Dr. Reddy's Laboratories Ltd

Good day, everyone, and welcome to the quarter one FI26 earnings call of Dr. Reddy's Laboratories Limited. I'm Aishwarya Sitaram, and I'm part of the Dr. Reddy's Congratulations team. I would like to indicate that all participants will be in the listen-only mode during the opening remarks, and there will be an opportunity for you to ask questions thereafter. Should you need any technical assistance during the call, please use the chat function in your Zoom application. Please note that the chats will not be monitored for any questions to the management. I now hand the conference over to Richa Parival. Thank you. Thank you, Aishwarya. Good morning, good evening, and a warm welcome to all. Thank you for joining us for Dr. Reddy's Q1 FY26 earnings conference call. We truly appreciate your time and participation. Joining us today are members of the leadership team, Mr. Iraz Israeli, our CEO, Mr. N.V. Narsimham, our CFO, and the IR team. Earlier today, we released our quarterly financial results. These are now available on our website for your reference. We'll begin the session with N.V. presenting an overview of the financial performance for the quarter. Following that, Evaze will provide his perspective on the business highlights and the strategic outlook. We will then move to the Q&A segment as mentioned by Aishwarya. Before we proceed, please note that today's call is the proprietary material of Dr. Reddy's laboratories and cannot be rebroadcasted or attributed in any media or press outlet without prior written consent from the company. This session is being recorded and both the replay and the transcript will be made available on our website shortly. All commentary and analysis during this call are based on our IFRS consolidated financial statements. In addition, the discussion may refer to certain non-GAAP financial measures. A reconsideration to the GAAP measures is provided in our press release. We would also like to remind you that the safe harbor provisions as detailed in today's press release apply to all forward-looking statements made during this conference call. With that, let me now hand it over to Ambien to present the financial highlights for the quarter.

So thank you, Richard. A very warm welcome to all. Thank you for taking the time to join us today. I am pleased to walk you through our financial results for the first quarter of FY26. The quarter begins on positive note, marked by the steady double-digit revenue growth. We delivered an every-term margin of 26.7%, modestly ahead of our aspiration of 25%. The inclusion of our consumer healthcare business contributed positively to top-line momentum. All financial figures in this section are translated into US dollars using a convenience translation. 85.74, the exchange rate prevailing as of June 30th, 2025. Consolidated revenues for the quarter stood at 8,545 crores, which is 997 million US dollars, a growth of 11% on year-over-year basis and remaining flat on sequential basis. This performance was driven by steady performance across most markets with the exception of our US GenX business. Consolidated gross profit margin for the quarter was 56.9%, a decrease of 350 basis points year-on-year, and an improvement of 134 basis points sequential. The year-over-year decrease in margins was largely attributable to price erosion in generic segments, particularly in lignamine and lower operating leverage, partly balanced by a better product mix. Gross margin for global generics and PSA wore at 60.9% and 13.2% respectively. Lower business margins in PSA reflects seasonal weakness and under-recovery of overheads. The SMA spend for the quarter was Rs. 2,565 crores, which is in U.S. dollars to 99 million, an increase of 13% euro a year and 7% on a sequential basis. The euro a year increase was primarily driven by strategic growth-oriented investments in consumer healthcare business of NRT and the Nestle JV for new pharmaceuticals portfolio. Both businesses represent strategic growth drivers necessitating focused investment to unlock and sustain their long-term potential. Other S&A expenses remain well managed and broadly flat on year-on-year basis, reflecting discipline in cost control across core operations. Consequently, S&A expense accounted for 30% of the sales during the quarter, was higher by 44 basis points on year-over-year and 173 basis points on quarter on quarter. The R&D spend for the quarter was rupees 624 crores which is US dollar 73 million remaining broadly flat on Euro real basis and declined by 14% sequentially. We continue to make targeted investments in our complex generics API and biosimilars pipeline to support long term growth. The R&D spend was at 7.3 percent of the sales for the quarter and lower by 76 basis points on euro year and 123 basis points on quarter over quarter. For the full fiscal we expect the R&D investments to be in the range of 7 to 7.5 percent of the sales. EBITDA for the quarter inclusive of other incomes to that rupees 2278 crores which is U.S. dollar 266 million, an increase of 5% on year-over-year and decline of 8% on QOQ basis. The QOQ decline was primarily driven by higher revenue and lower other income on relatively flat revenue base. The EBITDA margins stood at 26.7% as it was lower by 149 basis points on year-over-year and 243 basis points on QOQ basis. The net finance income for the quarter is around Rs. 157 crores as compared to Rs. 84 crores for the same quarter last year. As a result, the profit before tax for the quarter stood at Rs. 1,905 crores. That is US dollars to 22 million. PPT as a percentage of revenue was at 22.3%. Effective tax rate for the quarter was at 25.9% compared to 26.04% in the corresponding period last year. We expect the normalized ETR to remain around 25% for the full fiscal year. Profit after tax attributable to equity holders of the period for the quarter stood at rupees 1,419 crores, which is $166 million. A growth of 2% on Euro year and decline of 11% on maturity basis. This is at 16.6% of revenues. Diluted EPS for the quarter is Rs. 17.04. Operating working capital as of 30th June 2025 was Rs. 13,320 crores which is $1.55 billion. An increase of Rs. 7.22 crores, which is $84 million over 31st March 2025. CapEx cash outflow for the quarter stood at Rs. 683 crores, which is $80 million. Free cash flow generated during the quarter was Rs. 433 crores, which is $51 million. As of June 30th, 2025, we have a net cash surplus of Rs. 2,009.2 crores, which is Rs. 341 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows. US dollar 648 million has been hedged using structured derivative contracts scheduled to mature over the next financial year. These contracts provide a minimum production rate of rupees 86.13 per dollar while also allowing participation in the event of dollar appreciation. Ruble 3.7 billion hedged at a fixed rate of one per Russian ruble, with maturity falling within the next four months. With this, now I request Eric to take us through the key business highlights.

Thank you, MBM. A very good morning and good evening to everyone joining us today. We appreciate your time and interest. Our performance in Q1 highlights consistent performance and steady progress of our strategic agenda. We deliver a double-digit growth in our base business, advanced critical pipeline programs including C-Manglutide and Abatacept. We remain focused on optimizing structural costs and driving operational efficiencies. We are also consistent with our strategic priority as we scale our presence in consumer health, innovative therapies, and . Overall, our results were a broad base except some softness in the U.S. market. Let me now walk you through some of the key highlights from the first quarter. Revenue grew by 11%, reflecting a sustained business momentum and consistent execution. We delivered EBITDA margin of 27%. The ROCE for the quarter was 22%. We closed the quarter with the net cash surplus of $341 million, reinforced a strong balance sheet position. Our biosimilar business gained momentum this quarter through a strategic collaboration with Algotech. for the co-development, manufacture, and commercialization of Pembrolizumab . The phase integration of the acquired nicotine replacement therapy, the NRT business, is progressing as planned. Following the successful integration in the UK and Nordics, we are now preparing onboard additional markets, including Canada, Australia, and other selected countries across Western Europe in the next phase. During the quarter, the US FDA inspected the Middleburg API facility in New York and issued a form for increase with observations. Following our response, the site has been classified as VAI. The agency also conducted a GMP inspection at CTO-5, our ATI facility in Mir-el-Lagouda and Legana, and issued a form for increased ritual observation. We have submitted timely response in line with our regulatory requirements. Last week, USFDA conducted a GMP entry approval inspection at our FTO-11 formulation facility in Shrikakulam Andhra Pradesh, resulting in 443 with seven observations. We will respond with it the required timelines. In recognition of our sustained commitment to sustainability, our carbon disclosure project CDP rating for 2024 was elevated to an A in the climate category, making us the only pharmaceutical company with this current placing us among the top 2% of any companies globally. We also retain a leadership status in the water and supplier engagement categories, reflecting our consistent performance across key environmental dimensions. Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in the respective local currencies. Our North American business generated revenue of $400 million for the quarter, a 17% year-on-year decline, and 4% decrease sequentially. The softness in the market was primarily due to price erosion in selected products, primarily linadulemite, as well as timing of procurement of this product by certain customers. During the quarter, we launched five new products and expected a pickup in the lost momentum in the remainder of the fiscal year, which is expected to support recovery and drive growth in this segment. Our European generic business delivered revenue of 131 million for the quarter, making it a 124% year-on-year growth and 6% sequential decline. Year-on-year performance was primarily fueled by the contribution from the acquired nicotine replacement therapy portfolio, and the new product launches, which provided an offset to some pricing erosion. During the quarter, we introduced 13 new generic products across European markets, further strengthening our portfolio and reinforcing our growth trajectory. Our emerging market business reported revenue of 1,404 CR rupees in Q1, displaying a 10% year-on-year growth and a flat sequentially. Growth was primarily driven by higher volumes and further support by new product launches. During the quarter, we introduced 26 new products across multiple countries, reinforcing our commitment to expanding access and deepening market prices. With this segment, our Russia business delivered a 17 year-on-year growth and 2% sequential increase in constant currency terms, underscoring its continued momentum despite macroeconomic challenges. Our India business reported a revenue of 1,471 core rupees in Q1, delivering a double-digit year-on-year growth of 11% and 13% in sequential increase. This performance was primarily driven by contributions from new products and pricing. According to Acuvia, we continue to hold our position as the 10th largest player in India pharmaceutical market and have outpaced market growth with moving annual total growth of 9.2% compared to IPM of 8% growth and MQT growth of 11.2% versus IPM growth of 8.6%. During the quarter, we launched five new brands, including two innovative assets, Bayfotus, which is a RCV vaccine, and the product called Sensimium in Q1, further strengthening our domestic portfolio and reinforcing our growth momentum. Our PSAI business reported revenue of $95 million in Q1, April 26th, registering for year-on-year growth while experiencing a 14% sequential decline. The business momentum is expected to pick up in the coming quarters, positioning us to return to a double-digit growth trajectory for the fiscal year. During the quarter, we filed 12 drag master files. We remain committed to strengthening our pipeline as a key driver for future growth, while actively pursuing a strategic collaboration to accelerate innovation and expand our capabilities. Our R&D efforts remain concentrated on complex generic high-impact like GLP-1 group and biosimilars, which are central to our long-term value creation strategy. During the quarter, we completed 11 global generic filings. As we move through the fiscal year, our focus remains on strengthening our base business, advancing key pipeline assets like Simaglutide and Abatacept, building commercial strength in regulated markets and improving efficiency and cost structure. We are actively exploring strategic partnership and acquisitions to diversify and strengthen our portfolio. These efforts reflect our commitment to agility and disciplined execution in a very dynamic market environment aimed at delivering sustainable value for our stakeholders. With that, I will welcome your thoughts and questions as we move into the QA session.

Thank you, Erez. We will now begin the question of the session. To join the question queue, please use the raise hand option available on the bar at the bottom of your Zoom application. If you wish to exit the question queue, you will click on the lower hand option. Participants are requested to not ask more than two questions at a time and to rejoin the queue in case of any incremental queries. I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please do feel free to use the chat option to reach out to us. The first question is from the line of Amay Chalky from JM Financial. Amay, please go ahead.

Thank you for the opportunity. I hope I'm audible. So the first question I have is on the U.S.-based business, is it possible to give some guidance on how it has performed trotter on trotter, whether it has improved or gone down directionally, and how the base business is expected for the FY26 census for the U.S.?

Maybe something with the U.S. button or something. Just a piece of question, please.

Yeah, I wanted, I was asking the U.S.-based business how it has performed Q and Q basis, whether it has increased or decreased directionally, and for FY26, what is our outlook for the U.S. basis?

Yes, so the base business in the U.S. was, yes, the base business in the U.S. decreased It's primarily timing. So I will say I don't see anything relatively special. There were some key projects, especially Suboxone, in which there were kind of orders that moved from a quarter to quarter. I would not give too much importance to it. Overall, the base business, the way I see it, is going to be that we normally are discussing is of course depends on the success in some product launches that we are going to be. Most of the decline that you see or Q and Q was after the two .

Sure, thank you so much. And the second question I have is on the ReveilleMed. So going ahead, do you expect some pickup in coming quarters before going down from Q3, or do you expect the similar trajectory for upcoming quarters as well?

So, you know, we are not discussing specific number on this product, but it is important people will know. Naturally, we are trying to... avoid a shelf price adjustments so what you should anticipate is one more quarter give or take in the range of what you have today and relatively a much less in q3 and after that some left over and that's it so just last question if i can squeeze in

On semaglutide launches in the ROW non-regulated market, when should we expect that to happen?

So the, in the, what you call ROW, most of these launches, so we are prioritizing the capacity that we have to launch in Canada. So assuming that this will happen, the launch in the rest of the countries during calendar 26, 87 markets overall, most of them are small. The key will be India, Brazil, Turkey, and products like that, will be after March of 26. Canada has an opportunity like we discussed many, many times to be before this.

So, thank you so much.

I will join back. The next question is from the line of from Bank of America. Neha, please go ahead.

Yes, thanks for taking my question. My first question on the U.S. pipeline, you know, North America, you know, obviously we have SEMA that we'll probably get to know in the near term. One, if you could tell us what timelines we need to watch for SENA and for Canada particularly. And second, other than that, the single digit, you know, group that you're talking about, does that include any high value launches in the second half that we should watch out for? And I'm asking this because we also saw PAI inspection, you know, for the Chicago facility.

Yes, so we, I'll start with the last part there. And I believe that we will get a VAI. The observation that we got, to my opinion, are addressable, and we should expect a VAI from that. On the timing of semaglutide, we are still planning and gearing to get approval of the product somewhere between end of October to beginning of November, and if this will happen, we can launch the product at the time of the loss of exclusivity in the beginning of January, 2026. And that's what we are giving ourselves to do. As for the rest of the products with this that we made, meaning that I try to give you how I see the trajectory of the year. We did not take into account a very significant, let's say, out of the ordinary launch. We are planning to launch about 20 products in the United States, but none of the, let's call it a sophisticated product, We learn from experience and I'm trying not to give, I look at them as an upside. So it could be upside to the trajectory that we see. Another thing on FEMA, just to make sure that people have the complete picture, we are having two assumptions as related to Canada. One, that's from IP perspective, we'll be able to make and ship the product to Canada, which is a country without a patent. And second, that we will get approval in that period of time. Obviously, if these two assumptions will not happen, it may change the trajectory of SEMA group data.

Okay. Thank you so much, Erez. And then on another question for you, just looking at the gross margin trend for this quarter, You know, given a quarter where we've seen a fair bit of erosion in development, they've still managed to improve gross margins. If I were to think about the full year, you know, how should we think about gross margins, you know, particularly going into fiscal 27? And historically, you've also mentioned that SG&A cost will be in the 28%, you know, of sales range, but obviously it's tracking higher. So, is it fair to assume that, you know, this is the new range for SG&E cost closer to 30% mark that we have reported in this quarter?

So, let me first thank Neha. And as far as gross margin is concerned, I think at least for this year would be in the similar levels and because there could be higher sales from the base businesses in the branded markets and other PUs. and that's where I think for this year and next year is like a clearly I just don't want to give any number at this point of time range also like a this definitely once we launched in the semaglutide we can model it that's where it is I think we can see as far as again is concerned I think we even for the by on the full year basis it should be in the zone of like a 28 to 29 percent zone not like at 30 percent

I just want to make sure, Nia, if we successfully launching C-magnotype, we should be absolutely good in all the parameters that we are familiar with, meaning the EBITDA as well. So we are aiming that the base business will be always north of 50%, and in C-magnotype it should be even more than that on the gross margins and the EBITDA. Obviously, like always, 25 or north of it. In the time in which we don't have LENA and we don't have CIMA, likely that these parameters will be lower than that.

Understood. Yes. Got it. Thank you so much for this.

Thanks, Neha. The next question will be from the line of from HSBC. Yeah, hi, thank you for the opportunity. My first question is again on Lena Lidomag. So it is for 2Q as well also, you have mentioned the level should be similar to what you booked in the June quarter, or there is still like some room to book higher sales given I think you want to book most of the sales intended for FY26 in first half itself.

In order, not too much, because there is also moving parts on prices. The price went down in this fiscal versus last fiscal. But overall, let's call it similar magnitude. I will not say the same, but similar magnitude.

Okay. So on the pricing pressure part, is there a possibility you will be facing – higher magnitude compared to the current level because I understand your competitors are also trying to pass on maximum volume which is possible in first cap itself. So in view of that, will price erosion intensify possibly from here?

We hope not. I believe not because most of the booking was done already. In general, naturally, when more companies can this year, they have bigger quotas, and they try to sell in less quotas. So by design, it creates certain density versus the year before. It is all well anticipated. So I honestly, I don't see any surprise. And in my discussions, especially in the last couple of weeks, and I met quite a few people, during this period of time, we cannot explain that. So I believe that what you should see from us, it's give or take similar magnitude of pricing as well as quantities. And after that, it will be sharp decline in the other quarter.

Sure. My second question is on semaclutide regarding your preparation. So can you update us on your capacity expansion advisor, and when do you expect that capacity to come on board?

Yes, so we are, the launches that will happen in FY26 and FY27 will not be out of Isaac. It will be with our partner. And using our API, but with the partner. And which means that the capacity of FY11 will come from FY28 onward. We will likely to have in the beginning with our partner about 12 million pence in FY27. And if you look at calendar 26, because it's very relevant for the potential Canadian loans, It's about 10 million pence. This is what we are planning to have.

Okay, so for 26 and 27 fiscal year, you are good to go with 12 million pen capacity from your partners. Do you think that that will be sufficient to gain meaningful market share in the market which you are targeting?

We believe so. We believe so that naturally we would love to have more but we feel very confident about this magnitude. There is maybe potential upside to it, but this amount I feel very confident about. Now it's a matter of what mix of market we will get overall and then what will be the average price for those. This, of course, is unknown. But, yeah, I feel very comfortable about this magnitude.

Okay, that's helpful. Thank you. The next question is from the line of Madhav Varda from Fidelity International. Madhav, please go ahead.

Hi, good evening. Thank you so much for your time. First question was if you could just give us an update on the biosimilar Bioticept phase 3 trials, how that is progressing and by when do we expect outcome for the phase 3 trial? So that's my first question.

So, so far so good. The readout is November 25th, which is as expected in accordance to the timelines. Following the readout, which I hope will be an open belief that it will be positive, we are planning to submit the VLA in order to be on time for the market formation, which is December 26th or January 27th, let's say, if we look for the realistic launch because there are some registration posts approval. Just to make sure that you have the full picture, the launch in the beginning of calendar 27 can be of the IV formulation. The subcutaneous formulation because of IP will be a year later.

Understood. Yeah, that's quite clear. And the second question is on the cost-saving measures. So, could you give us some sense in terms of the extent of cost savings that we can drive? And if you could give us some sense in terms of the R&D spend, given we do have phase 3 trial of biosimilar biotasept ongoing, what's the quantum of that spending? And I'm assuming that spending should not recur next year. So, the extent of cost savings that we can drive for the organization next year? Thank you.

Absolutely. You got it right. We used the time in which we enjoyed the backing, the tailwind that came with the and we boost some investment in the future including a , including the creation of the of the GLP-1, including the buildup of the facility for that, acquisition of the NRT business. So all of that was done because we had access to more financial capacity, and we used it. As you said, rightly, some of that investment we don't need anymore. Post, for example, November 25, we'll not have to pay for the clinical trial of Abatacept. I kind of feel that there are discretionary costs between R&D, HG&A that can be 500 basis points, 600 basis points that we are planning to adjust in according to the motion. We need to remember that we have also some question mark of how the future will hold between tariffs and the magnitude So accordingly, we are preparing a scenario. So the idea is between growing the base, semaglutides, and the expenses, as well as a success BD, we will kind of manage to make sure that the growth is coming in the right way.

So just to clarify, when you say 500 to 600 basis points, Dr. Reddy's sale, you know, it's at about, let's say, 30,000 crore plus top line. So 500 to 600 basis points. Are you saying there's potential to say 1,500 to 1,800 crores on cost? Is that the right way to think? Of course, like you said, depends on how the business shapes up, but is that the potential?

The potential is like that, but it doesn't mean that we are going to save all of this. I'm not recommending you to put in the model that much. But absolutely, that's the game that we play. So we prepared it in advance, naturally. The linoleumide was a known factor. We are preparing for it for actually since we signed the deal. And that's part of the idea. Hopefully we don't need it because if the growth will allow us to invest more, eventually we want to invest because we want to create additional future. And we want to be a growing company for many, many years. So we are trying to manage the famous 25%, 25% double digit growth. Also into the future, it's not going to be necessarily every quarter because of this timing of some big products that you can appreciate, but I'm confident that on the big scheme we will be there.

And if I can ask one last question, when you said that, you know, we have 12 million pens available in FY27. I guess you're right that the mix of markets will be important for the profitability, but are we confident given we plan to launch in more than 80 countries, potentially some of which can be small as well, but that we can sell the entire 12 million pence, you know, with or without Canadian approval, that we can sell the entire volume at least?

I believe so for two reasons. One, in all of these markets, we are aiming to be first or among the first. Second, the demand for this product looks crazy. And so far, the indication that we started to speak to people can confirm this, that the demand is there. Yes, so I believe that it's absolutely possible.

Perfect. Thank you so much.

Thank you. Thanks, Madhav. The next question is from the line of Dr. Harit Arman from Avengers Park. Harit, do you go ahead?

Good evening. Thanks for the opportunity. So, a couple of questions related to your U.S. pipeline. The first one is on generic liraglutide, which you had filed sometime in 2023, and I see that there are quite a few generics already in the market, and it's a fairly decent opportunity. So, what is the status of our filing, and what are the timelines you're looking at?

Yeah, so it's a product that we obviously have, and we are planning to launch it also in the next coming quarters. And in some markets, we will be late. In some markets, we will be first to market. It's also, as you know, the Ragouta is Victoria and Saxenda. We believe that with Saxenda we are going to be the first to market or some of the first to market in . So it's a product in the mix. It's not as big as that's why we're not talking about it. But if you recall, we have about 25 products as we call them. test tiles or how to make or with bigger potential, you asked me about it before. I'm not guiding on those products before they're coming, but the agglutide is definitely one of them and we're planning to launch it.

Okay, thanks for that. On semaglutide in Canada, you said earlier that you're making two assumptions. One of them is that there won't be any patent protection for the brand in Canada. So is there a risk to that assumption or is there any scenario where there could be a patent related hurdle to your launch?

So just to correct, there is no patent in Canada. What keeps the product from being launched is that exclusivity that will expire in January 26th. There is a patent in India that we are now litigating in Delhi High Court. And, of course, so far we are following the instruction of the court, and we are preparing for it. And the second is that we need to get approval. If vote will happen, we will be good. I don't see an IP situation in Canada that will stop us.

Okay, thanks for that. I'll get back into it.

Thanks, Harit. The next question is from the line of Dr. B. Dilo from Elada Capital. Dilo, please go ahead.

Hi. Hi. Good evening. Most questions got answered, just a couple of them. On the PSAI gross margins, it has been, it was really big this quarter. I think your talks about some operating leverage issue. But if I look at the top line in PSAI, it has not changed materially or UI or QOQ. So, why then the gross margin decline from mid-20s to low teens?

Yes. So, actually the API business is healthy. And the reason for that is some of the demand products for the U.S. are also being back integrated. And also the way we build the inventory. So if you wish, it's attributable to the internal sale. Once there is less internal sales, there is more cost allocation on whatever is sold, you know, and according to accounting. And that's what created, it's actually a very healthy business, and it's growing, and you see that it will correct itself in the next coming quarters.

Understood. In others, I see about 165 cores with more than the usual quarterly run rate. Is there any one-time operating income there?

So, in this, you know, we have an outlet sensing income from our origin. So, that is like a, it is always, I think, it's part of our regular business. I think business, that's what is there. One, this quarter, we have that income.

Got it. Thank you. I'll jump back to you.

Thanks, Pino. The next question is from the line of Sai Mukherjee from Lumura.

thank you go ahead yeah thanks for taking my question sir can you share the PLI income or the government grant that you generally share for the quarter and here if you remember like overall thousand crores were paid of six years I think the first four years quota we have already because we have just taken we have got additional approvals and then we accounted for fi 26 PLI uh is not much I can say almost is zero then once again you will see the PLA income in uh 527 28. okay so there is not much in this quarter is what you're referring after this quarter and for the full year also is almost is let me put it I think is very small value is there not very big okay understood and on the PSAI front with regard to origin farmer services If you can throw some light how, you know, how you see the CDMO business scaling up and what kind of customer or profile of customer and kind of products or services you're offering?

So it is growing. I don't remember how much we sold, but I think $17 or $18 million this quarter, something like that. We are gearing up for about $100 million sale for the full, It is a combination of small molecule CDMO as well as biologic CDMO, primarily ABC. It's a kind of a combination of both. It is growing nicely. It is not that we are going to be a CDMO company, but it's a nice growing business as we speak, and we see that there is enough traction for those that want kind of our size of business and that create synergy with Dr. Reddy's, those that are not a threat from Dr. Reddy's, but actually want to have a synergy with us, especially as related to collaboration on clinical trials, R&D activities, and even marketing rights in emerging markets.

I understand, but do you have, from $100 million this year, I mean, what should we expect, let's say, three, five years down the line? Do you have some line of sight of growth in this business?

Yeah, it should be between $250 to $300 million by 2030.

Understood. Okay, thank you.

Thanks, Ayon. The next question is from the line of Vishal Manodali from Motilal as well. Vishal, please go ahead.

Yeah thanks for the opportunity. So just on this Ketruda, biosimilar if you could you know share like through some insight in terms of the kind of spend that will be done on the clinical trial on a combined basis doctor ID as well as algorithmic basis.

Yeah we if you recall we are targeting on biosimilar being relatively young organization in that space to try and bring products that want to do ourselves a product with relatively less level of competition. And this is how we target Abatacept, Daratimumab, and these kind of products. Pembro is a molecule that many, many markets want, naturally being a very, very important molecule in this space. But we felt that it's likely to be crowded. The exemption of phase three, no phase three, plus collaboration, plus the ability to licensing, create an equation in which the level of net investment is not much, and then it can create a very good ROI, especially when we are going to the relevant markets. So the intent is to launch it in many markets, including the United States, including in Europe, but with much less burden of prior investment. this was the thinking behind it.

Got it and the trials again given that this molecule has been there for multiple indications, so what is the thought process like we will be progressing with certain indication to start with and then or the clinical trials of the biosimilar version would be as good as the inevitable.

So you do not need to do it for the indication, actually the type of trial that we do allow in each one of the market to get the same indication that is approved for the relevant market of ketubra so you don't need to do it for multiple indication you can have one tile and get all the relevant indications but it's going to be interchangeable product okay and just one more on the rmb spend like you know this year

it is relatively less as a percentage of sales like almost 77.5% summing up to let us say compared to FI25 which was almost 8.5 to 9%. Given that we have such complex assets in the pipeline, you know what is sort of the thinking to sort of reduce the R&D spend both as a percentage of sales as well as maybe on the absolute amount as well.

Like I mentioned before, we have certain level of 500 to 600 basis points that are what I call discretionary that we can play with in order to match the sales growth as well as to the expenses. R&D is part of it. So right now, you should think about 7%. We have, of course, enough projects to go more than that. If the P&L and the numbers will allow us, we will do that. And if not, we can go even down to six. So we have that flexibility. Like I mentioned, the profitability of the company is very important for us. This is the level of flexibility that we have on the R&D. Right now, we are somewhere in the middle, waiting for... to see how the next quarter will evolve.

Got it. And just one last one, if I may, and like while there are many questions asked on semaglutide, but just broadly, you think this is like sort of a two-year opportunity, one-year opportunity, or much more than that?

First of all, I see that as many, many years opportunity. Actually, we are entering a decade of GLP-1 products. Obviously, it's not going to be It's going to change and evolve. At the beginning, it will be more like to start to be in the markets, to try to get in those markets that will be first or among the first certain premium, selling our capacity. We believe that this segment will grow significantly. We will add capacity. There will be more volume, obviously, over prices. And we are going to see brands, branded play, whether consumer care play, like in the obesity or, you know, differentiated devices and stuff like that. So actually, just at the beginning of the journey, more products will be added. By the way, the full portfolio of GLP-1 for the company is 26 products. Obviously, the semaglutide as well as the Eli Lilly product. will be the biggest, and we are trying to get for each one of them to be first to market as well as to create some differentiated play. So it will evolve. 2026 is just the first year that we will significantly deal with these products.

Sure, thank you. Thank you for this.

participants are requested to restrict the number of questions to two to ensure that everyone gets an opportunity to interact with management. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Shyam, please go ahead.

Yeah, thank you. Thank you for taking my question. Just the first one is on, we did CAPEX of 80 million. We have about $350 million in cash. So just want to understand outlook on CAPEX for the year. Where is it generally being spent for? And the sub-question is on 350 million of cash. So what is the, other than CAPEX maybe, what is the other areas or avenues where we are looking to deploy this cash?

So CAPEX is this year also would be more or less like last year level. We are overall for the full year, we are expecting cash outflow for in the range of 2,500 to 2,700 crores. And then the center cap is also the large investment is going for peptides and biosimilars.

As you know, we are looking for BDA. Like I mentioned, we have four levels of growth. The baseline growth, special products, cost optimization, and BP. We believe not just this case. We have also the ability to borrow that we have 2 to $2.5 billion. of financial capacity, and we are engaging as we speak with BD, and hopefully we'll come. BD, you can have a guide, but we are definitely working on it, and we see growth opportunities.

So that's a 2.5? Like, what is the net net to EBITDA, or what is the leverage?

This is going to be like a max of 0.5.

Understood. Okay. Just a second question on the India business. We have outgrown IPM. So just want to understand, I know you talked about the top 10, but what can help us sustain double digit or even outperforming the market? And if you could also give us some data points around what our field force is, what is our expansion plan in terms of distribution in India? Thank you.

Sure. So, Shyam, the We decided, and I know you are fully aware of it and appreciate it, that we will not focus on brain engineering at the time. We believed that the growth in India will come primarily by introducing innovative products, which is better than the standard of care that is used today in the market. And the growth that you see now is part of that. So we are launching innovative products. In addition to the branded generic, so the branded generic will be like normal price adjustment with some minor volume growth. We will not be that special on the branded generic. Some products will do more, some less. But our key, and that's why I believe in the consistency, is because we signed many deals so far on branded product and more to come. So we believe that we will outpace the market, and that's what we grow. I think I'm still committed to the number five in the market. We are doing it in a slow way because we are not acquiring to be there. We are growing that organically. Actually, inorganically if you're considering licensing it. And that's what we are trying to do. We should see consistent double-digit growth in India in the coming quarters and years.

Just a data point on the field force.

About 10,000 people in 50 teams. Understood. Thank you and all the best.

Thank you, Shyam. The next question is from the line of Surya Pastor from Philips Capital. Surya, please go ahead.

Yeah, thanks for this opportunity. My first question is about biosimilars. So it seems that we are busy in licensing, doing deals for biosimilars to find a portfolio there. Could you provide some pipeline visibility for U.S. market, let's say starting from FY27 or 28, which are the key product opportunities that we are targeting for the U.S. market?

Yeah, so obviously the key product will be abatacept. Abatacept, like I mentioned before, end of calendar 26, January 27, we should launch the IV product. And in the year after, we will launch the subquotemis. Sorry? Okay.

Yeah, second product I missed out, so if you can just.

Then we will have launches of smaller product, which is obviously we will launch the Nusumap prior to that, primarily to prepare the launch of Abatacept. So we took licensing of this product for both Europe and U.S., because it's a similar customer base, especially similar doctors. So in a way, to prepare the team, so by the time that Avatacept will come, we'll have the team as well as to have a debt ready. In addition to that, after that we'll have Pembro, Zilumab, we will have Daratimumab, And obviously, more products will come to the U.S. But right now, these are the four names that will be in the U.S. Rituximab, we will have also in the U.S., but we present it not by our people.

Okay. My second question is about the Russia business or particularly the secondary tariffs, what is emerging from the European sanction or the U.S. sanction, what on Russia, so whether this is a kind of a factor of worry for us?

No, if at all it's an opportunity. We are working freely in Russia, a great relationship with the country, a great team that we have, and if other people will put sanctions on it, the sanctions are not relevant to us, and if at all it's an opportunity.

Just last one point on the NRT. We have reported that there is a QOQ growth of around well out percentage. So is there any seasonality in that NRT portfolio? And what growth likely that the portfolio would have seen on a YY basis?

Yes. So first, no seasonality. This is a smoking cessation brand. The second, the Normally, the brand used to grow in single digits. So far, we are accelerating it, but we are still, at least in our business model, we anticipate a mid-single-digit growth. Right now, so far, knock on wood, this acquisition is exceeding our expectations.

Oh, great. Yeah, thank you. We should all love it.

Thanks, Povya. In the interest of time, we would request all participants to restrict the number of questions to only one. The next question is from the line of Abdul Qadir Puranwala from ICICI Securities. Abdul, please go ahead.

Yeah, hi. Thank you for the opportunity. My first question is with regards to with regards to semaglutide. So, sir just on you know we spoke a lot on the call in perspective of the launch timing, but in terms of pricing you know if you could provide some color on you know tentatively indicating at what price point you may want to introduce this product in Canada and you know other markets.

As high as we can. Honestly, I wish I could give you a much better answer. It very much depends on how many competitors will be, what will be the reimbursement. So the scenarios are very wide. So it will be dictated, obviously, by number of, but whatever the market will give us, we will take.

Sure, sir. And just next one question on, you know, on the expenses, what you would have incurred on NRT and reciprocal. So when you talk about, you know, 500 to 600 bucks of cost savings, would that be that, you know, would it be safe to assume that a lot of that is currently getting incurred toward these two products, which may not happen in the near future once the revolution goes off?

No, we are talking not about discretionary costs or normally costs that you can save at a time that you need to, which are not supporting sales. So not support marketing. Obviously, we just got the product. We want to grow it. We will invest in it. We are talking about things that are good to do also on the ongoing basis, but for sure if you need to save money, less traveling, less meetings, less consultants, etc. So this kind of discretionary that will not touch the sales. We are not desperate. We are actually very comfortable with what we do. We knew that Lina will come, but no, we are not planning to cut expenses that are supporting the growth of the company, the priorities of the company.

Got it. Thank you for answering my questions.

Thanks, Abdul. The next question is from the line of Puram Parekh from Bank of Baroda Capital Markets. Puram, please go ahead. Yeah, thank you for the opportunity. Most of my questions are answered. Just on the NRT front, Should we still assume EBITDA margin to be 25% or would it be in the neighborhood if you can just throw some light on that?

Yes.

Okay. And on the Europe front, X of NRT, the growth has come down to 15%. So going forward, do we expect it to bounce back to about 20% kind of growth as we have new product launches and biosimilar launches? Or can we work out the 15% kind of growth?

First of all, to grow double digits in generic business is not bad. Yeah, once we will launch the biosimilars, it will accelerate this growth. It's hard for me now to calculate the percentage because I think we are launching each one of them in 10 countries, and it's pretty complicated. But let's say we should expect double digits from Europe, but if it's 15 or 20, it's hard for me to tell the quarter. The important part about Europe is it's all average activity. These are all products that we have not just for Europe. And that's the beauty of this business. It's adding to the economy of scale. And so far, so good. Yes, so it's in the neighborhood of what you said, maybe plus, but I'm taking a disclaimer that I don't know what will be exactly the timing of the biosimilar and how it will contribute to that.

Sure, no problem. And lastly, if I may squeeze in, can you just throw some color and how do you see, ahead of the semaglutite launch in India, how do you see obesity market forming, you know, post the launch, given that the size of the obesity market is very small, which is, you know, one to innovators. So post-GENVIC, how do you see the obesity market expanding in India?

I believe that it's going to be significant. The The unmet need is very, very clear, especially for people that live here in India. And so I believe that it's a big opportunity.

Would it be possible for us to quantify?

I don't want to give you unreliable numbers. It's big. The potential is big. I don't know to say how much.

Okay. Thanks. No problem. Thanks, Faram. The next question is from the line of Shashank Krishnakumar from MK Global. Shashank, please go ahead. Shashank, can you unmute yourself?

Okay. Can I answer the next question? Hello.

Yeah.

Yeah.

My first question was on the outlier sensing income, which we booked this quarter. Is it possible to quantify that? It's 120 crores.

Got it, sir. So, my second question was.

Just I would like to add this is not like a one time income this is like a always I do not know few quarters in a year or I think going for it always will be there.

So, also my second question was more from a million pound strategy standpoint. We have typically relied on high value complex generally conscious in the US. Now, how do we sort of reconcile that the fact that we are also looking to moderate our R&D spend?

I think you mentioned possibly you can also reduce it to 6% going forward. So, can we still keep pace with the pace of complex generic losses that we have typically done in the past in the US if we sort of moderate R&D spend going forward?

Yes, just to remind R&D spend are relevant for products that will be launched in the United States between ten to two years from now. So, yeah, absolutely we can decide how much we spend for the future and how much we keep in accordance to our performance. I don't see any effect for the immediate terms because all those products were either we committed the development or we have the files already.

Thank you, Shank.

The next question is from the line of Aman Witt from Acute Investment Management. Aman, please go ahead. Aman?

Aman, your line is unmuted.

Yeah.

First question is on the semi-glutide API side. So if you can talk about our yields currently and the quality and the tithing compared to Chinese API players, because I believe they have a lead. But we are planning to set up a big capacity in India, which is much more than the guidance of 10 to 12 million PNPU have talked about for two years, which we are targeting.

So can you talk about this site? So just to calibrate, the 12 million pens is the launch for 26. Obviously, only a small portion of the capacity will be used for that. We are also, in this peptide capacity, going to do products for third party, as well as for the future, as well as other peptides. So that's just two. clarify it's not the competitive numbers. Second, in terms of cost, we believe that once we will finish the scale up, our products will be competitive with other competitors, including China.

That is heartening to hear, sir. Second question is on the very high quote patent challenge, which I think By next week, we will get an answer. But I am saying in my understanding, in worst case scenario, isn't it just that even if it goes against us, it means we will be able to launch only two months later because India patent expires in March versus Canada in January. It doesn't delay beyond two months in worst case scenario. Is the understanding correct?

The understanding is correct as related to the timing of the launch in India. For us it is important to enable our launch in Canada. So the Canadian launch then will be more than two months. If it will not go our way, obviously I cannot react because you know the laws in India, I'm not reacting on any pre-justice situation. but we believe that it is going to grow in the way that will be satisfactory to us.

Sure, sir. Just final question. You have talked about 10-12 million kind of capacity which we have tied up with say the fill finish players and the pen players. So, in say good case scenario, if the demand is say 2x our initial assumption, will we have, do we have arrangements with both the parties, the suppliers as well as the fill finish players that if the demand is way more because I believe there is shortage of capacity in terms of both fill finish and devices. So, is there a case, is there a case where if the demand is 2x, we can somehow arrange 2x volumes also?

2x for calendar 26 would not happen.

27, you said similar number for 26 and 27, right? So I was more worried on 27, not on 26.

Yeah, so I just make sure that you got it right. Calendar 26, which is FY27, but mostly is 10 million. If you take it as FY27, it's 12 million. There is some upside to that. But I normally, when I'm giving guidance, I have to be very, very accurate and reliable in what we are giving. That really could not be in that period of time.

Okay, but slight increase we'll be able to manage with the arrangement, say 30, 40% extra than what we are predicting. It depends on the definition of slight, but yes. Thank you for answering the questions.

We will take the last question from Kunal Avesha from Macquarie. Kunal, please go ahead.

Hi, good evening.

Thank you for the opportunity.

Just one on SEMA Canada. So because there are two one for type 2 diabetes, which is Ozempic, and one for weight loss, Vigovi. So currently, Canadian authorities are not reimbursing Vigovi for the weight loss indication. So how are we planning to tackle this issue when we launch our product?

We are going to launch only Ozempic, generic Ozempic. The summation of a generic will happen throughout the year, but the launch that we are discussing is only for the MPEG. I do not anticipate any issues with it.

Sure, sure.

And can you help us also understand the split of this 10 million pen capacity that we have between single-use pen versus multi-use pen? Because semaglutide in Canada is available in both versions.

multi-use as well as single use pen so the quantity that I mentioned is in a single use terms so one pen per week is the yeah it's like equivalent to one pen a week sure so thank you and all the best thank you thank you thank you with that I now hand it all over to Richa which will be comments

Thank you all for joining us today. We appreciate your continued interest in Dr. Reddy and the time that you've taken to engage with our Q1 FY26 results. If you have any further questions or require additional information, please feel free to reach out to Aishwarya or myself. With that, this concludes today's earnings conference called Stay Safe and Take Care.