Dr. Reddy's Laboratories Ltd

Good day and welcome to Q2 fiscal year 2020. I'm Aishwarya Sitaram and I'm part of the Dr. Eddy's Investor Relations team. I'd 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 chat will not be monitored for any questions to the management. I now hand over the conference to Richa Parimal.

Thank you. Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebration with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY26 Earnings Conference Call. We truly value your time and participation. Joining us today are members of the leadership team, Mr. Ivez Israeli, CEO, Mr. Mvn, our CFO, and the investor relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with Mvn providing an overview of our financial performance for the quarter. Following that, Erase will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded and both the audio 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. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during this call. With that, let me now hand it over to M.V.N. to present the financial highlights for the quarter. Over to you, M.V.N.

Thank you, Avicai and Aishwarya. Good evening and a warm welcome to all. Thank you for joining us on our Q2 FI26 earnings call. I am delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower linoleumite sales. The acquired consumer healthcare business supported the top-line momentum. EBITDA margins stood at 26.7% of the quarter. All financial figures in this section are translated into U.S. dollars. using a convenience translation rate of Rs. 88.75, the exchange rate prevailing as of September 30, 2025. Consolidated revenue for the quarter stood at Rs. 8,805 crores, which is US$ 992 million, a growth of 9.8% year-over-year and 3% on sequential basis. While US generics faced From product specific price erosion and lower limited sales overall growth was supported by the integration of consumer healthcare business and double digit growth delivery across other markets aided by favorable forex. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points euro a year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower limit sales and product specific price erosion in the U.S. generics. One-time inventory provisions from the discontinuation of the certain pipeline products due to technical challenges and lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The S&A spend for the quarter was 1%. Rs. 2006, 44 crores, which is US dollars 298 million, an increase of 15% on year-over-year and 3% on sequential basis. The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. Agenia for the quarter includes a one-time promotion of Rs. 70 crores, for a VAT liability in one of our subsidies and charges related to a discontinued pipeline product. S&A spent accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis. Excluding the one-offs related to VAT production, S&A spends as a percentage of revenues was at 29.2% in Q2 FY26. The R&D spend for the quarter was 620 crores, which is US dollar 70 million, a decline of 15% year over year, and broadly flat sequentially. The decrease was due to reduced development spends on biosimilars during the quarter, as major investments for Abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategy collaborations to bring innovative assets that support sustainable long-term growth. The R&D spend was 7% of revenues for the quarter, lower by 203 basis points euro a year and 26 basis points on sequential basis. Other operating income for the quarter was Rs. 267 crores higher than Rs. 98 crores in the corresponding quarter last year. This was mainly an account of product related IP settlement income in the United States and one time reversal of 88 crores in liabilities related to discontinuation of the pipeline product. EBITDA for the quarter inclusive of other income stood at Rs. 2351 crores which is 265 million US dollars. an increase of 3% on Euro rear and the sequential basis. The EBITDA margin stood at 26.7%, lower by 174 basis points on Euro rear and flat sequentially. Adjusting for the one-time VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Employment charge was 66 crores, including 54 crores for property, plant and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to a product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at 77 crores as compared to 156 crores for the same quarter last year. The decline in net finance income reflects lower returns From financial investment following a deployment of cash reserves towards acquisition of consumer healthcare business and other intangible assets in line with our capital allocation strategy. As a result, profit before tax for the quarter stood at Rs. 1835 crores, that is, USD 207 million. PBT as a percentage revenues was at 20.8%. On an adjusted basis, excluding the one-time VAT provision, the PBT margin was at 21.6%. Effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2-FI26 was lower primarily due to favourable The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax asset related to land indexation following amendments introduced through the Finance Act 2024 to Income Tax Act 1961. Profit after tax attributable to the equity holders of the parent for the quarter stood at Rs. 1437 crores, which is 162 million US dollars, a growth of 14% on year-over-year, flat on QAQ basis. This is the 16.3% of revenues. Diluted EPS for the quarter is Rs. 17.25%. Operating working capital as of 30th September 2025 was Rs. 13,331 crores, which is in US dollars 1.5 billion. An increase of 3 crores, which is like a US dollar 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at Rs. 511 crores, which is 58 million. Free cash flows generated during the quarter was Rs. 1046 crores, which is 118 million U.S. dollars. As of September 30th, we have a net cash surplus of Rs. 2751 crores, which is like a 310 million U.S. dollars. Foreign currency cash flow hedges executed through derivative instruments during that period are as follows. U.S. dollar... 502 million hedge using combination of forward structured derivative contract scheduled to mature through December 2026. These contracts are hedged at the rate of 86.9 per US dollar. Ruble 4.28 billion hedged at fixed rate of 1.03 per Russian ruble with maturity falling within next 4 months. With this, I request Eris to take us through the