Dr Reddy's Laboratories Ltd (RDY) 2015 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Laboratories Limited Q3 FY15 Earning Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions).

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 the Third Quarter of Fiscal 2015. Earlier during the day we have released our results and the same are posted on the website. We are conducting a live webcast of this call and a transcript shall be available on our website soon.

Just a reminder, the discussion and analysis will be based on IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Saumen Chakraborty, our Chief Financial Officer; and Abhijit Mukherjee, our Chief Operating Officer, and 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 and I wish you all a very happy New Year. 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 INR63.04, which is the rate as on December 31, 2014.

I am happy to announce highest-ever absolute sales and EBITDA for this quarter, despite the emerging market currency headwinds relating to Russian ruble and Ukrainian hryvnia. Consolidated revenues for the quarter are INR3,843 crore or $610 million. We registered year-on-year growth of 9%. Revenues from our Global Generics segment are $503 million and grew by 8% year-on-year. Emerging market geographies grew 16% year-on-year, even after sustaining the currency pressure, particularly driven by Venezuela and Russia. Revenues from our PSAI segment are $97 million and grew 21% year-on-year.

Consolidated gross profit margin for the quarter is 58.2% and declined by 230 basis points over the previous year. The gross margins for Global Generics and PSAI are 65.9% and 17.2% respectively. This margin decline is largely attributable to unfavorable currency situation in emerging market territories.

SG&A spend, including amortization and excluding impairment adjustments for the quarter is $169 million, and increased marginally over the previous year. We are targeting to realize the benefits of operating leverage, as well as cost optimization initiatives across our businesses in the coming period. Consequent to the decline in the recoverable amounts of certain products or customer contracts-related intangible assets, a non-cash impairment charge of $8 million was recorded during the quarter. You will recall that we had recorded a reversal of impairment charge of $8 million in the last year. So this causes a swing in the year-on-year SG&A by $16 million. R&D expenses for the quarter are at $68 million, that is at 11.2% to revenues, against 8.4% in the previous year. The R&D spend is in line with our planned scale-up in activity and follows the sequential trend. EBITDA for the quarter stands at $167 million, which is 27.3% to the revenues and grew 5% over the previous year.

Tax rate for the quarter is 30.7% and for nine months is 23.5%. However, as guided earlier, the annual effective tax rate is expected to remain in the range of 21% to 22%.

Key balance sheet highlights are as follows. Our net operating working capital increased by $65 million during this quarter. This is partly due to build-up of stocks for our forthcoming launches, and increase in receivables due to higher sales. Our credit period for various markets and the days sales outstanding ratios have remained largely same compared to the sequential quarter.

Capital expenditure for the quarter was at $41 million. Our net debt to equity ratio remains at 0.1, despite the cash outflow of $80 million to acquire Habitrol. Foreign currency USD cash flow hedges for the next 18 months in the form of derivatives and loans were approximately at $591 million, largely hedged around INR59 to INR62 to $1. In addition, we have balance sheet hedges of $411 million. We also have cash flow hedges of RUB945 million at the rate of INR1.50 to RUB1 for FY15. Considering the exposure to the oil exporting economies, management continues to monitor the macroeconomic situation and maintain a fine balance between optimizing the opportunities and control the exposure.

With these 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. I'm happy to report the satisfactory EBITDA performance by the Company in this quarter. All of our businesses continue their progress towards the targeted strategic goals, while dealing with market-specific challenges. Specifically for the US generics business, while the overall pricing environment has been stable till now, we are experiencing delays in approvals compared to the expected timelines.

For the emerging market territories, the declining oil prices and the consequent currency movement is exerting pressure. Our presence in these markets is however very deep and strategic, hence our responses to some of these macroeconomic changes will be long-term in nature.

Now, let me take you through the key highlights for each of our key markets for this quarter. Please note that in the section, all references to numbers are in respective local currencies. Revenues from North America Generics for the quarter are $274 million and grew 17% sequentially. This growth was primarily supported by new product launches, pickup in seasonally-driven portfolio and sustained market share in our key molecules.

Like in the previous year, the holiday season induced a bit of forward buying as well. During the quarter, we launched Valganciclovir, Sirolimus Fluconazole from the Rx portfolio. Also, the Habitrol deal got concluded and dispatches from our side have just commenced. We also launched OTC version of [Fexo-Pseudo D12]. This together with Habitrol will significantly widen our OTC portfolio.

On the emerging markets front, Russia continues to perform well with the constant currency growth of [27%] year-on-year. This growth was on the back of a good season, and some price adjustments taken during the quarter. Due to currency movement, there is a decline of 9% in rupee terms. Our team continues to explore the opportunity for wider portfolio and higher market coverage. As per IMS, YTD 2014, we are growing faster than the market in volume terms in constant currency. As per IMS OTC YTD 2014, we grew by 10% versus market degrowth of 1% in constant currency.

Out of the other emerging market geographies, Venezuela delivered better-than-expected growth on the back of continuing volume upside. The contribution from Venezuela has been quite meaningful throughout this year, while we continue to watch the currency and funds repatriation situation very closely. India Formulation business posted revenues of INR433 crores and grew by 11% YoY basis. Some of the orders got deferred towards the end of December and accounting for these, we are in line with our recent trend of healthy market performance.

Our growth and ranking in prescription terms is improving. Launches this quarter include Reclimet XR and Telsartan CT in the [chronic] segment. Reclimet XR is the first generic to be launched in the Indian market. Our PSAI business grew by 18% year-on-year, though marginally declined on a sequential basis. Considerable efforts are being made to achieve the twin objectives of sales growth and healthy margins. We are also looking at newer technologies and platforms to revamp our product offering and move higher on the innovation scale.

As you are aware, during the quarter, US FDA gave us inspectional observations in Form 483 for our Srikakulam API plant.

We have responded about a month back to the agency in a very comprehensive manner with our clarifications and the corrective and preventive action plans. We'll also be sending periodic updates to the agency giving progress on our committed action points. We'll work diligently with the agency to resolve the open matters to their satisfaction.

Before I end, I would like to highlight an important milestone reached by our subsidiary Aurigene Discovery Technologies Limited. It has entered into a multi-program collaboration, license and option agreement with Curis Incorporated to work on immuno-oncology and select precision oncology targets. Aurigene has the responsibility for conducting all discovery and preclinical activities, while IND enabling studies and providing Phase 1 clinical trial supply and Curis has the responsibility for all clinical development, regulatory and commercialization efforts worldwide. This is a commercially meaningful deal and validates our successes in the discovery-led research area.

With this, I'll now open the call for questions and answers.

(Operator Instructions) Balaji Prasad, Barclays.

It's been an interesting last couple of months. I'd appreciate it if you can provide maybe some updates on, one, your view on the approvability of your Nexium filing. And also last quarter you had mentioned that you'd be filing the first NDA on the proprietary side within FY15. So look forward to hearing on that.

So, Nexium, we have filed with FDA and the exact timing of approval is difficult for us to comment on. So, we would be looking forward to it, it's an important launch for us.

Have you heard back from the FDA on your filing?

It's a filing in progress, it's pretty much in progress with FDA. So at the moment, till we hear more from FDA we can't really fully comment on that. It's an important launch for us indeed. As far as the NDAs are concerned, and I think we are in line with what we had said earlier that probably in next few months we will have two NDAs filed.

Secondly, can we also understand how the currency has impacted your business in Venezuela this quarter, because looking at the growth numbers you posted, it looks like there's been no impact or has been -- the constant currency growth has been better than what you reported?

In the Venezuela for our category of medicines, the currency remains stable. So what we are really monitoring is repatriation of money from Venezuela, and that's why we are calibrating the sales there. The opportunity is quite huge and we are growing there very rapidly. Actually there is a scope to grow even at a faster rate, but we are calibrating that in view of how much cash we are being able to repatriate from that country. But the currency rate remains same as of now and maybe only after the election this year the government there may take some view on the official currency rate.

So this revenue momentum should continue in Venezuela?

It depends on our risk appetite and we are calibrating that in terms of -- within the risk appetite as much we can grow, we'll grow.

Neha Manpuria, JPMorgan.

Thanks for taking my question. My first question is on (technical difficulty)

Ma'am could you please recheck on your line, it's causing a disturbance on the conference.

Is it better now?

Yeah, this is okay, you may go ahead. Thank you.

Okay. Apologies for that. My first question is on Russia. I mean if you look at the quarter, is all the impact from currency taken into account, how should -- how is the underlying growth? We did see an improvement in constant currency basis, but there were some concerns on how the volume in the market has been. And second, the price adjustments that we have taken, is this for all of our product portfolio or could we see more price adjustments to offset some of the currency pressure?

So, first, is we already said in constant currency there has been a good growth in Russia. And in terms of the currency impact, we earlier said that there has been some -- around 30%, broadly around 30% of the cash flow what we anticipated for Russia we hedged and that is at a higher rate than what was the rate prevalent during this quarter. In terms of the price increase, you cannot take price increase across all products. There are categories [with essential] products, for example, [OMAGE] will come in that category that we cannot take a price increase.

So, sir, just to rephrase my question. The price increase that we have taken on products that are not under price control, has all of that flown through or can we expect some more to come through in the current quarter?

That will depend on the currency. If there is more opportunity which is there one can always look at it.

And, sir, my second question is on the SG&A side, in your press release you mentioned about SG&A increasing because of additional manpower deployment. Is this for any specific business that we have done on the sales force size or is the general manpower deployment?

No, there was nothing specific.

Anubhav Aggarwal, Credit Suisse.

On Russia, actually some more clarity. The constant currency growth of 27%, how much will be the volume growth there?

Largely it will come out of volume growth. The more from volume growth than from price increase.

Yeah, that's very clear, but I was just asking -- instead of asking the price increase, I was just asking the other way around. So the price increase would be, let's say, low-single digit that's what we can assume. My concern here mainly is from a perspective that given that currency is a issue for everyone. There may be a chance that other place may be receding, so is there a chance that you put extra inventory in the channel in order that you can get a higher market share when others are receding?

We, from finance, always calibrate multiple things, including inventory, receivables and then try to calibrate what is the right kind of focus to put within -- given the opportunity to sales, which is there in a country.

Mr. Saumen, what would have been your secondary growth in this quarter in Russia?

The data on secondary fully is not available. Overall, let's look at the story in totality. I think in a market where the currency has taken a hit, the volume growth has been robust for us. Historically, if you look at our portfolio, we -- on the pricing side, we were conservative to say that our growth in volume has always been higher than the market where a lot of -- and the competition it was large -- price driven growth. So there are some adjustments, which we are doing now and there is a great volume growth. Having said that, you probably have picked up the hedging point that Saumen mentioned, which you have up to a certain period. And then the hit would be a little larger than what it is visible today. We are excited about the overall performance in the market in terms of volume growth. I think if you leave it at that I think probably that will give you an idea of how things are.

Abhijit, just one more clarity on Russian market, before I ask my second question is that given the scenario right now, your understanding of the Russian market as of today, on a constant currency, what do you think is the outlook here? Can we grow at, let's say, about 15% kind of growth in constant currency for next 12 months in Russia.

You know very well, we do not give any guidance.

But I'm just trying to get -- I mean just not looking here for guidance. There is a difference between growing [at 5%] versus 15%.

Not likely with ruble from [34 to 60] --

In constant currency, I am asking in constant currency.

On the local currency you're saying?

Yes.

Not impossible.

Because with GDP growth in Russia coming down, your [business] 40% coming from OTC, that's why I was asking this question that you still have a confidence 15% is possible.

Pharma is at the lower end of getting affected due to such pressures. The first things which get affected of course are luxury items, and by nature of the sector I think pharma comes in far later down the line. We're not seeing any of those situations at the moment in Pharma. Let's see, how it pans out.

Just second question from me is on the Srikakulam facility. You have 68 ANDAs pending. How many of those are from Srikakulam, and this is my first part of the question. Second ism in general, for the next 12 months, you've been saying that you expect about 12 to 15 approvals over the next 12-month period, would -- expectation still remains the same?

Can't fully comment on exact numbers and all that. As you said, your main question is whether Srikakulam is going to impact, as we said, we have answered -- I mean most of the contents of the observations are in public domain, so don't want to go through it, we have comprehensively answered all that, and as we speak, we are about to send an update on the commitments, which are broadly in order. Let's see how it pans out, and in any case, there is always alternate plans of keeping the file going, so those plans are kicking in. Difficult to comment further on this.

Manoj Garg, Healthco.

I also have a few questions on the Srikakulam facility. First, can you confirm whether the Nexium ANDA was primarily filed out of that facility? And then two, it's our understanding, though, have not had an official warning letter stayed that the FDA is withholding approvals out of that facility until the 483 is resolved, so can you update us on that?

So yes, the API for Nexium was from that facility. As I said, alternate plans are being progressed as we speak. Specifically on the facility responses, as I said, we think it's a comprehensive response, we think the actions which we have committed are on the way. Beyond that I certainly can't comment anything more, because we haven't heard back after we have sent in the response. So, we would keep sending updates and see how it goes.

And then just (technical difficulty) that update, and then just last question from me. So, we're a little bit surprised given the number of ANDA filers that there were on esomeprazole, that on the first wave the FDA chose to approve only one. So, can you just educate us a little bit about some of -- the difficulties with maybe the API of that product and what could be causing the lag at the agency?

We certainly -- since we developed the product, we have the insights, but we wouldn't be able to comment in great details, because that wouldn't be public domain information, but the product is from a bioavailability a complex product, and there was also - there were other hindrances from the API side, because of patents earlier, which were valid. So, both combined with the complexity of the API through non-crystalline route, bioavailability of finished dosage, I think has created some hindrances for players. But we don't know, we can't comment for others. So I guess these would be the probable reasons.

And then I know you don't provide forward guidance, but would you expect generic Nexium revenue in fiscal 2016?

We won't comment on that. This is an important file, which we will be following up on.

Manoj Garg, DSP Merrill Lynch.

Lalit Kumar, Nomura Securities.

My questions have been answered. Thank you.

Surajit Pal, Prabhudas Lilladher.

Could you please throw some light, is that what is your game plan for Habitrol going forward? Is there any kind of line of product you were looking forward to expand into that area? Second question is that given the fact that it is also a transdermal patch, so could we expect that DRL is also thinking into that kind of technology-driven generics going forward?

So this the smoking cessation area, which is about $1 billion in US, out of which about $600 million are gums and lozenges. Patch is only about $200 million, between Habitrol and -- Habitrol is about $60 million we had told you that, and the GSK brand. And the balance is in the e-cigs area. So, as we settle down in Habitrol, after that it will be a natural progression in looking at gums and lozenges -- lozenges in this sector to see whether we can carve out some share out of this.

Are you also thinking to get into transdermal patch technology driven product in generics?

We already have filed a few. Are in the process of development a few more.

Surya Patra, Phillip Capital.

First of all, just wanted to have an update on this Propofol product opportunity. We have already -- the litigation is over and we have already got the positive response -- positive verdict on that. And possibly we are waiting for the FDA approval, so when do we expect this to [pay for us]?

We are waiting for -- you're right, absolutely, we are waiting for the FDA approval. Beyond that difficult for us to comment actually. So, we will track this closely.

See, in fact, it is already a few months now after the verdict is out. So, should we be expecting in the near future that for the Propofol?

Verdict has not much to do with the approval speed and this thing. So that's a -- two different streams you know. So, we would be waiting eagerly.

And, again, on this Valcyte, how do you see whether -- when do we expect the competition to come for the Valcyte? Do you think it is -- gradually we should be seeing or it would be a kind of immediate kind of competition that one should be expecting for this?

Again, this is -- I won't be able to guess, but I wouldn't say that it will be a jail-break type of a situation where a lot of people launch; would be somewhat gradual I guess.

And just last question on the PSAI front, see, in the last call, we were expecting something like a substantial improvement on both the growth front and on the margin front for the PSAI business, but things are not in that line for the quarterly -- this quarter performance. So when do you -- what was the kind of issue there, or when actually we are anticipating a kind of a progressive move, both on the growth and as well as margin front. See, in this quarter, there is a growth of [about 21%] that is for sure, but it is only low base effect?

Yes, on the margin, there has been some impact of quite a bit of inventory -- slow moving inventory provisioning that we have [taken], hopefully, but it could improve in the next quarter.

And any visibility that you're providing on the growth front and how that really will be coming?

Yes, we are re-calibrating this business, we are very conscious that this is an important strength for Dr. Reddy's. So would do the business in a way it's a little more value accretive to the Company on an overall basis, so per se, external sales, while we would be seeking growth, but it will be -- not be as robust as it used to be in the past.

So that means in a way we are changing our earlier indication that possibly second half of FY16 -- FY15 would see a substantial growth or a sequential growth in that business?

You're right.

Girish Bakhru, HSBC.

A question on US again. So, on Copaxone, what is the view after the ruling, where do you see the situation be suppose no approval comes till September 2015 expiry?

We have some way to go, as we said we had filed. We've just very recently got the first set of questions and we'll need a little time to sort of do the experiments and sort of few months to respond, and then it will go in its own progression, I guess. It will be difficult to comment this thing, but it's certainly not in the very immediate future.

Can we still call it like a 2015 product or would it go next year more or less?

So, as I said, we have to respond to that efficiency, it goes in, could be some more questions and then beyond that it will be difficult to guess.

Second one again was on the injectables portion. I mean that has been doing pretty well. So, if I have to just look at the quarter-on-quarter movement of the US side, is it again more traction on the injectable products, or the Valcyte is a big contributor?

Valcyte is a significant contributor, injectables have done well, all the [assets], I mean, the market shares you have, they've done well. Some new launches have picked momentum; [Caduet Imitrex injection] and so and so forth. Rapamune has been a good launch, and -- so the rest we'll see. I mean, difficult to comment beyond that how things pan out in subsequent quarters.

And just lastly getting on the bigger picture in the US, if I have to suppose -- I mean look at it from where the injectables portion will go from current [$250 million, or $280 million] run rate to, say, in next two years, are you working at some number that you can probably give us a color on?

Quite a large part of the filings and the portfolio and development is in the injectables area. So it would certainly as a percentage of the total turnover, this would go higher in years to come. And so, important thing is we have to keep launching products, nothing -- otherwise in generic market, everything erodes with time, but we will have to ensure that we keep launching. Broadly we are bullish on the injectables.

Sameer Baisiwala, Morgan Stanley.

Abhijit, a quick question on Srikakulam. My understanding has been that over last few years, FDA generally doesn't stop product approvals with the 483s, it requires a warning letter. So why is it that for you FDA has taken that stance?

I'm not a fully certain that there is nothing in between, you know, a warning letter and some delay in approvals. Having said that, beyond that I can't comment. And if your question is a direct question that are we getting warning letter, I don't know, I mean that's not our expectation, we have responded comprehensively to the nine 483s. We are sending an update as we speak. And let's see how that pans out.

And sir, when you say that there is something between 483s and warning letter, you're saying that by your experience in other sites?

No, I mean, not necessarily. I mean, everything -- a delay in approval means it is a warning letter. I'm not sure that the statistics is right, but certainly I would look into that statistics, but to the best of my knowledge that is not a given situation.

Is it suggestive of the severity of the observations in any way?

So, observations, Sameer, are in the public domain, you have read the observations. What we -- what is not in the public domain is our answers. We think we have answered quite comprehensively to all these. So, areas which we need to improve are documentation control, more of people training in understanding how to deal with some of the litigations so on and so forth. But, I think, we have answered fairly comprehensively, but we'll see how it pans out.

Just your personal thoughts and since it's very, very important for everyone, so therefore I'm just pressing on that. Sir, observations such as readings falling out specifications being recorded as falling within the specifications, does it not really border on the lines of data integrity issues, what is really your internal assessment on observations such as these?

What you've read is the observations by FDA, what you don't have are the rationale and the reasoning and the answers on this. So, what I'm telling you is we have answered fairly comprehensively on most of these. On their insights and learnings, yes, their insights and learnings. But we have -- we think we have answered fairly comprehensively to most of the observations. Plus, if you read the observations, doesn't give you the full story.

I'll just move on. Sir, the second question is you said that you've got alternate plans are being progressed. I'm sure you're referring to the site switch and what is the time site switch for the APIs? And if that's the case, how much time do you think this could take?

As a matter of abandoned precaution, it is indeed site switch (inaudible) we will put the highest priority to this. I wouldn't give you the exact timeframe, but it's not a long drawn affair.

Sir, my understanding is (inaudible) is very, very important to you and to us. So, therefore, sir, my understanding here is based on the other companies' experience, you would be required to do stability tests, which probably is with the new samples from the new site, which is something that takes up a fair bit of time. So I would say that, you know, anywhere from 9 months to 12 months at the minimum, would you not agree with this kind of timelines?

So, if you exactly follow steps -- these are regulatory views, Sameer, I'm not an expert firstly, but if you take exactly similar process, scaled up version of that and then certainly it should not take that much time, should be much lesser.

Okay. And if it's exactly the same process, you probably are referring to your own site?

Yes.

Nitin Agarwal, IDFC Securities.

On Venezuela, Saumen, you referred about monetary repatriation situation. I mean how should one read it? What is our exposure right now in terms of our [exchangeable] which are there, which we need to repatriate, how has it grown over the past few quarters?

We get repatriated money at the official exchange rate for our category, that means for the medicine category, and we have been getting till the month of September, October at a fairly good pace, we have been getting. So of late, we had been following it up, but that's how we have been calibrating a bit, and now today's exposure will be in the vicinity of around $15 million to $20 million.

In terms of the pending money that we do repatriate on --

[Pending] money we repatriate.

So I mean to the extent there is a re-calibration at the exchange rate that amount will be subject to whatever impairment if the need arises?

If the official exchange rate changes, and to that extent, we'll have to take a hit.

And we currently booking our sales when we report them at the official exchange rate?

Of course.

And secondly on Russia, with the movement that has happened in the quarter, we were obviously partly covered with the ruble hedges, but have we had to take certain impairment translation losses on the uncovered receivables?

No.

But how would that be if you've not covered the whole entire receivables?

Nitin, receivables are completely hedged. What Saumen was referring to was the future cash flows.

When I talked about 30% of the projected cash flow, when we do a balance sheet hedging that we do, complete 100% everywhere, across the globe.

So going forward, I guess what you're referring is when the full extent of the depreciation of the ruble begins to hit us, our sales realizations will began to come down, there would not be any real exposure or we will not be exposed to any translation losses on the hedges -- on the receivables?

Yes, because balance sheet we do it in on a regular basis. We keep on doing it on a dynamic basis, while a cash flow hedge is something we do it sporadically.

Chirag Gulati, Kotak.

I've got couple of them. Firstly on Venezuela, I mean, we've seen a lot of companies globally take on big write-offs based on [prudent] standards and some companies have even gone on to stop reporting their sales given the currency devaluation that is there. How would you view that in light of your growth coming out? I mean, how should we view this going forward for next quarter, is it likely that we should build in a 90% decline?

Let's put it this way that if we have crossed $100 million in sales in Venezuela already in this financial year, if suddenly there is a currency devaluation by 100%, then we come down from $100 million to $50 million in a dollar term. But the thing is that we have grown very rapidly in Venezuela in dollar term, given that the official rate has already contributed to our P&L substantially.

Now what is the exposure? Today we have is whatever is the cash which is lying in Venezuela, which has not got repatriated. That was the previous question which came, so I answered that. If there is a currency devaluation happens that particular money, then we'll have to take a hit to the extend there is a devaluation, and following that we'll have to again in a local currency term what happens in this kind of situation that you get tremendous growth in volume and everybody gets accustomed to take your medicine. So when the situation gets back to normal, you get a tremendous base, something which we have experienced in Russia earlier and something in Venezuela we have been growing tremendously, people are getting accustomed to take our medicine, and we believe that -- and these are molecules -- this is not a new product launch, these are actually quite old molecules that we have, the brands which are quite established, but we have been seeing unprecedented rate of growth.

So, with that it was a very higher base of volume, and we want to continue growth on that. It is good for us, but in terms of the total dollar sales, it could be subject to what would be the currency devaluation whenever it hits us.

Sir, over the past two months, I mean, you received the last tranche in September. Over the past quarter, have you got any pushback from the government while converting your bolivar into dollars (multiple speakers)?

We have not got pushback, but it depends -- a lot of follow-up is required. And some time it helps even if you do it at a (inaudible) level.

And finally, how much price increase would you have taken in Venezuela in this quarter given the inflationary pressures there?

Chirag, we won't be very specific with those, we've taken some adjustments; product by product those percentages vary; not very substantial.

Aditya Khemka, Ambit Capital.

Sir, I have two very quick questions. Firstly, on Copaxone, so let's say on generic Copaxone, you do not get approval till September 2015. Would that mean that, you know, whoever player can manage to get an approval, other Para 3 filers for the 2015 patent, if they can manage to get approval, in case they have done full scale clinical trials, those people would get approval at that point in time?

Yeah, If anyone has done, there is only one player who has done clinical trial in -- I am not sure whether they have submitted the data for US. But the rest of the two filers ahead of us follow, to the best of our knowledge, similar strategy as we are doing on characterization, but it has to be a good job of characterization, depends on who does that well -- will sort of get the approval.

So, what my question basically wanted to understand was that the first to file exclusivity for the other two players, other than you, so the two first to files, that exclusivity will probably be forfeited in September 2015, because the third player who has done a full scale clinical trial, he would get approval in September 2015?

I don't be able to -- I wouldn't be able to comment on such details, to be honest. I mean, we'll have to study this is in greater details. As I said, we have got our first set of deficiencies, we'll have to work on this, respond, and we may be getting a few more questions, and we will focus on our own approval, because I mean we don't know a lot about others actually, it's not in public domain.

What I wanted to also understand in this case is, so these follow-ups that you've gotten from the FDA, are these follow-ups sort of in excess of the selective gene expression studies that the FDA had previously asked you to do or is it just some clarification on the [selective gene] special study that FDA had asked you to do?

So, it's based on characterization, and actually FDA will be looking at lot of confidence on robustness of process and characterization and other things, so the questions in and around that. And so there is a lot of additional effort, which has to be given to answer those questions. Specifics, again, let's leave it for the time being, but in a characterization-based approval for a product like this, FDA is looking for a lot of confidence that it would indeed be a similar fingerprint.

And sir, my second question is on your SG&A expenses, the YoY growth that we are seeing, is it that our growth -- our SG&A expenses in Russia would have also sort of decreased because of the ruble issue? So is it that the Russia expenses have actually fallen YoY, while the rest of the business SG&A expenses have grown at a normal pace, thereby giving us this blended sort of low single-digit growth in overall SG&A expenses? I'm talking about excluding the amortization expense.

Yes, so you are right, to the extent that you know Russia would have helped us in terms of getting some benefit on SG&A.

Dheeresh Pathak, Goldman Sachs.

Sir, what percentage of Russia sales are under price control?

In -- sorry, what -- in?

Could you repeat your question, please?

What percentage of our business in Russia is under price control?

Half -- Dheeresh, almost half of our business is under price control.

And in terms of when you're reporting to us Russia sales and the related costs, now the sales you're reporting at the hedged exchange rate, the costs also then you're reporting at the exchange rate or you're reporting at the spot?

No that will be at spot.

Dheeresh, COGS for a large part (multiple speakers).

It is going to the topline right, costs are being reported at spot?

Yes, the hedge benefit goes to the topline. COGS, for a large part of the portfolio is in Indian rupees, so it's in rupees anyway.

So we will be seeing the marketing costs in Russia?

Yes, absolutely.

So that will be at the spot exchange rate calculation, right?

Yes, certainly, right.

Second question, sir, would be Srikakulam API plant, what would be our exposure currently including the PSAI business?

We can't speak on those things. As we said, let's focus on moving ahead with it, let's be forward looking, other than what the exposure and things of that sort.

Definitely we wish you all the best. And in Russia, coming back to Russia, they have not seen any price increases in this quarter, but given the depreciation, one would have expected a lot of price increases. So any particular reason that price increases have not happened?

So, Dheeresh, we referred to the fact that we've taken some adjustments during the quarter on the non-essential portfolio.

Okay, but when you said 27% growth, you said all of it is volume, so I thought there's no price --

We didn't say all, we've said major part of it comes out of volume, when there was a specific question.

Right. Is there are any price increases that you have taken towards the end of the quarter, which is not fully reflected?

Could be, Dheeresh.

Nimish Mehta, ResearchDelta Advisors.

Sir, I'm just trying to still understand the impact of the currency, I mean, fluctuations in Russia for the quarter and with the same currency what should be the outlook because of that? I am assuming the same currency.

Let me put it -- Russia, right now, you can't really think of raising, the forward premium is very high. So you'll have to really now look at what the Russian currency is going to be, it's anybody's guess. It can again become better, we can get benefitted somewhat.

What is the impact in this quarter, like how much hit have we taken, and is it like reflective of the entire impact or it is just part of the quarter that has got impacted?

Had there have been no depreciation of ruble against Indian rupee, we would have reported at least INR100 crore more on profit.

So, the INR100 crore is the impact this quarter, and this is reflective of the full impact for the quarter or it is still -- it's like because the ruble depreciation happened sometime in the end of the quarter, it is still not fully impacted?

It happens, you know, you're only comparing year-on-year basis.

But on a year-on-year basis, I mean the currency in this quarter had changed significantly, right, in the start of the quarter and the end of the quarter?

Yes.

So, if the current rate were to be there at the start of the quarter, the hit would have been more than INR100 crore, is that a fair understanding?

Yes.

Can I get a sense of how much more it could be?

Difficult to give it.

Okay fine.

I think Saumen messaged that there was some hedging. So you can calculate. I think this all he read out saying that there was hedging and which is -- it's gone for a while and beyond a point it will not be there, so based on that, you'll have to make some assumptions.

Next question is, generally what do you think -- I mean we were to expect some kind of a launch from our acquired company OctoPlus, so where are we, and I just assume that it would be a high value launch, so any outlook on that?

So these are very complex injectables, liposomal products and all that, so they are in a stage of development where one or two are getting closer to (inaudible), but having said that, there is also a clinic to follow these, something can be smaller, something can be little longer, so if you're saying that is it going to be sort of filed very soon, no. Within a few quarters? Yes.

Earlier we were talking about -- like few quarters back -- within next four quarters. So that is no longer there, so it's like roughly about a year away, even the filing?

I'm not sure exactly what we messaged, I wouldn't be able to comment on that. We're progressing on -- these are complex products. Each of those have its own challenges of understanding very deeply. One thing we are clear that no (inaudible). Some of these products have -- others haven't cracked, which probably gives you an idea of the level of complexity. So as and when we succeed, this will be much more sustainable than other product.

And are you going to conduct R&D Day that you were otherwise telling last quarter?

Yes. We will, but we have not yet decided the final date. I think Kedar will communicate with you as soon as we decide.

Anmol Ganjoo, JM Financials.

Yes, most of my questions have been answered, but just to delve on the Russian question a bit more, see, I understand that the secondary sales data for this market is not available, but it would be fair to assume that the growth in that market has been accompanied with the market share gains, because 27% constant currency growth, don't think is the underlying growth of the market. Also given that the price increase has been rather modest. So what would you attribute this to, I mean, in terms of competitive behavior, because there's been market share gains at the expense of someone else and would it be fair to assume that their risk appetite is slightly different from ours?

So, let me also clarify. I think, some of the articles have come in public domain as well. You see in -- when a turmoil of this sort hits Russia and in Russia people have seen, this is not the first time one is seeing, you know, a bit of a turmoil. There is some bit of forward buying directly by patients, anticipating price increases and such things. Overall, we don't have official data, but there is good secondary movement, because of some of it. Now, how long and how well it will sustain, we'll have to see. So, part of that has been contributed by forward buying by the patients. Also, you know, our portfolio is very rich in body ache, cough and cold, fever area, some of the OTC products are very big, some of the Rx products are very big. So, while these are not at the top end of high pricing, that is not that much affected by these devaluation aspects. So, some of those have played out. We'll have to wait and see. I mean, there are lot of questions in Russia, I fully understand. We are also waiting to see how things pan out. So far, so good. I mean it's going okay. Of course, there is a hit, there is a big hit, [34 to 65], who can make up everything, it's no way possible. So, this will be more and more as we go through other quarters, but overall performance is robust. I think broadly based on that, I think you draw your conclusions.

And my second question is that on R&D we've kind of guided to a broad range of 10% to 11%. And although marginally this is the second consecutive quarter of we having reported 11% plus kind of R&D expenditure, would it be fair to assume that most of our cost allocation for long-spaced programs is now peaking out, and that this is the peak in terms of R&D spend relative to sales?

So, when there is a ruble depreciation, obviously in rupee term our sales is coming down compared to what we have planned, to that extent R&D as a percentage of sales is becoming higher than 11%. So, I think it may be difficult to contain within 11%, it could be 11% plus.

So in terms of an absolute number for the full year for R&D, what is it that we should --

The absolute number, whatever we planned for R&D, we will be in similar kind of a range, what we planned in absolute R&D number in INR, in the end of the year we will be there, but because of the currency effects on sales, it is -- that percentage in some basis point it will -- it could be higher than 11%.

So also we said in the next few months, this is the fag end of the NDA filings which are likely to happen in the next few months. As we had messaged, we are on track on that. So some of that also is going to have some impact as well.

And my last question, if I can just squeeze in one last one is that, you did mention about forward premiums on ruble being extremely high. So in that environment, would we be able to kind of completely phase the balance sheet as you alluded to? So basically, I'm trying to understand that the translation losses can therefore be completely ruled out, because it might involve us buying forward premiums at extremely expensive rates, given the volatility?

So, we have a different approach for a cash flow hedge and a different approach for a balance sheet hedge. So as far as balance sheet hedging is concerned, globally we do it, we have been always doing it on a very dynamic basis, and every month we basically -- almost like a [credit off] kind of a thing. Whereas in a cash flow hedge, we never used to do it for rubles, we only used to do cash flow hedge for USD. Ruble we started doing a few months back and we have only done it for FY15, and now at this point of time, I find it very difficult to do anymore cash flow hedge for the next financial year, given the current rate and the forward premium rate which is there. But balance sheet, we always look at not a country specific, overall global this thing, and there we have been doing well, every quarter we have been reporting some ForEx gain out of our balance sheet hedging, which is being done.

Anubhav Aggarwal, Credit Suisse.

One question on the Habitrol, very positively surprised, only $80 million, you got a product, which can give sales of $60 million. Would, on a back of envelope calculation, payback period on this product less than four years, is it?

No, Habitrol, there was a mandate for them to close their deal between two of them. It was mandated to sell. So, it was basically -- there would be only limited number of players who could have bought it. So, against that we have taken it, so payback period will be few years only.

Roughly about four years or it would be much longer than that?

We will not exactly respond to that, but as you have rightly figured it out, it will not be a very long (inaudible).

And just one clarity on Sirolimus, when do you expect next competition to come in that market?

I beg your pardon, I couldn't understand.

On Sirolimus product, in the US, Rapamune, when do you expect next competition to come?

We have not heard anything in the market to indicate any immediate entry. So beyond that and in generics parlance, immediate entry is few months. But beyond that, we really don't know, I mean, if someone's getting approval, but otherwise currently we and the[ AG Greenstone].

Thank you. With this I now hand over the floor back to Mr. Upadhye for his closing comments. Over to you, Sir.

Thank you all for joining Dr. Reddy's senior management for Q3 FY15 Earnings Conference Call. In case of any additional clarification, please feel free to reach out to investor Relations team. Thank you and good day.

Thank you very much, sir. Ladies and gentlemen, on behalf of Dr. Reddy's Laboratories Limited that concludes this conference call. Thank you for joining us. You may now disconnect your lines.