible) these three are real contributors towards this or some other meaningful injectables are also there from our side?

So I think we referred to the overall prescription, it includes pretty much everything.

Okay, fine. And may I know what is the kind of revenue that we have booked from the Habitrol this quarter?

Specifically, this is for three months. But broadly we are in line with -- broadly we are in line with the overall yearly projection which we have given you.

$60 million annually is the number what we had given that is in line.

[Yes $60 million], yes, give or take.

That's right, we are on track.

Okay. and the margins here, EBITDA level, it would be similar to the kind of blended margin that we are indicating.

Yes. So, we won't disclose that, but quite attractive margins and quite lower payback period that's what we clarified last time, Surya.

Just last one question.

Can you please join the queue, Surya.

Okay, fine.

Thank you.

Girish Bakhru, HSBC.

Just on SG&A, I know you have commented this control has come from various efforts, but how much, say, benefit would you have got from Ruble movement, particularly from Russian territory and where do you see this particular SG&A movement going with UCB absorption?

So overall this year the SG&A for the organization has been well controlled, I must say, partly there is a contribution of the currency in the emerging market, but beyond that I have been, personally as a CFO, I feel that our control on SG&A has been better. We need to sustain it.

But would you be able to quantify like how much of the costs are in Rubles in terms -- ?

Girish, we can share that on an offline basis.

Right. And from UCB have you added more people in India?

UCB not yet closed. We are hoping to close during the first quarter.

Right. And just lastly on the Srikakulam ANDAs would you be able to quantify number of pending ANDAs, of 68 how many are from that site?

We won't disclose that, Girish.

Thank you. Before we take the next question a kind request to the participants, all are requested to limit their questions to two at a time. For any further questions kindly come back to the queue. Ranjit Kapadia, Centrum Broking.

My question relates to European market. We have seen a very good growth in both global generics as well as in PSAI businesses. Is there any dramatic change in the situation or is this because of the new product introduction only?

No, entirely due to new products. And Europe, PSAI always used to be well. In between it had fallen, it has come back to an extent but otherwise the other uptick in the generics side is a couple of products which I mentioned.

And in PSAI we have introduced any new products?

Ongoing basis, we do that, on an ongoing basis. The business model is on continuous sort of renewal of products. So we keep filing DMFs and as and when we get traction we keep adding. But I think the [uptick around is] some of the CPS billings actually.

Nitin Agarwal, IDFC Securities.

Sir, my question is on the R&D costs. Given the fact that right now we have an uncertainty on our US growth given the issues around the new product launches. I mean, how are you viewing R&D cost calibration going forward?

I don't think we will calibrate that because this is the future that we will have to invest into R&D, will have to crack the high entry barrier product, so that's the future. And these uncertainties, we'll have to get over with actually. So you can't run a business based on uncertainty will calibrate R&D costs, I don't think that's the right way to look at the business.

But just purely from a mathematical perspective, if during the year our US business, the new approval don't come through are we looking at a potential case where R&D cost can shoot much beyond the 12%, 12.5% that we have been guiding to?

Why should it not come through, I mean are you referring to one of the six factories we have or other or you're referring to FDA in general forces you for a slowdown of approvals, which one --?

I was referring to I guess for the last six months post the inspection and issues coming in through Srikakulam, we haven't had any new ANDA approvals. So just wondering, if it is having an impact in terms of overall approval procedure, I mean, from an overall approval scenario for us as far as any fresh ANDA is concerned.

The biggest, I think, hit in form of delay is Nexium as I have -- we spoke about it. We did the tech transfer. Beyond that, is it very, very significant, the answer is no. Of course we are assuming that in a reasonable time frame we will be able to sort of get back.

My second question is on the Venezuela. So when we're booking revenues now, at what dollar rate are we booking these revenues at and what dollar to bolivar rate?

It will be in the official rate. If we are exporting our products from India to Venezuela, it will be translated into the official exchange rate at the three bolivar deals, the adjustment that we have done on the balance sheet position as on 31 March.

So, it will bring at VEF6.3 per USD.

Yes.

And so you don't see a risk to this revenue assumption, revenue booking assumption?

No, if you would have -- (inaudible) would have taken appropriate measures. We have proactively taken appropriate measure for the balance sheet. Here we are getting delayed repatriation, but we are getting money.

On this last one, on the -- so you have -- if I remember in the December call, we mentioned our exposure in terms of repatriation was $20 million, it's gone up to $37 million, $38 million now in terms of the amount which is at risk. What is essentially our tolerance? I mean, can we go far higher than this, quote-unquote value at risk which is there in the market or money at risk?

We are in a very profitable market. So normally the way we celebrate is our inflow from that market to cover up the cost of good that we are turning to that market.

Let me also add here. There of course would be -- it'll be a little more dynamic decision, no doubt about it. But having said that, if you recall, I just mentioned that in terms of our rankings, we are 20th in value, but 12th in units. And in our discussions with Health Ministry which is very, very -- going on in an ongoing basis, this is noted that while as many other companies are taking price increases in terms of units, some of them are flat or declining and yet growing in revenue, ours is not the case, probably the only in the IMS list of first -- top 20. So those are noted and we are putting in a lot of efforts. We are extremely hopeful and bullish that our dominance in the market will be retained and this will not come in the way. Finally it's human medicine.

Chirag Talati, Kotak Securities.

First question, similar to Venezuela given the sharp devaluation in Russia on a Y-o-Y basis and year rates, why is there no impact on foreign exchange?

No, you will have to understand in Russia there is no confusion about an exchange rate as on a particular date. There is only single exchange rate. In Venezuela, there are multiple exchange rates and there is also a black market rate.

I understand that, sir. My question is is there a translation loss on Russia given the sharp devaluation on an annual basis because you've never seen that in any of the quarters?

Chirag, the receivables are hedged. If you are talking about the balance sheet translation loss, the ruble receivables are hedged towards separate loan. So you won't get it because it would get offset in the P&L. And in the P&L, the value of ruble being lower is reflected in the lower sales and lower profits anyway. So are you referring to the balance sheet asset translation?

Yes.

(inaudible) and as I explained since it is hedged.

Fair enough. Secondly on Venezuela again, are you hearing any chatter of a full conversion to SIMADI or given the kind of economic situation there in terms of ForEx reserves, how long do you think it is before there can be a full-blown currency crisis or this VEF6.3 can really go down to any rate?

Beyond VEF6.3, there is a [CCAD] rate, which is at [VEF12]. So one can apply and get an auction on that rate as well subject to approval. But we have taken the SIMADI as again, I'd say there is an abundant precaution to reflect the balance sheet. So what will happen to Venezuela, it will all depend on what stand government takes in terms of official exchange rate devaluation whenever they would like to do it. And of course the entire Venezuela economy is primarily dependent on the crude oil price movement. So that way so far we have not seen Venezuela government defaulted on any loans or anything they have taken from anywhere. But, yes, there has been a delay in sudden repatriation that there were a few months where we didn't get anything but we have again started getting some. I clarified in a previous question.

If I understand correctly this $14 million-odd of ForEx loss that you have booked, this is on -- what does this pertain to? So is it net current asset exposure or is it just cash that was left in Venezuela that you're no longer able to repatriate and hence this conversion or it's just the net current asset situation that has been translated?

So it will be net monetary FX which is inclusive of cash, inventory, minus thing. So that way it gets computed.

But no receivables?

Receivables are included, Chirag. It's net monetary assets like what Saumen said, cash flows receivables minus third party and payables to India.

But then if you are confident of getting your receivables converted at the VEF6.3 rate why this translation and why this -- the point I'm getting to is why is there a disparity between the P&L rate and the balance sheet rate if you are so confident on getting your money back at VEF6.3?

There is any import that is happening to Venezuela is as per the approvals which the ministry gave and they are obligated to give us in the official exchange rate. But any profit that you earn which actually will be in the retained earnings in the balance sheet, that similar obligation may not be there. And that's why it calls for two different set of accounting treatment.

I see. I will just get back to you offline on this. I am not sure if I fully understand. Thank you.

Okay. Fine. Thank you.

Sameer Baisiwala, Morgan Stanley.

Abhijit, just a quick clarification. If I heard you correct in the context of Srikakulam, did you say that you will be able to get back in a reasonable time frame? And I guess you were referring to the product approval starting back again.

Yes, I said we hope to get back, hope meaning all endeavors in place. We are putting -- you heard me that response, first update, second update, broadly the commitments are getting to a closure. So there is likelihood that they may like to audit. But, beyond that, if anyone cares, so I am just putting it there.

Okay. And when you say reasonable time frame, you are referring to, let's say, three to four months that kind of order of time?

Honestly I don't know. So all we're doing is whatever we can do we are doing from our side. Everything what we can do we are doing from our side. We will hear back, I guess. I mean, I'm sure we'll hear back. So we are doing whatever we can do.

Abhijit, you also mentioned that there are four to five meaningful product approvals which you expect this year subject to the FDA clearances. So all four of five of them are contingent on Srikakulam or a couple of them may not be?

Most cannot be. But in general approvals are -- I'm sure, I don't know what you're hearing from others as well, it's still yet to fully pick up certainly for us. So not everything is almost -- Nexium is probably the biggest from -- out of that list from Srikakulam.

But are all of them from Srikakulam?

No, as I said, no.

He said most are not from Srikakulam.

I said most are not.

Not from Srikakulam. Anyway, Sameer, Abhijit cannot give a definite time frame and all but most likely there would be a reinspection or something which is going to happen.

Fair enough. Sir, one last question. Sir, on Venezuela if my math is correct you probably sold about $135 million-odd in fiscal 2015. What could this number be next year, just directionally, if you can?

I told you earlier, Sameer, that we are calibrating. If you would have left it to the local marketing and sales team, the growth potential is very high there. And so we are celebrating against the repatriation flow which is happening and what kind of exposure we should have. And so we definitely hope to grow, grow well, but at this point of time I cannot give any guidance.

Okay, excellent. I have a few more questions. I'll get back in the queue.

Arvind Bothra, Motilal Oswal Securities.

I just wanted to pick your brains on your M&A strategy. You've done a couple of small deals in the recent past, but your balance sheet is far much healthier than you've ever been. Are you looking at big ticket transactions, particularly in US that you have a high focus on or any other particular markets?

When you say big ticket --

$500 million plus.

Okay, so we cannot rule out. There are multiple diligence that we do at any point of time. Everywhere we may not be successful, but definitely we have M&A as a priority thing in our agenda and we have the capability to fund such kind of M&A.

Second thing on the same line, just wanted to understand on the US market with a significant buyer consolidation and now we are also seeing possible consolidation in the supplier side, Teva, Mylan and the like, how do you think the market is evolving in terms of Generic pricing environment? How has it been, how do you think it may evolve with bigger players having bigger market share?

So the market saw a spate of requests for proposals this year and we were -- and this will keep coming probably on an yearly basis or 18-month basis. So a good question. We were apprehensive. We seem to have weathered it reasonably well. So we'll see how it goes.

I wouldn't be very pessimistic. Initially we were probably very apprehensive. But we would watch, but is it going to sort of be very, very detrimental to the business, probably not. Having said that, nothing can replace good products. Eventually if you're in commodities, you are in commodities. If you can crack products which are not fully for all, then I think the stickiness is much more.

Okay. And finally just a small one, on the proprietary products, anything particular in this quarter, also in the full year that we've seen slowing traction?

In terms of the current sales out of the acquired brands in (inaudible) there have been some adjustments due to some sales returns and all which have affected.

And you think pick-up from here to a meaningful level in the coming quarters?

Yes, we are quite confident on that.

Abhishek Sharma, IIFL.

I just had one. So, on a sequential basis, the US -- North America generics seems to have grown only by $4 million. This is despite Habitrol coming in for the entire quarter and Valganciclovir launch late last quarter. So just wanted to understand, has there been some impact on one of your key products or is it just broad based price erosion which has led to this on the base business?

You are talking of Q-o-Q?

Right.

Yes, Q-o-Q what happens is and we've mentioned this -- during the calendar year closing the injectables pull is high from the customers which makes some difference. It happened last year. If you look at Q3 and Q4 of North America last year it will provide you actually we declined to a reasonable extent last year. The decline was made up because of partly Habitrol, partly Valganciclovira, but otherwise if you see Q3, Q4 last year, that will provide you the answer of the seasonality of the injectables.

Just one more. How many products have you transferred out of Srikakulam?

Only critical one is doing that. You don't do it for each and everything.

Right. So the number would be around four or five?

Yes, less, (multiple speakers) maybe three.

Sure. And these are all [CB 30s] that you are attempting?

Our interpretation is that, but let's see. I can't say whether it's CB 30 or what. But we are keeping the same process, same raw material, similar equipment and other plant. We are trying to do -- put it that way and providing the data. Beyond that I think there is no clear-cut definition on that.

Saion Mukherjee, Nomura.

Sir, on an earlier question you talked about M&A as a priority. I think after some time we are hearing from you on the M&A side. So can you just throw some light how should we think about from a next two, three-year perspective which are the geographies, which area, what is the broad thought process around M&A?

So we are on the lookout in the branded markets, emerging markets from two angles. One is acquisition of brands and two is one or two select geographies where we are thinking of trying to make an entry. We'll try and look if anything is meaningful, anything is available. So that would be one stream of activity.

On the generics market, it would be opportunistic and capability driven. So we will not -- just for the sake of turnover to do a large deal would probably not the philosophy of the Company. But if there is good assets coming, there is intelligent way to look at product that is being spotted, we will certainly be -- as in the case of other peer group companies, we will be most keen to look at those.

Sir, my second question related to Venezuela. Just one clarification. You talked about this contract rate. How easy it is to take an increase on that just to ensure that we kind of keep most of the profits here through transfer pricing?

You definitely need to get approval because -- so then you'll be able to export in that specific rate. And to give you some ballpark thing in a year, maybe you can do it three or four times.

Three or four times. And how much would be the increase, sir?

It depends, it cannot be like -- you cannot double dot something like that. If there is a reasonable percentage increase, it is fine.

Right. Because I would understand the end market prices would have gone up significantly, right, so I think does that facilitate increase in terms of transfer prices?

But Abhijit clarified that our major growth has been the unit growth (technical difficulty) not by really too much pricing. But at the same time there have been some price increase and there has been even in the transfer price also, there has been an increase, but we are doing the best possible way. But approval is possible and I will give you some ballpark figure of how many times you can do it in a year.

Sir, one final question if I may, just on Copaxone, anything more you can share from where we were in the last quarter, you have seen the response Citizen Petition there, how do you feel about it and any timeline that you can share?

So it's work in progress in terms of -- Citizen Petition may not be the biggest hurdle. We have some work to do which we're doing the work. So there is we are working against a specific timeline. Wouldn't like to give you -- but it is certainly not going to be within a quarter or two.

But do you think it's possible by end of this fiscal?

You mean approval?

Yes.

No. Unlikely.

[Pratheek Bolsario, Capital Metrics].

On the US FDA front on overall Dr. Reddy's point of view and the overall Indian companies' point of view, how is the thing going forward because there is a general feeling that US FDA is slowing down approvals for Indian company?

That's not a full and fair perception. I think in general this restructuring into the new way of looking at the files, through the PDUFA process, which has been outlined has slowed it down because there are commitments and there are entry barriers and there are specific conditions laid out so that settling that down is taking some bit of time and that is taking a toll on the earlier filing.

So since the new filing at least the acceptance or rejection or initial quick queries towards perception is coming as per -- pretty much as per the new commitments. So just to catch up with the new filing, I think the toll or the impact is coming on the earlier filings. Let me put it that way.

Okay. And that is the same case for the Nexium and any other big filings as well?

Yes, I guess so, but more and more we will see that the approvals or the review process would be based on the requirement of the healthcare system there and not just based on filing dates and numbers et cetera so they would prioritize.

Okay. And the last question is on the pricing front, sir, in US as well as in Europe in the generic business, how is the scenario working out for the bigger products which Dr. Reddy has and like the scenarios for the last two, three years and the scenarios if you can guide something for future?

So two things. Overall injectables we are doing okay. As far as the RFPs concerned in the earlier part of the discussion, I mentioned that we have by and large weathered okay. There is of course erosion, single-digit erosion you cannot avoid, percentage erosion, but otherwise life is moving on. This will be part of generics business. We will have to keep launching to be able to grow well.

Correct. And a small question if I may, sir. On the US FDA front only. Sir, is there any way or anything you can give a color on like the next approvals coming like -- rate of approvals, the faster rate of approval coming from US FDA?

Difficult. I didn't understand your question. I mean I mentioned how it will impact the (multiple speakers).

Yes, correct. But can you see the dynamics changing in the future?

Full efforts are on from the other side. So the new filings as you said we are getting responses quickly. The older files are getting impacted. So what will happen probably is the important older files will get again more prioritized.

Okay, no problem. Thank you very much. That was helpful.

Sameer Baisiwala, Morgan Stanley.

Saumen, a quick one on Venezuela. What is the total net monetary assets lying then off which how much did you take through the SIMADI rate?

So net monetary asset is just around $15 million or so. So the that's why when we have converted, so that is what is the impact.

So you have converted the entire net monetary asset?

Net monetary asset, you have converted?

After taking out the payables to India, Sameer. So when you take the cash receivables and --

Payable to India is receivable from there, right? I don't know how you define the payable?

It's a subsidiary operation. It's a subsidiary, so whatever they are supposed to pay to India gets reduced.

So let me clarify briefly. This is a translation law of the balance sheet items from bolivar to INS. We felt it may not be appropriate to convert everything at VEF6.3 rate from bolivar to dollar to get it into the functional currency level. So we decided that whatever the net monitory asset that means basically one way to look at it will be whatever retained earnings that you are having in your subsidiary, you reduce that to the extent that there is a working capital anticipated increase that you will have and then you take that at SIMADI rate. That is what we are applying. Does that clarify?

Well, it does. But I think I'll take it offline too to get more clarity.

Okay. Fine.

And the second question is just a general commentary if you can that excluding Nexium for fiscal 2016 outlook for the Company, both the growth rate as well as the margins, (multiple speakers) business trend?

It will definitely depend a lot in terms of what kind of financial stabilization happens in Russia and CIS and at the moment it looks good at almost RUB1.26 to Indian rupee but if it goes back to less than RUB1, then definitely to that extent growing in emerging markets will be very tough.

And otherwise India is one market where one can maybe predict much quicker and where we definitely feel will be growing above the market growth. So whatever market growth can happen, we can grow a few 100 basis point more growth. And we are trying to revise on the PSAI part as well.

So overall, as we do not give guidance, but we definitely are going to grow, but what is the rate of growth that we will have seen.

Thank you. I now hand the floor back to Mr. Kedar Upadhye for any closing comments. Thank you and over to you, sir.

Thank you all for joining Dr. Reddy's senior management for our Q4 FY15 earnings conference call. In case of any additional clarifications, please feel free to get in touch with Investor Relations team. Thank you and good day.

Thank you, sir. Ladies and gentlemen, thank you for joining us. You may now disconnect your lines. Thank you.