Dr Reddy's Laboratories Ltd (RDY) 2015 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Laboratories Q1, FY 2015 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 after the presentation concludes. (Operator Instructions). Please note that this conference is being recorded.

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

Very good morning and good evening to all of you. And thank you for joining us today for Dr. Reddy's earnings call for the first quarter of fiscal 2015. Earlier during the day, we have released our results and the same are also posted on our website. We're conducting a live webcast of this call and a transcript shall be available on our website soon. Just a reminder, the discussion and analysis in this call will be based on IFRS consolidated financial statements.

To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's, comprising Satish Reddy, our Chairman; Saumen Chakraborty, our Chief Financial Officer; Abhijit Mukherjee, our Chief Operating 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 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 Saumen Chakraborty, our CFO.

Thank you, Kedar, greetings to everyone. Let me begin with the key financial highlights. For this section, all the amounts are translated to US dollars at a convenience translation rate of INR60.06, which is the rate as on June 30, 2014.

Consolidated revenues for the quarter were at INR3,518 crore or $586 million. We registered year-on-year growth of 24%.Revenues from our Global Generics segment were $483 million and grew by 32% year-on-year. This growth was well diversified across the geographies. While US Generics got benefited by continued limited competition for the last year's launches, there was sustained momentum in emerging markets territories and India formulations as well. Revenues from our PSAI segment were $92 million and declined by 6% year-on-year.

Consolidated gross profit margin for the quarter was 59.3% versus 52.8% in the same quarter of the previous year. Corresponding values for Global Generics and PSAI were at 66.5% and 22.3% respectively. As we have highlighted earlier, this margin expansion is due to improved product portfolio and a favorable currency situation compared to the same quarter last year.

SG&A expenses, including amortization for the year were at $178 million and increased by 21% year-on-year. However, SG&A as a percentage to sales decreased by 55 basis points. The cost increase in absolute terms is largely due to depreciation of the rupee against multiple currencies, annual increments, additional manpower deployment in the past 12 months and other sales and marketing spend for events specific to this quarter.

R&D expenses for the quarter were at $65 million, representing 11% to revenue versus 8.5% in the corresponding quarter of the previous year. As also mentioned earlier, the increase in R&D spend during the quarter is in line with our planned scale-up in R&D activities.

EBITDA for the quarter stands at $148 million, which is 25% to the revenues and grew by 56% over the previous year. Tax rate for the quarter is 21.5%. Effective tax rate for the year is expected to be in the similar range.

Key balance sheet highlights are as follows. Our working capital balance increased by $71 million over the previous quarter and is largely in line with the expectations. Capital expenditure for the quarter was at $36 million. Our net debt to equity ratio has significantly improved to 0.09%.

Foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are approximately at $470 million, largely hedged around INR59 to INR63 to $1. In addition, we have balance sheet hedges of $450 million.

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

Thank you, Saumen. Greetings to everybody and I extend a warm welcome to you on this earnings conference call. This has been a good start to the year with our performance both in terms of sales growth and margin expansion playing out as per our expectations. During the last 12 months, we proceeded towards building a strong injectable franchise in US with key set of products being decitabine, azacitadine and zoledronic acid.

We have demonstrated our ability to build shares in the space and has been proven to be a source of sustainable value proposition for us. Our emerging market geographies and India business also contributed positively despite challenging macro environment. For the PSAI business, the challenge on the external front continued in few pockets, we saw revenue stability and relatively better margin profile for API portfolio.

Now, let me take you through some of the business highlights for each of our key markets for this quarter. Please note that in the section, all references to numbers are in respective local currencies. Revenues from North America Generics for the quarter were at $274 million, and grew by healthy 43% on YoY basis, and 12% on sequential basis.

As mentioned earlier, contribution from the injectable products sustained through the quarter, as there was no noticeable competitive entry. You would have also noticed that we have increased market share for some of our key products, example Metoprolol and Ziprasidone. Over the past 12-month period, we have improved on the Generics rank by value to eighth, up three places as per IMS.

While new launches are not fully factored in as yet in our revenue numbers, the expected contribution from these launches may not completely offset the impact of possible competition we expect to see starting this quarter in some of our limited competition categories.

Revenues from our India business were at INR400 crores and recorded 15% year-on-year growth. This is our second successive quarter of growth above the industry level. We continue to see healthy volume expansion in our focused brands, some of which are under NLEM. We're also seeing robust prescription growth. We have selectively increased [three-fourths] of our some therapies to increase our debt and coverage. The team continues to look out for differentiated products to enrich portfolio mix and address existing unmet medical needs.

On the emerging markets front, Russia revenues were at $70 million for the quarter and grew by 18% in local currency terms. We continue to perform better than the market both in volume and value terms.

OTC comprises about 37% of total revenue and registered 22% growth over previous year. As per [EMEA] IMS report, we are third fastest growing OTC company in the top 25 list, ex-Russia. The emerging market territories grew by 45% YoY majorly contributed by Venezuela. There are always headwinds surrounding various macro factors such as currency and political situation in these markets. However, we remain quite optimistic from the opportunity in these markets on the back of good portfolio, increased serviceability, OTC business potential and headroom to grow our Rx market shares.

Our PSAI business declined by 6% on year-on-year basis due to continued subdued demand and some deferment of customer launch plans. API is looking better with improvement in gross margins and higher developmental sales.

Also, there is a gradual improvement in our order book over the last few quarters and its value shall be realized in the coming quarters. CPS performance fell short of expectation in this quarter.

As mentioned earlier, PSAI provides major competitive strength to our generics business, especially considering increasing generics pipeline launches in the limited competition space.

With this, I would like to open the session for Q&A

(Operator Instructions) Prakash Agarwal,CIMB.

Yes. Thanks for the opportunity. Good evening to all. Just wanted to get a sense on the US dollar revenues, two things here; you mentioned on the sustained run rate on the injectable portfolio. What's the sense on its sustainability? I mean, are we expecting some competition to build now? Or is there a bunching of that has happened like we saw couple of quarters back? That's my first question.

So, it's been a good run from the time we launched. There are three products or four products, which are in limited competition space. We are hearing about one competition in one of the assets, not yet in the market, but we are hearing that should be very soon. Would it be an onslaught of number of competitors? We don't think so as yet, but like in all generic products, a gradual erosion is expected as more people come in.

Right. And on the other piece in the US again, you talk about market share gains and especially Toprol and Geodon, which is a function of US FDA issues with a couple of peer group. What is the comfort that we get that these are again sustainable?

Yes, as much as you have probably, we will see how it pans out in terms of we don't know -- we don't have honestly visibility of how others are placed, haven't heard of anything as yet. So, I think Toprol is not likely to see a lot, a large product. Geodon might see at some point in time, but we don't have visibility at the moment.

So, just clubbing the two and your earlier guidance of muted growth this year. Given the strong growth you have seen this quarter, how should we expect the remaining year to pan?

I mean, muted growth will be signal. We signal vis-a-vis 30% plus of growth which we had seen for the full year. To that extent, we are signaling muted and I think we are -- first quarter has been great, but I think we are cautiously optimistic, but I think we will leave it at that actually.

Great. I have one more question, I will join back the queue.

Yes, thank you Prakash.

Kartik Mehta, ICICI Securities.

Yes, hi. Just wanted to understand what is the ballpark R&D number that one should assume and it is increasing that we have almost about 11% or so, but is there any number? That is the first one. And the second one is, is there any thought, Prasad, you would have on the recent approval of a biosimilar to which was received by Sandoz on 28th? Thanks.

Let me take the first question. On a full-year basis, we expect R&D to be between 10% and 11% of sales. Second question, I have not really understood completely.

In terms of the first approval of biosimilar by the FDA which was filed -- ?

You're talking about of filing, Kartik?

Is there any thought that you have for your investments in this? Do you feel that there is more visibility in terms of the overall pipeline that we have here?

For Biologics, I think the journey continues. We don't have an immediate update on this. You may be aware that we are (inaudible) and the journey continues. So, there is no near-term expectations.

Okay. Thank you.

Girish Bakhru, HSBC.

Yes. Just first question is actually a clarification. In your press release, when you say the FTF [for it] from last quarter, it has come down one, is that the Cymbalta launch that you're referring to?

Yes. Girish, we'll come back to you. Possibly yes, we'll come back to you.

Okay. Okay. The second one was on Paricalcitol. Have you launched that in the US and how interesting is this market given that there are only three players likely?

Yes. Paricalcitol, we've certainly launched and we're already in the market. We've got some shares, but it's not a large product as you know and Teva was already there. And I think [Banner] and Zydus followed, so it's for the size of the product, it's not such a significant revenue stream for us.

Okay. Okay. And just on Reclast, any update post the Markman hearing, are there players waiting to launch?

Not heard anything new. Your question was on Reclast, is that? Yes.

Yes.

I have not heard anything new.

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

Neha Manpuria, JPMorgan.

Thanks so much for taking my question, sir. Sir, my first question is on the emerging market growth. Now, if I look at Russian and CIS business, given how strong Russia was. Was there concern in Ukraine on CIS growth because of the ongoing geopolitical situation there?

In Ukraine, we have already taken a hit this quarter. The geopolitical situation is indeed affecting the geography sales, and it's a significant part of CIS, part of the geography. So Ukraine has already taken hit. But Russia, we are doing quite well. We are not just doing well in totality, but I think, we are doing relatively very well compared to the market, both in OTC and Rx, we have gained rank now, of course there are some concerns, ruble has weakened vis-a-vis last year, there were some impact of that. Interest rates have gone up to a certain extent, but for us, so far so good actually.

Fair enough. My second question is on PSAI. If I look at -- we've mentioned that it's improving sequentially and we should see improvement. This was similar to the commentary that we made last year, despite that we've seen some quarter-on-quarter decline in this business, should we still assume that we'll take a few more quarters before we actually see improvement in this business or should we start expecting growth at least bottoming out of the revenue decline that we've been seeing in the last few quarters?

So in API, as part of the PSAI business we already see some improvement. The way one looks at factors which indicate some return of health is our [CPS]and lock-ins, which have started going up. Filings are healthy this quarter, so the API side I think, we're getting better. This quarter was particularly affected by CPS. There are some deployment of sales and there are some areas where our deliveries got a little delayed, so I think from second quarter we'll pick up. Would that lead to a situation where we are in the pink of health, probably not, but certainly the worst seems to be slowly getting behind us.

That being said, sir, should we expect margins to improve? I mean 22% was quite a good margin, given with the 20% last year? Is there more opportunity for margin improvement as we go through the next year?

The revenue improved that has its impact also on the margin a bit. So probably we can expect some improvement in margins in this year.

Thank you so much, sir. Thanks for taking my questions.

Surya Patra, PhillipCapital.

Yes. Congratulations for the good set of numbers. Sir, couple of questions. On the biosimilar front, see though we have been seeing kind of a steady growth in the biosimilar revenues, but the penetration wise if you see geographic penetration, it is very limited as of now, still though we have launched Sofradex long back. So, whether you're seeing a kind of significant regulatory issues in getting the product approved in various markets or what is the problem?

So in biosimilars, I think the regulatory approach by the countries vary even in emerging markets, I think there are various approach to regulatory approval. So, we are looking at quite a few markets, but some markets are also part of the deal. We will not be able to elaborate too much at this juncture on exactly how we are placed, but we are continuing to sort of engage with various agencies to see our approvals.

So, what is the timeline that you're seeing in getting an approval in an emerging market? See in fact, for [mass], I'm not asking this question, okay, that is partnered with Merck more kind that will take it soon time, but at least the product that has already been launched in the various emerging markets or in India. So for those, how long that you would be seeing a kind of better penetration?

You mean for the emerging markets as we speak, quite a few markets are clubbed with the Merck deal and we'll not go beyond that, but what we can clarify is, some of the markets, which we were already operating in, we are free to launch; some, we have already launched and the big as you already messaged that our file in Russia was filed sometime back and we're tracking how that's moving. It's not like small molecules, well it's a predictable journey, but that's probably the next important milestone in biologics for the emerging markets. The rest of it would be country-by-country. That is partly covered in the deal. So, we'll not be able to cover the meaningful ones. There could be small launches here and there. The markets where we've launched, it's a significant dollar product.

Okay. Then again in regard to OctoPlus, it is now, since the activation it is in more than a year now. So any progress or any contribution that you have gained out of the OctoPlus side in terms of -- since we've been saying that, that is one of the key assets so far as the injectable product or the complex products had concern in developing those?

Currently, the acquisition is focused on three complex injectables. All are in various stages of development. All these three assets were meant clinical trial also, clinical PK studies, which -- so far, I think the development journey is moving in the right direction. We have our internal guidelines. We're tracking it quarter-by-quarter and we will message to the market as soon as we conclude that approval or near the time.

Okay. Last question, sir. See, could you give us some update on the injectables product that is there in the pipeline? For example, they have given Propofol for that matter? And also, whether you have commissioned your Srikakulam injectable plant, what is the update on that?

The oncology injectable plant was commissioned long back, it's already commercial, both on injectables as well as oncology oral solids. On the plain injectable plant, commissioning has started, but then the filing will start and then approval, et cetera. On the pipeline, there are products which are, already we are in litigation, you can get those data, but specifically, we'll not comment on the pipeline. There are quite a few product in injectables, but we filed two in this quarter as well. So, I think we'll have to wait till we launch.

Total, how many injectables are there in the pipeline, sir?

Surya, we won't comment on that now. Can you come back in the queue, later please?

Yes, fine. Thank you.

Thanks.

Sameer Baisiwala, Morgan Stanley.

Yes. Thanks. Good evening, everyone. Sir, a quick question on Copaxone. Can you update us how the file is progressing and clarify if you have filed this from your facility or from a third party?

So, firstly, on the progress of the file, some interaction has started and nothing negative so far. As I mentioned last time, I think we feel good about the quality of filing, we'll just leave it at that. About specifics of the supply chain, Sameer, I think we'll not comment on. The main as you know of this asset is largely governed by characterization of the API and that's all internal in any case.

Okay. And sir, NEXIUM, is it possible to clarify? I mean your launch would be on 181st day post FTF and this no matter when FDA launches, would that been the great understanding?

Yes. So again, the public domain information, no one has TA so far you must have seen, no one has tentative approval, but having said which makes us feel okay about it actually that whether we would be 181st day, et cetera, that's the question of the approval going through, but no bad news on this front from our side as of now, although we have filed this without TA we can't comment further than that.

Fair enough. What I was saying sir, at the earliest no matter when the FDA comes it would be after 181 days thereafter?

Yes. That's true. We're fully backward integrated. So yes.

Okay. And one final question from my side. In your recent regulatory fillings you've indicated two innovation based products. I read them as NDDS products which are in between Phase II and Phase III clinical trials. Possible to indicate when they would be entering into Phase III?

As we speak I think, some of it is just growing in and I think what -- we standby what was as I said earlier in a year's time from now we should see a couple of filings in place.

Okay. Wonderful. Thank you so much.

Sonal Gupta, UBS.

Yes, hi. Thanks for taking my question. I mean just going further on the API thing, I mean your US API sales or PSAI sales have almost collapsed this quarter. So I mean, what's happening in specific there? And just overall, I mean looking at the decline in the API business, I mean have you lost? How much of this would you attribute to loss of market share versus I mean decline in pricing, if you could give some sort of a sense on that?

Largely, it's not -- there is of course erosion in the B2B businesses, but I think, largely, I think the new products did not click very well in the last year, which is again a factor of filings a little earlier than that. Having said that, as I just said that I think, the renewed focus from management went in for few quarters now which saw culminated into healthy DMF filings in the first quarter and we expect this to continue in the rest of the year.

So that's a key part of the business. The business is governed by your [seed ins and knock ins], and that would only happen when you successfully file DMF ahead of others with a hook which makes us a good partner. Having said that, certainly, this is an important part of the business in external sales, but this is an area of high competitive advantage for the Company, and we will try to see how best we can utilize the strength to create end-to-end value as well.

Right. And could you give a split in terms of the PSAI how much is custom synthesis versus API?

See, Sonal, usually, it is 70-30, 75-25; quarter-to-quarter, it may vary.

75% API?

Yes.

Okay. And just, broadly again, how are you seeing the overall pricing trends on the generic side in the US and has there been any impact for you of the channel consolidation; or given that most of your large products are limited competition, you haven't seen any impact, could you just comment on how you're seeing things?

No, we've seen. We've seen erosion in certain products wherever -- in few cases, we've given up; quite a few cases, we've retained, but at a substantial cost, but the US market is also governed by factors of some price increases, some shared increases, and some erosions, and sum total of these three governs the base business and the launches add to the growth. Broadly between these three factors, which I mentioned, we've been able to keep it in somewhat neutral form, neutral base.

So, you've been able to offset the price erosion with market share and price increases in some other products?

Probably, yes.

Okay. Fine. Just last question, I mean, how is IMITREX STATdose doing for you? I mean, you've launched this product, I think sometime back. So, where are you in terms of market share?

We locked in our market share, but this is the number of units, it's not very large. And what happens in such cases when you are a follow-on generic, even you have locked-in share for you to displace in the shelf it takes much longer than a high volume assets. So this is what is happening in this case. I think, we'll slowly see from here on increase in IMS market share to our locked-in market share.

But could you give an indication as to where would you be in that sense?

No, we are say at 50%, 60% of our lock-in shares. IMS is not fully -- is to go by the May 1 which (inaudible)was about 5%, it is certainly more than that, much more that actually.

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

Chirag Dagli, HDFC Mutual Fund.

Sir, in your initial comment, you suggested that share optimization has not yet happened in the products launched last year. And you also mentioned that this year, price erosion could actually offset some of that upside, but thereafter, on the injectables side, you're mentioning only one incremental player in one of the products. So where is it that you're seeing more price erosion to offset this?

Same product, I think destiny has been kind in the first quarter, that doesn't mean to say that we'll continue to see no one coming in. We should be watching this closely, as I said one more, we are hearing off. So let's see how it pans out.

But your comment was suggesting price erosion only in that product, right? Sir. Or are there other products that where you are seeing substantial price erosion?

You talked about the last question was on consolidation leading to price erosion. Those are mostly in oral solids.

Correct. No, no, sir, what I was trying to -- in your initial comment you did suggest that there could be some price erosion in the business, which could offset the upside from market share gain. So, I was just trying to understand, beyond the injectable one product, is there any other largest product, where you are expecting substantial kind of a price decline?

Yes, you know what, the larger impact would be in injectables. The other ones is a part of the business, it always sits there, a little bit here and there, but we don't expect very large impact in the other. But difficult to say, injectables would be the biggest hit, if more people coming.

Fair point, sir. And sir, second question was on the PSAI business as a whole. This is a fairly large business. And is this, you know this slower growth that we are witnessing over the past, say four quarters, probably a decline. Has this got anything to do with the base per se that we are very large and now incremental products are not there, et cetera? Is there an optimal base that you have in mind around which this sort of [peeks out], how should we think about growth opportunity within this piece?

So, as we speak, Kedar correct me, I think it's about 16%, beside 16%, 18% of the total Company revenue. Now, whether this is a large base, yes, in API space, it's the reasonably big space. Having said that, as I mentioned, the reason for not having grown is largely not having filed and locked in enough customers. So now, that management focus is going in and we are rectifying that. So there will be growth, would it be impacting overall Company sort of trajectory, probably not. Is it a competitive advantage? As I said, this is a major competitive advantage and we'll try to sort of see how we can channelize more energy to derive greater value from this group.

But clearly, because this is a large business now, doesn't mean that the opportunities in anyway, the growth opportunity is much lesser now, that should not be the take away certainly, there are opportunities that you're seeing?

I think that we're not seeing that trend.

Okay, sir. Thank you so much.

Aditya Khemka, Ambit Capital.

Yes. Hi, sir. Thanks for taking my question. Sir, one question on Copaxone then. So, the approval date it seems for your competitors who are supposed to get approval in this current calendar year, they were not able to get that approval. So, do you guys get us and tell filed a CP there, they've made a strong case or made a case for clinical trials that FDA should ask for? So, are we as a precautionary measure or as a preemptive measure conducting clinical trials for Copaxone to see the gene expression across the entire gene or are we sticking the gene expression on the selective genes that FDA had asked for earlier?

That's too detailed question. To answer in more general terms, you mentioned two things, you mentioned citizen's petition and you mentioned whether a full blown clinical trial would be warranted. For in both cases we think that it'll not be necessary from how the petitions have been turned down by FDA and clinical trial, certainly not because so far, the engagement is moving on as they have said, I'm sure for other companies as well. Considering that I think those two are negative. Beyond that, details of gene expression as the things we would not like to comment on.

All right. And just secondly, on the -- just a book keeping question on your FY 2014 numbers, your creditor days had fallen I think to a much lower levels as they were end of the last year. So, anything triggering that lower level of creditors or do we expect to go back to normal levels or is this the new normal?

We think whatever it is there, that is fairly representative of our current programs.

Okay. Thank you. I'll get back in the queue. Thanks.

Rahul Sharma, Karvy Stock Broking.

Sir, just wanted to, on a QonQ basis, we're looking at improvement in gross margins. Now, what can you attribute this to? Is it due to a further ramp-up in some injectables or can you get some clarity on that?

Margin improves because of multiple reasons. One is the business mix, higher the percentage of global generics compared to PSAI, gross margin improves. Of course, the rupee versus dollar, if there is a depreciation, then also the gross margin improves. Then of course, on the [topic] of products, that means maybe the pricing and the sustainability of pricing is high and the percentage of revenue from those products are higher, if those buckets and high building buckets that is being [brought, then our gross margin improves].

Because on QonQ except for PSAI which has gone down, is the sole reason that PSAI going down that has been the reason why we have the margins have increased or is it, you've taken some price increases in certain products or something is there which or further market share strengthening has happened?

So I think in last quarter, we mentioned for institutional sales injectables, January is a weak month. Normally, institutions buy more in December, January becomes unusually weak. So that factor was not there in this particular quarter, to a certain extent, certainly has helped. And then there are other factors which Saumen mentioned to what the extent we have the shares going down and of course a few other things which you are mentioning as well, but broadly injectables holding and a full quarter of full-blown sales.

Do you foresee it to be sustaining at -- you're constantly improving your gross margins, are you seeing a much higher base because last year, we did 57.4 on -- because of these opportunities coming in, so are you seeing a higher base going ahead, will you be able to sustain these levels?

We are not giving any financial guidance. So we'll not specifically comment on that, but all that we are saying that we are spending more on R&D, we are spending quite a good amount on CapEx, but at the same time, we are improving our free cash flow, which is evident from the numbers that we have been putting up.

How many niche opportunities are you expected to launch in the current year and what is the injectable pipeline which is there, which has been filed, sir?

Again, it is difficult to talk about those. This particular year, as we have already mentioned in the beginning and it was expectedly a little more lukewarm. The first quarter has gone better than expectation. Let's see how it sort of pans out. I mean would the launches -- now launches sometimes, there could be one or two, which could be good, but till we hit the market and till we are able to sort of see where -- how is the competition, difficult to comment on those, but overall, if you see in the mid-term this year to next year type of a thing, we stay optimistic on [other maker].

Okay. Thank you. I'll join back to queue.

Ranjit Kapadia, Centrum Broking.

My question relates to fondaparinux and Cymbalta, if you can give the latest update, what is the -- for these two products in the US market?

Fonda is very flat, it's changing hands if you speak not only as you know, [Mylan] has bought the rights, which means the current AG would slowly sort of transition naturally. What that would mean, we have no idea, but we are flat. We're flat with the market share revenues, et cetera and probably it will be in the same direction.

Your next question was on Cymbalta. Cymbalta is a story which is commoditized now, extremely commoditized. It was great run for those, who came in the first wave, unfortunate for us. So, we've also launched along with few other people, not much left for anyone in Cymbalta.

What are the market share in Cymbalta, if you can quantify?

No, that, we wouldn't -- as we speak, we are still continuing to try, but it's a tough upward slope actually, so in terms of getting any market share, with any meaningful value. Mind you, we are backward integrated completely.

Okay. Thank you.

There are already nine players in that market now.

Okay. Thank you very much. And wish you all the best.

Thank you.

Nimesh Mehta, Delta Research.

Yes. Hi. Thanks for taking my question. Sir, you mentioned in the last quarter that you were expecting some niche launches either in the first quarter or the second quarter for the year. So any update on that?

I don't think we mentioned that, we didn't mention any niche launches. We mentioned that there are a few launches, we launched four products. All turned out to be multiple players, paricalcitol, Eszopiclone, what else, I think we cut small. Yes, tablet, et cetera, seems probably Q4 end type of a thing. Those two were okay, it took some time for market share increase and so [market turn] injectables, but none of them in terms of high impact to a certain extent, yes they did in much time, but the others are really pending launches.

So you don't expect any more, no competition launches of this year, and is that correct statement?

May not be able to comment on that in specifics. So that as I said that this is -- we have some thoughts about that, but won't be able to share those.

I see. Okay. Okay. I missed on your Nexium clarification, you mentioned that you will be able to launch it --

Sorry to interrupt. Excuse me, Mr. Mehta, this is the operator. Are you using a speaker phone or is it on a handset that you are connected right now? We're unable to hear you clearly.

Hold on, please.

Yes.

So, on this, you mentioned that you'll be able to launch post the 180-day exclusivity regardless of the fact that the FTF folder launches. Is that the correct understanding?

I didn't say that it will be launched on immediately after exclusivity. I said that no one has got TA, which makes us feel okay. We are backward integrated. Let's see when Ranbaxy launches. So, we would try to be in the game, yes.

Okay. Finally, on OctoPlus, again, some couple of quarters back you guided for a launch in the end of FY2015, one product from OctoPlus basket. So is that something that we continue to hold on to or?

Not end of FY2015.

So we said Nimish, probably we can file, not launch.

So, you can file and not launch. Okay. Fine. A last question on Russia sales outlook, I missed on, so if you can just repeat. I mean you see that to be growing, I'm talking about Russia and CIS, I mean other countries in CIS...?

The current going is very good. Started the quarter well as well. Having said that, everyone -- all of us are reading the trajectory things which has happened in the last few weeks and how those things would pan out, we like to watch closely, but vis-a-vis competition in the market, I think we are doing very well. So that's where we are, so far no impact let's see.

Thanks. Will you continue to have this kind of, this quarter growth was a single-digit growth of 8% for Russia, CIS and so forth.

Nimesh, Russia, we said 18% in local currency; at the region level, we have about 8%.

I see, okay, fine. So it'll continue to do well in the -- okay. Fine. Fair enough. Thank you very much.

And to note that in Russia, our OTC is about 37% of total business.

Hitesh Mahida, Antique Stock Broking.

Sir, just wanted your view on the domestic market. Now, government continuously bringing more and more products under the NLEM, does that hamper our growth plans for the market, considering that this has been the second straight quarter, where in we have posted double-digit growth?

So, you are referring to the current set of products, the last set of products, NLEM gets over, the impact gets over this, actually coming month in August, you're probably referring to a next set of products.

Yes.

At the moment, we wouldn't comment on. It's being debated, it's debated, it's discussed in the Court of Law as well. So we will leave it at that, overall impact from that is for us somewhat lower than the last one, but we would not comment on that since -- now this is a question whether this is the right way things have gone.

Okay, sir. And what will be your outlook in terms of growth for the domestic formulations business?

You mean growth?

Yes, for Dr. Reddy's?

We remain quite bullish. We've said we will slowly sort of move up. The first three quarters last year, if you recall, we were struggling. Fourth quarter, we posted good growth. This quarter is okay. Here onwards, I think a little bit northwards of what we have posted. All indicators typically in branded business are looking good whether it is megabrands, whether it is prescription growth, whether it is attrition in the front end or whether it is revenue from the launches, I think they are looking good. So we feel optimistic about this market.

Okay, sir. And sir, I just wanted to know your views on inorganic opportunities. So going ahead, will we acquisitions from Dr. Reddy's to acquire technologies or to acquire skills like some of our peers?

At any point of time, we evaluate whatever opportunities comes in our way, but we've a very stringent criteria for acquisitions. We are not going to go for any top line kind of acquisition. Only when we find an opportunity which can give us, then it feels a credit kind of view; then only we, will go forward and whichever areas where we need to bridge the gap in terms of capability, we'll definitely focus on and do it.

Okay sir and all the best.

Prakash Agarwal, CIMB.

Yes. Thanks. Just wanted to get some sense on the Promius, the derma portfolio that we're developing through Promius, when should we start seeing more traction in that business in terms of revenue generation and what's our outlook on the recent price hikes taken by a few derma players?

So, as I mentioned, a year from now, we should probably see within that period about two -- towards the end of the period I mentioned, two NDAs filed in US. The current price increases in derma products are largely in the space of generic products led by a few companies. So that's a different ball game. At the moment, we have a very few products, which is proprietary and whatever the way proprietary products function, it's in the same direction, nothing much to report there, but on the filing side, so NDAs should start within a year from now and thereafter a year to approval, I guess.

Okay. So, it's again two years to three years away basically, in terms of monetizing?

Probably.

Okay. And second one was on, any update on the IND filings that we did in the biosimilar space in the Europe? Are we adding more or are there plans within this year, any update you could give on that?

IND filings, IND is -- yes, yes, so IND is a proposal to proceed in the clinic. It's a plan to sort of which gets validated by FDA, so two of the products got approved. The development is in progress, which by the clinic, is in progress and it takes time for those. So, those would be little later than -- for the regulated markets, it's certainly going to be later than our proprietary products, so that should kick in earlier.

So, are there plans to add in the near term?

Add further to (multiple speakers)?

And that's a portfolio we see.

Yes, yes. Okay. That, right now, we'll be commenting on, our hands are full, which -- there are quite a few assets actually. So, a few in the Merck deal, few outside the Merck deal which we are anyway progressing with our filing opportunities in various markets, et cetera, but as we speak, of course, there are other products being developed and nothing to report at the moment.

Right, right. And just to follow up on this.

Sorry to interrupt. Mr. Agarwal, may we request you to please return to the queue as there are several participants waiting for their turn.

Sure.

Thank you. (Operator Instructions) Sameer Baisiwala, Morgan Stanley.

Yes. Thanks. Sir, a question, do you think there should be an urgency to diversify international business out of US? And any thoughts on how we're doing in Australia, South Africa and China?

International business diversification out of US, can you -- what's the question actually?

Are you going to get into more markets, yes?

From US?

Not from US, other than US?

First question wasn't very clear. Sameer, can you repeat that? You said something out of the US, I couldn't hear that clearly.

Yes. I mean I'm saying that as US business queue is getting bigger, a $1 billion, and then a $1.5 billion, I know the growth could be challenging to achieve in US. So, therefore?

Okay. So, anything dependent on US, okay.

Yes. Dependent.

So, one more emerging market. Certainly, we would be -- the organic entry should happen this financial year, but organic entry in [generics] market takes its own time, but for sure one, could be one or two, but at least one. You asked about South Africa, doing well, but not as good as Venezuela. Venezuela has been really, really rewarding this quarter, doubled sales. So that has been extremely profitable for us.

We have taken some decision in keeping supply chain available for six months for this very turbulent, volatile market and paid us well in terms of sudden shortage of products in the market and branded products, when they go short, it may not give a one-time buy, because patients are getting used to our brands; and by the way, we have CNS in Venezuela as well. So that has been the real star of this quarter. Other markets, usual story, we're bullish, it's growing and we will keep investing in those markets which I know.

We wanted to know particularly China.

China, we have a partnership. There is -- we are also out licensing one of our some of our assets. So, one asset has got into successful out licensing. It's turning out to be interesting in terms of revenue accreditation. And Australia, it's a generic market. We -- said I think two or three launches in the last three months to four months, but it's not a big market but all these we are -- since we are located in the specific geographies, we are focused on the portfolio execution and all those and supply chain.

Sameer, just to add, the idea will not be to reduce the dependence on the US. The idea will be to look at the opportunities available in other markets, and that's what I think will keep us here.

Okay. Thank you so much.

Nitin Agarwal, IDFC Securities.

Hi. Thanks for taking my question. Saumen, on when you look at SG&A expenses, they've been despite growth as it has had in the revenues in the last couple of years, we would not be able to normal sort of bring them down to 24% to 25%. So is there a possibility, I mean, when you look at call expenses, is it possible for us to optimize it beyond those levels or 24%, 25% where they're going to stay on a sustained basis?

SG&A as a percentage of sales is higher than 30%. So, if it comes down to 24%, 25% means, there will be a fantastic improvement for us. It could be a difficult target to take, but we must find our base to improve based in a productivity as far as possible.

No. I mean excluding the ---

Near term (inaudible) I cannot say and we will get into 25% of this. We have in this quarter, from the productivity wise, 55 basis points. So we will then like to improve our productivity. I'll just leave it there.

Okay. And if I can squeeze the last one, on the US business. So you've talked about, uncertainty not being too much commercial, not having too much clarity in the near term, but if we take a two-year to three-year view, what kind of -- or probably even longer view, what kind of sustainable growth you can expect in the US market for us, on a medium-term to only long-term view?

See, we are not giving any financial guidance, but on that, we can tell you is the kind of investment we are making on R&D, and the kind of filings that we're doing, and more so, in a complex generic space. The quality of findings what we have done in this quarter.

Yes, that we know we have a very good prospect in it for future years.

Mid-teens.

Yes.

Okay. Thank you.

Thank you. I now hand the floor back to Mr. Kedar Upadhye for closing comments.

Thank you all for joining Dr. Reddy's senior management for our Q1 FY 2015 earnings call. In case of any additional clarifications, please feel free to get in touch with Investor Relations team. Thank you and good day.

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