Dr Reddy's Laboratories Ltd (RDY) 2016 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Laboratories Limited Q1 FY16 earnings 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) 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.

A very good morning and good evening to all of you. Thank you for joining us today for Dr. Reddy's first quarter fiscal 2016 earnings call. Earlier during the day, we have released our results and the same are also posted on our website. We are conducting a live webcast of this call and a transcript shall be available on the 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 Saumen Chakraborty, our Chief Financial Officer; and Abhijit Mukherjee, our Chief Operating Officer; along with 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 outlet 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 of any additional clarifications 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 convenient translation rate of INR63.59 which is the rate as on June 30, 2015. Consolidated revenues for the quarter are INR3,758 crore or $591 million and grew by 7% year-on-year. Revenues from our Global Generic segment are $487 million and grew by 8% year-on-year. This year-on-year growth is after absorbingthe continuing impact of the macroeconomic uncertainties and consequent currency headwinds for the emerging market [currencies]. Our US business saw sustained performance of its key products, Europe business grew on the back of recent launches, and India business continues on its growth journey. Revenue from our PSAI segment, $88 million with flattish year-on-year performance.

Consolidated gross profit margin for the quarter is 61.1% versus 59.3% in the corresponding quarter of the previous year. Corresponding values for Global Generics and PSAI were at 67.6% and 23.7% respectively. Current quarter gross profit margin reflects the positive impact of improved product portfolio and operating leverage of the manufacturing overheads. SG&A spend including amortization for the quarter is $173 million and marginally grew by 3% year-on-year. Net increase in absolute terms is primarily on account of annual increment and other selling, marketing, professional spends for events specific to this quarter getting offset by depreciation in emerging market currencies especially the ruble. There has been a good control of SG&A spend, which is in line with the cost control initiatives that we have referred to in earlier calls.

R&D expense for the quarter were at $69 million representing 11.7% to revenue versus 11% 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 activity. EBITDA for the quarter stands at $156 million, that is 26.5% to the revenue. Tax rate for the quarter is 21.6%. The effective tax rate for the year is expected to be in the similar range. Key balance sheet highlights are as follows. Our working capital marginally increased by $17 million over that of the previous quarter and is largely in line with our expectations. Capital expenditure for the quarter was at $40 million. Our net debt to equity ratio is 0.05. This is after our payout for UCB acquisition. Foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans for US dollars are approximately [$353 million] largely hedged around INR60.7 to INR65.1 to $1.

In addition, we have balance sheet hedges of $256 million. We also have foreign currency cash flow hedges of RUB1,440 million at the rate of INR1.16 to RUB1 and EUR4.5 million at the rate of INR74.37 maturing over next nine months. 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. First quarter has started off with a decent all round performance across US, India, and Europe markets. In the US our team was able to hold on to and in some cases increase the market share across key molecules. Sustained performance of the complex portfolio over the past few quarters is indicative of the high potential associated with this class of assets. The domestic formulations business continued with its predicted growth journey in this quarter. To add, we successfully concluded the UCB integration and this will reflect as a full quarter contribution in Q2. Europe team is building up a selective portfolio of oncology and hospital based assets to enhance the region's growth trajectory. Russia and some other territories in the emerging market continued to experience the pressure on growth due to ongoing macroeconomic uncertainties.

Now, let me take you through some of the business highlights for each of our key markets for this quarter. Please note that in this section all references to numbers are in respective local currencies. Let me start with North America Generics. Revenues are $295 billion. On a high base, the business was able to deliver growth despite absence of new launches and continuing competitive intensity. This is attributable to sustained pricing, incremental gains in market share, and supply chain robustness. Meaningful contribution from complex assets also had a positive effect on the margin profile. As per IMS MAT 2015 sales report, we are ranked eighth in terms of volumes, which is a rank improvement over last quarter. On the OTC side, Habitrol is well integrated now and reflects full quarter benefit. As you would have noted, in early July we launched MEMANTINE.

During the course of the year, we believe our visibility of every approval and launches would improve. On the emerging market front, Russia revenues are RUB36 million for the quarter and declined 22% year-on-year in constant currency. Performance for the quarter reflects pressure from volumes on some of our mega brands and channel inventory adjustment to some extent. Team continues to explore opportunities for portfolio expansion. As per YTD May 2015 IMS numbers, volume share of OTC portfolio is growing by 18% versus a market decline of 11%. In Venezuela, headwinds surrounding various macro factors such as currency and political situation continue, consequently fund repatriation is slow and we are watchful of the situation. However, we remain quite optimistic of the opportunity available and our actions continue to be guided by long-term strategic view of this market.

India business revenues are INR476 crores and grew by 19% year-on-year. Our growth and ranking in prescription terms is also improving. We have integrated the UCB portfolio and business. A number of business development deals announced by us, including Somazina, Resof, and some other assets and we expect such momentum to continue. Also over the past couple of quarters our rank improved from 16 to 14. PSAI business posted revenue of $93 million with a flattish YoY performance. Considerable efforts are being put to achieve the twin objectives of sales growth and healthy margins. We continue our efforts to add newer technologies and platforms to revamp our product offering to move higher on the innovation scale. As mentioned earlier, PSAI segment significantly supports our Global Generic business and is a major competitive advantage for us.

Before I end, I'm pleased to share that we have received PDUFA dates for three NDA filings done earlier in the year by the proprietary products team. Team is geared to get the commercial piece in place and we expect monetization to start sometime in the next fiscal year. With respect to US FDA inspection observations in Srikakulam API facility, we believe that we have comprehensively addressed almost all the observations raised. We have periodically sent detailed updates to FDA. Going forward, we are awaiting positive response from the agency. With this, I open the floor for Q&A.

Thank you very much, sir. We will now begin the question-and-answer session. (Operator Instructions) Aditya Khemka, Ambit Capital.

Firstly, on the India growth that we saw for the quarter, so far how many days was UCB consolidated during the quarter during 1Q?

It was just about 10 days or so, so rather insignificant contribution to the quarter's performance. In percentage terms, could be about 1%.

Okay. So, which means we have basically seen about 18% growth in our base portfolio. Could we split this into how much of this is due to biosimilars and how much of this is due to our chemical portfolio?

Biosimilars if you put together the two major assets, broadly this would be about not more than 5% of the total revenue give or take. So, the answer to your question is basically the organic business also has grown to a similar extent.

Sir, second question is on the North American Generics business. As you correctly mentioned, there is no incremental launch during the quarter and we still gained, if I'm not mistaken, about $25 million quarter-over-quarter in the business. So I understand that you have mentioned there's some market share gain, but could you allude to which was the largest? So, was Habitrol not consolidated for the full quarter in 4Q? Is this the first full quarter consolidation of Habitrol?

No, I think in last quarter also we had Habitrol.

Habitrol for the full quarter, right?

I think Valganciclovir has done well for us and all of our injectable portfolio has continued with their momentum.

Okay. Sir, actually the reason I ask this is because our injectable portfolio has been there for some time with us and of late we had just seen some incremental competition stepping in, say Dacogen, and there has been no change in dynamics of other injectable products, at least the key injectable products. So if you don't mind, could you just share as to which of these products are actually moving the needle here for the quarter?

If you track the injectables business normally what happens is versus Q4, Q1 is normally a stronger quarter. And if you again track very closely, you see our Dacogen shares have actually increased whatever be the reason. So, overall I think there is the robustness in injectables portfolio which accounts for a significant part of the increase, Valcyte generic has done well and few other products we have further consolidated. Having said that, there was erosion due to consolidation of customers and RFPs which came in so what you see is net of the erosion.

My last question is on your PSAI segment. So QonQ we have seen about 23% decline again, I understand the business is highly volatile, but how should we sort of think about this in our models? How do we build or project the stream of revenues for Dr. Reddy's?

You're talking about the PSAI business? So PSAI business, the new strategic intent is to ensure that the profit center becomes more value accretive and hence we are trying to see even cut down some parts of the businesses which are not yielding sufficient return. So, a flat growth should be read with better margins from this business and we are putting significant efforts in that direction. And last, but not the least, I think going ahead we will try and use our presence in the PSAI business to globalize many of the assets which we have developed for the regulated market and there's potential for globalization of these assets even in the form of formulations in certain other parts of the world. So, overall I think we are not concerned about the flattish behavior of the PSAI business. It's undergoing structural change. It's a major strategic advantage in terms of providing value to the generic business and so I think we're moving in that direction.

Sir, I'm sorry, but I just have one confusion there. If we are sort of say calibrating the business to maximize the margins that you can extract, there will be some unused capacity, right? So, do we have a plan in place to utilize that capacity in-house or how are we thinking about that?

About 20 DMS plus would be filed during the year and the nature of the business is continuous renewal of products and we are selecting the products correctly. So, there is robust activity on new product front. So capacity non-utilization is not a problem, in fact we'll keep investing.

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

Manoj Garg, Healthco.

First on your MEMANTINE approval, I understand it was an older ANDA. But can you confirm first I guess which facility you'll be supplying that product out of?

Our formulation facility serving US market.

So, Srikakulam?

No, formulation facility.

Formulations facility. Okay.

Your question is API from which unit? So, it is from one of the units. It's not the Srikakulam if that's your question.

It's not that. Okay. And then so has the FDA confirmed a reinspection date for Srikakulam or is it just your assumption?

No, the FDA has not confirmed anything and we don't even have any visibility whether they would inspect it. It's just normally in many such cases, they come back for a reinspection. We have been sending updates, we had some commitments which we have fulfilled almost pretty much everything except one or two long-term ones. So, that's our expectation that at some point this would be the inspected once again.

Okay. And then in this past quarter so absent some new product approvals, we saw the topline grow 7%. Is this what the expectation should be in terms of topline growth without new product approvals?

What's your question? I mean specifically on growth, we will not --.

Basically the question is that I think your informal guidance for topline growth has been double digits or low double digits and we are seeing the topline in the current quarter grow 7%, that's largely because there was no product approvals. So, absent product approvals is really the run rate?

So like all generic companies dependent on the US, we are awaiting certain approvals as we speak and we are expecting certain approvals during the year. It's going slow like most of our peer group companies have said. Also you'll have to sort of factor in that the emerging markets took unprecedented hit in this quarter and the hope that as there's clear sign of stabilization certainly in Russian market and based on our secondary and current sales in this quarter, quarter-on-quarter there will be some recovery on that. So considering all that but on product approvals specifically, like all other companies we are also waiting approvals.

Okay, great. And then last question just more of a macro question. So given two of your key competitors especially in the US market are getting together with Teva and the Allergan generics business, do you see this as a net positive or is this a potential risk that we should we monitoring going forward? The reason I ask is it net positive, I mean obviously with the consolidation and with the divestment of some expected files we can see some uptick in pricing; but on the other hand, it's a more formidable competitor in terms of just sheer size.

I would probably look at it from a positive lens to a certain extent. These are happening at a very different scale all together, we are in a different scale and as you mentioned, there would be naturally some assets which would be coming up for divesture which can throw up some opportunities. Regarding more competition or less competition, let it play out.

Okay. Thank you very much for taking the questions.

Nimish Mehta, Research Delta Advisers. Participants are requested to restrict their questions to only two per participant.

Sir, first of all I would like to understand what has led to the tremendous increase in the gross margin which is like on a sequential basis it is more than 500 basis points? I understand the adverse currency impact is still the same as we had it in the last quarter meaning Q4 of FY15. So, what has changed and resulted in this high margin?

Anytime you see there is a business mix that means favor of Global Generics if the Global Generics has (inaudible), then automatically the weighted average gross margin for the organization improves. SG&A growth which I alluded to being only 3% year-on-year has also contributed to overall EBITDA. So the manufacturing overheads cost control also has helped in terms of the gross margin.

You were talking about price increase in which market?

Not price increase, I have not spoken about price increase.

Okay. When you say sales mix, you are referring to higher sales from US?

Global Generics business segment sales is much higher than the PSAI business segment. Whenever the mix goes in favor of Global Generics, the overall gross margin for the organization automatically improves.

Okay. So I mean a bulk of it is because of the change in mix in favor of Global Generics, right?

I would say that is one factor. The other factor is manufacturing overhead reduction.

Okay. And on the SG&A side, I mean you said it was just about 3% increase so is that the level that we're looking at or what is the outlook there?

To some extent, increments and all which given in the first quarter of every year because of the emerging market devaluation, it got neutralized a bit. But we expect to control, but because even sales and marketing we'll have to see how much we need to spend. But I cannot give a guidance that every quarter it will be only 3% or so. But definitely since we are spending more on R&D, we expect that SG&A productivity can offset the higher spend in R&D.

Finally, last one if I may squeeze in this. Nexium product that you were expecting and what is the outlook there, when do you think? Nexium as well as Abilify if we are targeting, it will be great if you can give the outlook there?

So, Abilify is not in the pipeline so we are not there. As far as Nexium is concerned, we have responded to all the queries raised in our view rather satisfactorily. So beyond this, what else could we say.

I mean six months, right? Anything, any ballpark would be great?

Your guess is as good as mine.

Okay. Thank you.

Prakash Agarwal, Axis Capital.

Congrats for that good set of numbers. Sir, just wanted to understand the comment that you made that in one of the injectables you have gained market share which is Dacogen and you also talked about that Q1 is better than Q4. So do we understand this is some kind of bunching up that we also saw similar quarter last year and that to normalized in the following quarters, is that a correct understanding?

Not really. I think the efforts have held up. Every quarter we are mentioning that we will see more competition coming in, it can come in anytime. In fact there's some consolidation in not just injectables, also in some other assets. So difficult to predict, but there is no indication to say that there is just a bunch up for this quarter.

Okay. So this run rate could continue is what I understand?

That depends on new entries. Actually that is the invisible part. On our side, there is no bunching up at all. But if there is entry obviously you get know and naturally impact like it impacted every other player in the market.

My second question is any update on Copaxone where we are we still believe it is not coming this year and it's a next year opportunity for us?

Yes. There is some broad guidance in the direction, which we have through our [deficiencies] and conversations and we are proceeding in that direction. It needs some work which is going on full speed at the moment and so we maintain what we told you so it's not very near term.

Okay, sir. I have more question, I will join back the queue.

Neha Manpuria, JPMorgan.

My first question is on Russia, the 22% decline while you have mentioned that second quarter hopefully should improve. What went wrong in the quarter? Was it because of price increases we witnessed market share loss or you mentioned inventory adjustment? But other than that, was there any other factor that led to this?

So let me explain very briefly, I think this question will keep coming up, for the sake of everyone else. You see what happened. In a turbulent situation, all sorts of strange things come in. First of all, it reduces the capability to spend out of pocket so automatically the first thing that impacts is the people's ability to buy medicine to the same extent. The second thing was the retail chains, they jacked up the margins to sort of offset the currency issue which had a double whammy on the while as patients were not able to buy and the prices further went up and it led to steep fall in units not just us, but all top companies had to bear this.

The companies which had stronger and bigger brands took bigger hits. This in effect acted against the retailers so they realized it and they reversed this because the reduction in units couldn't compensate for the increase in price and they realized that and as a result the whole businesses started shrinking and then they have reversed and brought down the prices and in the meanwhile ruble came to a certain level of stability. Both combined we saw the secondary markets gain quickly about a month-and-a-half back and which is reflecting into primary in this month so that gives us some degree of hope. But having said that, as it impacted geography, it will take a few quarters to come back to full normalcy.

Okay. And second on UCB, given that we have seen 10 days in first quarter and a month in here, how are you seeing it in terms of profitability? How much work would it require in terms of integrating it with the India business?

Excellent integration, everything has gone very smooth so far. So, July is proof of the fact that our assumptions are holding good. So integration has gone extremely well and it's moving in the right direction.

And profitability wise, how is this versus our existing India business?

Good EBITDA business brought in from multinational and there are a few good brands. But what is most important is how well we are able to grow these and since we're saying that our organized business is growing at this rate, it has to sort of also grow and I think we are quite optimistic.

Thank you so much for taking my question, sir.

Anubhav Aggarwal, Credit Suisse.

My first question is on Venezuela. Is typically the first quarter seasonally weak quarter or what is the reason that compared versus the fourth quarter I see in rest of world there is a sales decline of about INR80 crore? Are you voluntarily already started reducing sale or it's just a seasonally weak quarter?

As we have told all of you earlier that we have been always calibrating sales in Venezuela because one hand it gives tremendous opportunity for growth, but the same time all of you know the risk in terms of anytime there could be an official devaluation. Of course last quarter onwards we have started the process of taking the net monetary assets at the [similar rate]. So as we did it in the Q4 about $14 million hit we took, in Q1 corresponding stake is around INR10 crore, which we have taken. But at the same time, there is some repatriation which is happening and we are calibrating that whatever repatriation is happening and whatever cost of goods that we are transferring from India to Venezuela calibrated in such a way that our overall exposure remains within our risk appetite.

Saumen, just to understand this better, if you did about $140 million sales from Venezuela last year, will this year based on understanding as of now that we've already seen four months go by, will be do more than $140 million or less than $140 million? Because your answer I've not understood that's why I am asking.

It all depends on the rate of repatriation. If we get good repatriation, then we can exceed the previous year's number very easily if the opportunity exists. But if the rate is not very encouraging for us, then we will have keep on calibrating our exports to Venezuela.

Last time you mentioned $38 million was pending.

Let me jump in very quickly. So Venezuela, the orders are far higher than what we are supplying to the market as Saumen mentioned. But more importantly, I think there are a couple of efforts which we are putting into the market. One, I think you are aware that we are an importer of petroleum and we are exporting medicines so we are involving both governments to see which way we can resolve the issue and I think an immense amount of effort is going in that direction, number one. Second thing is being a company where our product price per se is not extremely expensive and we have given presentations to the ministry in Venezuela, health minister as well we have contacted to show that our units are growing in spite of the fact that other competing players' units may not be growing to that extent. They are taking price increases, we are not in this current situation which they appreciate and this dialog is on. So, all efforts are on to see how we can improve and convert this situation to an opportunity. But having said that, uncertainties remain.

Just one clarity. So last quarter we had $38 million pending, how much is that number now?

As on June 30, it will be close to $50 million.

Okay. And just second question on the US approvals, after November we have not seen any approvals. So if FDA has [derisked] your Srikakulam facility, this is one of our let's say [six, seven] API plant. Why we haven't seen approvals at all from any other plant?

We have launched this MEMANTINE.

But that approval we got in 2010 or 2011, right?

So, there are few assets which got impacted because of this and I mentioned as far as G Nexium is concerned; we have tech transferred, generated data, submitted answers to all the queries so that takes care of one. Other two I'm not going mention the specifics, but one is not really worth sort of tech transferring, the value is not very big. The third one we are taking a view what to do. Beyond that, I think we are broadly in the process of derisking. Having said that, it's a light year of approvals. What is more important is that I think what gets approved and there are a few assets which are okay so rather than the number of approvals.

Abhijit, my question was on approvals outside Srikakulam. My question was that we are doing derisking in Srikakulam, but what about approvals outside Srikakulam? We are not seeing any approvals of the Company for last 10 months.

The filing happened from one site. It is that earlier site we keep moving from one site to another site so filings have happened from there. So some of those are being sort of tech transferred derisked, but nothing is immediately pending beyond these three which I just mentioned.

That is helpful. Thank you very much.

Saion Mukherjee, Nomura.

How many approvals or launches you are penciling in for this fiscal year in the US?

Numbers we wouldn't give because we don't know. There are quite a few. How can we give you numbers because these are dependent on one, FDA's approvals; two, litigations and litigations are also in public domain.

Okay. Sir, can you throw your take on Vimovo and Aloxi in particular, whether these are opportunities you think that can be monetized this year?

Both great opportunities, both in litigation.

Okay. But is it a possibility, I mean do you have a hearing timeline when do you get the court verdict? Any sense, any color you can give there?

Aloxi, the likely hearing the argument would be probably in September and give or take another two months for the 505(b)(2) approach for the verdict. The J anyway is already heard, probably another other couple months, but J there are a couple of other people so J would mean more competition. (b)(2) is around September hearing argument and then probably after.

So (b)(2) is a non-infringing route, is that the difference here?

Yes.

And therefore you see more probability of that coming through from a litigation perspective relatively speaking?

How can we comment on something in the US Court being litigated? But it is in our view completely non-infringing.

Sir, one thing on gross margins, there has been a very significant improvement. I was just wondering you talked about product mix, is there any raw material cost benefit that you have seen on a year-over-year or quarter-on-quarter basis? Because if I look at the material cost, it's not even moved up 1% on a year-over-year basis so I was just wondering if there's anything on that front.

Raw material whatever is linked to the crude oil, that definitely we get some benefit. But primarily it is the business mix and manufacturing overhead as I mentioned earlier.

And sir, one last question. On Europe, we have seen very strong growth I think UK and Germany. Can you give some granularity there how sustainable it is, any specific product launches, how should we think about Europe going forward?

We had messaged that we have gone down on the commodity tender business in Germany and we specifically picked two therapies what in German it's called [aidan] and we can promote. So we have picked those and we've put in some products in those, strategically moved in that direction. It looks to be little more sustainable not that these would last forever, but as tenders come in these erode, but by the time we are launching a new product. For example this quarter we have already launched Eloxatin which is doing well. So in summary, I think the worst is clearly behind, hereon we will slowly build the business.

Sir, all the best. Thanks.

Sameer Baisiwala, Morgan Stanley.

Abhijit, I'm a little confused in the context of your comments on the new approvals for the year. I think to one you said that it's going to be a light year, to the other you said you expect quite a few new approvals, and if I remember correctly on the previous call you had said that you expect three to four niche approvals which had not dependent on Srikakulam. So, if you can just clarify on this would be great.

So essentially, Sameer, we are putting more emphasis on the type of assets we get approval on. We have spoken about G Nexium, we won't be able to give you dates; but as I said already tech transferred, data submitted, questions asked, questions answered to the best of our understanding in a satisfactory way. There are few other products. There was a question on Aloxi which is in public domain being litigated, depends on which directions it goes. There was a question on Vimovo, litigated we don't know on which direction it will go. But there are few other I guess, which may not be mega but reasonable, but it all depends. So if you are specifically saying just sheer numbers, it's going to be light. Depending on how these things go, this could be interesting. So, does it answer to a certain extent your question?

Yes, it does. But what you're saying is that either these opportunities are sort of say stuck or rather litigation dependent or something like Nexium which is Srikakulam dependent. Now the question here is do you not have some products that you can be sure of launching which could drive the growth?

So, Nexium I just mentioned it's no longer Srikakulam dependent at all and some of these products either are already derisked or in the process of being derisked. Having said that, so more specifics I wouldn't be able to give you, but it's been seven months from the time the audit happened and this is reasonable time for us to do whatever needed to be done.

Okay. And just on Nexium, I remember you had given a very abridged submission for tech transfer as in maybe three months or even less rather than what companies normally do, which is much longer 6 to 12 months so you obviously cut down a few of these studies. So when FDA did come back to you and asked you questions, those are not the requirements that FDA need anymore. Is that a fair comment?

Look, I wouldn't get into details. I think that the statement what I mentioned is there were questions after the tech transfer after taking batches we put in, there were few questions which I think to the best of our understanding we have answered satisfactorily. May I leave it here? We will wait based on what happens here now.

Okay. And just switching gears, Abhijit, can you update us on the new manufacturing blocks in Vizag. One, the second injectable block and the second is the C complex oral solid that was almost ready last year. How are they progressing and when do we see the approvals flow through?

Injectables is one site in another part of Vizag so that investments have all gone in. Several product exhibit batches have been taken, probably the first filing is also done or just being done, (inaudible) to follow during this financial year. But approvals, certainly not for the plain injectable side. And you asked about the oral solids, the oral solids I think was audited, no observations, we have got EIR. Several already filed from there, one or two interesting ones as well. But when is the approval coming, not in next three months probably, but beyond that it's possible that we might start seeing one or two.

Okay. Just with your permission, one final question from my side and that is just a broader point on the ongoing consolidation in the US market and someone asked you earlier in the call. So the question here is with Teva and Allergan generics much, much larger player; but what does it do at a product level? Won't they be able to expand the per product market share or is it just about gaining the breadth in terms of number of products? Just your top level thoughts.

I mean most of these mega mergers whether it is Teva Allergan or Actavis had earlier or Mylan-Perrigo, et cetera sort of things. So all these efforts and none of these, how would this go we don't know; but throw up some opportunities wherever they overlap. And to that extent, that is interesting for us. Beyond that, these are very big, I'm not sure whether there would be a great deal of impact or we need to be worried about these.

Thank you so much.

Girish Bakhru, HSBC.

Just following on the approvals question, I mean your previous clarification was very helpful. Just are you getting any target action dates on the pending ANDAs?

We have especially post (inaudible) regime and it's become more. Yes, we are getting.

So per se I mean 483 issue does not like really stop you from getting review on the other ANDAs, right?

By no means, this is pretty much a one site specific issue. Of course a huge amount of organizational effort is into it to sort of spanning from everywhere where we are taking this as a drive to see how else we could train more, do IT backup, et cetera, et cetera. But this is one site.

And I know you spoke on Aloxi and Vimovo, but if you could throw some color on Propofol that was a product that was expected sometime near term, is that also somewhere you can see an approval this year or is that something which is delayed down?

Not impossible. But having said that, it's with FDA at the moment. We have again responded and the litigation is out of the way.

The second one was on the Russia, I mean you said that of course a lot of the impact in the quarter was because of the turbulent situation and there are lot of news regarding how the prices are actually very high for customers to even buy drugs. So, is there a risk that there could be some government control increase on the pricing front? How do you read that situation really turning on the regulatory side?

I wouldn't think that pricing would be controlled that much, that doesn't seem to be the objective, but there could be protection to a certain extent to players who are producing in that country especially the government business, what we call the DOL business. Our share of that DOL business as we speak is pretty much nothing, but we have some hospital play where some of those may come under but it's not very significant from our side. Going ahead we'll also think to sort of we are committed to the geography to see whether eventually we go into local manufacturing, but not a big red flag immediately for us.

And when there is a discussion going for in-licensing more in that market, is that more in the OTC side?

Whatever comes our way, as we speak, there are opportunities being screened and discussed and some progressed, et cetera. So I think we will consolidate both on Rx, OTC, as well as hospital side.

And this whole turbulence thing, I mean basically the inventory issue is impacting both Rx prescription and OTC, right?

To us less on OTC, more on Rx so far.

And just lastly a broad thought on recent pickup in biosimilars, I know it's the opportunity which is still long ended. But if you look at the recent data, the REMICADE biosimilar is coming at discounts of 70% to brand price and I know that has helped in terms of market share. But with this kind of this discount, do you think there is an opportunity in these first and second generation biosimilars for companies which would be coming quite late?

You're talking of the European play on this. That may not be an absolutely full fledged data point. But having said that, our current this year major objective would be to sort of collect the data. Some more data is getting generated and go to all the emerging markets as much as we can. By the way since you asked, we have launched in Ukraine I think it was last month or month before or something and doing extremely well. So, we'll progress on that front first and then see how it plays out in the global side.

All right. Thank you so much.

Surajit Pal, Prabhudas Lilladher.

Saumen, could you please tell me was there any kind of dollar denominated expenditure in Russia which you might have converted into local currency post this fall in currency?

No, we have not changed in any practice there.

Okay. So basically this currency devaluation, particularly in emerging market, has helped to reduce your consumption of raw materials cost to that extent?

No, that will not impact the raw material. That impacts the SG&A to some extent. Our cost with whatever manpower is there in the emerging market, that cost whatever rate of increment that you give when you finally convert the currency, you will get some benefit.

Okay. Is there any kind of development in Zopinox marketing? I think you started a partnership with Cipla. Is there any kind of update on that? Zopinox and Namenda, could you please?

You're talking about Namenda or --?

And Zopinox?

Zopinox so very small asset. Yes, we have a partnership, but it's a very small asset; not hugely impactful or is pretty much nothing. On MEMANTINE we have launched, we thought it will be much more commoditized than it is in the market and so far so good.

So something like say opportunity cropped up like duloxetine, it was expected (inaudible). Do you think similar kind of scenario is shaping up for MEMANTINE too?

Duloxetine was much bigger. Certainly it's not in that league. First of all, the asset was smaller. But in its own small way, it's good.

Okay. That's all. Thank you.

Balaji Prasad, Barclays.

Congratulations on the results. Firstly if I could focus based on your R&D, glad to hear that you received the PDUFA dates and can we understand what this means so early CY16 could we see a launch over here?

We got as per the expected line of FDA for this class of products specific date. So if everything goes well, then we can hope to launch this within next one year and of course since these are brands, it will take some time to ramp up, but we have (inaudible) product.

On that are there any incremental data points that you would get which you will share with us? And secondly, are you ramping up the field force or you would use the current 50 odd of sales personnel that you have at Promius?

For dermatology we don't need to ramp up, but for neurology kind of products we need to definitely hire. Now as and when maybe next quarter call if there is some specific things which development happens, we will share with you.

Mind you these are NDAs so during the course of the year, FDA would certainly ask questions and depending on all assumptions everything goes picture perfect.

Also was going through my notes from the Investor Day that you had, I was not sure I got the status update on DFD-10, DFD-06, and DFN-02; they are in Phase III. How close are we to a filing?

We can't comment on those, maybe next time once again when we have the Investor Day, I think we can sort of open up further on those.

Secondly, recently there was a news item about the European Union banning 700 drugs related to GVK Biosciences. Do you have any direct or indirect exposure to any of these drugs?

We had two insignificant in revenues, but when this started unfolding we had already stopped and took it out of the market as a matter of precaution.

So, there is no incremental impact then?

Nothing at all.

Okay, understood. Thanks and all the best.

Chirag Talati, Kotak Securities.

First question on Aloxi, why haven't we seen a tentative approval so far either for the 505(b)(2) or the NDA? Is it something to do with Srikakulam?

No, I'm not sure whether why TA is not approved. And so beyond that we would comment it's under litigation, we just leave it at that.

I gave you some tentative hearing dates and let's see where it goes from there.

The only reason I am asking is that one of the other first day filer received tentative on the 30 month deadline while you did not so a query on that and because it's a 505(b)(2) you should be receiving a tentative with say 10 or 12 months so just wanted to see whether there's queries or it's Srikakulam API or something else?

As I said, the audit took place [December 1], seven months is a reasonable time to take whatever actions needed to be taken.

Secondly, just again on these gross margins. Can you help us understand the ordering and inventory patterns for your injectable products? Do you have some sort of a seasonality when you do primary sales to distributors, does it kind of go in certain quarters or it's smoothly spread throughout the four quarters?

It's smoothly spread.

Broadly smooth except for when the calendar year opens up, it's a little heavy actually and last quarter is actually the biggest one. In this quarter you need not read anything into any seasonality.

So, this should be sustainable more or less?

I said depending on how the competition comes in, which is the biggest variable here.

The only reason I'm asking again is we should have seen QoQ declines in Russia and in Venezuela and both of these I'm presuming are higher gross margin businesses than the US so why this sharp move in gross margins on QoQ basis?

I think as Saumen mentioned, I think first of all the US business injectables is one side. There are assets where there is some consolidation have taken place and (inaudible) I think they are doing well. There are a few other assets, I'm not going into those details. But read this from this angle. I think for quite a few quarters we are trying to make the business sharp, focused, and value accretive. Now this is a philosophy and slowly it shows up in terms of better margins and on the cost front, I think Saumen mentioned that we have been controlling the costs not by just sort of removing, shutting down, or something. That's not the only objective, but there's a lot mechanization which is going on which is leading to a certain level of efficiency and those sort of things. Now look, sustainable and these things, one of the major factors being so much dependent on the US is depending on what competition comes in and what approvals we get. Now, that can change the balance. But overall business we are trying to make it more focused, more value accretive not just in US, Europe, India; all these have contributed to a certain extent.

Okay, great. Thank you.

Prashant Nair, Citigroup.

I had a question on the PSAI gross margins. There seems to be an improvement on a sequential basis, second half last year was quite weak. So is this something lumpy related to product mix or shipments or is this now where we should assume gross margins to stabilize?

I think this would stabilize and improve slowly. There could be little bit of variation quarter-to-quarter, but clear direction is to make it much more value accretive and so this is a direction which we have chosen to take and make this also a competitive advantage and trying to see what more value we can create for internal assets as well. In fact the other way round, a little bit of profit share earlier on certain products which has gone down a little bit. So, the direction of the business is very clear in improving gross margin.

All right. Thank you.

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

Thank you all for joining Dr. Reddy's senior management for quarter one earnings call. In case of any additional clarifications, please feel free to reach out to Investor Relations team. Thank you and good day.

Thank you very much, sir. Ladies and gentlemen, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.