Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to the Q4 and full year FY24 earnings conference call of Dr. Reddy's Laboratories Limited. 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 this conference, please signal an operator by pressing star and then zero on your touchtone 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. 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 and full year ended March 31, 2024. Earlier during the day, we have released our results and the same is 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 discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. G.V. Prasad, our co-chairman and managing director, Mr. Erase Israeli, our CEO, Mr. Parag Agarwal, our CFO, and the entire 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 outlet without the company's express written consent. Before I proceed with the call, I'd like to remind everyone that the safe harbors contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. G.V. Prasad. Over to you, sir.

Thank you, Richa. Good morning and good evening to all the participants here. Welcome to the annual earnings call of Dr. Eddies. I am delighted to be here today along with the members of the management team and the IR team. As many of you know, I joined the earnings call each year at the end of the financial year. FY24 marks our 40th year of serving patients with a legacy of innovation, affordability, and sustainability. Guided by our purpose of accelerating access to affordable and innovative medicines for our patients, in the last four decades, we have moved from our beginning as an API business to generic and OTC medicines, biosimilars, drug discovery, and services. As we bring to life our credo of good health country, we have accelerated our journey to licensing and collaboration in the areas of novel medicines and consumer health. We deliver strong financial results in FY24. Our growth and profitability in this year have been driven by our performance in the US. We also made significant progress for future growth drivers through licensing, collaboration, and pipeline branding. Our focus in 2025 will be to further strengthen our core businesses through superior execution as we invest in to build the future growth drivers. I am grateful to our people. the healthcare community, partners, and stakeholders for the trust imposed in us. We are committed to increasing the number of patients we serve around the world through our exciting pipeline of products and services. As we do this, we remain committed to the elements of sustainability, preserving the environment, positive social impact, and good governance. With this, I'd like to hand over the call to Parag for taking you through the financial performance of the company. Thank you, Prasad. Greetings to everyone, and I hope you are doing well. I am pleased to take you through our financial performance for Q4, as well as for the full year of fiscal 2024. As indicated earlier by Prasad, FY24 has been yet another year of outstanding financial performance, with all-time high revenues of over US$3.3 billion and highest ever profits. This fiscal recorded a double-digit growth in revenue, EBITDA, as well as PATH. For this section, all amounts have been translated into U.S. dollar at a convenient translation rate of Rs. 83.34, which is the rate as of March 31, 2024. Consolidated revenues for the fourth quarter stood at Rs. 7,083 crores, which is U.S. dollar 850 million, and grew by 12% on year-on-year basis, with a sequential decline of 2%. Adjusted for brand divestment income in India, on a week-based comparator, the underlying overall growth was higher at 17% on year-on-year basis. The underlying year-on-year growth is largely driven by the generous business in US and emerging markets. The QO2 decline is mostly on account of declining revenues from Russia, the US and India. The revenues for the financial year 2024 stood at at least 27,916 crores, that is US dollar 3.35 billion, and grew by 14%. The growth was primarily driven by improvement in the base business volumes across several geographies. Consolidated gross profit margins stood at 58.6% per quarter, an increase of 140 basis points over previous year, and seven basis points sequentially. The year-on-year increase was on account of improvement in product mix and productivity-linked cost savings, partially offset by brand divestment income during the previous period. Gross margins for global generics and PSCI were at 62% and 28.6% respectively. Consolidated gross margin for FY24 stood at 58.6% and increased at 193 basis points over FY23. Growth margin for the global generation PSAI business was 62.9% and 23.2% respectively for full fiscal FY24. The SDA spent for the quarter is Rs. 2,048 crores, which is US$246 million, an increase of 14% year-on-year and 1% quarter-on-quarter. The year-on-year increase is primarily on account of investment in sales and marketing activities and new business initiatives. The S&A cost as percentage to sales were 28.9% and is higher by 34 basis points year on year and 87 basis points quarter on quarter. The S&A spent for the year is at least $7,720 gross, that is US$926 million, and has grown by 13%, largely in line with the business growth. The S&A cost as a percentage to sales was 27.7%, which is in line with the previous year. While we continue to invest in strengthening our existing brand in digitalization initiatives, expanding new businesses to create future growth platforms, and developing our talent, we are focused on operational excellence and productivity improvement across all aspects of our operations. We continue to invest in R&D to support future business growth. The R&D spend for the quarter is 688 crores, which is US dollar 83 million, an increase of 28% year-on-year and 24% quarter-on-quarter. The R&D spend is at 9.7% of sales and is higher by 119 basis points year-on-year and 200 basis points quarter-on-quarter. The R&D spent for FY24 is 2,287 crores, that is near dollars 274 million, and has grown by 18%. R&D percentage to sale for the year stood at 8.2%, as it is 7.9% during the last fiscal. The increase is primarily on account of higher number of filings and our developmental efforts to building a healthy pipeline of complex products across our markets, for both small molecules and biosimilar. The other operating income for the quarter is increased 66 crores as compared to increased 28 crores for the same quarter last year. The other operating income for the fiscal is increased 420 crores as compared to increased 591 crores last year. The other operating income was lower on account of one-time settlement income reported in the previous year. The EBITDA for the quarter is increased 1,872 crores, that is US dollars 225 million, a growth of 15% year-on-year and a decline of 11% quarter-on-quarter. The EBITDA margin stood at 26.4% and is higher by 53 basis points year-on-year and lower by 283 basis points quarter-on-quarter. The EBITDA for the year is repeated 8,301 crores, that is US dollars, 996 million, recording a growth of 14%. Average margin for the year is at 29.7%, which is largely in line with the previous year. The net finance income for the quarter is Rs. 102 crores as compared to Rs. 80 crores for the same quarter last year. The net finance income for FY24 stood at Rs. 399 crores as compared to Rs. 285 crores last year. Profit before tax for the quarter stood at Rs. 1,602 crores That is US dollar 192 million, a growth of 21% year-on-year, and a decline of 12% over previous quarter. Profit before tax for the year stood at Rs. 7,187 crores. That is US dollar 862 million, recording a year-on-year growth of 19%. Effective tax rate for the quarter has been lower at 18.4%, and that for the year has been at 22.5%. The ETI during the quarter is lower due to a one-time benefit accruing on account of reversal of a tax provision, re-measurement of deferred tax assets owing to an increase in U.S. estate tax liability, and adoption of corporate tax rates under Section 115BAA of the Income Tax Act. The ETI was lower for full fiscal April 24 mainly due to adoption of corporate tax rates under Section 115BAA of the Income Tax Act of India. We expect our normal ETR to be in the range of 24, 25%. Profit after tax for the quarter stood at 1,307 crores, which is $1.57 million, posting a growth of 36% year-on-year and a decline of 5% over previous quarter. Profit after tax for the year stood at 5,569 crores, that is $6.68 million, a year-on-year growth of 24%. Reported EPS for the quarter is rupees 78.4, and that for the year is rupees 334. Operating working capital as of 31st March 2024 was 11,293 crores, which is US dollar 1,355 million, and increase of rupees 42 crores, which is US dollar 58 million over December 31st, 2023. The increase is mainly driven by higher inventory and receivables. Our capital investment in this quarter is 503 crores, which is US dollar 60 million, and rupees 1,518 crores, which is US dollar 182 million during the year. The free cash flow generated during this quarter was rupees 529 crores, which is US dollar 63 million. The free cash flow generated during this year before acquisition related payout was at rupees 2,672 crores, which is US dollar 321 million. Consequently, we now have a net surplus cash of 6,459 crores, that is U.S. dollar 775 million as on March 31st, 2024. Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar are U.S. dollar 903 million, hedged around a rate of 83.6 and 84.20 to the dollar, maturing over the next 12 months with knocking available, which allows participation when USD is strengthened. And for the ruble, our ruble 2550 million at the rate of rupees 0.882 to the ruble, maturing in the next three months. With this, I now request Eray to take us through the key business highlights.

Thank you, Farag. And very good morning or good evening to everyone on the line. FR24 has been a year of progress across our businesses. We focused on our strengths while also identifying and maximizing opportunities to diversify and differentiate our business, leveraging new technologies and driving efficiencies. Dr. Redis delivered a strong full-year performance with the highest ever revenue and EBITDA. Let me take you through some of the key highlights of the year as well as most recent quarter. One, we had double-digit revenue growth in Q4 at 12% and for the full year at 14%. I reported the EBITDA margin stood at 26% plus for the quarter, whereas we ended the full year at the robust 30% plus. We delivered higher returns with our annualizing ROCE at 35.5%. Net cash surplus was $775 million as we exited the year. We have consistently maintained that strategic collaboration will play an important role in our growth story. Apart from growing our core business of generics, we invested in businesses of the future under the three spaces of consumer health, digital therapeutics, and access to novel molecules. Recently, we have joined hands with the global FMCG giant, Nestle, to form a joint venture company to bring pharmaceuticals to consumers in India. The JV will leverage the trusted global brands of Nestle, Healthcare Times, and the well-established commercial capabilities of Dr. Reddy's in India. In Q4, we entered into an exclusive partnership with Sanofi to market and distribute its vaccine brands in India. This has taken us to the second position among vaccine players. Our partnership with Bayer in India for the second brand of the molecules, Verisiguat, brings this new class of drugs in heart failure management to patients in India. in and beyond metros, in Tier 1 and Tier 2 towns, and threats of plague in the chronic segment. Our partnership with Tarmaz enabled us to market Centaquim in India, which has demonstrated significantly better and promising outcomes in the management of a hypovolemic shock. Our long-running strategic collaboration with Amgen was recently strengthened with an agreement to bring to India a romosuzumab injection under the brand Avenity, which is used to treat osteoporosis in women after menopause who are at high risk of fracture. As part of our self-care and wellness business in the United States, we acquired Menulab, a portfolio of women dietary supplement brands from Amiris Inc. We entered the UK consumer health market with the launch of allergy medication, Istalite. We launched Bivazisumab, our first biosimilar in the UK. In the digital therapeutic space, after successful launch in India, the drug-free migraine management device, Merivio, has now been extended to Europe, starting with Germany and also to South Africa. Further, we have launched a condition management program in India called Daily Bloom IBS, India's first-ever digital integrated care plan to manage irritable bowel syndrome. In 2023, we are undertaking a pilot launch of direct-to-consumer e-commerce website Celevida Wellness for diabetes nutrition. we have decided to wind down the pilot to repurpose our resources to other initiatives. On a regulatory front, the U.S. FDA has provided a VAI status of two of our facilities in Bat Shukuli, Hyderabad, our formulation manufacturing facility, FTO3, following the routine seed GMP inspection in October 2023, as well as our R&D facility, following the GMP and pre-approval inspection in December 2023. The US FDA has issued a complete response letter to our biologics license application. This has no impact on the development or manufacture of any current product pipeline. We will continue to work closely with the US FDA to address and resolve all concerns within stipulated timelines. We have delivered consistent industry-leading performance across key ESG ratings. We have been including in the S&P Global Sustainability Yearbook 2024 for the fourth consecutive year, making it to the top 10% score category for the first time. We received an A rating in CDP Supplier Engagement, which is in the leadership end. Also, we are the only Indian pharma company to get an NA- rating in climate change and water security for our 2023 GDP disclosures. Through all these efforts, including the learnings from the challenges, we remain committed to meet the unmet needs of patients and to enhance the standard of care. We continue to be a partner of choice, given our commercial strengths and footprint our strong governance, ESG and progressive people practices, and of course, our financial discipline. Now, let me take you through the key business highlights for the quarter and the full year. Please note that all references to the numbers in these sections are in respective local currencies. Our North America generic business recorded revenue of $392 million for the quarter with a growth of 26% over a year and a sequential decrease of 3%. On a full year basis, we recorded revenues of $1,506,608 million with a growth of 24% over the previous year. The increase was largely on account of market share expansion in certain key products. Integration of the acquired main portfolio and forex gains. This partially offset by price erosion. We launched five new products during the quarter and a total of 21 products this fiscal. We expect the launch momentum to continue in April 25th. Our European generic business recorded revenues of 58 million euros this quarter, with on-year growth of 3% and sequential growth of 4%. On a full-year basis, the revenues were 228 million euros, recording growth of 9%. The improvement in the business volume and contribution from new product launch during the year helped offset price erosion. During the quarter, we launched a total of six products across markets, taking the aggregate launch in Europe for the fiscal to 42. Our emerging market generic business recorded revenues of 1,209 gross rupees in Q4, a year-over-year growth of 9% and a sequential decline of 6%. On a full-year basis, emerging market revenues were 4,864 gross rupees A growth of 7% on a year-to-year business market share expansion and revenue from new products more than offset the unfavorable forests. We launched 17 new products during the quarter across various countries of the emerging markets. A total of 106 products in FY24. Within the segment, the Russia business grew by 9% on year-to-year basis, but declined 13% sequentially in constant currency. Similarly, on a full year basis, Russia grew 16%. Excluding the income from brands divested last year, India business recorded a double-digit year-on-year growth of 11% in Q4, a sequential decline of 5%, and 5.5% growth for the fiscal. After Acuvia, our IPM rank was 10 for the quarters and 11 for FY24. Including the divestment income, our India business recorded revenue of 1,127 crores rupees in Q4, with a year-to-year decline of 12%. On a full year basis, revenue where 4,641 crores rupee, a decline of 5% over the previous year. Our focused brand approach coupled with a sales rate productivity improvement has led to steady improvements in our performance during the quarter. Three new brands were launched this quarter, taking the total number of brands launched to 13 this year. Our PCI business recorded revenues of $99 million in Q4 of FY24, with a year-over-year growth of 4% and sequential growth of 5%. On a full-year basis, the revenues were $359 million, with a marginal decline of 1% over the previous year. We filed 48... drag master file this quarter, taking the annual total to 133. We continue to focus on research and development to create robust product pipeline. That will drive future growth. Our R&D investment this quarter stood at 688 crores rupees, up 28% year-over-year, driven by our biosimilar products pipeline, as well as the development efforts across generics and our novel oncology assets in origin. Further, we will complement our in-house efforts with partnerships and collaboration to develop innovative solutions. We have done 21 global generic filings, including nine under us, one NDA in the U.S. during Q4, April 24. Total number of global filings stands at 43, with seven NDAs and two NDAs in the U.S. Our capital allocation priorities remain unchanged, with our number one priority being to reinvest in our business, both in the pipeline as well in building businesses of the future. Our strong values provide us financial flexibility, and we remain committed to pursuing value-enhancing business development transactions to augment our organic growth effort. As we exit the fiscal year on a positive note with a robust financial performance, a strategic move can take us a step closer toward a medium to long-term growth. I look forward to sustained growth momentum in the base business and a seamless integration of acquired assets in the next fiscal year. With this, I would like to open the floor to 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 their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to please 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 Neha Manpurya from Bank of America. Please go ahead.

Thanks for taking my question. My first question is on the Nestle JV that we announced last month. If you could give us some color on when we should start looking at probably rollout of these brands and how should we think about ramp up of the entire JV revenue flowing through? Will it take a couple of years before it starts contributing to margins or would there be some incremental investment required? And just to follow on that, will the JVE contribution be over and above the double-digit growth in India that we have talked about in the past? Is that the way we should think about it?

So, yes, it's going to be above that. At the same time, it will take time to bring the brands that are currently outside of India to register them, to adjust them to the India regulatory needs or the taste of the people, and obviously to build the brands in India. So the way the JV will work is both parties are bringing the current nutraceuticals to the JV, and then a certain sequence to bring the brands, primarily of Nestle Health, science to India, register, qualifying them, building them, likely that in the first three years it will be some level of investment. It's not going to be material investment in terms of total effort, but the revenues will come only in the years after that.

Essentially, I should assume that this starts contributing to the India business probably post FY26.

It will be post FY26, likely even post FY27. So the first couple of years will be years in which we will bring those products and build the brands at a certain sequence. So normally people will see the growth, but that's it. This has the potential to be a meaningful business, but it will take time to build it.

My second question is on the R&D spend. We have a pretty high R&D spend this quarter. You talked about it in your opening remarks. When can we start seeing the complex product pipeline that we're talking about or the biosimilars contribute to earnings, particularly in the U.S. market? you know, should we start seeing, and some of the areas if we could talk about, and the guidance for next year for R&D, please.

Yes, so in terms of contribution to the growth, the small molecules we will see that already in FY25, some of them, and more of them in FY26. and some of them in FY27 and 28. So this is the pipeline that we have discussed in the past. In terms of the biosimilars, what will come from internal activity is likely that in FY27 we will start to see the products coming. The level of R&D for next year will be around 8.5% to 9%. This is the range that likely we are going to have.

Thank you so much.

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

Yeah, good evening. Thank you for the opportunity. So first one on the U.S. business, just for clarity, we have said that there was a base erosion on a quarter-on-quarter business, quarter-on-quarter basis. would the base include generic rev limit contribution as well when you say base erosion?

You are speaking about North America, Kunal? I did not catch the question. This is about America?

Yes, yes. North America, we have said that the quarter-on-quarter decline is due to erosion in base business.

My question is, would this base business terminology include revenue from generic rev limits?

Yes, so the quarter obviously includes the sales of linoleumide. The decline is a combination of a sequence of service. It's not a market share loss. It's more of a sequence of supply as well as a certain price erosion that was on the base business unrelated to linoleumide.

Sure. And in terms of the U.S. price erosion, while it continues, have you seen any change in the recent trend where it is again accelerating at a higher pace in recent months?

So the overall sentiment is unchanged. Still, the lion's share of the, I think, of the interest is sustainability of service and supply. This is still the case. At the same time, we did face competition in some of our big products, and those products, we did see price erosion, in which, to some extent, was compensated by growth of other products. So on those specific products, we did see price erosion.

Sure. And for the next year, how many product launches will you plan for the U.S. market?

So about 20-plus. 20-plus.

Perfect. Thank you and all the best.

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

Yeah, thanks for taking my question. Just one question on R&D. We have seen a significant step up and as you mentioned, your guidance, it looks like you're talking about more than $300 million of R&D spend next year. You know, if you can provide like where this money is being spent in terms of biosimilars or NC research and other genetic activity?

So the R&D is spent obviously on the small molecules as well as the big molecules. I think the main contribution to the growth is the timing of the clinical trial of the biosimilars, which is about 20% of the R&D spent. So if you wish, between the small molecules And the big molecules, so you have about 60% that goes to the small molecules, about 20% that is going to the biosimilars, and the 20% that goes to the API or other initiatives like licensing and activities like this.

Okay, thanks. And my second question would be, you know, how do you see the growth in emerging markets in the years ahead, particularly with respect to China and, you know, some of the key markets like Brazil, if you can talk about your outlook for fiscal 25 and 26.

So it will continue to grow. It will continue to grow in double digits. China looks good. We are now consistently submitting 14, 15 products a year. So this is likely to continue. And also, we got some interesting approvals. So overall, in constant currency, I believe that we are in a good shape. Obviously, there is a risk of forex. This remains the same. We have a certain level of protection, but obviously, if it will come, it may offset it. But overall, it looks good.

Okay, thank you.

Thank you. The next question is from the line of Balaji Prasad from Barclays. Please go ahead.

Hi, everyone. This is Michaela. I'm for Balaji. Thanks for taking our questions. Can you hear me?

Yes, please.

Okay, great. So we see you launched four new products in the U.S. during the quarter. Could you just provide a little bit more detail on these launches And my second question is if you could provide a bit more detail on the CRL issue to the BLA for biosimilar rituximab. What are the next steps here, and what did this entail? Thank you so much.

Yes, so on the launches this quarter, as I mentioned, we launched five products during the quarter. We cannot mention the names along the way. We will try to provide it to you in a second. As for the CRL, we got certain questions primarily about the CMC of the product, and we are planning to address that around the September timeframe and to... And then, obviously, I'm assuming it's a six-month goal break after that.

Yeah.

Thank you. The next question is from the line of Tarang from Old Bridge. Please go ahead.

Hi. Congrats for extremely strong set of numbers for F524. Just a couple of questions. You know, capital expenditures stepped up quite a lot in both FI23, FI24. If I look at 24 alone, roughly 2,700 crores of capex. You know, so if you could just give us a sense in terms of a broad set of baskets where this 2,700 crore would have been deployed. So that's number one. Second, you know, Till date, between P&L and balance sheet, if you could give us a sense on what your cumulative investments in biosimilars has been. And third, just a general sense on where your overall biosimilar business is at.

Yeah.

So about CapEx... First of all, most of our CAPEX is going toward expansion. Let's say give or take around 75% of it is going to expansions. Normally, the other is going what we call maintenance. The maintenance is also whether you need to replace certain stuff or related to compliance or investment in the digital, etc. Also, in the future, in terms of distribution of the CapEx, also for next year, we are investing primarily the CapEx in products that we want to launch and with great capacity, both in the API as well as in our injectable facilities. So more than 50% of the CapEx is going that direction. In addition to that, we are building additional a capacity in our biologics plant in Basqually, as well as in our APSL, our services on both biologics and small molecules. So by and large, this is where the CAPEX is going. Is it sufficient? I don't remember the rest of the question.

Yeah, this is all right. When you say expansion, these are broad buckets. I mean, it's going into API, injectables, biologics, and origin, right?

Correct.

Okay. If you could give us an update on your biosimilar business from year one and what have your cumulative spends been on this business till March 24th?

So the... In terms of Arsenal, just to remind us all, we decided to focus on products that we have a chance to be first to market. And when we initiated that strategy, we kind of bypassed the products that we had the chance to be late to market. So our first meaningful products will come in 2027, and after that, and most products will follow. Right now we are not discussing specific names, but that's the overall plan. What you can assume, and I mentioned it before, that if 20% is going to the R&D, this is give or take also at the level of loss that we have in a year, because right now we don't have meaningful sales. to cover for it, and this is something that is likely to be breakeven and beyond, be profitable once we will launch in FY27 our first biosimilar in Europe and the United States.

So therefore, would it be safe to presume an investment of anywhere between $50 to $60 million per annum on biosimilars? Would that be a reasonable estimate? from Europe?

Yeah, in the board pocket.

Okay. Thank you.

Thank you. The next question is from the line of Tushar Manudane from Motila Loswal Financial Services. Please go ahead.

Thanks for the opportunity. Sir, just on Rituximab, as far as Europe is concerned, where you can share the... Tushar, the line for you seems to be a bad connection.

Can't hear you.

Can you repeat the question?

You are not audible, Tushar. No, you seem to have a bad connection. I request you to please reestablish your connection and then get back in the queue. Thank you. The next question is from the line of Nimish Mehta from Research Delta Advisors.

Please go ahead.

Nimesh, the line for you has been unmuted. You may proceed with your question.

Maybe you can move to the next one.

We will move to the next question, which is from the line of Nitesh Dutt from Burman Capital. Please go ahead.

Thanks for your opportunity. I have a question on our manufacturing strategy for the India business. So I just want to understand, number one, what percentage of your manufacturing in India is being done in-house versus outsourced? And are you expecting to maintain a similar mix going forward? And second, for the outsourcing part, how many suppliers do we typically have? Is it like a fragmented supplier base or consolidated amongst a few companies?

Yeah. So when you said supplier, you meant global or for India?

For India.

So right now, about 60% of what we do is in-house, give or take, and likely that these numbers will increase in the future because we do have localizations of some of these products in the future. As for the numbers of partners, I don't recall the exact number, but I'm assuming that it's in double digits, likely. But I don't have the exact number on top of my head.

All right. And to follow up on that, the government has been placing a lot of emphasis on stricter implementation of Schedule M norms and quality standards, right? Yes. How can it impact our procurement strategy on the outsourcing front? So can it lead to some sort of consolidation of supplier base or maybe an increase in the procurement cost, et cetera? Because if the quality cost increase for our suppliers, then our COGS might increase as well.

So I can tell you that for Dr. Reddy's, we have one standard of quality. We believe that all people deserve the same quality. no matter what is their nationality. And that's the policy of Dr. Reddy, is that we encourage everybody to do the same. So for us, any guidance in that direction, we see that as an opportunity. And if there are people that need to upgrade their system, it's good for India.

Sorry, thanks. I'll get back into it.

Thank you. The next question is from the line of Tushar Manudane from Motilal Oswal Financial Services. Please go ahead.

Yes, please go ahead, sir. Sorry to interrupt, but the line is bad again for you.

May I request you to please move to an area with better network?

Is this better?

Yes.

Okay. Sir, on rituximab, do you understand that the progress as far as you're planning is concerned?

So rituximab we launched in the... Yeah, so rituximab we are planning to launch in the UK. As we speak, we did not do it yet. So we believe that we should get the approval soon. We are after the qualifications in the UK, and we are waiting for the inspection of the EMA as well.

Understood. So secondly, on the inventory, I see quarter-on-quarter reasonable increase. If you could explain that.

Again, sorry? Again, can you repeat?

There has been a reasonable increase in the inventory on a quarter-on-quarter basis.

You're talking about inventory?

Inventory, sir. Inventory.

Yeah, let me answer. Let me take that question. The increase in inventory is primarily because of some of the geopolitical risks which are there, which are having some impact on the roots of supply. So we proactively build inventory to make sure that there's no loss of scales. That's the primary reason for the increase.

Understood. And lastly, sir, this SG&A expense also we've seen increase over past three to four quarters. So is this the run rate to consider for FY25 or will there be further increase in this?

Overall, if you look at the SG&A expenses this year for the full year, as a percentage to sales, it's about 27.7%, which is same as last year. Now, quarter on quarter, you will find situations happening. Broadly, we are investing behind our brands in sales and marketing, behind our capabilities, while also driving productivity. Broadly, I would say that SG&A, over the next 12 months or so, the percentage to sales would remain in the similar range.

Got it. Thanks. Thanks for that.

Thank you. The next question is from the line of Ankush Marjan from Access Securities.

Please go ahead. Thanks for the opportunity. So if you see that we have a U.S. sales of $390 million. On sequential basis, it has decreased. Please try to understand this decrease in the base business or in the GW business.

The decline is a combination of the sequential decline. Part of it is normal pattern of ordering of the product. And part of it is some price erosion that we worked on a few products. It's a combination of both.

So what is the guidance of margins, full year guidance of beta margins for FY25s?

So as you know, we are not giving guidance. In general, we are repeating that the normal, you know, long-term place that we want to be. So the 25% EBITDA, the 25% ROCE, the adult age controls, it's something that we are consistently saying that this is the range that we want to be. Sometimes we'll be above it, sometimes we'll be below that. But we feel very comfortable that this is a place in which we can both invest for the future, and it allows us a significant room for investment in the future, as well as bring very, very healthy return to the shareholders. This year we are, by and large, higher than that. but there will be timing that it will be, it can be even lower than that, but this is where we feel comfortable to be. So we are now giving a kind of overall guidance, but we're not giving guidance for specific quarters or specific.

So when we say 25% EBITDA margins, that includes G-Rev limit also?

Like I mentioned before, This is our overall guidance, not for specific products. As you can see, when we launched the product, our margins were higher, so you can do the math.

Thank you, sir. Thank you very much.

Thank you. Ladies and gentlemen, to ask a question, you may please press star and 1. The next question is from the line of Surya Patra from Phillip Capital. Please go ahead.

Yeah, thanks for this opportunity. My first question is on the pricing trend that you would be seeing for Pevlimid. And how sustainable the pricing trend currently that we are having for that. Because there are multiple rounds of nuclear entry that we have seen. So whether that has impacted the realization potential of the product in the recent period.

So, I'm not going to discuss quantities or prices of this product, as you know. So, sorry? Yeah, on the pricing, I'm not asking about... I said, I just said, I'm not going to discuss pricing or quantities of this product. We need to remain confidential to our agreements and what we can say that is going to stay meaningful products for us throughout the period of the agreement.

Okay. Then my first question then would be on the domestic formulation business. So obviously, as per your indication that you have taken multiple initiatives to either introduce branded products or to expand qualitative products, and a long-term sustainable growth driving kind of a product for the domestic formulation business, but in the initial period possibly may not contribute much. So if you can give some sense, let's say over a period of three years from now, what is the share of revenue mix that you should be seeing for your domestic formulation business?

So you can see that we have a flow of agreements that are coming. So what we say that the base business, maybe a step back, the general business that we have in India will grow. This quarter it grew double digit if you take out the dimensions. that we had in the same quarter last year, and likely that this will continue. On top of it, we started to launch already products. For example, we launched Nerivio, and we launched other products that will come, and this will be on top of it. So naturally, the expectation of India is to grow beyond the growth that is expected from the Brenner generics. Right now, it looks like a very healthy pipeline that is coming up on both the NCEs, the pharmaceutical deals that I mentioned, etc. The expectation of both businesses, if you ask about the long term, is to be top five in India. If you want an assumption, it's in the neighborhood of around 12,000 CR, somewhere in FY30s. But this is obviously a neighborhood that we are striving to be. We believe that this is what top five give or take will be at that period of time.

Okay. Is it fair to believe, sir, that domestic formulation business is going to be the growth leader for Dr. Adi over the next few years? Is that fair to believe?

Yes, absolutely. India is a very important market for us. And we want to grow, and we want to grow the rank. And it's a growth engine, but it's also our main hub for innovation on both the back end as well as the front end. And the main place in which we believe that we can bring value, because most of the people that are collaborating with us have an interest in our brand in India as well as in our go-to-market capabilities.

My second question is about a biosimilar business in the initiative and also in collaboration with the R&D spend that we are likely to have. So whether you have talked about 9% kind of R&D spend guidance for the subsequent period of time?

I mentioned that 20% of R&D is going to biosimilars.

Okay. And are you indicating, in line with the quarterly trend, R&D trend as a percentage to sale, this is a kind of sustainable trend?

We believe that it's sustainable for us to be in what I said, 8.5% to 9%. And it could be some fluctuation, depends on the timing of the phase three. of the products, but this is, we believe that it's sustainable.

So, an extended question to that on this. So, we know that having seen the kind of challenges that is there about biosimilar success in the U.S. business and the kind of upfront investment that is required for each molecule to develop a biosimilar. So what is the kind of a right to success that you do think for your biosimilar stack?

So I mentioned the timelines before. We decided at the time to skip the products that will relate to market in order to be among the first one to launch the products, and we still hope to do that. The second one is that we are not developing only for the U.S. Obviously, the U.S. is a very important market for us, but we are developing globally. And it's actually, for us, it's about U.S., Europe, India, and emerging markets. And each one of them on the molecule that we chose, these are many cool markets for us.

Okay. Yeah, sure, sir. Thank you. Thank you.

Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, we request you to please restrict your questions to one question per participant. The next question is from the line of Madhav Marda from FIL. Please go ahead.

Hi, good evening. Thank you so much for your time. Given that India is a core sort of focus market for us over the longer term, Just wanted to get your thoughts on any risk that you see from rise of organized pharmacy retailing in the country, like it happens in most developed markets that we've seen over the past few years. And rise of generic, generic drugs in the country, which the government has also tried to push last year. Obviously, it didn't shape up. Just your thoughts on some of these factors and how they could play out for the country going ahead. Thank you.

There have been several attempts to make this generic business a success, but given the enforcement gaps in quality and concerns about doctors about quality, we feel that the branded generic business will continue for a while. We don't see any imminent danger of it being commoditized by generic generics.

Given that some of the organized pharmacies come in, don't they solve for the quality angle?

Organized pharmacies are still a small portion of the overall sale. If you look at the market share, it's probably 12% to 15% at the most.

So just to make sure, we do see obviously the third portion of the, like by the way, FM everywhere in the world will become generic generics. At the same time, the market is growing as well. We recognize that trend long back, and I discussed it in previous meetings. This is why our main efforts and our main debt is about actually true innovation, patent protected, et cetera. We believe that the brands, our brands, that we decided to continue to focus on will stay for a while, like Rasha just said.

Thank you.

Thank you. Ladies and gentlemen, we request you to please restrict your questions to one question per participant. The next question is from the line of Bino Patikparampil from Ilaria Capital. Please go ahead.

Hi. Good evening. Just a question on a couple of products in the U.S. One, you had acquired the range here to generate What's the status when do you expect an approval?

Sorry, can you repeat the product? Sorry, I did not get it.

Generic version of NDA for generic version of Linify which you acquired from Slayback Pharma.

Yes, so what is the question?

What is this T-test? I believe it was already filed when you acquired it. When do you expect approval and launch?

So, to the best of my knowledge, it's an approved product by now.

Sorry, what is it?

It's an approved product by now. You ask whether it will get approval, it's approved. Okay.

And any timelines for the launch?

We expect the launch to happen in this quarter only.

This quarter, okay. Second, I believe you are also working on the peptides. So any update on how do you see the literal glutide opportunity panning out over the next two, three years?

So, yeah, indeed, this is a very important segment for us long-term. We put a lot of effort, we are still putting effort on the API, as well as the finished goods globally. We are planning to do it in each one of the markets. Specifically for the product, both Victoza and Saxenda, obviously we have what we believe are the dates of launch for each one of them, and we want to launch when we can.

Now, is it like a couple of years away or four years away? What is the rough idea of when you see the opportunity coming up?

Each one of these products, there is a date. I cannot confirm a date.

We'll share it at an appropriate time.

At this stage, we cannot share. But whenever the market will be open, we are planning to do that.

Thank you. Ladies and gentlemen, that will be the last question for today. 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, please get in touch with the investor relations team. Thank you once again on behalf of Dr. Reddy's Laboratories Limited. That concludes this conference. You may now disconnect your lines.

Thank you. On behalf of Dr. Reddy's Laboratories Limited, that concludes this conference, ladies and gentlemen. We thank you all for joining us. You may now disconnect.