Dr Reddy's Laboratories Ltd (RDY) 2013 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Laboratories Q3 FY13 earnings conference call. As a reminder, for the duration of this conference all participant lines will be in the listen-only mode and 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 Q3 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 transcripts will be available on our website soon. The discussion and analysis in this call will be based on IFRS consolidated financials to be submitted to US SEC. To discuss the business performance and outlook we have today, G.V. Prasad, our Chief Executive Office; Satish Reddy, our Chief Operating Officer; Saumen Chakraborty, our Chief Financial Officer; Abhijit Mukherjee, President and Head of Global Generics; and members of finance and Investor Relations teams.

Please note that today's call is copyrighted material of Dr. Reddy's and cannot be re-broadcasted 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 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 Saumen Chakraborty, our CFO.

Thank you, Kedar. Good morning and good evening to everyone. Let me begin with the key financial highlights of this section. All the figures are translated to US dollars at a convenience rate of INR54.86 to $1.

Reported revenues for the quarter are at $522 million with year-on-year growth of 3%. As you would recollect, we had recorded a one-time benefit of $99 million from the launch of generic olanzapine in Q3 of fiscal year 2012. Normalizing this effect, the year-on-year growth is robust at 23%.

Revenues from our Global Generics segments are at $380 million. Excluding the impacts of olanzapine from the previous year, the year-on-year growth is at 24%. This growth is largely driven by North America and the emerging market territories.

Revenues from our Pharmaceutical Services and Active Ingredients segment, PSAI, are at $130 million and grew by 28% year-on-year.

Consolidated gross profit margin for the quarter is stable at 53%. Gross profit margins for Global Generics and PSAI segment this quarter is at 60% and 29% respectively.

SG&A expenses, including amortization for the quarter, are at $156 million, an increase by 12% year-on-year. R&D costs are at $37 million for the quarter and on a sequential basis have grown from 6% of revenues to approximately 7% of the revenues, which is in accordance with our strategy to expand our R&D activities across focused segments. EBITDA for the quarter is at $110 million and is 21% of revenue.

In the current quarter, due to depreciation of rupee, our product line contains a loss of approximately INR 20 crores attributable to time value portion of the mark to market adjustment for [call/put options]. On the similar structure, we had a significant gain during quarter two on account of the then appreciation in the rupee. Time value is a function of estimated volatility and time to maturity for the (inaudible) contract. Profit before tax for the quarter is at $85 million, which is 16% to revenues. Excluding the benefit of olanzapine in the last year, our PBT has grown in excess of 40%.

The effective tax rate for the current full-year will be in the range of 20% to 22%. Tax rate for the current quarter is at 19%. Profit after tax for the quarter at $69 million is 13% of revenue.

Key balance sheet highlights are as follows. Our working capital increased by $24 million and is largely in line with the change in revenue mix across the market. Capital expenditure for the quarter is at $27 million. Foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are approximately at $600 million, largely hedged around INR55 to INR57 to $1. In addition, we have balance sheet hedges of $408 million. Net debt at $247 million represents a net debt to equity ratio of 0.20.

Before I sign out, I would like to update you that the open offer for the acquisition of Netherlands-based specialty pharmaceutical company, OctoPlus, is in advanced stage with 92.9% shares tendered in our favor. We this, we will commence the integration process of OctoPlus B.V.

Also, I would like to bring to your notice the earnings press release made earlier in the day is in line with financial submissions we made with the US SEC in the Form-6K. A charge of INR20.4 crores towards fuel surcharge adjustment was accounted in Q2 FY13 after the unaudited results were announced as a subsequent event adjustment since the related judgment of AP High Court was delivered before the filing of Form-6K with the US SEC for Q2 FY13 financials. However, in the financials submitted to SEBI this charge has been considered in Q3 FY13 only.

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

Thank you, Saumen. Performance for the quarter has been stable. We were able to maintain the momentum that we gained over the past few quarters, especially in the emerging markets and North America. The PSAI segment also demonstrated good 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 all references are in respective local currencies, with respective period average exchange rates. Revenues from North America business for the quarter are at $178 million. Year-on-year growth, after adjusting the impact of olanzapine is at 32%. We have been able to improve our market share for some of our important recent launches; atorvastatin, metoprolol, montelukast, to name a few. However, the full benefit will be seen in the coming quarters. Also we continued with our stable trajectory for the large limited competition products, namely ziprasidone, tacrolimus and fondaparinux.

Like other generic players, we also have been affected by the delay in regulatory approvals. As a result, the quarter in which we do not have a meaningful new launch, may appear somewhat subdued for revenue achievement. However, we are committed to our long-term strategy to develop and market complex generic products in a focused manner to drive growth in the U.S. market.

Moving on to India, I'm satisfied to see our business build the growth trajectory that we have achieved over the past few quarters. Revenues at INR372 crores for the quarter represented year-on-year growth of 12%. On a moving annual basis, year-on-year growth is 14.5%. As per the latest IMS Report, our December MQT is 14.2%, as compared to the IPM growth of 9.7%. I believe that we are well on the way to meet our immediate priority of matching the market growth rate.

On the emerging market front, revenues for the Russian business are at $68 million, with year-on-year growth of 26% in ruble terms. As you would recollect, Russian market had a constrained Q2 performance. In Q3, we have seen the rebound in performance as anticipated, aided by seasonality. Similar growth factor is also witnessed across countries in the CIS region, Venezuela and South Africa. I believe that the emerging market territories would play a critical role in driving our next wave of profitable growth.

On to the PSAI business, this quarter has shown a good year-over-year growth, aided by the new product launches (inaudible) Active Ingredients segment. 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 further strengthening from this segment moving ahead.

With this I would like to now open the call to questions.

Thank you very much, sir. We will now begin the question-and-answer session. (Operator Instructions). Bhavin Shah, Dolat Capital.

Thanks. Just wanted to get an assessment of the R&D spend for the quarter. It's been going up. Is there any specific that we're incurring this towards?

(inaudible) Broadly it is in the area of Generics and API, nothing extraordinary. The investment in -- as you know, quarter-to-quarter the expense depends on the products that are being developed, the bio-study that we do, the clinical development we do. Having said that I think we see a trend of increasing R&D as we are investing more in products which require clinical development. We were also going to be investing more in our Phase 1 study for biosimilars, and these two things will somewhat increase the R&D spend going forward -- incrementally as we go forward.

I understand that sir, but in this quarter specifically, if there have been some sort of extra spend, because nature of filings has not changed really, or is it something --?

Filings, usually (inaudible), they don't happen in the same quarter, so you can't correlate that based on trend and filings in the same quarter.

Got it. And U.S. OTC business how has been the growth there?

Abhijit here. U.S. OTC business is doing well. There was no other new launch in this quarter. Anastrozole was launched in the earlier quarter, although the traction on Anastrozole was not very high, but the other products, which -- some major ones, Letrozole, (inaudible), Ranitidine, it's doing well.

Could you quote the growth number for this quarter for this segment, U.S. OTC?

No, it would be --

We'll get back to you.

Sure, no problem, no problem. And lastly, the CapEx guidance for next year?

We have incurred INR150 crores during the current quarter. Actually trend is about INR500 crores for the first nine months of the current fiscal.

For FY14, could you quote this again?

It will be in the same range, Bhavin.

It will be in same range. Fine, I'll be in the queue. Thanks.

Anant Padmanabhan, Cowen & Company.

Yeah, hi, thanks for taking my question and good evening. I actually have two questions. First, I was wondering If you could elaborate on the performance of the North American generics line a little bit more. It seemed like there was some good product flow in the quarter with [Amoxicillin], Boniva and Singulair and then Mylan's withdrawal from tacrolimus. So why is there a delay in realizing a benefit from these launches? So that's my first question.

And then the second one is, in terms of your aspirational revenue guidance for 2013, I just wanted to get a sense of where it currently stand's, do you think you could do over $650 million in the next quarter, particularly given Finasteride? Thank you.

So, on the North America generics, this quarter in particular didn't have any major launch. We just launched (inaudible) which is very insignificant in revenues. The products you mentioned, yes, it got ramped up in terms of revenue during the quarter, (inaudible) between oral (inaudible) it got ramped up. Also, metoprolol, we got our market share, being the fifth player, the market share we go it, but the revenues are coming in from this month actually, from January.

So, overall, in North America, since we didn't have any major launch, the revenues could be already subdued.

The second question which you asked on projection, I don't think we would be able to provide you a specific guidance on that. But, yet the Finasteride launch has gone very well. The market share, which has recently been reported is well past 70%, and for a launch which is just at about a month old, I think we are quite pleased with it.

Okay. If I could just ask a quick clarification, I think in the past you said revenue guidance for 2013 of $2.5 billion and then possibly $2.3 billion. So I just wanted to see where you stand on that at this moment.

This is Prasad here. That guidance was based on certain assumptions of approvals, which is based on the historical run rate of approvals. We are not very sure when these approvals are going to materialize. So the entire -- if we have one or two approvals of the products that we hope will get approved, we could reach that revenue target. But everything depends on approvals by the FDA and there seems some level of slowdown. I don't know if it's a pattern or if it's particular to our products. I can't give you that kind of understanding. Subject to the approvals coming, we could reach that guidance, but it's uncertain. If it doesn't happen in the fourth quarter, it will happen in the next fiscal year.

Okay, thank you.

Anubhav Aggarwal, Credit Suisse.

Yeah, thank you. Just one question on the PSAI division. On the disclosure that you give out in gross margins, margins this quarter was quite weak on PSAI compared to, let's say, for the peak trend of last five quarters. Despite the scale on PSAI being strong, any particular reason -- you did mention in your opening remarks that there was some delay on few high value-added orders, but besides that was there was any particular reason?

Anubhav, there is no specific reason for this. In quarter two we had a very favorable product mix, as Satish mentioned. So that's the reason we were tracking around 35% in quarter two. But margins would move in the trajectory of 30% to 33% for this segment.

Okay. So, let's say, do you expect now the product mix to significantly improve from here onwards when you say there was no particular reason?

There has been some price compression on one or two large products. That's the reason for this quarter margins being smaller. So having said that as we launch new products it's likely to recover. There is some volatility in the margins based on the pricing pressure, but we don't see that as a trend.

Okay, thank you. Just one more question. On the US business, earlier you mentioned about getting approval of two limited competition products in FY13. Any status you want to provide on that? Since we are almost there at half of this quarter, should we assume that most of these product approvals will be shifted to FY14?

I have no idea really, because you could get any day or you could launch, but it all depends on things that we don't control, so we can't say it.

Okay, sir, just one clarity on metoprolol, what is your current market share? You said that most of the revenues started from January, what's the current market share of metoprolol?

The competitive market share is in the range of 15%. Currently what's tracking in public domain (inaudible) about 15% contracted market share. But however you do, remember that the projections, if at all you have to remember that the projection, if at all we're trying to make, we are the fifth player and any player coming in would pull the prices down to a certain extent.

Yeah, sure. But are you currently -- let's say the February sales that you are doing, you're already doing according to 15% market share or 10% market share?

About 15% from January.

Okay, thank you.

Girish Bakhru, HSBC.

Yeah. Just following on US, I mean you've said that the next quarter, probably, we'll see benefit from the new launches. Can you give color on how many products you see in the next fiscal in US, I mean, can you give some number or, I mean, where do you see that business going to?

Firstly, we didn't say that there are two products waiting on approval, there are many products waiting approval. We are not able to predict the approval timing and if some key products get approved, we could see a rebound in the revenues from North America. But the uncertainty of approval does remain. I mean, we can't give you color on that. I mean there is nothing pending from our side; it is a normal regulatory process.

No. Yeah, but my sense was to get, out of the pending ANDAs, how many ANDAs do you see -- should see an approval according to you in US?

We can't say that, we can't predict that.

Okay. And just on Antara, I mean, if in case Mylan is able to launch, say, in March, would you be able to clarify if you will enter the same time?

(multiple speakers) No, I don't think there is any plans on Antara.

But given that you have an approval, is there something that would still block you from launching that?

Girish, we'll separately come back to you on that one.

Alright. Thank you.

We can't comment at this level.

Alright, thank you. I'll join the queue.

Bino Pathiparampil, IIFL.

Hi. Just clarification on the US, the $178 million figure given in your press release, is that the actual dollar invoicing?

Yes, Bino, that's the dollar invoicing.

Okay. So roughly if I calculate, you have taken the US revenue at INR52 to the rupee. Is that how you have reported in rupees?

Yes.

Okay. So, I understand that there haven't been any major launches in the quarter, but we had certain products ramping up in market share. Still, sequentially, quarter-over-quarter I see a decline. What can that be attributed to?

No, in the US generics market if you don't have a launch in a quarter and a price compression erosion is a regular nature of the business. It's likely to affect. It's important in -- US generics being 45% of our generics business, it's important that we have some meaningful launches every quarter. Metoprolol, as I said, got ramped up only this quarter (inaudible) . So I think it's as per the business model.

All right. Originally when we were looking at $900 million-plus in the US, sometime back for FY13, we were also at the same time roughly guiding to a very low growth in US in FY14, given to its large base in FY13. Now that it looks like you will enter only a little above $700 million in the US, can we look at FY14 as a strong growth year?

We wouldn't comment on the figure specifically. But, in general, you're right, any deferred revenue because of approval is bad news for a particular year and possibly a better news for the subsequent year.

Alright. And finally on the AOK contracts which were recently there in Germany, how has your position been compared to what it was earlier?

We have taken strategic decision in tuning down and going low on the tender businesses, because it's not bottom-line accretive. The way the competition has taken the prices to, we've taken a conscious decision in going down on tender play in general business.

Okay, thank you. If you could give out the German revenue separately from the rest of Europe would be great?

We did EUR19 million during the quarter.

In Germany?

Yes.

Okay, thank you. I'll join back the queue.

Sameer Baisiwala, Morgan Stanley.

Yes, thanks. Good evening, everyone. Just curious about -- I know year-to-year the approvals will make things quite difficult to predict. But if you take a view three years out, what do you think is the sales growth potential of the business? Is it early teens, mid-teens, late-teens, any color on this will be very helpful?

So you're talking about the branded business, or you're talking about the US generics?

US specifically and overall if you can?

US specific -- US business, as you know, Sameer, it's very, very dependent on the product approvals and going ahead we've actually mentioned many times over that the product mix is going to move towards more complex, less competition product and hence the predictability of approval is equally sort of uncertain. So it's -- if you get approvals on time, if you get the right products, it's going to be very good, and if it gets deferred, it's difficult to put a number on a year-on-year basis.

Yes, but what I'm saying is three years average, so --?

We remain optimistic. The US businesses certainly have a lot of potential. If we can bring in the differentiated pipeline to bear -- I hate to put a number at this point of time, but we still think it's one of the drivers for the Company.

And I think there was a question on increasing R&D costs, and some of these things are directed towards high competition -- highly complex products.

Okay. Just on that point and I think Prasad also mentioned that this is going into products which require clinical trials. Is it possible to give more color on this? I mean, are these different types of --?

It's difficult to give you specifics, but if you look at the kind of moves we are making, external R&D partnerships, the acquisition that we just made, we see a move towards technology platforms, certain amount of clinical development, certain amount of investment in R&D, all these are -- R&D means technology. These are things we're doing with a game plan in mind, complex injectables, difficult to characterize products, biologics, peptides, these are areas that we are focusing on. So as we file, the story will unravel. I hate to give you something more specific than that at this time.

Okay. And then, final question, of the 65 pending ANDAs, is it possible to say what percentage really belongs to these niche products?

I think, historically, it will be difficult. I think the needle hasn't moved that much if you take historical pending ANDAs. But going forward, our goal is to have at least 30% of our filings in products which have some uniqueness to them.

Okay, thank you very much. Very helpful.

Prakash Agarwal, CIMB.

Yes. Good evening to everyone. On the Forex currency hedges, the $600 million, so just wanted to understand how -- is it spread across or how should we assume the numbers?

Prakash, these are hedged between INR55 to INR57.

I understand that, it's for 18 months. So I wanted to understand whether they are equally distributed or it's front ended or --?

Yes, most of it's equally spread, Prakash.

Okay. And secondly, again on the guidance, I mean, obviously, we had -- even in the last quarter we had discussed about -- because of delay in approvals, you might see some softness for 2014 and assuming there is a high base in 2013, so just wanted to get Mr. Prasad's thoughts on that.

I think, as I mentioned earlier, it's hard for me to put numbers without visibility on the approval dates, but whatever we don't do this year will certainly happen next year.

Okay. And, lastly, if you could share market share for fondaparinux and tacrolimus?

For tacro, within generics, we are at 44%.

34%?

44%. Within generics, we are at 44% for tacrolimus.

And fondaparinux?

It's -- we are at 29%.

And this includes the -- your stock in the other segment, hospital plus the --?

It's all inclusive. (multiple speakers) all inclusive.

All inclusive, 29%. Thank you.

Ranjit Kapadia, Centrum Broking.

Sir, my question relates to biosimilars. We have achieved a 47% strong growth in the domestic market. So, if you can give some outlook, how the business is going to shape up? And my second question relates to atorvastatin market share in the US.

So, we have four biosimilars in Indian market and this year we expect roughly revenue -- roughly in the range of about INR100 crores, which is a good milestone for us. All four molecules are growing. And your second question was (multiple speakers) atorva, atorva, we are around 15% -- hovering around 15% market share. Being the fifth player, I think that's a fair share for us.

And how many players are there currently?

Six players.

We are fifth and only six players are there?

Yes, only six players and yes, yes, we are the fifth player.

Thank you and we wish you all the very best.

Vivek Agrawal, MP Advisors.

Yes, thanks for taking my questions. Sir, my first question belongs to your margins. Your margins declined by approximately 500 basis points on a quarterly basis. So what was the difference between the last quarter and this quarter that had led to decline in margins around 20% on quarter-on-quarter?

Now, Vivek, the gross margin is fairly stable between quarter two and quarter three.

Yes, I'm talking about EBITDA.

Yes, so we have seen an increase in R&D spends and SG&A spend, which is in line with our plan. So, I think that is --

The SG&A, I think, Abhijit has a comment to make.

So, in Q3, there is some growth in SG&A, primarily couple of things. With the onset of winter some products were launched in the OTC side, coupled with the commercial spend, which increased, to a certain extent, SG&A. And also there was some rationalization in Germany.

I just want to know what is the ForEx component above EBITDA line?

There is a loss of [INR8 crore].

Loss of INR8 crore? And it is included in?

That is included in the net finance exchange line.

Okay, in net finance. Sir, just one more question. You have tentative approval, like a tentative approval of Aloxi in US. Sir, can you give some timeline when you are going to launch that product? Aloxi.

What's the name of the product?

Aloxi, it's Palonosetron.

Palonosetron.

That's quite some time off. It's going to be a good product, but I think it's quite some time off.

Patent expiry.

Yes, yes.

Yes, sorry, sir -- I couldn't get that one clear.

We don't have a definitive date of launch.

Yes, so you could look up the statin landscape, you have the answer there. I don't exactly recall when it is, but it's not very soon.

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

[Lakshmi Sanjeevi from Sunithi Securities].

Yes, thanks for taking my question. First question is related to Europe. Can you just give us the breakup like how much degress you have shown in Germany?

Lakshmi, we can take this separately after the call.

Okay. Apart from that, just a slight clarification. In your profit computation table, you have mentioned INR1.3 crores as net interest income and total net finance expense is around INR9.6 crores. So if I adjust that around INR11 crores, is it related to which item? In the press release, you have mentioned that INR1.3 crores is the net interest income and total net finance expense in the P&L statement is around INR9.6 crores. So if I adjust that it comes to around INR11 crores. So can we say that it is related something to products?

Lakshmi, I think we can give you these details after the call.

Okay. And my last question is related to your [ATF -- FPS segment], can you just give us the market size of (inaudible)?

We'll revert to you, Lakshmi, after the call.

Okay. Thank you so much.

Rahul Sharma, Karvy Stock Broking.

Yes, so just wanted to get the feel, is the US market getting more and more competitive? Is the landscape changing quite rapidly, sir? And secondly, sir, our CIS' business is gaining good traction, so just wanted some view on that.

US market is getting competitive, but we don't see -- it has been getting competitive for last quite a few quarters. So as more people are coming in, it's going to be a competitive consolidation of the channels, so there would be competition, but we're all trying to factor into the best of our capability in our business model.

CIS is doing well.

Yes, so CIS has been doing extremely well, Russia CIS, you're talking about. I think the Q3 anyway is a good quarter, but overall I think, we are very positively placed in both -- not just Russia but even the CIS markets have gone very healthy. Ukraine is scaling up. There is a OPC deal, which has just sort of been concluded for Ukraine which is providing some more sort of revenues in Ukraine. So I think, overall, I think is a very positive story as far as our case is concerned.

How many products you launched in the US market, sir, including all generics and all till date?

Till date?

In the quarter we launched one product that Abhijit mentioned.

Yes. So till date, there are lots and lots of product actually. So now we have lost count actually, it's already achieved scale. Yes. So this quarter was -- as I mentioned, one product and not significant financially.

What about R&D? Will it be up 7% going ahead for the years to come or do you see it in the range of 6% to 7%?

I think it will be north of 7%.

Okay. And what about tax guidance for next year, sir?

We expect 20% to 22% range.

Okay, sir. Thank you. I'll join back.

Nitin Agarwal, IDFC Securities.

Thanks for taking me question. Sir, you mentioned in the opening -- you mentioned about that emerging markets in the opening comments. Now, are we -- do you see the emerging markets, although we've had fairly decent growth in the segment in the first nine months with all the initiatives and all that we will be working on, including the GSK deal and all, are we hitting some sort of a tipping point in the emerging markets trajectory or growth story trajectory from here on?

I think, Russia and a few select markets will continue to drive growth in the next few years. And along with the US, I think this will be a major driver of growth. It will be two major pillars of growth for the Global Generics business for Dr. Reddy's.

Apart from India.

But outside of CIS, which are the markets where you see growth really scaling up from these levels -- as we go along?

Collectively, there are many markets, but there are three or four large markets. Satish, do you want to --

Basically South Africa is one of them. So I think we've already talked about the large markets but outside of that, there is South Africa, there is Venezuela, which of course tax has a little bit of currency devaluation now which is going on, but there two are pretty big markets and in the future, we'll also have China coming in.

And Australia is also getting on.

And Australia is also scaling up costs like that.

On the tacrolimus, we've benefited from a market disruption which happened. We've had 45%, 46% market share pretty much, it's fairly commendable, but is there a risk of some sort of a normalization to this business as we go along and impact on the numbers?

Possible, like in new product when approval is coming, but since we spoke there have been a couple of entrants.

Okay. And lastly, on the API business, how do you see -- ended up, calendar 2012 was a big year for patent expiries. I think a lot of the patent expiries are relatively thinner as we go along for the next two to three years, at least for the next two years. So in this context, how do we see this business really playing out?

I think high-single-digit to low-double-digit growth it seems typical in this business.

On a sustainable basis?

Yes, absolutely.

Okay. And lastly, basically the last one, you mentioned about rationalization cost in Germany, if you can indicate some sense on what was the extent of this cost?

Very small. It's not -- it was not very big, in the range of EUR1.5 million, yes.

Around EUR1 million, Nitin.

Okay, fine. Thanks very much.

[Suresh Bhatia], Goldman Sachs.

[Mohan], you can take the next question.

Anubhav Aggarwal, Credit Suisse.

That we wouldn't be able to comment. And we really have no access to the selling price of other competitors as well, but you could make your modeling based on the fifth player coming in.

Okay, and just one question on lansoprazole Rx. After two new entrants getting approval and launching their products, how has been, let's say -- let's say, if I look from -- after the two new entrants coming in, how has been the price erosion in this product for you, let's say, on the pricing front?

There is some erosion, but as it happens, as competitors come in one after another, it's sometimes a little better than all five coming together and they proceed.

But would you -- just for benefit of us, would you say that there has been like only some erosion or it's been like, I mean, a decent erosion, I mean just --?

This is perfection, you know. (multiple speakers).

It's moderately decent.

Yes.

Okay, thank you.

Monica Joshi, Avendus.

Yes, hi. Just two questions, just to clarify whether your R&D cost this quarter includes any GDUFA fees and if not, will that come into the following quarter? Okay.

Yes. So, Monica. GDUFA fees are included, however not in R&D, those are included in SG&A line.

Could you quantify that?

It's $1 million, Monica.

That's a little surprising, because wouldn't -- given your pending approval status, wouldn't that be a little higher? Or would you have some bit of bunching up in Q4 too?

Depends on the filings and a large part of the fees were booked in the previous quarter, Monica. In quarter two itself, we've taken that charge.

Okay. Secondly, on the custom synthesis side, I missed your comment, did you say that there is some shift that you saw in some high value products which are going to be pushed into the next quarter or is it that you saw some traction this quarter?

We already saw some traction this quarter and that will continue. That's what (multiple speakers).

That will continue. Okay. Thank you so much.

Saion Mukherjee, Nomura.

Yes, thanks for taking my question. There are two questions here. Firstly, just on R&D spend, what percentage of the spend currently you think is going for Biologics, if you can share that, and how you see that going forward? And if you can also elaborate on your plan for filing for Europe and any key approvals that you expect over the next two years, like Rituximab in Russia, or any other emerging markets?

So, we are not disclosing the breakup of the R&D effort -- of the R&D cost and Russia certainly could be possible in the next two years, but not in Europe. I think we would still have to do the Phase IIIs before the filing and we're not indicating a timeline at this time for Russia -- for the European politics.

And what about Europe, sir?

That's what I'm saying. There are no products in Europe. Second question --

Yeah, I know, biosimilar registration.

No, that is third. (inaudible) He asks on Europe market are we really seeing --

Can you repeat your question?

Yes, I mean, I was just wondering you have been talking to the regulatory agency for your filings. Now, you have a collaboration with Merck as well.

This is for biosimilars, right?

For biosimilars, yes. So I was wondering -- so where do we stand? I mean do you see some filings happening over the next two years, three years and if yes ..?

Three years is possible; two years, maybe too ambitious.

I see, but do you see you are -- I mean how you see yourself versus competition for the regulated market in biosimilars? In the products that you are targeting, do you think you would be in any of them be in the first wave in any of the regulated markets?

That is left to you that we could be in the first wave for at least (inaudible).

Okay. And I don't know whether you've shared this before, just wanted to check what is the cash flow hedge loss that you incurred in this quarter?

Saion, it's around INR55 crores for quarter three.

Okay, thanks. Thanks a lot.

Thank you. Ladies and gentlemen, that was the last question. I'd now like to hand over the floor back to the management for closing comments.

Thank you for joining Dr. Reddy's management for the [probably] 5.30 earnings call. In case of any additional clarification, please feel free to get in touch with the Investor Relations team. Thank you.

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