Dr. Reddy's Laboratories Ltd

And welcome to the quarter two FY25 earnings conference call of Dr. Eddy's Laboratories Limited. As a reminder, all participant lines will be in the lesson 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 and 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. A very good morning and good evening to all of you. And thank you for joining us today for the Dr. Reddy's Q2 FY25 earnings conference call. We have with us the leadership team of Dr. Reddy's, comprising Mr. Eray Vizwali, our CEO, Mr. M.V. Narsimham, our CFO, whom we fondly call as M.V.M., and the investor relations team. Earlier during the day, we have released our results and the same is also posted on our website. We'll kick off today's call with Ambien taking us through the financial highlights of the quarter. This will be followed by Erase sharing his thoughts on operating environment and business performance. Post which, we'll open the forum for Q&A. 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. 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 statement. The discussion today contains certain non-GAAP financial measures For a reconciliation of gap to non-gap measures, please refer to our press release. 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 LVM.

Thank you, Richard. A very warm welcome to all. It is my pleasure to interact with you for the first time and present results for Q2FI25. We delivered a strong performance this quarter with broad-based top-line growth and healthy operating margins, resulting in highest-ever quarterly sales and TBT. As you all know, we completed the acquisition of the NRE portfolio and paid an apparent cash consideration of £458 million. We also completed the transactions with Nestle India on 1st August and all business activities of the Nutraceuticals portfolio is now being carried out through our subsidiary, Dr. D's and Nestle Health Science Limited. Following the completion, Nestle India was allocated shares of the subsidiary representing a 49% stake. We have also recently completed five-for-one stock split following the approval from our board and the shareholders. Let's now look at the financial performance of the quarter. For this section, all amounts have been translated into the US dollar at a convenient translation rate of 83.7%. which is the rate as of September 30th, 2024. Conservative revenues for the quarter stood at 8,016 crores, which is US dollar 957 million, and it grew by 17% on Euro year basis and 4% on sequential basis. All markets contributed to this quarter's Euro year growth. Consolidated gross profit margin stood at 59.6% for the quarter, an increase of 92 basis points over the same quarter of the previous year, and a decrease of 81 basis points sequentially. The year-over-year increase was primarily on account of an improved product mix and manufacturing overhead leverage, particularly offset by marginal price erosion in generic markets. The quarter-on-quarter decline was an account of overall mixed change. Gross margin for global generates and PSA rose at 63% and 30% respectively. The ASEAN spend for the quarter was 2,301 crores, which is US dollars to 75 million, an increase of 22% euro a year and 1% on Q2, The year-over-year increase was primarily on account of investments in new business initiatives, building capabilities, higher price costs, annual merit increase, and certain one-time costs related to the acquisition of inactive brands. The revenue spent as a percentage to the sales was 28.7% and was higher by 138 basis points on year-over-year and lower by 87 basis points on QQQ. Excluding the one-time acquisition-related cost, S&A spend was at 28.1% of sales. We expect S&A to be in the range of 27.5% to 28% for the full fiscal. The R&D spend for the quarter was 7.27 crores, which is US$87 million, an increase of 33% year-over-year and 17% QOQs. We are developing a robust pipeline of small molecules, biosimilar and novel oncology assets through internal and collaborative efforts to drive future growth. The R&D spend was at 9.1% of the sale, was higher by 115 basis points on the earlier and 100 basis points give or take. We expect the investment to be in the range of 8.5 to 9% for the full fiscal year. The other operating income for the quarter was Rs. 98 crores, lower versus Rs. 180 crores last year due to one-time product-related settlement income in the United Kingdom in the same quarter of the previous cycle. The EBITDA for the quarter was Rs. 2,280 crores, that is, US dollar 272 million. An increase of 5% on EUR year and 6% CO2. The EBITDA margins stood at 28.4% to the same and was lower by 326 basis points EUR year and higher by 30 basis points CO2. Excluding the one-time acquisition related costs as mentioned earlier, the underlying EBITDA margins stood at 29.1% of the same. Empowerment loss of 92 crores on intangibles related to a product in the main portfolio that was facing procurement constraints from its contract manufacturer. The net finance income for the quarter is 156 crores compared to 123 crores for the same quarter last year. Profit before tax for the quarter stood at 1,917 crores, that is US dollar 229 million. CBT as a percentage of revenue was at 23.9%, excluding the one-time acquisition-related cost and impairment charge as called out earlier. The underlying CBT margin stood at 25.7% of revenues. Effective tax rate for the quarter was at 30%. Pursuant to the amendments in the Finance Act 2024, resulting in withdrawal of indexation benefit, the company reversed a deferred tax asset of Rs. 48 crores created in earlier period on land. Excluding the impact of this one-time reversal, adjusted ETR for the quarter on the underlying PVT is 25.9%. We expect our normalized EPR to be around 25% for the fiscal. Profit after tax, but before minority interest for the quarter stood at 1,342 crores, which is US dollar 160 million. Tax margin was at 16.7% of revenues. The non-controlling interest share of profit after tax for the quarter was Rs. 86 crores, This primarily includes the share of one-time deferred tax asset recognized upon transfer of Dr. Reddy's nutraceutical branch to the subsidiary. Profit after tax excluding the non-controlling interest for the quarter stood at 1,255 crores, which is US$150 million. This is at 15.7% of revenue. Excluding the one-time acquisition-related costs, impairment chart, tax reversal, and non-controlling interest share as indicated earlier, the underlying tax margin stood at 19% of revenues. Reported EPS, Rs. 15.04. The EPS has been derived on the increased number of shares, post-stock split, and after non-controlling interest share. Operating working capital as of 30th September 2024 was Rs. 12,066 crores, which is USD 1,441 million, an increase of Rs. 511 crores, which is USD 61 million over 30th June 2024. Apex cash outflow for the quarter stood at 735 crores, which is USD 88 million. The free cash flow generated during this quarter was 204 crores, which is US dollar 24 million. For circulation related upfront payout, we have a net cash surplus of rupees 1889 crores in US dollar 226 million as of September 30th, 2024. Foreign currency cash flow hedges in the form of derivatives are as follows. US dollar 693 million hedge through structured derivatives around rate of 83.9 to 84.1 to the dollar, maturing over 12 months, which allows participation when USD is strengthened, and ruble 5,290 million with the minimum production rate of rupees 0.905 to the ruble maturing in next six months. With this, I now request Ares to take us through the key business highlights.

Thank you, NBN. Very good morning or good evening to everyone who is on the call. Thank you for joining us this time. Our growth momentum continued in Q2 FY25 across all markets. It's translating into yet another quarter of highest ever revenues and operating profits. The quarter witnessed two milestones in our journey towards building new businesses. Our venture with Nestle for nutraceutical products in India was operationalized in August. We also completed the acquisition of nicotine L and related brands in the nicotine replacement therapy category in September. We continue to strengthen our presence in existing spaces by building best-in-class capabilities and commercial infrastructure to leverage our portfolio globally and by driving operational efficiencies. We remain focused on our core businesses of generics and API while also investing in our pipeline as well as both drivers of the future in line with our stated strategy. Let me take you through some of the other key highlights for the quarter. One double-digit growth in revenues in Q2 at 17%. Two both reported EBITDA margins and annualized ROCE were over 28%. Adjusting for one-time expenses related to the NRP acquisitions, EBITDA margins were higher at 29.1%. A net cash short loss was $226 million. This is after making an afterpayment of £458 million toward the recently acquired NRP portfolio. Our subsidiary, Origin Oncology, announced promising results of Phase I study for India's first trial for novel autologous CAR-P cell therapy for multiple myeloma. Further, the US FDA approved the IND for AUR112, an asset developed by Origin Oncology for the treatment of lymphoid malignancies. We have secured a marketing authorization from the European Commission for Rituximab biosimilar, our first such MA in Europe. We recently entered into voluntary license agreement with Gilead Science to manufacture and commercialize HIV treatment drug Lenacapavir in 120 plus countries. On the regulatory front, the US FDA classified three of our facilities as VAI, This included two of our formulation manufacturing facilities, Minubada and Vizac, following the routine GMP inspection in May 2024, as well as our API manufacturing facility in Shrikul Kulam, Andhra Pradesh, following their GMP inspection in June 2024. In August, the USFBI completed a product-specific pre-approval inspection of our formulation manufacturing facility, FTO-SZP1, In Sri Lanka, under probation, issued a form for at least three observations. We responded to the observation within stipulated timelines. In September, the USFBI completed a routine GMB inspection of our R&D center in Bat Shafali, Hyderabad, and closed the inspection with zero observations. Sustainability continues to remain central to our business strategy. recognizes our focused efforts in sustainability. KPMG India awarded us the ESG Excellence Award in 2024 in the large pharmaceuticals and healthcare category. Further, we are featured among the top 15 most sustainable companies in 2024 by Business World India. Now let me take you to the key business highlights for the quarter. Please note that all the reference to the numbers in these sections are in respective local currencies. Our North America generic business recorded revenues of $445 million for the quarter, with year-over-year growth of 16% and sequential decline of 4%. The increase in sales volume helped offset single-digit price erosion and additional generic competition in sales and base products. We launched four new products during the quarter and we closed the full year with 15 to 20 launches. Our European generic business recorded revenues of 63 million euros this quarter with a year-over-year and sequential growth of 7%. The increase was largely contributed by revenues from new launches, partly offset by pricing pressure on certain of our products. During the quarter, we launched a total of eight products across markets. Our energy market business recorded revenues of 1,455 crores rupees in Q2, recording a strong on-year and sequential growth of 20% and 23% respectively. On a year basis, market share expansion and revenue from new products launches in rest of the world markets more than offset the unfavorable force. We launched 22 new products during the quarter across various countries of the emerging markets. We lead this segment, the Russia business, grew by 27% year-over-year basis and 23% sequentially in constant currency. India business recorded revenues of 1,397 crores rupees in Q2, with a double-digit euro-value growth of 18% and sequential growth of 5%. The growth was primarily on account of additional revenues from the recently-enlightened vaccine portfolio from Sanofi and new brand launches. After IQVIA, our IPM rank continued to be a 10%. We have launched three brands this quarter in addition to integrating pharmaceutical products under our subsidiary, Dr. Reddy's and Nestle Health Science Limited. Our PCI business recorded revenues of $100 million in Q2 FY25, year-over-year growth of 18% and sequential growth of 9%. The year-over-year growth was primarily on account of improvements in volumes and growth in the CDMO business. which is also reported thereunder. We filed 22 drug masters globally this quarter. We invested 9.1 of our revenue to strengthen our R&D capabilities. Our R&D investment this quarter stood at 727.4 rupees. Our efforts are focused on developing complex, value-added products, including several generic injectables, peptides, and biosimilars. in line with our patient-centric strategy on enabling access and affordability. We have made 60 global generic filings, including two NDS for the U.S. market during Q2 2025. In addition to investing in our development pipelines, we continue to strengthen our presence in our core areas of business, while also collaborating to build businesses in three areas, consumer health care, access to novel molecules, and digital therapeutics. We are also evaluating value-creating inorganic opportunities in existing spaces, as well as businesses of the future. We are certain that this strategic investment coupled with our sharp focus on improving efficiencies will enable us to deliver sustainable growth as well as profitability. And 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 touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to ask not more than two questions at the time and to rejoin the queue in case of incremental queries. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from Kunal Damesha from Macquarie. Please go ahead.

Hi, thank you for the opportunity and congratulations on a good set of numbers. First one on the North America business, we have written that the sequential decline is primarily due to volumes. So sequentially, is it fair to assume that the pricing was stable?

The prices are relatively stable in the way we normally calculate them. We did not have major issues on the big products that we normally discussed. As for the sequential, I will not take it too seriously. Part of it is a normal supply chain behavior that comes into play inventory of the distributors or inventory of the retailers, we can definitely guide that will continue to grow in America on both the also on the base products as well. So I will not read too much into that. You'll see different numbers in the next quarter. Okay.

And this declining sales volume One you said is the channel inventory adjustment. And could it also be some seasonal products not kicking in this quarter?

Yes, so it was mostly about supply chain. There is no real decline. So there is no loss of market share or anything like that. Actually, we have a gain of market share. So I will not say too much about the sequential decline. I think they are very likely to think better of the situation.

Sure. And then the second one on the India business, we have posted around 18% growth, but let's say we remove the Sanofi vaccine business, would we be at the double-digit growth for our base business?

It's almost there. It's 9-point-something percent, even without the vaccine, yeah.

So we have improved a lot from a single digit to a low double digit in this quarter.

So yeah, we are in the double digits even without the vaccine, obviously we are well there. So it's in the right direction. But it's almost there.

And do you think that this can again accelerate beyond what we have done in Q2 in the coming quarter, given the launch momentum has been very strong, right? We have been launching a lot of products in India.

Absolutely.

So I have more questions. I'll join back the team. Thanks. Thank you.

Thank you. The next question comes from Neha Manpulya from Bank of America. Please go ahead.

Thank you for taking my question. My two-part question is related to the U.S. business. Given we have seen a host of facilities being cleared, clearing inspection in the last few months, When should we start seeing, you know, while we are launching products, you know, we have not really seen, you know, high-value launches from Reddy's, you know, in the recent time. So when do you think we launch certain of these limited competition high-value products, you know, for the U.S. business? When do we start seeing that? And second, you know, R&D has stepped up a fair bit, you know, but I did see, you know, filing momentum has been fairly muted recently. So, you know, when does that R&D spend reflect in, you know, higher filing or, you know, higher quality filing, better filing, and therefore revenue?

Yes, so on the first question, I hope that you'll see the Q3, but I cannot guarantee that, you know, it's about the ability to get approvals. But we have a couple of those kind of products waiting for approval by the USFPA, and we and I hope already in Q3 we will see that. But let's say the remainder of the year and for sure in April 26th we should see a much better take on that. As for the filing of the R&D, we are primarily focusing on the what I call high-quality R&D. R&D in terms of we are not going for the 45 per year, but we are spending on the, let's say, more selective type of products, but with a higher value, and we are doing globally, not just in the United States. So every product is going globally, plus the investment in But similarly, primarily the ABAP assets. So this is where the R&D money is going to. I believe that it will actually, there is a better yield and better improvement performance of R&D and we should eventually see it also in the numbers.

Got it, sir. And so, you know, the R&D spend, how much of this would be for biosimilars and the Onco asset and, you know, any update that we can get on the timing for our two biosimilar filings?

Sure. So out of the total R&D, 36% is going to both biologics as well as origin. Origin is our innovative arms. And the rest, obviously, is going for the generics. The generics is about 50% of the number of the R&D, and 14% is attributed to the API. So this is give or take device. That way, the biopay, biologics, I believe that the most important product will launch in the beginning of 27. And this is a data set. And we have a couple of licensing activities that are not impacting the R&D, but will be impacting everything, the portfolio that we'll have. One of them is the Nusumab. And, of course, this is on top of what we do now with Nusumab and Nibasusumab in work.

And we were supposed to file Deno towards the end of this year. Are we on track of filing Deno in the U.S. market? Yes.

So Europe is on time, and also the United States will be filed also by the end of the calendar year.

Okay. Thank you so much, sir.

Thank you. The next question comes from Amir Chalke from GM Financial. Please go ahead.

Thank you for taking my question. My first question is this. On Revlimid, so in first half, whatever sales we might have booked for radionomide, you expect the sales to be similar in second half, or you expect it to be on the lower side?

You know, I cannot speak about the sales of Revlimid themselves because of the agreement. But let's say you are going to say that if you continue to be very healthy also in the remainder of the year and also in the frequency.

Sure. The second question I have, if you can tell us about the preparation for the GLP-1 products for both U.S. and ROW markets, which are going to face 10% expiry or where we are going to launch these products.

Sure. So, First of all, on the overall question on GLP-1, it's a very important segment for us primarily because of focus on peptides, especially on the API side. So we identify close to, in addition to the sinaglutide, draglutide, et cetera, we are talking about 14 or 15 GLP-1 that are coming up. Obviously, those will... mostly will be with the patent base that will be in the next decade. But later we are going for the entire segment as we speak. Specifically for semagnetized, we are planning to be on day one in all the markets that will be open and that we will have, of course, from IT standpoint clearance to launch. and that's basically the plan, and we are ready with our internal capabilities on both API as well as our formulations.

Sure. This last question I have on the spend, are SG&S spend excluding amortization or deprecation have gone up sharply over the last two to three years? I understand we have a big opportunity in U.S. where we are generating good profits, which we are re-investing in the business. But let's say post FY26, you expect this HG&A spend to remain elevated like this, or you expect some correction after?

Indeed, we increased HG&A within the years. because of the mix of markets that we have. We are focusing more on India, on emerging markets, and these are, as you know, very profitable markets for us, and they paid well also for those AG&A. So we are not investing in the level of the AG&A. The B2B market is obviously lower. So part of the HGNA growth is also part of the mix of the market that is changing, and it's actually changing in a healthy manner as well. In terms of the growth of the HGNA, it will be much, much more moderated. I would say slightly moderated depends on the quarters and the years that we will discuss because, like you said, We had an opportunity to build that kind of a franchise and infrastructure in many, many emerging markets, and now it's well established. Once the caveat for that will be that we're naturally going for India for innovative products. We are licensing those products. Naturally, some of these products will require certain investments. Luckily, we will do them, but I don't think it will be materially necessary. change the level of HVNA, and it's not going to happen also very soon. So that's what we'll have to compare to.

So I also just want to add, if you look at objective one-time cost of this quarter, our HVNA is 28.1% to that stage, and then we expect on a full year basis it will be in the range of 27.5% to 28%. Sure. Thank you so much. I will join them.

Thank you. The next question comes from Balaji Prasad from Barclays. Please go ahead.

Hi. This is for Balaji. Thanks for taking our questions. We're just wondering how you can leverage a situation where make in America for generics gets a stronger emphasis, and if you do increase manufacturing in the U.S., what would this mean for operating margin? Thanks so much.

We are not increasing manufacturing in the U.S. The products that we are launching in the U.S. will be made outside of the U.S., primarily in India. If I got the question right, sorry, if I missed something, please.

Thank you.

Thank you. The next question comes from Harit Ahmed from Avengers Park. Please go ahead.

Hi, thanks for the opportunity. My first question is on the Rituximab biosimilar for which we got an EMA authorization recently. So will you be able to share some color on the timelines for launch and our expectations from this particular product? And for the same product in the U.S., I believe we are awaiting clearance of our facility in , which was last inspected in October 23. So what is the status of that inspection? Do we have a final classification from the FDA? That's my first question.

Yes, so thank you for the question. So the European launch is planned for February 25. And as for the US, we did submit a response to the US FDA. And obviously, we will wait for these approvals. Likely that it will be in the first part of FY26. Of course, it depends on when we will make the approval on the use of it.

Okay. And on generic lowering for which we have disclosed a 90-core impairment this quarter. So can you share what percent of the intangibles related to this product has been impaired? What I'm trying to understand is whether this product is completely out of our expectations or do we still expect some revenues from this product?

So, we have provided full carrying value because the existing contract manufacturing organization is unable to supply the product. Hence, we have provided 100% of the carrying value.

Okay. Sir, last one with the permission. the intangibles related to the alien portfolio acquisition, which I believe is around 5,500 crores. Over what timeframe will we be amortizing this? I'm trying to understand the impact of NLP and NL.

So, largely, around 20 plus years. I think it's currently we are just evaluating. I think it will be somewhere, I think, 22 to 23 years range.

Okay. That's all from my side. Thanks.

Thank you. The next question comes from Damayan D. Kirai from HSBC. Please go ahead.

Hi. Thank you for the opportunity. My question is on R&D. So you mentioned you are focusing on high-quality R&D. So can you just talk to us about, like, the segments or products which you are working on? And do you think you can launch some material products in, say, next one to two years? in the U.S. market specifically, which can help you to cover up some sales lost on the RebLibit part. So that's my first question.

So on the first part of the question, like I mentioned to Nia, about 50% of guarantee goes to generics, so this is primarily peptides. and injectable, especially complex injectables. The biologics is going primarily on the Python that we have, but most of the money in the short term will go on the clinical trials of a data set. And then we have the investment in the next set of products, so first the market, which will come later. This is on the API side. Mostly GLP-1 type of a product. and the oncology products of origin. So this is one. On the second part of the question, yes, there is a healthy pipeline of about 20-plus products of that nature that have relatively higher value. Of course, most of them are approval-dependent, so it's hard to know when exactly we will launch them, but we are ready for that, and they should... contribute to death. And this is including obviously Femaglutide in which there is a patent date. We were asked before about that and which will be launched once there will be a market openness for this.

Sure. My related question is, you mentioned peptides, GLP-1 is one of your focus segments. So just want to understand if, On the R&D part, I understand you are covering the entire product basket, which will open up in market in coming years. But on the manufacturing part, do you have in-house manufacturing capability, or you intend to get it done through some manufacturing partners?

So we are going to make it in-house, both the APIs as well as the finish doors. And we are primarily dependent on our own internal capabilities.

Okay, so mostly it will be done in-house and maybe some part can be done through external parties.

Yeah, yeah, absolutely. The part that is not done by us is the device. Device itself we are not making. But the API, our main strength is on the API. As we have those certain technology primarily the microwave that allow us to scale it up very nicely. And this is probably our biggest advantage so far in this segment.

Sorry, Ray, I think I missed. So you said API is your strength, but the formulation, that can be done through CMOs. Is that right?

So we are making the API. We are making the formulations. We can also use CMOs for formulation, but primarily it will be made by us. And the part that we have to buy is the device. The device we are buying.

Okay, understood. My second and last question is on the Nestle JD. So you concluded the deal in August. Like what kind of sales or any number you have booked in second quarter or like and from here on what kind of ramp up you see in terms of like putting more products in the portfolio or in terms of revenue? How should we see updates there?

So right now it's very small. It's in terms of calls because most of the Nestle products are not yet registered and brought to India. So the main intent of this franchise is to bring the Nestle products, Nestle brands actually, that are very successful outside of India to India. and to build them over time. So at this stage, we are talking about tens of crores. Let's say it's not material around. Let's say some of the 50, 60 crores. It's not significant. The main impact will come, obviously, from the ability to grow the brands in the future. So this is the kind of business that it will take us time to scale it up. But we believe that it's very good and very sticky for many, many years to come.

Okay. Thank you. Thank you for your response.

Thank you. The next question comes from Dino Pathy Barampil from Millara Capital. Please go ahead.

Hi. Good evening. Just following up on our previous answer, a data set you said could be launched in early 27. Did you mean calendar 27?

Yes, calendar 27, yes.

Okay. Second, I was looking at the Russia growth adjusted for the currency fluctuations. It means the first half growth in Russia, CIRC, a bit muted, probably around the mid-single digits. Any particular reason, and what's the outlook for the rest of the year?

So like I mentioned, Russia is doing really, really well. So in constant currency, we grew 27%. And indeed, there is some devaluation. But I think we have also the right defense for it. So overall, this is likely what we're going to see. This high level of WG is exactly what we're going to see in Russia. You have some seasonality in Russian products. So not every quarter is growing in the same way. But overall, this is the level of growth, especially as... Some of our peers are not investing in Russia the way we do, and we are gaining rank as we speak.

Okay. And one last question on PSAI. You know, there is a lot of optimism in the market around the TDMO business opportunity coming India's way. Are you seeing that helping your PSAI business in any way?

So it does contribute to growth. For us, strategically, I see the CDMO primarily as an area in which helps us to build relationships and build capabilities, especially in R&D. As the CDMO is working on the products of the future, and it allows us to scale ourselves up both in small molecules as well as in big molecules. It's also comparable to the growth, and I hope that we will be able to see a triple digit on the sales of API, if not next year, the year after, but in this range of time. So it's a nice growth. In addition to that, most of the growth in the PCI comes from collaborations and the partners that we have across the globe. This is important pillar, strategic pillar for us as part of the B2B business. Thank you.

Thank you. The next question comes from Surya Patra from Phillip Capital. Please go ahead.

Hello. Yeah, thanks for the opportunity. So my first question is on the nicotine and business integration. So having completed the transaction, if you can share your thought process now about your growth plans, your integration strategy of this business across various markets, and your margin and cost positioning for that business.

Sure. So we are going to get the market in a certain sequence. And just to make sure that I'm explaining it in the right way, naturally it's a carve-out of brands from activity that Elyon is having today. So for some of those countries, we have to create either legal entity, or sales force, or distribution agreement, or any of that. So there is an agreement of sequence of countries in which we are going to get, in which we will be ready to accept those countries with the relevant infrastructure, both internal and external. The starting market will be UK in April, and in the next 12 to 14 months, we should get more than 80% of the sales managed by us. Until then, it will be managed by Alien. Obviously, in terms of numbers, we will start to recognize them already Q3. So from Q3 onwards, you will see the full impact of that, including some commissions that we need to pay for Alien for doing the work for us during this period of time. We see three types of synergies that will come once we will manage it directly. One is our ability to invest and focus on those brands. We feel that this brand has certain lack of focus or lack of attention for several years, and we believe that by doing that, we can increase the growth. By the way, the brand is growing single digit already today. And second, we can bring it to more markets, more countries. And number three, much more important, we... appreciate that there is a lot of changes we can do in terms of innovation, whether it's different products, different packaging, different lifecycle management of the brand, et cetera. So between the three, we believe that we can add value to this brand. And so right now, focus is on the integration, like I mentioned, to get it and to build infrastructure. And post that, obviously, to invest and to do it further.

That's great. Second question is about CDMO business again. Because of our manufacturing base and positioning within eBays, whether this biosecure act development, that will offer any kind of meaningful kind of trend for our CDMO operation, which has been kind of relatively muted or seeing a kind of muted performance since some time. Do you expect any kind of meaningful kickstart to those kind of momentum there?

We do see more prosics that are coming on the biologic side of the CDMO, which is relatively new to us. But we definitely see that the biosecure act that you mentioned, it brings more attention to this segment. And, yeah, I believe that it will translate to future business. And, yeah, I do see an opportunity. I cannot tell you that it's huge at this stage, but it's absolutely in the right direction.

Okay. Just last one clarification for the U.S. business growth. You mentioned you have seen some volume-related impact in the quarter, but Is it possible to give some sense, excluding of the lenalidomide, what is the kind of, means some color to the growth, why for the quarter or for the first half, what growth that we would have seen for the base basis?

So again, like I mentioned to Kumar, I would not take too much on the sequential. On the year-to-year, we are growing the base business, and it's not just the lenalidomide. So we are growing this. And I will not preach too much about the Q and Q. No, I wanted to just on a YY basis, sir, for the first half. I don't know why you are going.

Okay, okay. Thank you, sir. Wish you all the best.

Thank you. The next question comes from Tarang Agarwal from Old Bridge. Please go ahead.

Hi, good evening and congrats for a very strong set of numbers. Three questions. First on Russia, you know, the 600 crore investment in working capital, what's driving this now? Basically, just wanted to understand or get a bit more color on the business in terms of, you know, how working capital intensive is that business, some dynamics on the market. At some point, I think DRL had a 2.5% market share in that market. How is that moved and what's the volume market share there? This is like a working capital. We have managed working capital through factoring and short-term loans. Now it is becoming costlier. And then as a group, when we evaluated this working capital funding as an equity from India to Australia, it is beneficial at the overall level. That's why we are. just increasing as an equity to a working capital requirement.

As for the market share, I don't remember exactly the numbers, but we definitely increased market share and increased the ranking in Russia. So we're clearly growing primarily because of focus. You have companies that are still focusing on this market and companies that I think this is going to very much to our side. I think that our overall in terms of market, I think we are in all that in motor mass as well as quarters, we are going faster than the market in all segments, on RX, etc., etc.

It is just to get a sense, I mean, how big is the covered market in Russia where Dr. Eddy is operating? And I mean, it's a sizable business now, almost $300 million. So how big is the market? And my sense is that the end market may not be growing. But from your vantage, could you expect this business to grow at the same speed as which you probably see your India business grow?

I believe so. I believe that you're going to see continuous growth. Indeed, the market itself is not growing in volume, but obviously value you see a growth because, of course, the situation in the country, price increases, et cetera.

Okay, sure. Second on CAPEX, you know, overall, if I see the trajectory of the last three or four years, we see a lot of investments in R&D, buying products between market access and intangibles. In terms of physical infrastructure, if you could give us a sense, where are you in terms of your utilizations between your injectables, your oral solids, and your EPI business? And what are the kind of investments that you're looking in terms of expanding your physical infrastructure from your own?

And so most of our investment is in the following spaces. We are investing in our injectables. We are investing in our biosimilars. And we are investing in our API business. And most of the investment in API business, which is about right now, let's say, you know, take 50% of the CapEx is primarily to build capacity for the GLP-1, as well as the other peptides. In the pipeline that we discussed before, there are many, many peptides, not just GLP-1. And we are gearing up for the launches of some of these products in APA 25, 26, 27, etc. Some of the GLP-1, in terms of API, can be very, very big, And I believe that we are one of the most reliable suppliers today, not just to ourselves, but also to the entire industry of the API. And it's actually a very big opportunity for us in that respect. So let's say between the injectables, the biosimilars, and the peptides is the lion's share of the physical infrastructure. All of it is in India.

Sure. And last question on the Nestle JV. How long should the current capital contribution between you and the partner should hold the JV in good stead? I mean, how far along will we see till further capital contribution of the JV?

So I believe that it will take us a couple of years to build a meaningful size and a meaningful brand recognition, primarily because the brands are new. It's not a branch that we take from India. It's a branch that we need to build. The idea is to build the number one pharmaceutical company. Both companies need it for the long term, but unlikely that we'll see a major contribution to Proclif in the next coming years. I don't think it will be primarily investment and whatever, again, likely that we'll reinvest. So it's primarily more of a longer-term type of activity, but like I mentioned before, I believe very specific and very meaningful. Okay. Thank you.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to one per participant. If you have any follow-up questions, you can rejoin the queue. The next question comes from Kunal Randheria from Access Capital. Please go ahead.

Hi, good evening. On Denosumab, the first biosimilar launch in the US should be in May 24.

Given that you're yet to file for it, just wondering how many players do you expect will be ahead of you when you eventually launch?

Denosumab? Yes. Denosumab... It depends, of course, on the success of the others, but it should be somewhere between number three to number five, I believe. Right.

And would this be like a late FY26 launch?

It should be FY26 launch.

Got it. Got it. Secondly, it is two and a half years back when you shared your vision in Horizon 2.

Kunal, sir, may we request you to return to the question queue for the next question, please? Sure. Thank you. The next question comes from Anubhav Agarwal from UBS. Please go ahead. Yeah, thank you. Just one question on SDNA. So this year we'll be about 27.5%, 28%. Can you qualitatively give a sense that once it is more normalized, once the generic wave limit is more normalized, let's say F27, once you have ramped up biosimilar portfolio, also infrastructure for that, what would this number look like in a rough range? So when I look at pre-COVID, you guys are doing 29, 30%. Would you go back to that or would you retain 27, 28%? Can you give a rough sense in a more normalized stage?

Modulating within the same range for next year at this point of time, but it will not increase significantly.

Yeah, but you know, next year you still have the... support of generic rev limit. So I'm just trying to understand once, let's say one of revenues are not there on a more sustainable based business, what would this, would you go back to pre-COVID number of 29, 30% or would you still be at 28%?

Sorry, just to understand, you're talking about growth?

No. So what I'm Yeah, what I'm just saying, I think, as I explained earlier, our new product also ticking and thereby like a top line will come. So hence, I don't know, we believe it will continue to be around that range.

Sure. You're saying that this is beyond next year as well? Same range of 28% continues for you?

Around that range even, I don't know, we cannot give exact guidance for the next year, but it will be largely in that range. Great, thanks.

Thank you. Participants are requested to ask not more than one question at a time and to rejoin the queue in case of incremental queries. The next question comes from Vishal Manchanda from Systematics. Please go ahead.

Hi, good evening and thanks for the opportunity. On Rituximab biosimilar launch in Europe, would you be selling on your own or you would have a partner there And what is the, how long will you take to ramp that up to its full potential?

We will sell on our own. We have a list of primarily tenders that we know we can participate and hopefully we'll be successful in them. But let's say on the B2B side of the buy scenario, it should be relatively fast in according to the dates in which the tenders will be open. On the In Europe, you have also the physician countries. This obviously will have to do some legwork and it will take some time. But, yeah, there is no reason why we should not see the results relatively fast.

Would this be $100 million less opportunity for me?

I cannot guide that much. I don't think it will come to this range, but I cannot put numbers for this.

Thank you. The next follow-up question comes from Kunal Damesha from Macquarie. Please go ahead. Kunal, sir, your line is muted. Please proceed. Yeah, can you hear me now?

Yes, yes. Yeah, so that's what the ABATA said, timeline that we have given. It is for the biosimilar launch, not the new indication that our partner is trying is it correct understanding sorry i'm not sure i got the question on the dark similar sorry so about ourselves i think we are developing biosimilar and we have out licenses biosimilar to koya for the indication of als right so the launch timeline that we are talking about is for the biosimilar version that we are developing right

Correct, correct, correct. This is not for the Koya product. The Koya products will come whenever they will finish the clinical trial.

And what stage of development are we on the biochem lab side in terms of the clinical trial or filing?

We are in phase three, and we are supposed to gear up to submit and to launch it in the End of calendar 26, beginning of 27.

Okay, so as of now, let's say patient enrollment and all will be over. Do we have the details?

We are, I don't know if it's over or soon to be over, but we're in a very advanced stage. Sure, sure. Thank you and all the best. Thank you so much.

Thank you. The next question comes from Surya Patra from Phillip Capital. Please go ahead.

Just one clarification, sir. When we talk about the GLP-1 API capability, so here we do say that it is complete end-to-end integrated at our end itself.

So we have the API. I just want to make sure that we have the API. We are making also the finished product. So in that respect, it's completely back integrated, and we are buying the device. If I got the question right.

Yeah, within API, it is the capability, complete chain manufacturing capability that we have. And hence, it is a full end-to-end integrated operation for us.

Yes, it is.

So, yeah.

Thank you, sir.

Thank you. If there are no further questions, I would now like to hand the conference over to Mr. Richa Periwal for closing comments.

Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with Aishwarya or myself. Thank you once again on behalf of Dr. Reddy.

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