Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Q2 FY24 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal. Thank you and over to you, ma'am.

Thank you, Darwin. 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 ended September 30, 2023. Earlier during the day, we've released our results and the same is also posted on our website. This call is being recorded and the playback and transcripts shall be made available on your website soon. All the discussions and analysis of this course will be based on the IFRS Consolidated Financial Statements. The discussion today contains certain non-GAAP financial measures or a reconciliation of GAAP to non-GAAP measures. Please refer to our press release. To discuss the business performance and outlook, we have our CEO, Mr. Irey Rizwaili, and our CFO, Mr. Parag Agarwal, along with the investor relations team. Please note that today's call is a 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 I proceed with the call, I'd 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. Parag Agarwal. Over to you, Parag.

Thank you Richa and a warm welcome to our 42 FY2024 earnings call and a thank you to everyone joining today. We have built on our positive momentum and delivered another strong quarter of financial results with higher saver sales and record profitability. In the financial overview section that I will cover today, All the amounts are translated into U.S. dollar at a convenient translation rate of roughly 83.08, which is the rate as of 30th September 2023. Controllability revenues for the quarter stood at roughly 6,880 crores, that is U.S. dollar 828 million, and grew by 9% on year-on-year basis and by 2% on a sequential basis. The growth was driven by the generic business mainly in U.S. and Europe. Consolidated growth profit margin for this quarter has been 58.7%, a decrease of around 40 basis points over previous year and broadly flat sequentially. Growth margin for the global generation and PSAI business were at 63.6% and 17.8% respectively. The LG&A spend for the quarter is rupees 1880 crores, which is US dollars 226 million. an increase of 13% year-on-year and an increase of 6% quarter-on-quarter. The year-on-year increase is primarily on account of investment in sales and marketing, digitalization, and other business initiatives. The FD&A cost as a percentage of sales was 27.3% and is marginally higher by 106 basis points year-on-year and 105 basis points quarter-on-quarter. The R&D spent for the quarter is between 545 crores, that is US dollars 66 million, and is at 7.9% of stake. Our R&D investments are driven by ongoing clinical trials on differentiated assets, as well as other developmental efforts to build a healthy pipeline of new products across our market for both small molecules and biosimilars. The EBITDA for the quarter is between 2,181 crores, that is, year dollars, 263 million, and the EBITDA margin is 31.7%. Our profit before tax for the quarter is 2,000 rupees, 1,913 crores, that is, year dollars, and 30 million, an increase of 19% year-on-year and 4% over previous quarter. The net finance income for the quarter is rupees 1.3 crores. Effective tax rate has been at 22.6% for the quarter. The effective tax rate was lower than the previous year mainly due to adoption of corporate tax rates under Section 115BAA of the Income Tax Act of India. We expect our normal ETR for the year to be in the range of 24 to 25%. Profit architects for the quarter stood at roughly 1,480 crores, that is US dollars 178 million. Reported ETS for the quarter is roughly 88.8. Operating working capital reduced by Rs. 598 crores, which is US$72 million, against debt on June 30th, 2023, mainly due to decrease in receivables. Our capital investment stood at Rs. 322 crores, which is US$39 million in this quarter. The free cash flow generated before acquisition related payout during this quarter was at Rs. 1,447 crores, which is US$174 million. Consequently, we now have a net surplus cash of rupees 5,906 crores, which is US dollars 711 million, as on September 30th, 2023. Foreign currency cash flow hedges in the form of derivatives from the US dollar are approximately US dollars 648 million, largely hedged around the range of rupees 82.9 to rupees 84.5 to the dollar, rubles $2,475 million at the rate of $0.98 to the ruble, and $2.7 million at the rate of $58.06 to the ruble, maturing in the next 12 months. With this, I now request Eray to take us through the key business highlights. Thank you, Parag, and a warm welcome to everyone participating in our early calls today. As always, we appreciate your interest in our company. We are pleased to report a quarter with the highest ever revenue, EBITDA, profit before tax, and profit after tax. We saw growing momentum in our products and businesses. Our geographic diversification, productivity improvement in operations, and able operating margin delivery. We continued strategic progress on our various key initiatives to ensure that we are well positioned for differentiated and competitive growth. Let me take you to some of the key highlights of the quarter. Sales for quarter two grew 9%, and EBITDA grew by 30%, reflecting the portfolio's strengths and continued momentum in the U.S. and Europe. We generated healthy EBITDA at 32%, and annualized ROCE at 39%. High cash generation leading to net cash surplus of more than $712 million at the end of the quarter. A few developments in our global biosimilar journey in the quarters include receiving of GMP certificate indicating closure of inspecting by the UK MHRA for Batch Puli Biologic Facility. A pre-approval inspection by the US FDA of our biologics facility based in Batch Puli concluded with nine observations. We will address them within the stipulated timeline. CAR-T-ACER DRL approved for clinical trials in India. The leading financial publication, Financial Express and EQube, in a joint study, have named Dr. Redis as the leading company in ESG in India across sectors. The company received SA8000, a multi-site certification, including 6 CTO units and 10 formulation units at Biologics. and has been successfully audited and awarded compliance to ISO 2400-2017. This demonstrates organization commitment towards social goals and accountability. We will confer with the prestigious Golden Peacock Award for Excellence in Corporate Governance of 2022. Now let me take you to the key business highlights for the quarter. Please note that all references to these numbers In these sections are representative local currencies. Our North America generic business recorded sales of $384 million for the quarter, with strong year-over-year growth of 9%, while being broadly flat on sequential basis. The growth was supported by market share expansion in certain existing key products and complete integration of main portfolio, which more than offset price erosion. We launched four new products during the quarter. Our euro business recorded sales of 59 million euros this quarter, with a year-over-year growth of 12% and a sequential increase of 4%. The contribution from new product launches and improvement in base business volumes more than offset price erosion. We launched a total of 20 products across markets during this quarter. Our emerging markets business recorded sales of $1,012. 1,012.16 crores rupees and marginal year-on-year decline of 1% and sequential increase of 5%, primarily impacted by seasonality and unfavorable thoughts. While we may experience Q and Q volatility, full year outlook is on track. We lost 32 new products during the quarter across various countries of the emerging markets. Within the emerging market segment, the Russia business grew by 4% on year-on-year basis and 9% on sequential basis in constant currency. Our India business recorded sales of 1,186 crores rupees and reported year-on-year growth of 3% and sequential increase of 3%. Excluding loss of revenues from NLEM-related price reduction, India business grew in mid-tingle digits. Our focus on profitable growth coupled with sales and marketing execution has led to gradual improvement in business performance. We further made following strides to access new growth leaders and drive differentiation. We signed a new licensing deal with Hungary, NC Pirotinib. We launched Nerivio in India, our first digital therapeutic products addressing unmet needs of migrant patients. We launched a direct-to-consumer platform, CelebidaWellness.com, for serving the needs of diabetic patients in India. India remains a priority market and will continue to strengthen its presence in co-generic business while investing and building the innovation spaces. Our PCAI business recorded sales of $85 million with a year-on-year growth of 3% and a sequential increase of 4%. We expect sales to improve over the next couple of quarters on the back of increasing volume pickup and strategic collaboration with regional and global players. We invested 7.9% of our revenue to empower and enhance our R&D competency. Our efforts are focused on developing value-added products, including several generic injectables where there is a patient need. We have done six global generic filings, including two UNDARs and one NDAs filed in the United States during the quarter two of FY24, and are on track to accelerate on this in the balance of year FY24. We remain focused on building best-in-class capabilities and commercial infrastructure to leverage our portfolio to expand further. Our ability to adapt Strong execution and financial muscles will enable us to grow our core business and build pipeline of products to meet patient needs. I am pleased with the progress that we have made so far this year and that we have a clear plan in place to move forward and the pace to deliver on our key objectives and support the overall growth ambitions of the company. 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 one on their 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. The first question is from the line of Balaji Prasad from Barclays. Please go ahead.

Hi, this is Mikaela on for Balaji. Thanks for taking our questions. Given India remains a priority market, for you, could you just provide an outlook on your Indian market and just elaborate a bit more on the evolution in your India focus? Thank you.

So the main focus is... And the main effort is actually... licensing on collaborating with the partners to bring innovation to India. This is the most important initiative that we have for India. In addition to that, we identify a focus portfolio in which we are growing and indeed, by the way, this focus portfolio is growing very, very nicely. Indeed, the overall the overall performance of the portfolio that we have today is growing in the digits. Part of it is also because after the plans we have obviously seen most that we have a price erosion as expected when required if it meets our expectation from business case but naturally has contributed also to this decline. If you wish the portfolio that we are focusing on actually growing double-digit, and likely that's what you're going to see for quarter to quarter that we are actually improving our performance.

Great. And just one follow-up, if I can. What kind of innovations and therapeutic areas are you targeting? And just how willing are partners to launch in India when you're approaching without these deals? Thanks.

There is actually enthusiasm to... Naturally, India is an important country. Everybody understands that. There is always concern about the price point, about the adoption of India and certain requirements that are relevant to localize the product, whether it's local production or local trials or... or maybe a different position of this product. But in general, people understand that India is an important market, important country, and they want to have a presence here, and they want to work very much with the reputable company, and we are one of them. Sorry, I lost your first part of the question.

Just what kind of innovations and therapeutic areas specifically are you targeting?

Yes, sorry about that. We are targeting primarily areas like cardiovascular, diabetic, and CNS oncology, especially an area in which we can find standard of care or something that is better from the current standard of care. So what is driving us is primarily if we see an innovation that are addressing those areas. This is also the area in which we, at least in our analysis, we find the utmost unmet need.

Thank you. The next question is from the line of Kunal Damesha. from Macquarie. Please go ahead.

Hi, thank you for the opportunity. So, the first one on the nine observations for the biology plant that we have received. Can you please elaborate what is the nature of these observations and whether we need to undertake some corrective preventive actions here? I believe that those observations are addressable. We are going to address all of them in the beginning of November. Some of them will require us to create a CAFA, which means that we need to produce certain products at a certain period of time in order to show certain consistency of data. which will take us to January. But overall, I believe that this is a decision. Sure. And second one on the PSCI business. So if I look at the gross margin for that business has gone down, obviously there is some growth on a quarter-on-quarter basis and year-on-year basis. But is it primarily due to the unfavorable pricing environment? And if that is the case, Do we get the benefit of lower API prices in our global generic business if that is like more widespread pricing declining APIs? Hey, I don't see such a decline in the API like it was in previous years. Most of the growth is coming when new products and launches that likely to happen by the customer for API or for PCI business. So if you wish, we are now selling the API that will sell them in the next period of time, the next quarters. What we see now is the impact of the your portfolio that we worked on it in the last couple of years, which is replacing the whole portfolio from the decade before, and as time will go by, we will launch more and more of these products, and you'll see acceleration in growth. And the growth margin for this business, will it also improve? Because it has come down to now around 13%? So, As we grow the sales, we normally grow the gross margins because it kind of has a relatively higher level of fixed cost. So as you grow, you're also increasing your margin. That's what is likely to happen. Well, to clarify the gross margin for this business, we have reported it as 18% within the quarter, not 30%. Okay, sure. I'll check. Yeah. And lastly, we have mentioned price erosion in U.S. as a growth track, at least on a quarter-on-quarter basis perhaps. Now this price erosion in this quarter is it limited to few large products such as vasopressin or it is more broad-based price erosion that you are witnessing? The price erosion always affects certain products that went into either a bid or RFP or competitive situation in that particular quarter. It's never broad. But I can say relatively to other years, this year it's more moderate than we used to in other years. And lastly, on the same thing, you know, the shortage situation and then, you know, some of the short-term contracts, et cetera. Are those opportunities continuing into quarter two and probably in quarter three? That is what the trend you are seeing? Yes, absolutely. Absolutely, the focus in the U.S. on continuity, service, and sustainability of supplies. Absolutely. Thank you.

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Thanks for taking my question. First on the main acquisition, you know, when we announced this acquisition, it had a revenue base of about $65-$70 million. You know, post nearly, you know, five, six months of integration into the Reddy's portfolio. Have we seen traction in terms of our ability to gain more volume, you know, in the product? Because we don't see that in a product like NuvaRing, which is stuck at that 2-3% market share or how should we look at that acquired portfolio going forward?

Each one of these products has different timing in which customers are putting their RFP or open for those kind of discussions. I believe that this will grow and we pick up volumes as these timelines will be there. Most of those discussions that will likely to happen in the second half of the year. So, so far I'm happy with this deal. It's meeting our expectations and likely that we will see growth in the next two quarters.

And on NuvaRings, sir, any reason why it's, you know, stuck at about the 2-3% market share despite, you know, the launch in Feb?

Timing of the discussion with customers.

Okay, understood. My second question is on the India business. We have guided to wanting to grow higher than the market, double-digit in this business, but for several quarters now that hasn't been the case, at least if you look at the market data. When do we think we get to that growth trajectory and the collaborations and licensing that we talked about? When do you actually see that materialize and flow through numbers?

likely that we are going to see it already this year, this fiscal. In terms of the innovation, what we see now is the launch of deals that we signed a year ago. So it takes about 12 to 18 months from the time that we sign a deal until you get your products approved. Naturally, we need to go to the regulatory process. In some of the cases, we need to do clinical trials and then regulatory process, and then it takes a bit longer. And this is also right now the main efforts in terms of building the portfolio in India. In each one of them, it's about to bring products that are either going to be the standard of care or better than the current standard of care. In addition, the business, the products that we are focusing on in India are growing in double digits and it's likely that they will be more dominant in the future in that respect.

Just to understand this correctly, we are saying that we will be able to achieve double digit growth in India this year?

I believe that in the end of the year we should see a double digit growth and continue in the quarter after.

And how many of such licensing deals have we completed in India so far? You know, just to get a broad sense, is there any monetary value that we can attach to, you know, this is the potential market opportunity or market size of these deals?

So, I hope I'm giving you the right numbers, but it should be around 10. And the We are normally going for a product that will be at least 100 CL. And of course, some of them can be much more than that.

Understood. Thank you so much, sir.

Thank you. The next question is from the line of Asayan Mukherjee from Nomura. Please go ahead.

Yeah, thanks. Sir, can you tell us on biosimilar rituximab, what's the timeline you're looking at now for the for the U.S. and European markets?

We submitted it in April. We just got the pre-approval inspection, so we will answer it by November. So now we hope that it will stay on course Let's say if everything will be okay, we will be able to launch it in the beginning of FY20. Okay.

And if I look at quarter-to-quarter and quarter revenue in the U.S., which is sort of flattish, can you just share the dynamics with respect to main contribution, Revlimid, and the base business, how each of these buckets have moved quarter-on-quarter?

Most of the growth came from volume growth and demand performance.

Okay. And finally, on the US, you know, how many launches we are expecting for the full year, how much we have done so far in the first half? And how should we think about material launches from your pipeline? If you can guide something in terms of timeline, you know, where you could expect some, you know, material launches to happen?

Sure. So this year we are still on track with the 25 to 30 launches. And we have identified a group between something similar, 25 to 30 products, which are materials that will be launched in FY25, in FY26, and FY27.

How many is it? 25 products, you're saying, across these three years?

25 to 30, because, you know, there's some uncertainty about time of approval, so that's what we can guide.

And, you know, when you say material, what kind of revenue potential typically, you know, a product with material contribution would contribute?

It has to be at least with a single digit and millions of dollars.

Okay. Yeah, thank you.

Thank you. The next question is from the line of Surya Patra from Phillip Capital. Please go ahead.

Thanks for the opportunity, sir, and congratulations. So first, clarification about the government grants.

So in fact, in the previous year, we have seen something around 300-odd crores. In the first half, it is more than 200 crores that we have already booked.

So what is the visibility here and how long this can sustain and this is relating to the PLI only or something else?

So this includes PLI but it also has the other export incentives that we are entitled to. Overall our PLI scheme and the other export incentives this year would be much higher than last year but quarter on quarter there is always a fluctuation because we have to recognize this in line with the In fact, we meant sales growth that we show as per the scheme. So there are quarter of a quarter fluctuations, but for the year as a whole, we'll be higher than last year. But this is sustainable, sir? Yes, it is. For the next several quarters, we expect it to be meaningful. Okay, thanks.

My second question is about the sustainability of the U.S. business.

So basically, having seen the run rate of around $380-$390 million kind of quarter run rate and kind of the ramp of what we have witnessed in terms of our agreement.

So can we see a kind of progressive performance in the overall U.S.

business going ahead I'm saying progress is because I believe in terms of the volume limit condition, whatever that is there in case of red limit, every 12 months that should see a kind of upward move.

So considering that, how should we see the US business going ahead in terms of the quarterly generate and all that?

The quarters can fluctuate. We discussed it in the past because the quarter is very much dependent on the ordering patterns of this product. Okay. But overall, you should see growth. Okay. Okay, fine.

And my second question is about this European business.

So in the first half, both the quarters, we have seen a kind of very strong growth, more than 20% kind of growth.

What is driving that and is it the launch of the biosimilar introduction of the new product or even the pricing scenario, any improvement in the pricing scenario there, demand situation improving?

Could you give some sense about the Europe, why is it delivering this kind of growth and whether it is sustainable even in the subsequent periods?

So it's primarily new product launches. There is also some volume growth of the base business. And just more market share participating in more tenders. Most of our growth is coming from injectables and just winning tenders. Okay.

Since we are now seeing progress in regulatory point of view as well as the launch point of view in terms of biosimilars, so is it possible to share some update about the PEG-3 testing success in the U.S.? ? non-EOS market and or even generally for biosimilar what is the let's say annual or quarterly run rate that we are currently having.

If you can give some sense that would be really helpful. So just to remind, PEG is not our product. It is a product that was part of the arrangement that was done many years ago with MedSorono. that was brought to Fresenius. So they are selling it. We are getting only royalty. So by design, it's not a big amount. Most of our activities in the biosimilars today are in emerging markets, primarily rituximab and five other products, India, Russia, and other emerging markets. We are ramping up that activity. It is very important to us. we are going to have in the next two years or so about five phase three of biosimilars to be launched globally, including the United States. And the main ramp-up in biosimilars for us will be probably from FY27 onwards. Okay, okay. Just last one question, sir.

See, in fact, obviously, there is a kind of a strong cash flow that we have been seeing, also supported by Red Limit. But whatever the case be, but we have been seeing a quarterly run rate of, let's say, 1,500 crore kind of cash flow, free cash flow. And already, we have a 6,000-odd crore kind of cash in books.

So could it give some sense of what incremental growth this... this fund can add to the overall visibility of our growth for next, let's say, next one or two years or over a period of three years? No, the beauty of that is that we can use this money for deals. Now it depends what deals we want to have and in what multiples we will have them. I hope I understood the question right. So what we want to do with this money is primarily to use it for inorganic activities, which can serve us both in the short term, like we did with Maine, as well as in the longer term, for example, to acquire assets or products that we can launch in years after. But absolutely, this is the main use of the money, and this should help us to generate growth. But the timing of it, of course, is not certain because we don't know what type of deal and when it will impact us. Sure. Sure. Yeah. Thank you, sir. Wish you all the best.

Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Aman Veach from Astute Investment Management. Please go ahead.

Yeah.

Uh-huh. question is on our diabetic portfolio. So if you can talk about how well are we placed as a company to take the advantage of the upcoming GLP-1 opportunity that is coming.

So I believe we have some FTS filings in that. So in terms of launch ready, are we ready? Whenever the expiry happens, we'll be there. And do you think this product's

category can be like a 300 to 500 million dollar kind of category for next five years so we are going to be there definitely day one and as for the size I don't know but obviously I have a great belief in this category I'm sorry in terms of the important dosages are we present in all of them and if you can talk about the same I don't want to discuss specific because we do not make it public, but we should have all the relevant ranges. It depends on the geography and depends on the country, but we see this category as a global category for us to launch in all the markets that we have the presence.

And you are saying we are ready in terms of whenever expiry happens, if we have an FTF file, we can launch in the next eight months? We are ready. Sure. My second question is on this other biocannula, which I think we have on the osteoporosis site.

If you can talk about the opportunity in US, because I believe there's a patent expiry coming up. So I'll be planning to launch in the US market. And if you think we can take like... Which product?

Yeah, I was talking about osteoporosis, terapetide, and there are one or two more products that we have.

So I was trying to understand that US patent, the expiry is coming up. So do you think we can have a good market share in the U.S. market with our biosimilars?

So I'm not calling teriparatide biosimilars. For me, these are still equivalent to small molecules. Biosimilars are not normally used for products that are bigger like... like the Mars, etc. But specifically for this product, absolutely, I believe that it will be very nice for us. And we will be ready to launch it when it's possible.

Sorry, on the timeline, so I believe it will be in the next few months only, right? On the US launch of this product?

I don't want to stipulate on time at this stage. But we are ready to launch whenever it happens. We will be there. Sure. These are my questions. Thank you.

Thank you. Participants, you may press star and one if you wish to ask a question. The next question is from the line of Tushar Manudane from Motilal Oswal Financial Services. Please go ahead.

Thanks for the opportunity, sir. Just on this e-commerce foray, I would like to understand what kind of investment are you taking in this particular foray?

Investment of what, sorry? In e-commerce? It's not a big investment, but it allows us additional channel for our product as well as other nutraceuticals. And I believe that it's a very nice another channel and another part of the capabilities that we have now. But it's not a big investment.

OK. But in addition to the products, would we be also having this prescription-based product on this platform?

This specific platform is direct to consumer, as you mentioned, which means pharmaceuticals and products that do not require prescriptions, OTC.

And so, secondly, just on the trade receivables, there's been a reasonable reduction if I compare quarter to quarter. Any read-through on that?

Sorry, Prashad, your voice is not clear. Can you repeat that question?

Is it better? Is it better? Yeah, yeah.

There has been good reduction in the trade receivables quarter over quarter. Any read through over there?

It's normal. There's nothing unusual. I think it depends on the credit period and the cycle and the receipt of orders. So we obviously keep a very tight track of all our receivables and collect on time. So nothing unusual in this. Yeah. Okay, sir. Thank you. Thank you for this.

Thank you. The next question is from the line of Devang Saraugi, an individual investor. Please go ahead.

Sir, are we looking at any 545 B2 opportunities in the U.S. market?

Sorry, which opportunity in the U.S.

market?

545. 505 B2 opportunities. Which product? Sorry. In Denver. Yes. 545B2 that requires a sales force, we will not do. 545B2 that is interchangeable, we would love to do.

Okay. And what would be the price erosion for the quarter?

What is that? Price erosion. The price erosion, you know, if we are finding the trends to be stable, Prashant, So if you look at the last few quarters, we had seen price illusion moderating. And we are now seeing it around the same level.

So but from one quarter to another, it will typically fluctuate between the high to low double digits.

OK.

And are we going to see any price increases as many suppliers are going out of the market?

We are not building... Or it will be product-specific? It's normally product-specific, and we are not building on that. If there is a shortage situation, we will supply, but we are not building into any price increases. Thank you for your opportunity. Yeah, whenever there's an opportunity, it's opportunistic, not strategic. Thank you.

Thank you. The next question is from the line of Damayan Tikirai from HSBC. Please go ahead.

Hi, thank you for the opportunity. My question is on India business. So first of all, can you tell us how much India sales is currently contributed by chronic therapies? And then second part of my question is how many sales representatives you have for your India business and do you have plans to expand on it?

The chronic is about 35% of the business. And as time goes by, because most of what we will launch, especially innovation, will be more chronic in nature, this will grow. As for the numbers of salespeople, if I remember correctly, it's a little bit more than 6,000 people. And we'll grow as we will bring the innovations. So accordingly, we will adjust the numbers.

Okay. But right now, you do not have any particular need to expand your salesforce. As you said, you're focusing more on innovative products. And then when you launch, you will decide accordingly.

I don't see a need to increase. It's more about the productivity of the team and the coverage of this team. But it's not so much about the numbers of the people. But if we need more, we will have more.

Okay. I think this question was earlier discussed. So India, despite many efforts from your end, we have been seeing sales largely remain range bound, come with a 12 billion a quarter or so. So when we can see a significant step up coming up, so any timeline if you can indicate, because I guess for last six to eight quarters, sales were broadly in this range.

I think you're going to see an improvement already this year. Indeed, we took two decisions about India, just to remind, and this is the effect that comes with it. One, we decided to focus, and we actually made quite a few deals of divesting brands. So we kind of trimmed down the base portfolio because we do not believe that, of course, the changes that will happen with all the challenges that branded generics will have in India, these brands likely to be successful. And we felt that it was a good deal for us. And second, we also acquired a brand, for example, SITMOS, which we knew at the time that it would face price erosion. It matched the business case that we had on it. I believe that already the brands that we are focusing on are growing double digit, plus we are going to launch more and more innovation and have more and more collaborations. So you will start to see this year, and as we will add product to the portfolio, it will continue to grow. It's a focused market for us. It's a strategic market for us, and we will grow it.

Sure. My second question is if you can talk a bit about your progress for the China market, how many approvals you have gotten, what kind of findings have been done so far?

We are actually with the progress over there, and especially since February, the number of approvals started to pick up. And I think that we had four approvals And this month, I think we got additional two approvals, so six altogether. And we are also filing more than 15 products a year now. I think we can get even 13 if everything will go well. And most of our products are among the first wave and normally among the first three. So it's a very interesting area for us. in China. At the time, we thought that the ramp-up would be earlier than what I communicated in the past, but COVID, zero COVID, and also our own execution may be late, but now it's absolutely very close.

So with this portfolio build-up, should we assume China portfolio could start contributing meaningfully from next fiscal, or it will be long-term in nature?

No, no, for Mexico, absolutely.

Okay, that's perfect. And my last question is, how should we look at your R&D spend going ahead as you focus more on differentiated products for your global segments?

Likely that it will grow because we are investing more and more in biosimilar, and we will continue, of course, to invest in the new molecules. So you're going to see a moderated growth, but also the shares will grow. So let's say the, in terms of percentage, it should be give or take in the range that we have today. Maybe a bit higher, yeah.

Okay, that's helpful. Thank you, Rich.

Thank you. The next question is from the line of Galantareja from ASK Investment Managers.

Please go ahead. Good evening. I hope I'm audible.

Yes, you're audible.

Okay. The first question is on the India business. If you knock out the discontinued products from the base quarter 1 or 2Q of FY23... Sorry to interrupt.

You're audible, but I think you're too close to the mic.

Okay. Is it better?

This is much better, sir. Please go ahead. Okay.

So my question is that, you know, adjusting for the discontinued products, what would have the India sales growth be year on year for the quarter?

So without these products and without NLEM, we are about mid-single digits for the quarter. Okay.

And for U.S., From 1Q to 2Q, would there have been a material difference in the rev limit sales for you?

I cannot discuss the quantities of the rev limit.

I don't want you to enumerate the number. I'm just asking, would it be a reasonable assumption or inference that there won't have been a material change in rev limit sales from the first quarter to the second?

Most of the growth, like I said earlier, has come from the base business and also the main portfolio.

Okay. Right. And India, is it a correct surmise that you're saying that India, you'll exit FY24 with a double-digit sort of a growth rate? That's Q4, you'll be able to do a double-digit sort of a growth rate? And you will probably be improving from 2Q to 3Q and from 3Q to 4Q. Is that a correct inference?

That's what we are trying to do, absolutely.

Thank you. I'll get back to you.

Thank you. The next question is from the line of Sayon Mukherjee from Nomura. Please go ahead.

Thanks for the follow-up. My question is around, you know, you mentioned about inorganic activities. You know, the cash balance is significant and it could continue to rise. You know, if you look at, you know, the acquisitions and deals that you've done, they are much smaller in size. So one is that, you know, it seems that are you, so basically the question is, are you looking at larger deals going ahead? Is there more activity that you're seeing on the M&A side? And related to that, what's the level of leverage that as a company you would be comfortable with?

So we are looking for deals, small and bigger than usual for us, as needed. But we are not in a rush. It has to be a good deal. It has to be something that will make our strategy, something that we believe can contribute to So, of course, if there are products that we want or capabilities that we are missing, we are not in a rush to spend this money. In that respect, also the money is yielding very nicely now by investing it. As we speak, we are participating in quite a few processes and we'll see what we need. Likely that we will spend eventually this money, but it's important for us that it will be the right strategic deal for us. We are not looking for transformative deals. We are looking for complementary activities to our organic strategy.

And any view on leverage, Parag, as to what level of leverage you would be comfortable with?

See, we can, I would say, two times the data is what we would be willing to go for. Beyond that, we would not like to take a financial risk.

Okay, okay, thank you. Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Thanks for the follow-up. Parag sir, on the, you know, SG&A expense, that seems to have inched up, you know, quarter on quarter. You know, just wanted to get a sense on, you know, where are we investing and how should we look at that number, you know, over the next few quarters and probably FY25?

So overall, Neha, the increase in SG&A is to see year on year. I think we're going to buy 13%. Apart from the normal inflation, it's largely because of investments behind our brand. Also, we are investing in digitalization. I have spoken about it a few times. Extensively both in the front end as well as in R&D and in our manufacturing facilities. Last year, FCO3 was named as digital lighthouse. We are now working on getting more facilities certified as a digital lighthouse because we believe that in the medium term, the digitalization is going to make a big impact by improving quality, reducing quality incidents, improving productivity and costs, and so on. So these are the areas where we are investing. If you look at overall quarter-on-quarter, we will see fluctuation, but in aggregate SEL, the percentage of sales, last year we were around, you know, it used to be a few years back, we were at 30-31%, and we have been gradually dropping to 29-28% kind of a range. So I wouldn't like to comment on quarter-on-quarter, but for the full year, I would say, yeah, that's the range we'll be around.

Got it. Thank you so much, sir.

Thank you. The next question is from the line of Kunal Damesha from Macquarie. Please go ahead. Hi, thank you for the opportunity again. So the first one on the licensing innovation deals that we are doing for India, can you highlight what is the typical payback period for these kind of deals?

So normally the payout is very good because we hardly put in down payment for that. So most of the deals have very small down payment. And normally we are getting healthy margins that enable us to buy in the transfer class plus investment. So normally the payout will be within that. the first three years take into account the time that it takes to build brands. So most of the investment is actually not because of the payout to the partner, but rather the investment in building brands in a country like India, which normally takes about three years. Sure. And let's say for markets like India, are these teams, some of these innovators would be doing it more on a profit share basis or are they more interested in a different payment and then some royalties? So most of the deals will be certain milestones and some royalties and giving us the flexibility to market it in the place that we want and with the right mix of SG&A So that normally will be the case, but we will also have cases in which it will be a profit choice. Sure. And second question on the biosimilar business, now that we are kind of close to launching our first biosimilar in the U.S., probably somewhere in 2025, what type of front-end investment would we be looking for for Salesforce or the formulary access personnel platform? Yeah, and how much drag it could be on our CMA? So the product that will be launched, the Retuximab that will be launched in the U.S. will not be launched by us. So this is a sales force that is with our partner. The products that we will launch will be from F-127 onwards. And for that, we will have to build a sales force. Thank you and all the best.

Thank you. The next question is from the line of Surya Patra from Phillip Capital. Please go ahead. Yeah, thanks for the opportunity. So just one clarification I wanted to have.

In terms of the margin profile, let's say, for India business and the base U.S. business, let's say, excluding the regular. So what could be the difference in terms of the margin profile of these two businesses?

We don't disclose geography-wise margin, but I can confirm that the margin profile of India business would be better than our North American business.

Okay, and even the Russia would be similar to India or slightly lower than India?

Yeah, Russia is also a branded generics market and therefore its margin profile is also quite empty.

Okay. Okay. So that means Russia is in between of India and the US. That is how we should think.

I'm not ranking the markets. I'm just pointing out that both Russia and India are branded generics business and therefore their margin profile is better than the unbranded businesses in the U.S. and Europe. Sure. Okay. Yeah, thank you, sir.

Thank you. We have no further questions. I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you, ma'am.

Thank you all for joining us for today's evening call. In case of any further queries or clarifications, please do not hesitate to get in touch with the Investor Relations team. Thank you once again.

Thank you. On behalf of Dr. Eddy's Laboratories Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.