Dr Reddy's Laboratories Ltd (RDY) 2011 Q2 法說會逐字稿

Ladies and gentlemen, good day, and welcome to Dr. Reddy's Laboratory Q2 FY '12 Earnings Conference Call. As a reminder for the duration of this conference, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). Please note, that this conference is being recorded. At this time I would like to hand the conference over to Mr. Kedar Upadhye. Thank you, and over to you, sir.

Good morning, and good evening to all. Welcome to Dr. Reddy's Earnings Conference Call for the second quarter ended September 30, 2011. 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.

The discussion and analysis in this call will be based on IFRS consolidated financials. To discuss the business performance and outlook we have today G.V. Prasad, our Chief Executive Officer, Satish Reddy, our Chief Operating Officer, Umang Vohra, our Chief Financial Officer and 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 express 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 webcast. After the end of the call, in case and additional clarification is required, please feel free to get in touch with Raghavender, Milan Kalawadia, or myself. I would now like to turn the call over Umang Vohra.

Thank you, Kedar. Good morning and good evening to everyone. I welcome all of you on the call today. I will discuss the key financial highlights. The convenience dollar rate for the quarter is at INR49.05 per dollar and the average dollar rate for the quarter is at INR45.80.

Due to this high variance, the convenience translated reported numbers and the local currency numbers will be different. For the purpose of my section, all the figures are at the convenience translated rate, which is at INR49.05. However for the purpose of the business overview section that Satish will address, there are rates that will be used will be the average translation rate at INR45.80 to the dollar.

Our consolidated revenues in this quarter grew by 21% on a year-on-year basis to $462 million. Year-on-year growth for the first half of this fiscal is at 19%. Global Generics segment recorded revenues of $329 million, which represents a growth of 18% for this quarter. Pharmaceutical Services and Active Ingredients, which we shall call as PSAI in this call, recorded a healthy growth of 28% to $121 million.

Our consolidated gross profit margin for this quarter is at 54%, and the margins improved slightly due to a favorable business mix. Gross margins for Global Generics are at 63% for the quarter, marginally lower compared to the previous year. Gross margins for the PSAI segment are at 28% for the quarter versus 22% for the previous year. This improvement in margin in the PSAI segment is on account of healthy growth in the sales and product mix.

SG&A expenses, including amortization for the quarter are at $147 million, an increase of 26% over the previous year. This increase is attributable to the following factors, higher freight costs, both on account of increasing sales volumes as well as rate increases, inflation linked to increase in manpower costs across businesses, the incremental cost at Bristol and Shreveport manufacturing facilities in the US where we anticipate a higher level of sales in the second half. The step-up in the OTC-related selling and marketing costs in Russia as compared to the previous year, which is in line with our strategic intent to expand the OTC portfolio.

Sequentially, part of the increase in the spending on account of depreciation by INR1 versus average USD rates between quarter one and quarter two. And this represents an approximate value of approximately $5 million. Adjusting for the interest on the bonus debentures of approximately $2.4 million and the reversal of the excess provision of $2 million after volunteer retirement scheme based on final offers made.

Our EBITDA is at $104 million and represents 23% of sales and has registered a growth of 20% over the same period in the previous years. Adjusted EBITDA, therefore, for six months is at $193 million, 22% of sales and grew by 23% over the previous year.

The effective tax rate for the quarter is 17%, which is in line with our full year planned base business tax rate. Adjusted profit after tax for the quarter is at $63 million and is at 14% of sales. Adjusted profit after tax for six months is at $150 million and growth, 13% over the previous year.

Key balance sheet highlights are as follows. Our operating working capital has increased by $84 million from the previous quarter. The increase in inventories is by $24 million, and is largely in anticipation of near-term launches. The increase of $70 million in receivables was largely on account of higher sales in this quarter and the revaluation of foreign currency receivables at the closing ForEx rates, which is almost 325 basis points higher than the average rate at which the revenue are booked. Capital expenditure for the six months is at $73 million.

This quarter, we have borrowed $220 million at LIBOR plus 185 basis points, which we believe is a good rate for us. And this is a long-term loan. Our borrowing shall help us structure a short-term to long-term mix of borrowings and allow more flexibility for growth. We expect to use these proceeds to repay some of our short-term working capital loans and create more flexibility in our business model.

Foreign currency cash flow hedges taken to cover the volatility on net exposure in the coming six quarters in the form of derivatives and offsetting loans are approximately at $775 million, hedged largely in the range of INR45 to INR49 a dollar. In addition to these, we have approximately $280 million of balance sheet hedges of net foreign currency assets. With this, I now request Satish to take us through the business highlights.

Thank you, Umang. The robust performance across most of the markets in this quarter has set expected strong foundation for the second half of this year. Strong delivery in North America and Russian markets helped Global Generics grow by 15%. We're also pleased to see an intensive growth in our PSAI segment on the back of both new launches as well as an improving order book status.

I will now cover the business highlights for each of our key markets and our performance analysis is based on the respective local currencies. Starting with North America Generics. We recorded a robust revenue growth of 45% with revenues of $137 million for the quarter. We're quite pleased to see consistent sequential growth for the last six to seven quarters. This scale-up was possible only due to a periodical new product launches, as well as the gradual market share increase in existing products.

For this quarter, Lansoprazole, Fondaparinux, and Omeprazole Magnesium OTC were the key products which drove the growth. We believe the initial market share uptake in Fondaparinux is at for our expectation, and we expect to ramp-up our manufacturing volumes and increase the market share gradually for the next coming months.

As we had mentioned in our earlier calls, we expect North America business to do even better in the second half of the year on the back of new customer orders in Shreveport, scale-up in our [vista] launches, and other new launches for market share improvements.

This quarter, we have launched five new products. During the quarter we filed 4 ANDA, and cumulatively, we now have 76 ANDAs pending approval with the USFDA, out of which 40 are Para IVs and 11 are First-To-Files.

Moving on to India. Revenues for the quarter are at $76 million, which represent a year-on-year growth of 9%. The current quarter's growth was at par of expectation for the gradual improvement. For the month of September, we are seeing some encouraging secondary sales trends.

Dr. Reddy's September month IMS growth is around 14%, which is in line with the market growth. And we have also gained the rank for the month. On the operations front, we are taking the necessary steps internally to address some of the weaknesses and we hope to do better in the forthcoming quarters. Most of our top lines did well, growing much above average domestic business growth rates.

Our Biosimilars portfolio continues to do well and it grew by 22% over the previous year. During the quarter, we launched three new products. Our Russia business continues to do exceedingly well, with revenues of $63 million for the quarter and year-on-year growth of 30%. Our [secondary's] seen growth of 20% for the 12 months ending August 2011 is much higher than the industry growth of 10%.

Our rank in Russia currently stands at number 12 compared to number 13 last quarter. This growth continues to be largely driven by volume growth across our portfolio, especially in the OTC segment. This has been made possible due to brand promotional investments in the OTC space, which may have impacted our margins slightly, but this is a strategic move from a long-term growth perspective. During the quarter, we have launched one new product in Russia.

Talking about Global Generics, revenues are at EUR33 million. This is a decline of 17% over the previous year. Revenues from Germany for the quarter are at EUR18 million, a decline of 33%, largely due to the continuing tender-based product pricing pressures. As you are aware, the supplies to the UK's tender, which have commenced in June this year, have taken time to scale-up, and the full effects will be visible in the next quarter. Revenues from the rest of Europe grew by 17% on the back of new launches in the UK and growth in the out-licensing business.

Moving now on to the PSAI business, revenues for the quarter are at $130 million, an impressive year-on-year growth of 30%. Active Ingredients business grew very well on the back of new launches in Europe, while revenues from the Pharmaceutical Services grew on the back of an improved customer order book status.

We are pleased to see a good recovery in the Services segment. Our pipeline lock-ins for the Active Ingredients segment is encouraging, has been built to a certainty of a steady performance for the next 12 months. During this quarter, we have filed 11 DMFs globally, including three in North America, two in Europe and the rest in other markets. With this, the cumulative filings standards, 506, globally. I now hand it over to Prasad for his comments.

Thank you, Satish. Firstly, let me take the opportunity to wish you all a very happy Diwali. I'm very pleased with this quarter's performance. And I'm also happy to announce that as we are speaking now, (inaudible) Dr. Reddy's have launched Olanzapine in the US with a 180-day exclusivity, which is no longer anticipated in high-value demand (inaudible).

As we had mentioned in an earlier call, this year is critical for the scaling-up of our portfolio and to build a base for achieving our fiscal FY -- fiscal 2013 aspirations.

In quarter two, we delivered a sequential growth of 15% and demonstrated the capabilities to scale up across our focus markets. The second half of the fiscal is expected to be promising, led by a higher mix of the US Generics business on account of new launches, expected market share improvements, and continuing growth in the PI and Russia.

Over the last few years as we have been able to demonstrate higher success from our limited competition, or complex generic opportunities, there has been on a constant shift in our approach towards the generic R&D. The emphasis now is more towards quality and complexity of our filings rather than oral coverage of the patented filings. Our objective is to increase the share of complex generics in our portfolio, and consequently, we are calibrating our R&D spending in line with this.

On the regulatory front, we are pleased to inform you that in September, two of our manufacturing facilities, our Bollaram plant [in a basic] plant had successful FDA inspections with no 483 observations. With reference to our Mexico facilities, the response to the warning letter sent by us is currently under review. We are providing periodic updates to the FDA and on the activities committed in our response letter. And those activities are pretty much on track and progressing as per our expectations. Upon satisfactory review of our response, the FDA is expected to reinspect the plant in the near future.

The [events] of the strategic market for us in [India], India wants to become a global leader in the generic industry. The effort on our collaboration with Fuji Film for this market is picking up pace. And both the management teams are currently discussing detailed business and operational plans. And we expect to sign investment (inaudible) agreement by the end of this fiscal year. With this, I would now like to open the call for questions and answers that you may have.

Thank you very much. We will now begin the question-and-answer session. (Operator Instructions). The first question is from the line of the Nimish Mehta from MP Advisors. Please go ahead.

Yes, hi, thanks for taking my question and congrats for the good set of numbers. Can you just share what would be the sales and profit on the [deals], acquired GSK facility at Bristol for the quarter?

We're not giving that level of detail, but I can tell you that the second half, and this quarter especially, would be the scale-up in that plant on account of antibiotic [group].

I see. Is it fair to assume that it is -- and for this quarter it is almost the same as it used to be for the last quarter that is Q1 FY '12?

Marginally higher --

Marginally -

- Than the previous quarters, yes.

OK. The second question is related to the robust increase in API sales to Europe especially. If you can throw some more light, you mentioned about out-licensing (inaudible) and stuff like that. So, if you can just be more elaborate on it?

The growth is primarily driven by new molecule launches and because of the business from various customers. So it coincides with a large number of patented studies.

I see, okay. And so we, basically, will be able to expect this going forward (inaudible) in the quarter?

Next year, we'll also be geared then to patented studies, so we should see growth.

Okay, any particular product that you'll be -- you had launched recently, which is where you are gaining a lot of growth, if you can share that?

What do you mean [product launch], just (inaudible)?

Sorry?

It's across a number of molecules. We're not sharing that level of detail Nimish.

Okay. Finally, I couldn't hear clearly. You mentioned the gross margin of bulk as well as formulation. If you can just repeat that? I missed that.

Yes, so the API is at 28%. The PSAI segment is 28%, and the Global Generics is at 63%.

Okay, and API last year was 22%?

22%, that's right.

And formulation last year was?

It was about 63.5%, 64%. It was at the same range as well where we at today.

Okay, fine, thank you very much. And I'll join back in the queue for remaining questions.

Thank you.

Thank you. The next question is from Anubhav Aggarwal from Credit Suisse. Please go ahead.

Yes, thanks. Just one question on gross margin on the Global Generics business. If I just see that sequentially, there's almost 100 basis point decline in the gross margins despite India, Russia, and the US market. All the high-margin regions doing well. What's the rationale for this?

Also I think the gross margin decline that you're seeing is probably on account of -- there's no specific issue. It's more linked to inflation and input costs, right? And maybe new product mix. There is no specific issue because it's not contracted by 100s. It's probably about 50 to 60 basis. There is no specific issue to it.

Okay.

You have as well as been at the [clinic once].

That's right, thanks. So the --

(Inaudible).

Yes. Yes.

And the other question was on this policy change around DPB. What is it major impact is to Dr. Reddy's from this?

So the original DPB rates were about 6% for us as a company as an average. We probably will now get about somewhere between 2.5% to 3% in that range. The total amount of DPB that he we had last year was a little bit over 100 codes. So depending on how this could be calibrated, it could -- the impact could be about INR50 to INR60 crores going forward.

Okay, and just -- this going to be the last question. Mr. Prasad mentioned about the Mexico facility. What is the next milestone? So in terms of timeline, when do you go back to FDA? Is that the very near-term event, less than three months?

Going back to the FDA is in less than three months.

Okay.

I think the time for (inaudible).

No, that's very clear. Okay. And sorry, if I just may sneak in one question. Can you just predict the growth of PSAI into API and the CPS business?

Go ahead, Kedar?

Anubhav, we're not sharing (inaudible) our PSAI into the (inaudible).

Okay, sure, thank you.

Thank you. The next question is from the line of Prakash Agarwal from RBS. Please go ahead.

Yes, good evening, sir. And congratulations -- a good set of numbers. Just one question.

Thank you.

On the PSAI, if I look at -- the growth has been phenomenally, well, much better than expectations. Now, are there any one-off elements? And why don't we continue to see a 20% less kind of growth considering the fact that in the last one year, we have seen some single-digit growth: So, could you give some color there?

Yes. Because it's more to do with just the lock-ins as Prasad mentioned, the lock-ins and key product launches. There are a lot lined up for this year and the next year. Also, I think the base was a little low in the previous years on which we are getting a slightly higher growth than this year. So it's a combination of lock-ins as well as the base effect of the previous year where we do [but] single digits. So there's no real one-off in the results, it's likely to -- we are hoping that this growth rate continues on the back of these two [items].

Okay, any outlook you are giving in terms of growth for this business?

No, we haven't. We had earlier mentioned that a good outlook to take would be somewhere around 15% off for the entire PSAI segment.

Okay, perfect. And in terms of the Ziprasidone, which is, where you have the shared exclusivity. I'm not clear in terms of launch dates, whether it's going to be March, or it's going to be September because of the pediatrics. Can you give some color on that, please?

We're not commenting on that. If it does happen in the current year, it will be towards the end, right at the end of March.

Okay, got it. Okay, I'll join back, then. Thank you.

Thank you. The next question is from the line of Ranjit Kapadia from Centrum Broking. Please go ahead.

Good evening, and congratulations for the set of numbers. My question -- is it to the delivered supply [glad] so if you can use some recent updates and the update on the R&D pipeline?

Yes. So the [10] R&D, is right, we'll cover the surplus and R&D first. The traction on that product is good. We've seen growth on that product versus the previous year, and it's (inaudible) our expectations. On GSK, I think the curve of growth is increasing slightly now.

This quarter, I think we've almost done maybe a little higher than what we were doing originally in terms of sequential growth. I think this year that our net delta -- with this quarter, our net delta would be almost $2 million on GSK. So the traction is improving. There's still of number of doctors which are being fined. And I think we are waiting for GSK's approval in some of the key markets.

Okay, thank you very much. All the best.

Thank you.

Thank you. The next question is from the line of Bino from IIFL. Please go ahead.

Hi, good evening everybody. Following up on the question on DPB. Where was that getting accounted? Was it in the [dual] revenue items? Or was it in other operating income?

It was in material costs. It's just accounted in the reduction of material cost.

Okay, and the this INR50 to INR60 crores are similar impact. Has it already come in this quarter? Or you think it will be more (inaudible) --?

No, it will come -- that INR50 to INR60 is for the full year, Bino.

Yes.

And it will start coming from this quarter.

Right, correct.

So it would be taking an average of about INR10 or INR12 crores a month -- a quarter, sorry. That's the impact on (inaudible).

Right. And Regarding PSAI, is there any component of Olanzapine that's been involved in that growth?

No. No component of Olanzapine.

Right. So, the arrangement with Teva will be completely captured in your US revenues going forward?

That's right.

Okay, thanks, a lot.

Thank you. The next question is from Manoj Garg from Edelweiss Securities. Please go ahead.

Yes, good evening, and thanks for taking my question. I just want to understand about the Fondaparinux like in terms of market share gain and all. How the oral -- though you were mentioning in your opening comments that the market share gain as per your expectations. But there are a couple of reports which indicate that ForEx has been able to run at a much higher market share than what we are [generally] company. Any comments on that?

Yes. We have found started a little slow, but we're supposed to ramp-up over the next few months. No ramp-up has been recovered. The scale-up of manufacturing, and configuration of the packaging this year. Initially, we had facts which were not completely confident with the demand. So over the next few months, we should catch up.

Okay and how is the pricing synergy so far? Like the (inaudible - multiple speakers).

(inaudible).

I'm sorry, (inaudible).

(Inaudible).

Okay, and one of the -- conf call, the Alchemia CEOs have indicated that there was some reimbursement of R&D cost before they start booking the profit on the Fondaparinux. And they indicated some double-digit numbers. So are we going to receive in the coming quarters? Or it already has been received during the quarter?

As part of our business arrangemnet I didn't want to comment at that level of granularity.

Okay, fair enough. Third, like actual numbers indicated that there's an incremental delta of around $2 million from the GSK deal in the rest of the world market. But still -- that are still the world market business give you by almost around 8% to 10%?

The impact in there is largely on account of the Venezuela devaluation. So the Venezuelan currency devalued by almost 70%. And Venezuela is one of our largest RoW markets. It has revenues of close to $25 million post devaluation. So as a result of that, you're seeing the growth fall because the rest of the markets in the rest of the world are not that significant. And that's why you're seeing a negative. But if you look at local currency terms or volume terms, each of these markets look very good.

Okay that's also my [sequence], wish you all the best.

Thank you.

Thank you. The next question is from [Hitesh] from [BUG Securities]. Please go ahead.

Yes, hi, thanks for taking my question. Two queries, both on the domestic business side. One is, currently I've read that q-on-q performance has been much better domestically. But when can we see 15% less out of growth happening domestically? And secondly, the performance of Nimesulide, how has that been after the high growths (inaudible)?

So I think the stance that we have taken to fix the decline which was happening on some of the major [brands]. And that was very much taken care of, that's why back in September months (inaudible) on the markets for growth rates -- our growth rates. Like if it's in line with the market growth rates. It's the perfect.

Now in terms of continuity of that kind of growth, I think one is initiative that (inaudible) 17% increase. You don't have to take full effect of that, and that's something we hope to see in the next two quarters. Actually, this is speculated concern. And I think because of the sponsors we, frustrated with coverage, for the controversial coverage, which came in the media. But that had an adverse effect on (inaudible) a couple of quarters but hopefully things should settle down very soon.

Okay, all right. That just -- thanks, all the rest.

Thank you.

Thank you. The next question is from Girish Bakhru from HSBC. Sir, go ahead.

Yes, hi, thanks. First question is on the US business, especially on the (inaudible), even for OTC. Have you seen (inaudible) pressure post devaluation of the facility?

No, we -

No, we didn't seen anything.

Okay. And just broadly, if you could share the overall strategy on the OTC business side? There have been many players who have been talking about gaining the market share in the store brand market like Pharma and Watsons. So what is the outlook on the overall OTC business for the US?

So, the business perform quite well, and we're happy with the market share that we're picking up. On the molecules that was launched, all of them are being (inaudible) better than expected. There's no specific strategy as such other than, if somebody wants which products in the stores. And we have ramped it now to do all the logistics in the US through third-party providers. And that our system is becoming more sustainable, and the business is becoming more standalone and growth business for us.

Any particular color on how much investments are like, say going in this area particularly?

We're not sharing that level of details.

All right, thanks.

Thank you. The next question is from [Ashish Sati] from [Macquarie]. Please go ahead.

Yes, hi. Thank you all for this new question. And congratulations to a good set of numbers.

Thanks.

My question relates to the Russian markets particularly. Sir, if I understand correctly, did you not have a factory presence in Russia, correct?

That is right. Yes.

Yes. Just on some reports you are reading about the Russian government trying to deliberately -- trying to (technical difficulty) of imported drugs and promoting domestic manufacturing of drugs in Russia. So does this pose as a threat to the other in terms of growth or outlook in this market? Or how do you see the Russian market? I understand it's doing pretty well, and contribution is increasing every year, but who will -- traditional [setting off]?

(Inaudible), it was definitely (inaudible) and there was (inaudible) serious about doing it now. So I think it's an issue for all the business competing in the market with foreign manufacturers. So I mean, whenever it happens, we have to have our own strategies in place to deal with it. So, I won't do it as a risk only to Dr. Reddy's here.

Okay, fair enough. And in terms of the deal with JB Chemical, any particular light you can throw on what is the exact rationale? I understand there have been reports (inaudible) things (inaudible) not important because of operational issues. But what was it about margins, or was it because of manufacturing facility?

We stand by what we already clarified. We can't go on that.

Fair, I understand.

That's in (inaudible).

Thank you, that's it from my side.

Thank you. The next question is from Nimish Mehta from MP Advisors. Please go ahead.

Yes, thanks, all my other questions outside have been answered. Thanks very much.

Thank you.

Thank you, the next question is from Rahul Sharma from Karvy. Please go ahead.

Yes, just wanted, there has been good revenue traction in the PSAI segment of North America despite our Mexico facility being hold up. Can you please ask -- give more clarity on this? And secondly, the trade receivables q-on-q have gone up from $349 million to $419 million. I probably missed out on that one. Can you just help me through it?

Well, if PSAI (inaudible) the product launches in Europe, stock up the API business. That's to mean more -- not just the US, because it's the Europe mainly. It's among the big products which caught before -- come the fourth quarter, without launch. And well, these have little potential increase book sales. Now, after the [second] confirmed our year-over-year because the (inaudible) followed the one (technical difficulties) I think could be. This isn't (inaudible).

But (inaudible) it was important (inaudible) with (inaudible) vitally important (inaudible). So, (inaudible) continue. But outside of that I think the whole city has dilute itself because if I'm (inaudible) close this business itself. Because I'm calling out some restructuring that we have done plus also looking at the all the book, take up which has improved significantly compared to before. Let us let go a little bit of the turnaround. So already, if you take the entire business, the API business as well as the custom services business, let's turn around and use it. [That's a way it will be a good growth].

So on receivables, the trend of the numbers that you're seeing, you should also add the impact of ForEx. Because all of these receivables in foreign currency are translated at the closing rate. Whereas most of the sales are happening at the average rate. And that in fact, the difference between the average and the closing rate is almost contributing the $25 million worth of increase on the receivables.

But net debt has -- has there been an increase in receivable number of days, or?

Well, we've probably seen a day or two increase in various markets. Some markets have gone down but not more than a day or two. We have not seen any significant increase behind that in local currency terms.

But, if this rate continues, then probably, you'll see the trend going ahead.

If this ForEx rate continues, you won't see an impact in the next quarter on a downturn for retranslations. Because the retranslation will come only when you have these difference between opening rate and closing rate.

Okay, sorry. And what about tax rates for the current year and next year?

It will be 17% is the base taxes going forward, because one of ours. The facility, the plants in Baddi, they have finished the statutory five years amounted. The five-year permission which is given by the government under the section with the HSP. So we won't have any plants now which have those exemptions.

Okay, thanks.

Thank you. The next question is from the line of Sameer from Morgan Stanley. Please go ahead.

Hi, good evening, everyone. Just a clarification on Zyprexa, OTC form. Has Dr. Reddy's got an approval for that?

Yes, we do.

And would it be launching in the market now?

Yes, sir. (Inaudible).

In March (inaudible)

Okay and it's not part of the [ordeal]?

No. That's not part of [them].

And if I'm not wrong, I think there are only three pairs who got this approved?

Yes, they're shared (inaudible).

Okay, fine. And the second question I had was on the [Serbinaphin] clinical trials. Can you update us where we stand on it as for the topical application?

So, the clients who are marketing (inaudible), so it's still going on

Sorry.

The trials are still going on. The data has not been unblinded.

Number of patients (inaudible). It's a thousand-patient trial roughly, Sameer. And until we unblind the trial, we won't know the results. But we've not heard anything untoward right now.

Okay, and when do you expect to complete the trials?

I think it will take another nine months or so.

Okay and just one final question on the domestic market. Is there any risk for increasing the price control by the government? Any thoughts on this?

If you from (inaudible) the issue, but we have to wait and see, (inaudible).

Okay I think the Supreme Court has thrown -- ask the Ministry to clarify its stand. So I was just wondering, if -- do you think this can be a near-term event? Or any feelers that have word from the government?

We don't really, I think the government had to [supply] to what was asked or so, I didn't have a quick view on at this point of time (inaudible).

Okay thank you.

Thank you. The next question is from the line of Abhay Shanbhag from Deutsche Bank. Please go ahead.

Yes. This is regarding the balance sheet again. There's a sharp increase in debt. Is it largely or to do with the ForEx of the [rupee] depreciation? And can you just throw some light on how much is it, is it rupee depreciation?

Yes. So it is on account of the rupee depreciation. And the amount we will tend to use subsequently. Okay I don't have the figure right now, but we are done with calculations, and I can send it to you.

Okay. This question on [security bad-debt loan] the $25 million increase on receivables due to ForEx. Would this have benefited your P&L better one quarter?

In the first quarter, no, because the billing have -- the difference between the average rate, and the billing rate was not right. In the second quarter, the average rate is close to [46], little bit close, we made it [49]. So all of your receivables get translated at 49.

Okay, fine. The other one was on those (inaudible). Can you -- what's the size of the market for 20 mg and for the [OBB]?

20 mgs are about (inaudible)

Sorry, [900]?

Yes maybe (inaudible).

Sorry, what did you use?

$18 million.

$18 million. And ODD is shared as you indicated by, I know, but in three [players]. Your first paradigm and one more.

Fine, thank you.

Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.

Thanks for taking my questions. Two questions here. Firstly on the Glaxo deal, Umang, you mentioned about the traction building up. So it's been a slow start, but how do you see this standing out in FY '13 for you? Will we see a meaningful inflection in the Glaxo numbers?

It won't be meaningful in that sense. I think it will be tens of millions of dollars.

Tens of million dollars. Okay, that's helpful. And secondly, on the Biosimilar front, we are seeing very good traction in India. So, is it largely rituximab or some of the other new launches that you had is also showing good promise?

It's none of them. [Darbepoetin] has been a little slower than anticipation, but (inaudible).

(Inaudible).

(Inaudible).

Yes. And on rituximab, my understanding is that for the last one year or so, there has been a good pickup on this product. So, what's the data mix there? Have you done anything differently?

Market expansion, it had [names for] so that's largely contributing to the growth.

And the pricing is more or less similar levels from what it was earlier?

That's right.

(Inaudible)

well, Okay. And finally, if I may just ask one more question on the R&D spend. Incrementally, the increase that we have seen on R&D, will it be fair to assume that most of these investments are happening towards product development for the US market?

A large portion is, but we are also divesting for other geographies. So there are three or four bucket starting (inaudible). We have the profit R&D for generics and APIs. Then we have the Biosimilars development program, which includes clinical spends also. Then we have the proprietary products, which is of course, in the outfit of [MPs]. But a large portion of it is differentiated from (inaudible). It involves CRO-based contracts because it's worldwide as well as clinical development. So the single largest bucket is the Global Generics front.

Global Generics. Okay. And Biosimilar would still be less than 1/4 of your overall spend. Will that be a right assessment?

Yes. (Inaudible) we will see increasing trend in the next few years as we start clinical development.

Okay. Thanks a lot and all the best.

Thank you.

Thank you. The next question is from Anubhav Aggarwal from Credit Suisse. Please go ahead.

Yes, and thanks. Just taking the last question further. You earlier guided to R&D spend of around 7% to 7.5%, in that range, but we're doing something like 6% to 6.5% right now. Do we expect it to pick up? Or it's, for this year, it's going to be --?

It still won't be higher. H2 will be higher than H1.

Okay. And a simple question. On constant currency in this year, what will be your sales growth for this quarter?

Yes, so in (inaudible) how much is it? It will be (inaudible). Yes, (inaudible). In constant currencies, we average about 30%.

It's 30% sales growth in this year? Okay. And on Fondaparinux, when is the plan for us to launch into Hospital segment as well?

(Inaudible).

Yes. So we are looking at that as well, and it's probably -- scale-up within -- as Prasad mentioned, within a quarter or two quarters, we'll begin to scale up.

Okay. And just a last question on SG&A. What percentage of increase can we attribute to just a solid increase of like, for example, what you're seeing, a 27%, 28% year-on-year increase? How much can we attribute to inflation plus salary increase over there?

We're not giving that level of detail. Or, I can roughly guide you to say that roughly about 50% of the SG&A is manpower, but we're not going to give any further detail and quantify its inflation, et cetera.

No, this is helpful. Thank you.

Hello? [Danita]?

Yes, sir?

Yes, you can just put the next question on please?

We have Mr. Prakash Agarwal from RBS. He's on the line, sir.

Yes, hi, just another question on the market share of key products, especially [Dacrole], Lansoprazole, and Omeprazole. Can you please share the market share as on the -- last reported?

Yes. Prakash, on [pass through] we have roughly about 32%, on Lansoprazole, it's about 20% and Omeprazole, it's about 20%.

And Fexofenadine is a basket in D24?

The OTC portfolio, it is wrong. There is no [DMEY] (inaudible - multiple speakers) to attract market shares, but we are doing a (inaudible) share of the market.

Okay and Fondaparinux, please?

Fonda is about 10%. About 10% is what we have on Fonda.

Okay, and any targets by year end? What is -- because what I understand is we are limited currently in terms of our launches in retail. So any target that we are targeting to reach by the year end?

I guess the target will be as much as we can supply from here. So we haven't set a numerical target except that we will -- we hope to see our market share climbing up quarter-on-quarter.

Perfect. And our guidance remains largely of $2.7 million of revenues, '13.

That's right.

Okay. And on comments on India business. I'm not sure that I missed this. We have seen a sequential improvement in the growth rate. Earlier it was 6%. Now it's around 9%. So the two key reasons where it, the brands as well as a second one was the sales reorganization. So you're seeing these are partly going off, and you will see gradual improvement. Or how does it go? Any color there?

We're seeing a gradual improvement. I think there are actions underway to address all of these. And including sales force realignment as well as the brand promotion and brand maturities. So we're working on both of those aspects simultaneously.

So when do you -- do you see another quarter or a couple of quarters to resolve and come back to 14%, 15% kind of growth? Or it could take longer?

Yes, maybe about two quarters is a good time for us to probably look at that.

OK. And tax rates, you had earlier guided, I think, 18% to 20%, especially for fiscal '12 with Olanzapine upside. So, are we saying now it's 17%, or?

So Prakash, we guided for 17% on the base, and the base excludes Olanzapine. With Olanzapine, you are right. We would be in the 18% to 20% range.

Perfect. And lastly, I missed this one, actually.

Prakash, we want to limit the questions to two per participant. So we would -- want the other participants also to get a chance.

Sure, I'll join back in.

We can take your questions offline, Prakash.

Okay, thank you.

Thank you. The next question is from the line of Chirag from Espirito Santo. Please go ahead, and please limit your questions to two per participant. Thank you.

Hell, Chirag

So just give me a moment. He is on the line. Mr. Chirag go ahead.

Hello? Yes, hello, can you hear me?

Yes, Chirag.

Yes. (inaudible) clarification. And enrollment has been completed or it is it still on (inaudible) patient enrollment?

We are nearing the completion of patient enrollment in Terbinafine.

Okay. And secondly, could you update us on your Biosimilars plan? Because two quarters down the line -- four quarters behind, all you had mentioned that you might go alone in the US. And a couple of quarters back, you were talking about potential partnerships. So what is the kind of strategy that we could see going forward?

So the Biosimilars, one set of products we always have the partner. I don't know where you got the [status] (inaudible). The first set of products we will use a partnership going to build (inaudible) markets. Regardless of the -- after being tied up, we are moving forward with the clinical development strategy, both for Europe and US for the products. And currently, we are in discussion with companies for partnerships.

Okay. (Inaudible).

Thank you.

Thank you. The next question is from the line of [Christian Balmia] from [Thinks]. Please go ahead.

Hi, thanks for taking my question. First, would be on the domestic industry. Have you seen any price cuts taken by other players on the existing portfolio on -- [not] on the domestic front?

No as a part of.

In terms of the price competition, even, by the existing players on the --

This is not a significant driver of competition in the (inaudible).

But have they taken it in terms of any (inaudible)?

(inaudible)

Could be [conflict] big molecules -- it's not like in -- across the industry kind of situation (inaudible).

Okay, and forward is under or forward (inaudible) and the ForEx is just opening remarks, you said something that you have raised some long-term debt. Can you repeat it again?

Yes. We had long-term debts essentially to decongest our short-term debt. What we were doing is we have taken a lot of the short-term debt, and we're trying to replace that with long-term debts so there's no incremental new debt coming in.

Okay.

It's just so that we ease our limit from the short-term debts at this point.

Okay. And for your forward covers?

The forward covers, including for the last 18 month (inaudible) make it about $775 million.

Okay, thank you, sir.

Thank you. The next question is from the line of Surajit Pal from Elara Capital. Please go ahead.

Thanks for taking my question. I have just one question. Going by the company's pretty fantastic performance on [booking] this product, I've just one question, though there is no news from company's side. Is there any kind of activities on the [rovenox] filing? It's a big product and ready for competition is there?

(Inaudible).

(Inaudible).

Okay.

Surajit, which molecule you are referring to?

[Ibolinox].

Emoxipin.

We are not disclosing that, Surajit. Sorry, we cannot not disclose at this point in time.

But, will it be right to think that there is something is -- activities around from the Company's headwind by your efficiency in fondaparinux?

(Inaudible). That's not a conclusion (inaudible).

Thank you.

Yes.

Thank you. The next question is from Manoj Garg from Edelweiss Securities. Please go ahead.

Yes, thanks for taking my question again. I just want to understand like last few quarters here indicated that -- whatever the ramp-ups we had in the [DIP] and [DSO] (inaudible) market. Initially we had across with a high (inaudible) industry force. I just want to understand how to address and issue has (inaudible). Is it a better (technical difficulty) there better security now in the sales force?

Say if -- one of the factors that is going to be discussed in 14 pages. But, I don't think that's the issue right now. So, probably what we're seeing is good, 17% make (inaudible) how quickly as we can to one of those things. Right?

So, I think you have (inaudible). Except he's (inaudible).

Hello?

Yes.

Yes.

We mentioned that there are set of interventions.

Yes.

And attrition is actually a result of something not working well within the company, and that's what we're trying to address.

Okay. The second thing, like if you look at the -- your top 10 brands portfolio. Where the dependency of the Company is relatively higher as compared to many of the large players. That's indicative probably of like what are the new products that (inaudible) introduced in the domestic market? And they have not been very successful and have not been able to ramp-up the market shares. Are we really addressing this new approach growth opportunity? Or how to really divide the market shares by having more focus on new direction and making them more successful?

Yes, we are looking at them.

Like what kind of ramp-up we are looking in terms of launching (inaudible)?

I think (inaudible). We're looking at therapy gaps, looking at product positioning. You're not driven by number crunching (inaudible).

Okay, thank you.

Thank you. The next question is from the line of Bino from IIFL. Please go ahead.

Okay, just a follow-up question on Russia. Now the constant currency, 30% growth that you said, it's US dollar or rubles?

Dollar terms, Bino.

Constant dollars.

It's constant dollars.

And the reason for that is you bill the distributors in US dollar?

No, we bill in ruble. If you want, the ruble growth, it's 27%.

Okay, thanks.

The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.

Saion?

So, just give me a moment, he is on the line.

Yes, are you able to hear me?

Yes, Saion.

Okay, just on the US market and the product opportunities that you have disclosed for the next three, four years. First on Lansoprazole OTC, if you can share how big that opportunity is? And you also listed Q2 applying on [years]. What makes you think that it would be a limited competition opportunity?

Yes. So Saion, do you see a (inaudible) even though we think (inaudible) are quite different and complex. And that's the reason. Though there are many (inaudible) we think from the -- from (inaudible) perspective, there will not be too many players. And the size of the molecule is also quite -- it's about three billion. So that's the reason why we think this opportunity would be good. On Lansoprazole, I think the Rx market is roughly, you could say, it's $200 million to $250 million. We expect the transition to OTC to be still probably marginally lower.

(Inaudible).

Thank you.

Thank you. The last question is from the line of Sameer from Morgan Stanley. Please go ahead.

Hi, thanks. Just a quick clarification of Zyprexa OTC. If I'm not wrong, according to IMS, the size of the market is about $360 million. And so has been expressed in biopharmaceuticals press release. So you mentioned $80 million. Is it about you being co-exclusive on this particular strain? Or how do we reconcile the two numbers?

So Sameer, the data we'll have to get $87 million is the brand market size. Maybe we can connect post the call just to understand what your data source is, but we are looking at $87 million as the brand size in all this.

Okay, not a problem. Thanks.

Thank you. I would now like to hand the conference over to Mr. Kedar Upadhye for closing comments.

Thank you all for joining Dr. Reddy's senior management (inaudible) conference call. In case of any pending clarifications, please feel free to get in touch with the Investor Relations team. Thank you, and goodbye.

Thank you. On behalf of Dr. Reddy's Laboratory, that concludes this conference. Thank you for joining us. You may now disconnect your lines.