Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to Q2 FY23 earnings conference call of Dr. Reddy's Laboratories Ltd. 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal. Thank you and over to you sir.

Thank you. A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy's Earnings Conference Call for the quarter-end of September 30, 2022. Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded and the playback and transcript shall be made available on our website soon. All the discussion and analysis of this call will be based on the IFRS Consolidated Financial Statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy, comprising Mr. Edey Ezraili, our CEO, Mr. Parag Ezrawal, our CFO, and the investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be read, broadcasted, or attributed in press or media outlets without the company's express written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Faraz Azarwal. Over to you, sir.

Thank you, Amit, and greetings to everyone for the current festive season. This quarter we had strong financial performance with highest ever sales, PVT and EBITDA in a quarter. The performance has been supported by the launch of Plenary Domain Capsules in the U.S. and rebound of Russia performance over last quarter. Let me take you through the details for the quarter. For this section, all the amounts are translated into U.S. dollar at a convenient translation rate of $81.37, which is the rate as of September 30, 2022. Consolidated revenue for the quarter stood at Rs. 6,306 crores and grew by 9% year-on-year basis and by 21% on a sequential quarter basis. In the same quarter of last year, we had high COVID product sales, adjusted for which we have grown in high teams in this quarter. Consolidated gross profit margin for this quarter stood at 59.1%, and increase of 565 basis points over previous year and 920 basis points sequentially. The growth margins were mainly aided by favorable product mix and production link incentive recognition. However, it was partially offset by provision made on COVID products inventory as the sales on these products have reduced significantly. Gross margins for the global generic and PSAI businesses were at 65.4% and 3.6% respectively for the quarter. PSAI gross margins were primarily impacted due to inventory provision on COVID products and adverse leverage on manufacturing overhead on a lower scale scale. We expect it to improve in the coming quarters. The SG&A spent for the quarter is Rs. 1,656 crores, that is US$204 million, an increase of 4% year-on-year and 7% quarter-on-quarter, which is in line with business growth. As a percentage to sales, our SG&A has been at 26.3%, which is lower by 140 basis points year-on-year and 340 basis points sequentially. The R&D spent for the quarter is 487 crores that is US$ 60 million and is at 7.7% of sales. We have been making good progress on our R&D pipeline in line with our business strategy. Further, while we continue to drive productivity, we have been investing it back to strengthen our development pipeline, building marketing capability and digitalization. The net finance expense for the quarter is Rs. 16 crores that is US$ 2 million We have been able to manage well the risk arising from the forest fluctuations in the current volatile environment. The EBITDA for the quarter is Rs. 1,932 crores and the EBITDA margin is strong at 30.6%. Our profit before tax stood at Rs. 1,611 crores which is a growth of 27% year-on-year and a growth of 10% quarter-on-quarter. Effective tax rate for the quarter has been at 30.9% due to the tax effects arising from jurisdictional mix. We expect our normal EPR to be in the range of 25-26%. Profit after tax for the quarter stood at Rs. 1,113 crores i.e. Rs. 137 million. Reported EPS for the quarter is Rs. 66.89. Operating working capital increased by Rs. 322 crores i.e. Rs. 40 million. Our working capital base reduced by 15 days due to optimization of inventory across our businesses and factoring of renewables in Russia. Our capital investment during the quarter stood at 251 crores, which is US$31 million. The free cash flow during this quarter was reduced 580 crores, U.S. $169 million as of September 30, 2022. Foreign currency cash flow hedges in the form of derivatives to the U.S. dollar are approximately U.S. $402 million largely held around the range of Rs. 78.8 to Rs. 81.7 to the dollar maturing in the next 12 months. Ruble, Rs. 4,320 million at the rate of Rs. 0.19 to the ruble. Australian dollar, Rs. 2.4 million at the rate of Rs. 56.04 to Australian dollar. And South African brand, Rs. 67 million at the rate of Rs. 4.82 to South African brands, maturing in the next six months. With this, I now request Erez to take you through the key business highlights.

Thank you, Farag. Good morning and good evening to everyone. I hope you and your loved ones are keeping well. I am pleased to take you through the current quarter performance, which is marked by record sales with IDA and ROCE. In the last few years, we have built a well-diversified business model which allows us to have multiple growth drivers and reduce the risk of being dependent on a single market or event. We believe that the current environment of geopolitical and economic uncertainties, inflationary pressure and forex volatility are strategies allowing us to grow. While there may be some fluctuations quarter on quarter, We focus on building portfolio pipeline across markets, driving productivity, investing for innovation, and taking forward our ESG agenda. We believe that our strategy, along with the net cash surplus position, will enable us to drive sustainable growth in line with our aspirations. Let me share you some of the key highlights of the current quarter. One successful commercialization of volume-limited launch of linalidomide capsules in the U.S. market. Rebound of Russia sales after this went through channel stock normalization in last quarter. USFDA approval of PEG-50 stream received by our partner, improving visibility on commercialization of our products. Our largest manufacturing facility in Hyderabad, internally referred as FTO3, a joint global lighthouse network of world economic forum. Now let me take you through the key business highlights for the current quarter. Please note that all reference to the number in these sections are in respective local currencies. Our North America generic business recorded sales of $351 million for the quarter with a strong growth of 38% year-over-year and 53% on a sequential basis. This was largely attributed to the new products launch contribution, including the volume limited launch of linalidumide capsules in the US market. While we wouldn't be able to mention specific sales volume or value arising from the linalidumide, we expect these products will continue to contribute meaningfully over the next few quarters as well. The price erosion for the base business has been within the normal trend seen over the last few quarters. In this quarter, we launched seven products and expect those momentum to continue during the balance of the year. Our Euro business recorded sales of 52 million euros this quarter, with a year-to-year growth of 10% and sequential quarter growth of 4%. During the quarter, we launched 10 new products across various countries within Europe. We expect to continue with the growth momentum in the rest of FY22. Our energy market business recorded sales of ₹1,125 crores, with a year-on-year decline of 6%, however, a sequential growth, a quarter growth of 36%. The year-to-year decline was due to a higher base effect as we had COVID product sales in Q2 of F1-22. Adjusted for this COVID contribution, we have grown. Within the emerging market segment, the Russia business declined by 2% on a year-to-year basis and grew by 84% on a quarter-to-quarter basis in constant currency. The sales for Russia have reverted to normal levels after the channel inventory stocking was normalized in the last quarter. During the quarter, we launched 31 new products across various countries of emerging markets. We expect this business to continue for the growth momentum during this. Our India business recorded 1,150 crores rupees with the year-over-year growth of 1% and sequential decline of 14%. Adjustment for the COVID product sales during Q2 of FY22 and the brand investment income in Q1 of FY23, we have grown in mid-teens year-over-year and mid-single digits sequentially. During the quarter, we launched two new products in the market. As per a Tuesday report of June 2022, our MAT rank in big value terms is at number 10. We will continue to reshape our portfolio in India business with focus on growing big brand acquisitions, partnerships for focus area, while divesting non-core brands. Our PCI business recorded sales of The decline has been due to lower volume pickup by customers for some of the key products. We expect sales improvement over the next couple of quarters with increasing volume pickup and launch of new products. We have been progressing well in our journey of building a portfolio of complex and differentiated products, biosimilar and NC pipelines. We have also made a good progress to identify a list of innovation moves for our branded markets. We continuously actively look for investment opportunities for businesses in line with our strategy. We believe that even in the current uncertain environment, there are multiple opportunities to grow our business and we are committed to pursue this in line with our strategy. With this, I would like to open the floor for questions and answers.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.

Hi, good evening. Three questions from my side. The first question is on lenalidomide. Just wanted to get a sense that were the volumes bunched up in the current quarter as per the agreement with the innovator or should we expect the volumes committed by Dr. Reddy's in the current quarter to probably continue as we proceed? So that's number one. Number two, if I look at the cash flow statement for the business, there's roughly about 600 crores that's been spent on intangibles. So wanted to understand what is the nature of this? Is it a purchase of ANDAs or something else? And the third question is on the PSAI business. I believe the gross margins for this business have been declining continuously. over the last one year and they came to a low of about 3.5% this quarter. So if you could just explain what's happening there. Is this supposed to move up going forward or how should we look at it? And what is driving this decline, not specifically for this quarter, but over the last three, four quarters? Thank you.

Thank you. I will take the first and the third and Parag will take the second question.

Ladies and gentlemen, we've lost the connection of the management team. We request you to stay connected. We'll reconnect then. Reddy's Laboratories Hi, do you hear me now? Yes, please go ahead.

Yes, do you hear me now, sir?

Sorry, you are there? Yes, yes, I'm your, I'm your, I'm calling your...

Sorry, our line broke, sorry. So, on the first question on the, on the, on the little one, the... The quantities are within the scope of the agreement that we had with the innovator, and we will continue to sell the product also in the next 100 quarters. And the third question, indeed the volume of the API, the volume of the API, especially on some of the old products, went down, and this is the main reason of also the gross margin. This is very much a fixed cost type of an industry, so what we see is that likely this will go up, and naturally with that also the margins will go up. Now, over time, strategically, we see gross leverage in the PCI in general in all four levers. One is the API itself, primarily driven by certain launches of product in which we will sell commercial quantities for launches that will happen this year, next year, and thereafter for those that are preparing, including us. The second is that our CMO business, CDMO business, APSL, which is also recorded under this segment, is going to grow, and we do see better fractions in that direction. Reddy's Laboratories Ltd and we have some interesting projects ahead. So overall, we can guide that we believe that these segments will grow also in the future. Maybe the second question.

Yeah, Tarang, the second question I will take. In the cash flow, the intangible amount that you see is towards the acquisitions that we have announced publicly also in the last couple of quarters. This includes Figma from Novartis. also the eton portfolio under development and we also had another small acquisition playback. So it's basically towards the acquisition.

Okay, thank you.

Thank you. We have our next question from the line of Prakash Agarwal from Axis Capital. Please go ahead. Mr. Agarwal, please go ahead with your question. We are not able to hear you. Your voice is breaking, sir.

Am I audible now?

Yes, please go ahead.

Thanks and thanks for the opportunity. Call quality is not great, so pardon. Hello?

Yeah, please go ahead.

Yeah, so pardon if I'm asking this again, but two questions. One is, how should we think about the base business performance given there is some competition in your key products? Would it be largely flattish or it would have come down? And secondly, on the volume restricted launch that you've done, most or all of it is already booked for the financial year or there is some more competition?

Mr. Agarwal, I'm sorry, your voice is breaking again.

I'll repeat my question.

Yeah, Pratap, I think we have heard the question.

Okay. Okay, so one is the performance on the base business of the U.S. side. How it would have been done? Is it flattish or it would have declined? And second is on the volume restricted launch that you have done. for the Generic Revenue. Most of it is booked or there is more to be booked in the financial year 23?

So, on the second one, we are going to book sales for this product in Q3 and Q4 and in the years to come. So, we... So it's not that it's one time. We are planning to continue to sell this product in a meaningful manner also in the next coming quarters. As for the first question, the best way to describe it is we are very consistent, meaning that even if you, on the long-term basis, and that's something we are trying to be very consistent with our communication, Our U.S. market, our U.S. activities will grow, is growing in the single digit on a multi-year basis, while from time to time we have leaps up and leaps down in accordance to the competition. This quarter, indeed, we had competitions for some key products, like a Cosepan, a Doxon, We will have from time to time products that will contribute more meaningfully for a certain period of time. So the answer for that is we are consistent with what we discussed in the previous meeting as well.

Okay, and just to, you know, think that I understood the second part of the question correctly, you said there is more to come in Q3 and Q4 with respect to Revlimid.

Yes.

Okay, perfect. Thank you.

Thank you. We have a next question from the line of Kunal Dhanesha from Macquarie Capital. Please go ahead.

Hi, thank you for taking my question. First one on the gross margin. So we have kind of improved gross margin by 550 bps. Can you just quantify various moving pieces here? I think we have product mix, PLI accrual, FX impact and then offsetting is the COVID product provision and the price erosion.

Yeah Kunal, so our gross margin for the quarter we have reported at 59% and it has, as I stated, it is strong because of favorable product mix, including the impact of new product launches. So that's clearly something that's pushing it upwards. We have also recognized the benefit of PLI and a few other normal export incentives like DDK etc. in the quarter. We have also taken a provision of around 100 crores for COVID product inventory as the sales have come down quite a bit as you would know. So overall and there is of course a little bit of cost inflation that sitting in these numbers. There is some softening we are seeing in solvents which should have some favorable impact in the second half but cost still remain at an elevated level. Overall, I would say that this is what the gross margin is made of. I would just point out that even if you take out the impact of new product launches in the quarter, our gross margin is within the normal range that we have been consistently talking about, which is somewhere between 51% to 54%.

Mr. Dhanisha?

Yeah, thank you for that. Would you be able to share some insight in terms of why our ANDS filing run rate remains low? I think in FY20 we filed around 8 ANDS, FY21 was slightly better at 20 and then FY22 was again 8. If I look at this year's run rate for staff is around 4 ANDS filing. While our R&D continues to remain at what it was. Yes, it's more of a timing within the year of the submissions.

Normally, most of the submissions are done in the second half of the year. So, you are going to see a pickup of those numbers. As for the overall numbers, We are focusing our R&D as much as possible on differentiated products, on biosimilars, on products that have bigger potential. So we are trying to target not 30 and 40 products per year, but rather maybe lower number of the debt, around 20, 25 products per year, but Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd that can derive from the R&D should be higher in the future while those relevant products will be launched in the near future, being global, more complex, more injectable, more biologics.

Okay, thank you.

Thank you. We have our next question from the line of Damayanti Kerai from HSBC. Please go ahead.

Hi, thank you for the opportunity. My question is on India Peace. So even after adjusting for COVID-based and sale of some North Core brands for the quarter, sequential growth rate is around mid-single digit, which is lower than market growth of double digit. So how should we see growth moving ahead and what will be the key drivers? So a few years back, you mentioned about growing your India sales by almost 50%. on the base existing at that time. So are you broadly on track to achieve that?

Yes, we are on track. We are very confident that we are on track. What you see now is a combination. First, we are more focused. So as part of our strategy and as discussed in previous meetings, we identify certain segments that we want to focus on. and for those focus to put resources behind meaningful brands that can grow and sustain for many years, as well as investing in what we call the Horizon 2, which India is going to be a big outlet for that. As part of this, we are divesting brands as well as focusing on brands, for example, Reddy's Laboratories Ltd My second question is on injectables. This has been one of your focus segments.

So can you talk a bit about the competition outlook for this segment given we have seen competition rising in this segment. So how do you see competition scenario building up in injectables over next few years?

I'd say the patent cliff invites people to invest behind products that will have patent expiration in these times and Reddy's Laboratories Ltd Reddy's Laboratories Ltd are different from maybe those that used to be in oral. The channel is different. It's selling to hospitals. It's selling globally. You can use one file around the world, and you don't need to do a biostudy per continent. So the gross margins are higher, and some of these products, the technological barriers are also higher. So, given all of this, we believe that we will see more growth, we will see better margins on a global scale. At the same time, every product will face competition, and when competition will come, it will be us first, as any other generic segment, this is likely to be also foreign.

And my last question is a clarification on PLI scheme benefits. Is it one-off or you are likely to book it every year or like in next quarters also?

This is clearly not a one-off. This is a scheme that, as you know, it's a multi-year scheme. And even within this year, it is not a one-off. Of course, the quantum fluctuates from one quarter to another depending on the sales of the products that qualify for this scheme.

Okay, that's helpful. Thank you.

Thank you. We have a next question from the line of Surya Patra from Phillip Capital. Please go ahead.

Yeah. Thanks for this opportunity, sir. My first question is on the cash flow that we are likely to be generating from Red Limit. See, in fact, Dr. Reddy has been a kind of consistent generator of free cash flow is offering over 1,000 crore kind of annually. And the way that contribution that we are witnessing, it is obviously over 1,000 crore kind of contribution that we are definitely likely to see. So given that, your qualitative growth outlook, if you can give some means, utilizing this cash flow situation, So obviously your growth can be qualitative and consistent over the next few years. So can you give some clarity about what would be your key priorities here going ahead, looking at the kind of strong cash flow generation situation?

Thank you. Indeed, I agree with you. We are building a very healthy cash flow position, which is likely to get stronger and stronger over the years. Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd both on Horizon 1 as well as Horizon 2. We feel also that the geopolitical situation as well as the economy situation create an opportunity for us. In that place, we do see opportunities that maybe in the past were in higher valuations. And so likely that we are going to be very busy with this development in the next coming quarters. Reddy's Laboratories Ltd Reddy's Laboratories Ltd

Even the R&D, although there is a kind of significant growth that we are witnessing from Revlimid, but accordingly the R&D spend has also gone up. That was earlier indicated that way. So you think with the kind of a ramp up in the business, the R&D spend and the investment on the specialty project, all that is likely to go up quite meaningfully.

That's why, if you recall in the past, we guided that we are comfortable with 25% EBITDA, which in some quarters will do more, some quarters will do less this quarter, and maybe also in other quarters we'll do more. So absolutely, this is the idea that this will help us to pay for the R&D, for the Horizon 2 OPEX activities. Knowing our pipelines and knowing the Our case position, that's why we felt very comfortable to commit in June that we can finance Horizon 2 while including the R&D associate with it, including the R&D associate with Horizon 1, while sticking the overall guidance of EBITDA of 25% on a multi-year basis. And yes, We believe that we are in a very comfortable position to do both organic and inorganic, not just because of this product, but also from the launch of other products and other activities that we will do in the next coming years.

Sure, sir. My second question is on the PEG-Quilgrass theme for the biosimilar. How should we see this as an opportunity for us? Because our partner, Fashionist Covey, has already got the USFDA approval for that. So how influential this product opportunity would be for us? My only key query here is that, what is the kind of association that we are having here? Because it has been filed in the name of Fresenius. The manufacturing base is also used from Fresenius base only. So then what is the kind of relationship that we are having for this opportunity?

This is a residual of agreement that we had in the past of activities with Merck, the German Merck, that was acquired by Fresenius. And so the product was developed by us initially and was taken by Fresenius. And so we are entitled to royalties, meaningful royalties as part of the launch. Like you said, like you saw, we are not participating in the Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd

Yeah, so the amount of government grants includes PLI and the other export incentives that we receive. So it's a total amount. Sorry, what was your first question?

100 crore provision, is it relating to the PSA?

Yeah, it is across all businesses. It is for India as well as PSAI and also in emerging markets. So it's aggregate provision across all geographies.

But is it possible to share for PSA, sir? We don't share business specific numbers. Because this is a quarter specific one.

Let's say that without the COVID, the gross margins of the API will absolutely grow.

High single digits. I would put it as high single digits. So without adjusted for COVID provision, the gross margin for the API would have been high single digits.

Sure, sir. Thank you. Wish you all the best, sir.

Thank you. We have our next question from the line of Rebecca Song from Bloomberg. Please go ahead. Rebecca, can you please go ahead with your question? Since there is no response, we move on to our next question from the line of Vinu Patiparampil from Ingrid Capital. Please go ahead.

Hi, good evening. Good evening and good morning. Just a couple of questions. Just to follow up on this 193 crore government grants, what people says it belongs to? Is it just this quarter or is it related to products sold over the last few quarters?

It is part of the production link incentive scheme that the government of India has floated. There are certain products that qualify under the scheme and this incentive pertains to the sales that have been made in the first half of the year. The scheme started from this fiscal year. Understood.

Second, your tax rate is a bit high for the quarter. So has it got something to do with the higher revenue profits in the U.S.? Is it going to be a higher tax rate whenever there is higher contribution from vanillamide profits?

As I said, because of the jurisdictional mix, as you know, we are a global company operating in multiple countries, and the sales of various products are booked in various geographies depending on where the IP resides and where the value is created. So it's entirely driven by the jurisdictional mix, and it includes some impacts of new product launches, including limited online. Got it.

And finally, you had guided to BLA for E7777 in this year, in this current year. Are you on track for that?

Your voice is not clear.

Can you repeat the question? Sorry, the BLA for E7777, your new product, you had guided for 2022. Is that on track?

Yes, it has been filed by our partner. It's already filed. Okay, great. Thank you.

Thank you. We have our next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Thanks and a very good evening. Great quarter. Parag, can you just share what was the core EBITDA margins if you were to exclude those one-offs? What is your 25% ballpark target that you have?

First of all, I would not classify this as a score. I think the entire business, the results we have reported are cool. because any new product launch is part of the core, right? I think there are a few moving parts which I talked about, but let me just list them down again. We clearly have an upside because of new product launches of which the generic version of Red Limit is obviously a significant component. It has been a successful high-value launch. There is a COVID-19 provision that we have made have recognized the government grants of 193 crores as we have disclosed. Overall, there is some impact of cost inflation, but I think we have had good cost control. So overall, I would say that our EBITDA margin of 30% is good. Having said that, I must clarify that what we have been stating very consistently is that we are targeting our aspiration is to deliver 25% EBITDA margin on a sustainable basis. in the near to medium term. And we remain on track for that target. There will be quarters when you will see higher EBITDA. There will be quarters where you will see lower EBITDA. But we are on track delivering our aspirations.

Yeah, thanks for this, Parag. It's just that when I did those adjustments based on whatever information that you guys have shared, it looked like, you know, it was more like 20%, 21%. So I get your point. You want to include everything in the business But if you were to just see what it was pre-launch and now, it seems to be a little on the lower side and hence the question.

But that's fine. I believe the numbers are higher than this.

Okay. Okay, that's fine. Yeah, that's great. Thanks. And also on the working capital side, probably seems to be 700 crores negative working capital if I look at receivables and payables. So can you just talk about that? So, 400 and 300 crore, I think, are the two movements.

So, that movement would be because of the receivables, because of the higher sales. If you see, in this quarter, our sales have crossed 6,000 crore, and there is a certain credit period. So, that's the impact it is reflecting.

Okay. Largely coming from the U.S. And that's the reason why it's a little higher. That's right. and payables, 300 crores, it has gone down.

There are some payments that we have made to our partners. It's not really something which is bringing the payables down permanently. Just a tiny issue.

OK. And just with your permission, one last question. If you look out next four to six quarters, Anything that you want to highlight in terms of high-value or complex launches for the U.S. market?

I believe that you continue to see stock performance.

Okay. And when you say that, you mean with the current basket, you think there will be more new launches that's going to add on top of this?

Yes, absolutely. We will launch more products in the U.S. in the second half. as well as in the airport 24.

Okay, great. Thank you so much.

Thank you. We have our next question from the line of Prakash Agarwal from Access Capital. Please go ahead.

Yeah, hi.

Mr. Agarwal? Your voice is breaking again.

Yeah, am I audible?

Yes, please go ahead.

Yeah, just a follow-up to my first question asked. So you mentioned there is more to come in Q3 and Q4. Question also was in terms of quantum, have you booked a large amount or expecting qualitatively, if you can comment, that it would be similar or lesser?

We cannot drive a number, but it's going to be meaningful numbers.

Okay, that is helpful. And to understand this further, I understand NatCo is going to come back in March with double-digit volume share. So this calendar year or this work's fiscal year, that is the volume restricted for everybody? Or at least you can comment for yourself?

We cannot comment on ourselves. Our agreement is naturally until 2026, so there is certain shares that we're going. We do not want to share. This is a spare settlement with the innovator. But like I said before, we believe that the quantities and the value can be meaningful also for the coming quarters, including next year.

Fair enough. So just completing the loop here, what I understand is you started in September, you have volume restriction till March and then there is another increment that happens post-March. Is that right understanding or is it post-September?

Like I mentioned, I cannot specify any details about the settlement. It is in September, in October, in November, in December and in March also. Okay, fair enough. Okay, that's all from my side.

Thank you.

Thank you. We have our next question from the line of Binnu Patiparampil from Incred Capital. Please go ahead.

Hi, just a couple of follow-on questions regarding products in the U.S. again. You know, you have a filing for LexiScan. I believe there is some litigations going on. Could you give us a latest status update? Do you expect to launch it anytime soon, say maybe in the next 6, 12, 18 months?

I did not pick up the question. Can you repeat?

Generic version of LexiScan. You have a filing in the U.S. for that, which is Rega Denison. Do you have an update? Do you expect to launch it in the near future?

Yeah, you know, I think it is... We have a settlement on that. So as for the settlement terms, we will have launch in the future. Obviously, the settlement terms are confidential, so we cannot discuss launch timings currently. Understood.

Second, there was guidance regarding Rotexan filing in 2023 in the U.S. Is the arrangement with Fresenius the same in case of Rotexan, the same as Nelasta, or do you have a role in there?

The difference is that in this case, we will make the product, and they will market our product. This will be made in India. and all the answers will be made by then. This is the main difference. Okay.

And are you on track to file that in 2023? We are on track, yes. Okay. Okay, great. Thank you very much.

Thank you. A reminder to participants to press star and 1 to ask a question. We have our next question from the line of Kunal Damesha from Macquarie. Please go ahead.

Thank you for the follow-up. So, would you be able to quantify your investment in terms of R&D as well as CAPEX for the first half of this year between Horizon 1 and Horizon 2 drivers for our business?

So, Horizon 2, as I clarified, I think, when we had the investor day communication, we expect to invest about 50 to 100 basis points of sales in Horizon 2 through our P&L and we are within that range. At this stage, we are not investing significantly in CAPEX for Horizon 2.

And then what would be our CAPEX for this quarter of around 250 crore would be for?

The CAPEX in this quarter, let me step back, the CAPEX for the full year is likely to be around 1,500 crores in that range. And a lot of this capex is towards building capacity for our biosimilar business and for our injectable business.

Okay, typically a biosimilar plant, what would be the typical cost, if you can share, or injectable plant?

I think it varies. It depends on the product, the complexity and the utilization of our current plants. Sometimes it's a top-up capex, sometimes it's higher. So I don't think it's possible to give a general answer to that.

Kunal, when we say capex, obviously it is not all going into building new plants. So there will be several Additions to the existing plant, there will be maintenance efforts, there will be efforts on digitalization projects, on R&D facilities. So it is all put together. And towards the plant, Parag already clarified those are the two major areas. Okay, thank you.

Thank you. We have our next question from the line of Surya Patra from Phillip Capital. Please go ahead.

Yeah, just two questions.

On the Revlimid again, please. So do you think there is another wave of generic launches before 26th January, means January 2026?

Likely. Likely that more people will get approval. I do not know exactly when and what is the nature of settlement, but likely the 24.6 will be additional companies that will get the product.

Okay. My second question is on the, let's say, basically India business. Two aspects that I would like to cover. One is the OTC and second is your initiative on the digital kind of efforts. So particularly on the OTC side, you have been one of the established players in the OTC space of the US and Russia since long. And now you have been trying to build a kind of a similar kind of presence in the domestic market in line with your enhanced focus for the domestic business. So what is your thought process there and what you are trying to achieve there in the domestic OTC space? And in terms of profitability, how is it Reddy's Laboratories Ltd Reddy's Laboratories Ltd

Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd Reddy's Laboratories Ltd either by ourselves or with partners' products that have great data behind it. All the products that we launch, whether OTC as well as we will be backed by scientific data. And we believe that this, our brand as Dr. Reddy's, as well as the relationships that we have with healthcare professionals can give meaningful value to those brands. over time these products are also less are more consumer eventually driven with the recommendation of professionals and therefore their business model is more sticky than the R&D generics even in India and likely also that profitability once the brand is catching is even higher and We also say that because of our position in India, because of our reputation being a reputable ethical company, many partners would like to work with us and we believe that we can drive value by bringing innovation to India that is done in other countries and there is a lot of energy in that direction. To summarize this, we are building now a meaningful portfolio, a meaningful R&D that is behind it, both internal as well as external, and as well as a group of partners that will continue to support it, hopefully for many, many years. As for the digital, we are continuing to build the business. We are moving from more cities with our partners, and we will move from... We work in actually various channels with our partners, back in the insurance, working with companies about employees as well as direct. And what we do now is primarily scaling up both the digital capabilities, the service associated with it, the physicians that are supporting it, where more cities with more patients and it is picking on nicely. We do see a great unmet need for outpatient services in India.

Okay. So is it going to have a kind of meaningful implication on the MR productivity also? If not now?

It's not going to the MR, but you're asking about the MS in the digital, right?

Yeah, yeah. Yes.

Yes. So DMRs are not relevant here. These are services that we are giving to patients, basically giving them end-to-end solutions about their need. If you wish, it's a service, a health service. It's not selling products. Okay. The amount of productivity needs to grow up because of the focus that I mentioned before by focusing on more meaningful products that will be bigger. We have our next question from the line of Rebecca Song from Bloomberg. Please go ahead.

Ms. Rebecca, please go ahead with your question. Since there is no response, we'll take a last question from the line of Anubhav from MacPro. Please go ahead.

Hello. Yeah, thanks for taking my question. I have a couple of questions on injectables. The first part, I just want to understand, are we seeing any industry-wide challenges in this space in terms of, as far as the supply chain challenges are concerned, because some of the tiers have been highlighted for the last few quarters in terms of getting the component or raw materials. So we wanted to understand, are we also facing a similar kind of a thing, and if that is the case, are we past that headwinds?

So there are, naturally, dealing with so many products in so many countries, There are challenges here and there, but nothing significant to report on about. Nothing that impacts significantly the business. And we do not anticipate major disruption as well. As a company, we are kind of, let's say, pretty risk-averse in a way that We do not have a single program or a single activity or a single supplier or a single country that we are dependent on. So, yes, there are challenges here and there, but nothing significant.

Okay. Thanks for this. Secondly, on the long-term strategy for injectables, I understand we are making heavy investment in this space. I want to understand this thing that do we have a goal that whatever injectables we want to get into we should be manufacturing in-house or is it also a possibility that few of the products we can prefer to have a tie-in with contract manufacturers because in the past also I remember there have been a couple of products where we did so do you see merit in that or how do you see the strategy as far as

Because our offering of injectables is global, we always prepare as much as possible to do it in-house. And for that, we qualified recently a lot of capacities. We have now three relatively big facilities. In our coordinates, it's 7, 9, and 11. 11 was qualified recently by the years of the year. That gives us a lot of capacity going forward. As we don't have access to all the technologies that are related to injectables, on those technologies we will supplement them by inorganic moves. Especially those types of products that does not make sense, for example, to make an Indian sale in the United States. So for this we have a different solution. So if you wish, largely it's going to be organic with some inorganic.

Okay, that's quite helpful. Thanks a lot.

Thank you.

Thank you.

I would now like to hand the conference over to Mr. Amit Agarwal for closing comments.

Thank you all for joining us for today's earnings call. In case of any further queries, please reach out to the investor relations team. Thank you.

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