Dr Reddy's Laboratories Ltd (RDY) 2013 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to Dr. Reddy's Laboratories Ltd.'s Q2 FY13 earnings conference call. As a reminder, 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.

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

Good morning, and good evening to all of you, and thank you for joining us today for Dr. Reddy's earnings call for quarter two of fiscal 2013. 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 Satish Reddy, our Chief Operating Officer; Umang Vohra, our Chief Financial Officer; Abhijit Mukherjee, President and Head of Global Generics; and the Investor Relations team.

Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcast or attributed in press or media outlet without 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 are required, please feel free to get in touch with the Investor Relations team.

Now, I would like to turn the call over to Umang Vohra.

Good morning, and good evening to everyone. Let me begin with the key financial highlights. For this section, all the figures are translated to US dollars at a convenience rate of INR52.92 to the dollar.

I'm happy to report strong revenue growth and a healthy margin profile for this quarter. Our consolidated revenues are at $544 million for the quarter and grew by 27% year-on-year. Revenues from our Global Generics segment is at $380 million for the quarter and grew by 25% year-on-year, driven largely by the US, India and the emerging market territories. Revenues from the Pharmaceutical Services and Active Ingredients segment, which we shall call as PSAI later in the call, are at $149 million and grew by 33% year-on-year.

Consolidated gross profit margin for the quarter is at 53.1% and is stable compared to last year as well -- as compared to last year as well as the sequential quarter. Gross profit margin for Global Generics and PSAI segments this quarter is at 59.4% and 35.8% respectively. SG&A expenses, including amortization for the quarter are at $151 million and have grown by 11% year-on-year. R&D costs at %$33 million for the quarter are approximately 6% of revenues. EBITDA for the quarter at $145 million is 27% of revenues and grew by a robust 47% over the previous year. We are beginning to see the effect of operating leverage on our SG&A. During the last full year of FY12, the average SG&A was 30% of revenues and for the current quarter it has reduced to 28%.

In the current quarter, due to the appreciation of the rupee, our ForEx line contains a reversal of the loss on account of the time value of options which was recorded in the last quarter relating to our option contracts. This reversal significantly contributes to the net ForEx gain of INR34 crores for quarter two of this year. We also booked approximately INR100 crores of ForEx loss in our sales line this quarter due to the cash flow hedges which have matured in this quarter.

As part of our usual impairment accounting checks, we were required to assess the carrying value of certain intangible assets on the balance sheet, vis-a-vis the recoverable values. This exercise resulted in a non-recurring and non-cash impairment charge during the quarter of $13 million pertaining to product intangibles in our generics portfolio and a goodwill charge on account of our Italian operations.

Profit before tax for the quarter at $107 million is at 20% to revenues and grew by 52%. Adjusted profit before tax before considering the impairment charge for quarter two FY13 comes to $120 million and is at 22% of revenues when compared on a like-to-like basis with quarter two of the previous year.

The effective tax rate for the current full year will be in the range of 18% to 22%. Tax rate for the current quarter is at 28%, which is up significantly due to the normalization effect of a lower quarter one tax charge and the effect of impairment on the annual effective tax rate, which amounts to roughly 4%.

Profit after tax for the quarter is at $77 million, is at 14% of revenues and shows a year-on-year growth of 32%. Adjusted profit after tax after restating the tax rate for the quarter in line with the full-year annual effective tax rate and before considering impairment comes to $93 million and is at 17% of revenues and shows a robust growth of 77% on a like-to-like basis.

Key balance sheet highlights are as follows. Our working capital increased by $17 million and is largely in line with the increase in revenues and its mix across the markets. Capital expenditure for the quarter is at $35 million. Foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are at approximately $600 million, largely hedged around the INR53.45 to INR55.78 dollar rate. In addition, we have balance sheet hedges of approximately $310 million. Net debt at $269 million represents a net debt-to-equity ratio of 0.23.

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

Thank you, Umang. On the performance for the quarter, I'm extremely happy to notice the continuing improvement in the operating performance. It has been an impressive execution by the key geographies of the US generics, India and emerging markets in the Global Generics segment. PSAI segment also demonstrated aggressive performance for the quarter.

I will now cover some of the specific business highlights for each of our key markets. Please note that in this section the revenue numbers referred to are in local currencies at respective period average exchange rates. Revenues for the North America business for this quarter are at $187 million, reflecting a year-on-year growth of 38%. There was also good progress on the sequential quarter basis, which was in line with our target and expectation for the quarter.

During the quarter, we launched two key products, metoprolol succinate and the montelukast family of products, and further strengthened the Bristol-based antibiotics portfolio with the launch of the amoxicillin range of products. We have been able to lock in share for atorvastatin, metoprolol, montelukast, the effect of which has commenced in this quarter.

Current quarter also witnessed a sustained progress in the large limited competition candidates, namely ziprasidone, tacrolimus, fondaparinux, clopidogrel, et cetera, plus the ramp-up in the antibiotic portfolio and products from our Shreveport facility. While our sales exclusivity for ziprasidone got over during the quarter, we still expect it to be a key molecule in our portfolio since there is a limited number of new actions.

Moving on to India, I'm quite satisfied to see our business rebounding to a healthy growth trajectory on a sustainable basis now. Revenues at INR388 crore for the quarter represents a year-on-year growth of 12% despite a high base in the represented quarter in the previous year. On a moving annual basis, India's business recorded a 14% growth rate and the business continues its momentum towards the market growth rate.

Russian market with revenues of $58 million had a constrained quarter due to a delay in the season pickup. Growth in ruble terms was a bit flattish after the impressive base of 30% growth in Q1. We have seen a good amount of progress in orders from trade in the current month of October and we remain confident of the seasonal opportunities in the third quarter.

Moving on to the PSAI business, this quarter has seen a phenomenal growth driven by new product launches on the back of product -- on the back of patent expiries. Revenues for Active Ingredients segment for the quarter have shown revival as indicated in the previous quarter and we hope to continue the trend for the next two quarters. In addition, revenues from the custom pharmaceutical services business have shown significant traction on the back of servicing of a few high value orders. We expect a further strengthening from this segment going ahead.

I'm also happy to mention the intended acquisition of OctoPlus, which is a Netherlands-based specialty pharmaceutical company. We view this as a technology capability acquisition, which will help augment and strengthen our current and future pipeline of complex injectables.

With this, I would now open the call for questions.

Thank you very much, sir. (Operator Instructions) Saion Mukherjee, Nomura.

Yes, hi, thanks for taking my call. Umang, on the cash flow hedge losses, do you expect it to come down in the subsequent quarters? And the second question related is that, the split between Global Generics and PSAI margin, which margin is basically impacted because of these cash flow hedge losses?

Saion, the rates for quarter three and quarter four upon hedges is significantly closer to 52% and slightly more than that. So hedge losses would reduce going forward. In terms of the segments, we are not providing that guidance, but it's largely around the Global Generics portfolio where you'll see the impressive cash flow on the margin.

Okay. And one more question, on your Europe strategy, now we have not seen any traction there, any meaningful traction. So what are your thoughts on the Europe business and on a whole, is Europe a profitable business for Dr. Reddy's now?

So I'll take that question. I think, yes, Europe we discussed in the earlier calls as well. It's a difficult geography not just for us, but for all other players today, the generics opportunity has been relatively depressed in terms of making it a viable good. Having said that, we mentioned last time that Europe is a single-digit percentage of the revenue of Global Generics. And to that extent, while as we are putting effort to ensure that it turns around, it will not have a significant impact on the results.

Going ahead, the broad strategy is to de-focus on tender-based commodity businesses and sort of take advantage of our complex generics drive in North America and see which products are applicable for Europe as well and see how we can get better value. But this is a two to three-year activity.

Is it EBITDA positive, Europe generic business today?

Yes, Saion, it is EBITDA positive.

Okay. Thank you. I'll join back the queue. Thanks.

Bino Pathiparampil, IIFL.

Hi, If I look at your SG&A ex of amortization, it has actually come off quarter-on-quarter, despite currency depreciating in the quarter on an average. So is there any reason why that has come off?

So, Bino, there's been more control that was imposed in markets like Russia, et cetera, due to the delayed off-take of the season. So some of the spending is on account of that.

Okay. And can I have the PSAI growth in constant currency?

Sure, why don't you give it, Kedar?

Yes, so --

When you say constant currency, which currency, is it rupee or dollars, which --?

No, if some part of that revenues I assume will be rupee revenues, some part will be dollar revenues, some part would be euro revenues. If there were no movements in those currencies, then roughly what would be the growth?

So, Bino, the issue with the PSAI business is that we also do euro billing, we also do dollar billing and we do rupee billing as well. And the trend nowadays is that some of the customers who you bill to in dollars have plants in India, so you eventually end up billing to them in rupees.

Right.

So the rupee growth rate, I think, is about 33% for the PSAI business. What we can do is split that into API and CPS for you.

Yes.

And API --

The growth is in the range of 31%, Bino, on a year-on-year basis, on a constant currency.

Okay, right, right. And my last question for PSAI business, as well as the US business, US generic business, both of them look poised for a 30% plus kind of growth this year. US, especially, in dollar terms looks poised for a 30% plus growth next year. When we go forward to FY14 on this strong base, what can we look forward to? I'm not asking for a guidance, but are we looking at a possibility of a similar growth or is it likely to slow down in the 20% level or 10% level, some random thoughts around that?

So, Bino, we are not providing guidance on a year-on-year basis, but we have indicated earlier that as a result of the strong base in this year, the next year we face growth challenges, right? And I think we're seeing a marginal growth in the next year on account of the huge base that we've built up in the last two years. So we're not giving a firm guidance as yet and we would probably won't year-on-year, except to say that the same growth may not repeat in the next year going forward.

Right, right. Okay, I'll join back the queue. Thank you.

Sonal Gupta, UBS.

Yes, hi, good evening everyone. Thanks for taking my question. I had a couple of questions. One was just on the US business side, you've dropped -- I mean, in your limited competition, you've mentioned clopidogrel, is the pricing in that market really that good?

Yes, I don't think clopidogrel can be classified under limited competition product. It's a, what we call, backward integrated, a solid earning product, but it's certainly not one of the limited competition. We have good market share as you would probably -- you are aware of, but it's not a limited competition product.

And it doesn't mention omeprazole, so anything that we -- how has the pricing in that product trended, is there more pressure there or something of that sort?

You're talking of omeprazole in the Rx?

I guess you have OTC, right?

Yes, OTC, yes. So OTC, I think we have a very fair market share. It's largely between two players, almost equally in terms of the volume share, equally distributed. And it's one of our flagship products.

So there's not been any significant pricing pressure in that or something.

No, it's just between two companies.

Okay. And my other question was on the India business. I mean you might say 12% is, I don't know, on a high base, but it is still lagging. I mean we've seem this business sort of continuously underperform the market for a long period of time with -- or sort of a patchy performance. So what is really the sort of structural game plan here? I mean what do you think will drive growth in this business over the next two, three years?

So if you look at the two quarters and take the overall growth for India business, I think we are more or less at the market growth and which itself we think is we have covered a long way from the way the business was outperforming in the last couple of years actually at least.

So we have come a long way and beyond just the growth in revenues, the underlying health indicators are certainly providing us a lot of confidence in terms of the fact that it's on the recovery path. The attrition of people have dropped and several other things in terms of our brand focus, our prescription data. So all in all, I think we feel much better. We are certainly not saying that we are doing very well compared to a lot of companies doing better than us, but from where we were to where we are gives us a lot of confidence.

But could you give some granularity in terms of what are you targeting, how do you see this business -- been growing over the next two, three years, I mean what would be the key growth drivers for you, whether it be field force expansion, whether it be new product launches, new therapy launches? How do you see this business doing?

So, Bino, see whatever things, as you know, if you recollect the conversations earlier, we clearly said that the first attempt will be to get back to market growth rates -- sorry Sonal I think it is, sorry Sonal. So we clearly said that we need to get back on the market growth rates, that was the main thing.

Having seen the consistency of that, getting closer to the market growth rates, based on the internal performance as well as what we see from the IMS figures, we are now in a position to say that we are now putting into place certain plants by which you will see that we will like to beat the market growth rates. Now to give granular details of specifically how much is that going to be, (inaudible) and we do and all that, that's not really been the practice, you would actually see it from the way the growth will happen in the next few quarters and the results will speak for themselves.

So you expect this trend to sustain?

Yes, yes.

Thank you.

Mr. Gupta, do you have any further questions?

No, thanks. Thank you.

Girish Bakhru, HSBC.

Yes, hi. First question I have is on the ROW markets, though small in size, I mean growth rate has been kind of very robust of late. What exactly [they're trading at]?

I think we had mentioned earlier that the strategy we are following is depth in the market rather than a wider market, different new markets opening up type of a strategy. So we are in very few specific markets and I think there is focus in terms of our therapy we want to follow, the way we want to sort of move into those markets and that's paying dividend in terms of certainly growing in all those key markets, not just higher, but much higher than the market growth.

So South Africa, Venezuela, these markets are doing well for us. Russia, you are probably referring to the other markets other than Russia, I guess. So all those markets, I think, are gaining sizable -- in terms of size, it's becoming significant slowly. And the more important thing is the growth rate is clearly ahead of the market rate, which is giving us a lot of confidence.

Okay. And just on the US side, I mean, we know that there's FTF launch in Q4, I just wanted to get a sense (inaudible), how do you see the competition post six months.

I think, [as I have known], there is one more company coming after six months. We would be -- so first six months, just us; and then six to nine months, two companies; and post nine months, there would be others coming in.

Okay. On the OctoPlus side, if you could share -- have you also taken in the rights for this interferon product? And if so, what is the strategy with that, given that OctoPlus was looking to out-license that product? So how would you like to take forward that particular project?

Girish, we are not going to comment on that, because I think we've given an intent to acquire this. The information that you've asked for is pretty much in public domain. But we are not going to comment on our intent to take the interferon product forward or not or what rights. I think it's there in public domain, you can gain a sense of it.

Right. And then just lastly on this ANDAs, I mean, we have seen that number of pending approval, ANDAs have come off from 18, say, FY12 to 63 now. Is it because some ANDAs are being withdrawn?

I think it's because we've had record number of launches and approvals and launches in the past six -- four to six quarters. And also the strategy going forward for ANDA filings is not really in numbers, but in quality of files. So you're seeing a decrease possibly in terms of selective filings and you're seeing an increase in the approvals that we've got over the past four quarters. So the equation is probably bearing out in that time.

All right. I'll join back the queue. Thanks.

Saniel Chandrawat, Morgan Stanley.

Hi, this is Sameer here. Can you hear me?

Yes.

Okay, sir. A quick question on fiscal 2014. I know you won't talk too much about it, but just correct me where I'm going wrong. As far as India, Russia, et cetera, EM markets are concerned, you're growing at double digits. And as far as the US is concerned, you would have at least two, three of these big ticket items, which are getting only benefit of three months to six months in the current fiscal year. I think, next year they can -- put together, they can easily contribute $80 million, $100 million, which again is a double-digit growth on this year's US-based [assets]. So I mean why do you think that fiscal 2014 would just be a marginal growth? I know you won't give specific numbers, but just in the logics, should this at least be a double-digit kind of a picture?

So broadly you're right, but the point is that as you know, US market, we see erosion with new people coming in, getting approvals. And so as they come in, we have to either give up share or readjust prices. So that has to be factored in. So overall, although you are right that some of the product launch has limited year revenue this year, which will go into the entire 12-month thing. That launch is new launches next year and erosion intensity, which we have seen this year is expected to continue, I guess.

Okay. And just one quick question. You're expecting two more niche low competition meaningful launches in fiscal 2013. Can you [discuss] on that?

We are not providing specifics, [totally not], but yes, we are expecting two niche launches apart from -- that's right.

You remain on course for that?

So far.

Okay, thanks. I'll join back in the queue.

Nitin Agarwal, IDFC Securities.

Hi. Thanks for taking the question. Umang, on the US business, you mentioned revenues of $187 million, so that translates into a -- [exchange of against 50 odd], which was there in Q1. So we haven't really gained anything much on the currency front even in this quarter?

Yes, that's right, because our hedges are largely in the same range as the previous quarter.

And you see that -- sorry, yes, go ahead.

No. So we see that changing in the quarters, the next quarter and the quarter after that. In fact, in quarter four, we should be almost at INR52.50, INR53 as on hedge rates.

And how do you see that playing out in the subsequent quarters based upon the hedging which is there right now?

On -- quarter one, quarter two, and so the next year is largely in the range of INR55.

Okay, okay. So if rupee stays around these levels, so we're looking an average [valuation] close to INR55 compared to INR50, which is there in the first half of the year?

That's correct.

And I got -- okay. Secondly, on the PSAI business, you were talking about -- you did mention about the contract research services business doing extremely well. Can you throw some light upon -- I mean, how do you see the business really playing out in terms of size of the business some of the growth performance and how does that strategically fit as far as medium-term growth trajectory is concerned? I mean, [medium-term] growth plans for the business.

So I think that in terms of the overall size, the custom business is a smaller share of the PSAI business. I'd also like to add that this quarter, we've had some -- one -- we've had some orders which have -- for some large pharma, which shows the benefit in the custom business. And I think this business is largely linked to such type of orders and the predictability of that is not completely certain as of now. So it would still continue to be the smallest subset of the PSAI business. I can't give you, as of now, what kind of growth rate, et cetera it should continue at going forward.

And this would be what, about 20%, 25% of your overall PSAI business right now will be a smaller portion of that?

I think that's roughly ballpark, that number [is going to be].

And lastly on the CIS seasonality part, as you mentioned, what was the seasonality issue which was there which has sort of deferred sales for the next quarter?

The onset of winter in Russia plays a role in pharmaceutical [loss base]. And so last year, since the liquidity in the market was okay in Russia, September saw a pretty high pull-in of pharmaceuticals, which resulted in a muted October last year. This year is -- so we see the reverse of that. So waited for the first snow, which actually happened two, three days back in Russia and this month, seeing very robust growth. So nothing much to read in this. I think we will be back in Russia this quarter.

Okay, fine. Thanks very much, and best of luck.

Ravi Agrawal, Standard Chartered.

Yes, hi. Thanks for taking my question and congrats on a good set of numbers. Just on the PSAI business, I mean, you mentioned that your cash flow hedges essentially flow through your generic business. And seeing the segmental growth which you've mentioned for each of these geographies in PSAI, in North America, Europe, essentially, I mean, the sense I get is that the benefit this quarter on a YoY basis has essentially been on account of the currency and not so much on volumes. Is that the correct assessment for this business for the quarter?

For which business, Ravi? Are you talking about PSAI?

Yes, that's [right].

No, I don't think that's right, because the PSAI business has also grown, if we look at it, in each of the billings -- in the billing currency terms. So we've seen it grow in dollar terms. We've seen it grow in euro terms. We've seen it grow in rupee terms. So it's not all on account of that.

Okay. And because the growth rate is around 25%, 26%, and I guess that's where -- and you mentioned that the cash flow hedge is essentially on an account of your generic business. So I was [thinking that] --

So it could also be because the mix of the business has changed. As I mentioned earlier, we are increasingly selling what we used to sell in the US, two plants in India of generic companies as well.

Okay. Other question, again, on PSAI. If you remember in the last quarter, you have mentioned that there was some -- I think some flow through of sales to subsequent two quarters. And I guess some benefit of that has come in this quarter, because clearly 33% is a very high number. I mean, is that going to continue for the next quarter at least for this spillover which was there -- which was expected to happen, or it's pretty much happened in this quarter?

That should continue at least in the next one to two quarters. I think we've indicated in quarter one that the base would move up. We had relatively (technical difficulty) quarter one for the PSAI business. And the way we're looking at it right now, I think we've seen that the current level of base would probably continue going forward.

My final question on the SG&A. I mean, the half-year run rate is -- is that a better run rate to assume going forward, or should we take the ways which you've established this quarter? I mean, you mentioned that Russia has seen a lower SG&A amount. When you go forward, is this the new nominal [750 to 800 odd growth]?

I think the (inaudible) rate is probably better than the current quarter.

Okay. Thank you so much, guys and best of luck.

Nimish Mehta, MP Advisors. Sorry, the line has been disconnected. We'll move on to the next question. Prakash Agarwal, CIMB.

Yes, good evening, sir. On other income, I see -- I mean the last few quarters, our run rate had been around $200 million and this quarter, we were at $394 million. So anything specific that will happen or --?

Prakash, this other income consists of sale of pain chemicals in API and similar other nature of the operating income. You could probably take the [API] run rate as well for this item.

Okay. And on -- other question on the US piece, the fondaparinux, any -- I mean what is the scenario in terms of pricing? And have you seen more -- and the production issues being sorted out in terms of more supplies you're able to do it and expected launch in the Europe, please?

So production issues are completely sorted out. We have ample stocks, but the market has broadly settled down between innovator, authorized generic and us -- generics and us. So at this juncture, I think the share between the three has more or less settled down. There could be a little bit of movement here and there, but otherwise I think it's a good global business and no-supply scenario. As far as Europe is concerned, I think, we have filed. So as and when we get approval we'll launch.

And when could we see that launch happening in Europe? Is if the fiscal 2014 kind of thing or --?

That you should ask the regulatory bodies in Europe, but sometime next fiscal.

Okay, thanks. I'll join back the queue.

Ranjit Kapadia, Centrum Broking.

Hello, good evening, and hearty congratulation for a good set of numbers. And my first question refers to the atorvastatin market. We have launched atorvastatin this last quarter and can you give some flavor how the market looks? And the second question refers to the domestic market. You have said that the market -- in the domestic market, we have grown by 12%, however, the biosimilar business has grown by 24%. So can you throw some light that the (inaudible) brands have grown much slower pace?

Yes, so the first question is on atorvastatin. I think you'd recall that we got into the market about several weeks after the launch took place, which had put us on a certain disadvantage against other players. So we had to wait, but we persisted and we got a reasonable market share compared to the entry -- the timing of the entry. So I think, we are quite okay on atorvastatin. So that's the first question.

The second one is regarding biosimilars and the growth in Indian market. So biosimilars, although it's a robust -- showing very robust growth, but it's not a very large percentage of the total pie. So just because biosimilars grew by 24%, it would be unfair to sort of [the news] that the rest had grown lower than 12%. It is a very small percentage of the total still in spite of the fact that we are banking a lot on the growth of these products.

Sir, can you give the -- this atorvastatin market, what is the average of price [for] now?

I think it's a very, very aggressively -- like all large, big molecules, it's anywhere -- depending on where one is, anywhere between 98.5% erosion to 99% erosion.

Okay. Thank you very much and all the very best, sir.

Thank you.

Krishna Prasad, Kotak Securities.

Hi, thanks for taking my question. My question first to you regarding biosimilars. If you could provide an update on the Merck deal and particularly on where we are in Russia with respect to the rituxan product.

Merck, I think it's a bit too early to provide anything because [we are pursuing] ongoing work. Russia specifically on rituximab, what exactly --

What is your question on rituximab?

Yes, [as in] -- I know what is the status currently and when we would expect a potential launch or any triggers that we see over the next 12 months?

10 months. So that we wouldn't be able to provide. Again, in a question it depends on the regulatory pathway. We have partnership, we are progressing, but we can't say for certain when we'll get approval and launch.

Okay. But any sense on when we would -- are we currently in the process of running a trial in Russia or is that already being completed and being submitted to the regulator?

Those details, it will be -- this is a key asset we have, we are progressing with all seriousness. So I wouldn't be able to provide you with all the details and on exactly where it is and how we are strategizing our progress.

Sir, just on the US pipeline, I think we've talked about our strategy of complex generics. In terms of the visibility on the pipeline and when we expect some of these launches, is there a sense that you could provide us, I mean, whether that be in the second half of FY 2014 or is that more like beyond that period?

This is a very broad question. I think our strategy is to slowly move from or as much as we can move from plain vanilla product to limited competition product. And that's a journey which will unfold over the next four years and beyond actually. So as we speak, we have a few good products in our portfolio. We are hopeful of -- as we move ahead into next year and the year after few more approvals and then gain more and more momentum. Any specifics on this, it's just not possible to provide because you have competitive intelligence and all other aspects of it.

Sure, thank you. That's it from my side.

Rahul Sharma, Karvy Stock Broking.

Hi, just wanted a view on how the ramp up you're seeing in tacrolimus and your other new products? And how is lansoprazole OTC shaping up?

Tacrolimus is, I think there are quite a few companies, and we have a good market share in this product and we're doing well. As far as lansoprazole OTC is a bit of a disappointment because maybe you're aware that the innovator's brand as well is not doing very well for various reasons. There is a PPI [tiredness] in the market, the pricing which is at a higher level, so on and so forth. So naturally it's expected the store brand also would not do so well.

Okay. And just wanted clarity on market share on your OTC segment and -- OTC and how do you see your metoprolol and new products which you've launched, which are low competition products, faring going ahead?

OTC market share, we'll have it available in the public domain. We are doing well because we are quite specific about our OTC launches. (inaudible) is our switch product, so we have the -- quite a few of those, the first entry advantage. And we are quite happy with our share of those products. Metoprolol, again we've come in late, although it's a fantastic product to be in. So we are slowly carving out our market share. Beyond that I wouldn't be able to comment on this. But this is going to be a good, robust product for next year as well.

Okay. And so I just wanted -- what is the status of olanzapine ODT?

Very small product, I mean, nothing much to talk about.

Okay.

Can you (inaudible) offline on the product-specific information?

Okay, yes, thank you. I'll take it later on offline. Thank you.

Thank you.

Anubhav Aggarwal, Credit Suisse.

For the US business, your quarterly sales ramped up very encouragingly from almost $158 million in June quarter to $187 million now. Could you just help with one data point that, in terms of this delta on $158 million moving to $187 million, how much of the products that you've launched in this quarter would have contributed to this delta?

Anubhav, we won't be able to give you the numbers, but last part of the traction has been in existing launches. The new launches of metoprolol, atorva, et cetera, would shape up in the subsequent two quarters from the fiscal.

And just one related question on (inaudible). Would this have been a significant quarter in term -- because see, we booked, it was a six-month exclusivity, we booked sales for this in the March quarter and the June quarter. So would this have been a significant quarter from (inaudible) perspective?

Not as significant as the earlier quarter and also since the exclusivity expired this quarter, we've also provided for shelf-stock related adjustments.

Okay, got it. So there were no one-off sales and we should expect this base to be, let's say, improved upon as we get more market share in metoprolol and atorvastatin?

Yes. Atorvastatin, I think more or less we have achieved our market share. We will see that unfolding over the next few months in full quarter basis. Yes, metoprolol may be somewhat (inaudible), yes.

So atorva contribution was indeed there in this quarter in that $187 million?

It was marginal, Anubhav.

Okay. Thank you.

Koushik Pal, Kotak Mutual Fund.

Yes, hi. Congrats on a good set of numbers this quarter. Just want to know what was the OTC revenues this quarter both in US and Russia. And if you can share the growth rate also both on quarter and half-year basis?

OTC in US has not been anything new this quarter. The product which we had launched earlier have been doing well. On the PPI front, omeprazole (inaudible), as we just spoke, has been doing well. A little on the -- allergy season has been a little slow this year. So maybe it will pick up towards Q3, Q4 of this year, this financial year. As far as Russia OTC is concerned, I think with the onset of the season, I think we will see more traction as we just discussed that the season is just taking off. But overall, the non-seasonal OTC products are doing very well in Russia.

Okay. Can you maybe help me out with the total OTC revenue on H1, if possible?

Koushik, I'll share with you offline.

Sure, sure. No problem. Thanks. That's all from my side.

Bhavin Shah, Dolat Capital.

Thanks. Just following up with previous speaker's question on OTC. It would be 20%, 21% of your US revenues in rupee terms, the way we've seen it in Q1 FY13?

The ballpark roughly be the same, but we can share that data with you offline.

Sure, no problem. And this impairment charge of about INR70 crores odd [valiant] operation that we've taken, is there any further carrying value left to that to see something like this recurring now?

So there is a carrying value, but we don't think that there should be anything recurring at least over the next two to three quarters.

Okay, fine. Thanks. I'll be in the queue.

Surya Patra, Systematix Shares & Stocks.

Yes, congrats on a good set of numbers, and thanks for taking my call.

Thank you.

So, in fact, again, on the same topic of PSAI, see, in fact, this quarter, it isn't a stronger growth number. And in recent past, possibly we have added some technology, this PEGylated technology also in this basket, and you're again acquiring this OctoPlus again in that same segment. So are we thinking that the growth in that PSAI would be possibly better compared to the global generic business going ahead and possibly the mix would be, to some extent, move towards this PSAI going at?

So the OctoPlus acquisition, the intended acquisition of OctoPlus is, it doesn't have a very significant service business. The logic for the -- and the rationale for that is to help us with our drug development capability. And so that will not be a significant contributor to PSAI growth. PSAI would continue to grow and its custom business would continue to grow based on contracts that we are generating or lock-ins that have happened with key customers.

Okay. Any change -- were there any chance that this PSAI's share would, to some extent, move forward going ahead compared to that other global generic business?

No, I think, well, it's -- let me put it this way. I don't think it can be bigger than the Global Generics business. And I am not sure that -- so it is, like we've indicated earlier in the call, we see the current quarter, hopefully it's a trend that would continue for the PSAI business over the next two, three quarters.

Okay. On the other operating income, can you please repeat once again what is the components of that other operating income?

Surya, the nature of this income is where we liquidate these pain chemicals in the APAI business largely. So this quarter may have been a little bit higher. You could refer to H1 run rate probably to model it going forward.

And one more line item on this. The net finance income whatever we have reported, this INR37 crores odd, in that ForEx gain is there in the INR18 crores odd and the net income, interest income was INR3 crores, the balance, what is that?

The ForEx gain in that would be about INR43 crores -- sorry, INR34 crores is the ForEx gain in that line.

Okay. Thank you. Thanks a lot.

Sonal Gupta, UBS.

Thanks. Just continuing with -- on the US ANDA, is there a strategy -- I mean just an observation, is there a strategy in terms of you stopped -- you're filing less Para IV filings, is that a correct observation to make?

Broadly, we are in that direction for two reasons. One is there are less Para IV opportunities as such and there is just by filing frivolous Para IV attempt doesn't sort of return any money. So the focus is largely on limited competition products. Having said that, if there are opportunities out there we find, of course we'll go ahead.

But I mean now these limited competition -- I mean, you're not seeing Para IV opportunities in these limited competition products, are you?

Not as 180-day types. These would have -- anyway the complexity is in terms of technology or other aspects of needing a clinic and several other things. So this would have a higher life cycle than six-month [type of a thing]. There could be some patterns we will be challenging, but the objective is not to gain [180/180-day] type of a return.

Great. And just again on the US business, do you still expect to meet your guidance of about $900 million of revenues for this year? I mean, do we see a significant step-up even in the second half on the US revenues?

Sonal, we didn't give a guidance for the US. Specifically, we ballpark indicated that it would be tracking at the rate which could be suggestive on an annual basis of about $900 million, but we are still holding to the $800 million to $900 million range for the US business depending on the approvals that we get for products that are hopefully going to be launched in the next two quarters.

So in that case, you do expect a further step-up, I guess?

Well, in a way, you could say that, because there will be new products launched, but you would also have possibly new entrants entering into the same products.

Right. Okay. Great. Thank you so much.

Thank you. Ladies and gentlemen, due to time constraints, we will take one last question from Saniel Chandrawat from Morgan Stanley. Please go ahead.

Hi, thanks. This is Sameer here again. Can you just share your thoughts on the evolving domestic pricing policy and specifically whether the pricing mechanism would be cost based or what is the market price for the [NLEM] drugs?

So, Sameer, it's still going to be -- I mean, we still have to wait for what the decision is going to be, because it's not going to be easy in the sense that there is some kind of an undertaking which from the group of ministers who are finalizing the policy, they have to come out with what the policy mechanism is, so whether it's going to be cost based or market based. We believe it's going to be market based, because that's what really makes sense in terms of benefiting both the consumers as well as the industry.

So we still have to wait and see because it won't be over, because once the policy comes out, there will also be some opposition to that from the people who are also fighting the case through a petition. So I think the rollout of the policy is something which we have to wait and see for the timeline because the first step is what kind of a mechanism is going to be used. The second thing will be, when it will actually be implemented. So I would still put it and that it's going to take some more time than what people actually anticipate.

Sure. I appreciate that, but just in case, there's a standoff between the legislature which is group of ministers and the judiciary which is Supreme Court, how does this get resolved?

How does this --

I mean who is the overriding factor? Is a group of ministers or is it a Supreme Court? I mean whose view gets finalized?

No, no, I think what I'm pointing out is there are two steps to that phase. So first is, the government based on the Supreme Court's observations, right, and the guidance which it has provided and how it will come out with a policy because it's not as simple as saying that, that Supreme Court asked for cost base, that's not what we believe, right?

So the first step is that once having overcome that, because ultimately policy-making is in the government's prerogative, so we still have to wait and see what that comes out. All I'm just trying to say is, even if the government were to [prevail] or what was required, I'm saying that it will still be challenging quarter.

I see.

(inaudible).

Sure. And the other question is, what percentage of your US sales is now coming from (inaudible) plant, this is just to understand your risk diversification.

A significant portion. Having said that, a new plant is just operational at the moment and the objective is certainly to dispute risks. But at the moment, a significant portion.

Okay. And just finally, assuming you do CapEx, let's say, $100 million, $120 million this fiscal, can you share with us how would this be spent, a location or greenfield, brownfield, API formulations?

[It would not be] the SEZ-oriented spend, it would also be a spend that we are putting together in some API programs on account of either vertical integration or lock-ins. So broadly, the split, Sameer, is on the new projects. This could be in the range of almost 60% to 70% and upwards, maybe even more than 70%, would be new projects, including SEZ, new product in API for which we are expanding capacity, et cetera.

Okay. Thank you very much.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference back to Mr. Kedar Upadhye for closing comments.

We thank you all for joining Dr. Reddy's management for its quarter two fiscal 2013 earnings call. In case of any additional clarifications, please feel free to revert to our Investor Relations team. Thank you.

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