Q1 2027 Dr Reddy's Laboratories Ltd Earnings Call
Speaker #2: 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.
Speaker #2: Reconciliations to the corresponding GAAP measures are included in our press release. I would like to remind everyone that the safe harbor provisions outlined in our press release today apply to all forward-looking statements made during this call.
Speaker #2: Before we proceed, I would like to call out a few housekeeping points. All participants will be in listen-only mode during the opening remarks.
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Speaker #2: The session is being recorded, and both the recording as well as the transcript will be made available on our website shortly. Please note that this call is proprietary material of Dr. Reddy's Laboratories Ltd. and may not be rebroadcast or quoted in any media or public forum without prior written consent from the company.
Speaker #2: With that, let me hand the call over to MVL to present the financial highlights for the quarter. Over to you, MVL.
Speaker #3: Thank you, Aishwarya. Greetings to everyone on the call. It is my pleasure to walk you through our financial performance for the first quarter of FY27.
Speaker #3: The business reported a revenue decline of 5.6% and an EBITDA margin of 12.5% for the quarter, reflecting the impact of lower linear revenues, which contributed to the corresponding period last year.
Speaker #3: As well as a provision of ₹240 crore for inventory and other costs associated with the recent semaglutide EPA-related challenges. Notably, the underlying base business, excluding Lenalidomide, continued to deliver healthy double-digit growth across all key geographies, including North America, supported by new product launches and favorable currency movements.
Speaker #3: All financial figures in this section are translated into US dollars, using a convenience translation rate of ₹94.66. This exchange rate was prevailing as of June 30, 2026.
Speaker #3: Consolidated revenues stood at ₹8,071 crore, which is $853 million, a decline of 5.6% year over year, and a growth of 7.4% on a sequential basis.
Speaker #3: Strong performance across key markets, further aided by favorable forex, was offset by lower linear amount sales. Other revenues declined primarily due to a change in operating model post-integration, under which rebates and discounts are offered to distributors and recognized net of revenues.
Speaker #3: As compared to the transition period, when sales were managed by the seller, Helion, this change in operating model is profit neutral. Consolidated gross profit margin was at 46.5%, a decrease of 1,039 basis points year over year, and an increase of 169 basis points sequentially.
Speaker #3: The decline in margins during the quarter was largely an account of lower linear amount sales, the semaglutide EPA-related provision mentioned earlier, as well as higher solvent costs on account of Middle East conflict.
Speaker #3: The reported gross margin was 51.6% for Global Generics and 4.5% for PSAI, excluding the semaglutide EPA-related provision mentioned earlier. The overall margin was 49.4%, while that for Global Generics was 53.8%, and for PSAI was at 12.9%.
Speaker #3: The haziness spend was at Rs 2,082 crore, an increase of 12%, and 4% sequentially, accounting for 36% of revenues. The year-over-year increase was primarily driven by higher personnel costs due to annual increments, adverse forex movement, targeted investments in the branded business, as well as elevated freight costs arising from disruptions related to the Middle East crisis.
Speaker #3: The R&D spend was at ₹577 crore, a decline of 8% year over year and up 6% sequentially, accounting for 7.1% of revenues, and reflecting lower biosimilar development expenditure compared to the previous year.
Speaker #3: The underlying EBITDA, including other income, stood at rupees 1,009 crores for the quarter, which is US dollars 107 million, a decrease of 14.16 basis points year over year, and 55 basis points sequentially, reflecting a margin of 12.5% of the revenues, excluding the semaglutide EPA-related provision, the margin was at 15.4%.
Speaker #3: As a result, the profit before tax was 553 crores, that is 58 million, US dollars, representing a margin of 6.8%, excluding the semaglutide EPA-related provision, the margin was at 9.8%.
Speaker #3: Effective tax rate for the quarter was 21.3%, compared to 26% in the corresponding period last year. The ETR for the quarter was lower primarily due to reversal of previously recognized tax provisions, no longer required consequent to the favorable resolution of the tax assessment pertaining to earlier years, and favorable jurisdictional mix for the quarter in comparison to the same period in the previous year.
Speaker #3: Profit after tax attributable to equity holders of the parent for the quarter stood at 443 crores, which is 47 million US dollars, a margin of 5.25% on the revenues before adjusting for the semaglutide EPA-related provision mentioned earlier.
Speaker #3: Diluted EPS for the quarter is ₹5.32. Operating working capital as of 30 June 2026 was ₹14,353 crore, which is $1.52 billion, a decrease of ₹81 crore over 31 March 2026.
Speaker #3: Capex cash outflow for the quarter stood at ₹307 crores, which is $32 million US dollars. Cash flow during the quarter before acquisition-related payout was negative ₹216 crores, which is negative $23 million, as of June 30, 2026.
Speaker #3: We have a net cash surplus of 3,057 crores, which is 323 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: US dollar 354 million hedged, using combination of forwards, risk reversal options, scheduled to mature by March 2027.
Speaker #3: These contracts are hedged at rates of 92.342 and 94.63 per US dollar, and ruble 2.8 billion is hedged at a fixed rate of 1.26 per Russian ruble, with maturities falling within the next three months.
Speaker #3: With this, I now request a raise to take us through the key business highlights.
Speaker #1: Thank you, MVN, and good day to all of you. We appreciate you joining us today, and thank you for your continued interest in our company.
Speaker #1: We remain consistent in our strategic priorities and committed to delivering growth and profitability through disciplined execution as the operating environment continues to evolve. We are focused on strengthening our base business and building future growth engines in peptides, biosimilar, consumer health, and innovation while pursuing targeted business development initiatives to augment our organic growth efforts.
Speaker #1: The underlying base business delivers healthy double-digit growth across all key geographies, including North America. The quarter’s EBITDA margins were adversely impacted by semaglutide-related challenges, including lower sales, provision for rejected batches, loss of production, linked incentives, and other associated costs.
Speaker #1: As well as the conflict in the Middle East, excluding this impact, we estimate that the EBITDA margin would have been in the high teens.
Speaker #1: We are working towards resolving the issue and are planning to resume semaglutide commercial supplies by November. Importantly, there is no risk to any patient who has consumed the product.
Speaker #1: Patient safety and product quality remain our highest priorities, and they will continue to guide us in every decision we make. We remain confident of a strong second half of the fiscal year.
Speaker #1: With the resumption of semaglutide supplies, the strength of our base business, and our ongoing productivity initiatives, we will continue to support double-digit base business growth and steady margin improvement.
Speaker #1: Let me now walk you through some of the key highlights of the quarter. We commercialized a few key complex generic products, including the anti-cancer drug bosutinib—a first-to-market launch with 180 days of generic drug exclusivity for the 400 milligram strength—and nintedanib, used in the treatment of lung disease in the United States.
Speaker #1: In Canada, we were the first company to secure approval for the launch of semaglutide for the treatment of type 2 diabetes. We launched oral semaglutide in India, and remain committed to building this important metabolic franchise, complemented by nutrition offerings such as Selevita and GLP Plus through our collaboration with Nestlé.
Speaker #1: We continue to make products bringing innovation to patients in undeserved markets through partnership. Our in-license novel therapy Etoripalimab for treatment of nasopharyngeal carcinoma has entered the 100-CR club in less than 2 years of launch in India.
Speaker #1: During the quarter, we partnered with Innoviva, a specialty therapeutics company, to develop and commercialize XaEduro, used in the treatment of hospital-acquired bacterial pneumonia, in selected markets across South and Central America, the Caribbean, Russia, and CIS countries.
Speaker #1: Through our collaboration with GARDP and our subsidiary Origin Pharmaceutical Services, we achieved an important milestone in our access agenda by securing the approval for Zoliflodacin, a first-in-class treatment for uncomplicated gonorrhea.
Speaker #1: The approval came just six months after the USFDA approval, making Thailand the first LMIC country to approve the product. On the regulatory front, the USFDA completed a pre-license inspection (PLI) at our biologics manufacturing facility in Bachupalli, Hyderabad, in June 2026, and issued a Form 483 with seven observations, which we already responded to well within the stipulated timelines.
Speaker #1: Our commitment to good governance and sustainability continues to be recognized globally. During the quarter, we celebrated 25 years of our New York Stock Exchange listing, reinforcing our distinction as the first and only Indian pharmaceutical company listed at the exchange, as well as our commitment to global best practice in governance, compliance, and capital market access.
Speaker #1: FTSE Russell placed us as the top 1% worldwide while Times Statista ranked us 165th globally and 5th among Indian companies among the world's most sustainable companies.
Speaker #1: Let me take you through the key business highlights for the quarter. Please note that all the financial figures mentioned are reported in their respective local currencies.
Speaker #1: Our North America generics business reported revenue of $236 million for the quarter, accounting for 27% of our overall revenue and reflecting a decline of 41% year over year, and a growth of 19% sequentially.
Speaker #1: The year-on-year decline was primarily on account of low revenue from Lenalidomide. The underlying base business delivered double-digit growth, aided by new product launches during the quarter.
Speaker #1: During the quarter, we launched six new products in the region, including complex generics such as bosutinib and nintedanib. We remain on track to bring more such products to the market as we progress through the year.
Speaker #1: Our branded franchise, including India, emerging markets, and consumer health business, in equity and reflects a therapy or NRT, together accounted for 42% of our overall revenues and remained an important source of stable margins for the company.
Speaker #1: Our emerging markets business recorded revenue of ₹1,833 crore, accounting for 22% of our overall revenues and reflecting robust growth of 31% year-on-year and 2% quarter-on-quarter.
Speaker #1: Gross was driven by new product launches across markets and favorable currency movement. During the quarter, we introduced 43 new products across countries. Our India base revenues were $1,780 crore rupees, accounting for 21% of our overall revenues and delivering robust double-digit year-on-year gross of 17% and 10% sequentially.
Speaker #1: This performance was primarily driven by the innovation franchise new launches including acquired brands price increase and volume growth. IQVIA June 2026 data highlights our continued outperformance of the Indian pharmaceutical markets and moving quarterly total gross of 14.6% versus 13.5% for the IPM in the moving annual total MIT gross of 13.5% versus 11.1% for the market.
Speaker #1: Our IPM ranks stood at 9 for the quarter and 10 for the year. We launched seven new brands during the quarter, further enhancing our domestic presence.
Speaker #1: Our European business, which includes NRT posted revenue of $131 million for the quarter accounting for 18% of our overall revenues revenues were broadly in line with the corresponding period last year and declined 3% sequentially.
Speaker #1: On account of price erosion as well as the impact of operating model changes post NRT integration, explained by MVN, of setting the contribution from new product launches and new generics.
Speaker #1: During the quarter, we launched 24 new generic products across markets, further expanding our European product portfolio. Our PSAI business reported revenues of $91 million, accounting for 11% of overall revenues. Revenues declined 5% year-over-year and 10% sequentially.
Speaker #1: Primarily on account of lower API volume uptake during the quarter, we filed 38 drug master 5 globally. We remain focused on strengthening our cost business while building the next wave of growth across peptide by similar consumer health and innovation.
Speaker #1: We'll continue to advance key products such as Imeglutide and Abatacept, improve operational efficiency, and pursue value-accretive business development opportunities to drive long-term value creation.
Speaker #1: With that, I invite your questions as we move into the Q&A session.
Speaker #2: Thank you very much, Arif. We'll now begin the question-and-answer session. To join the question queue, please use the 'raise hand' option, available on the bar at the bottom of your Zoom application.
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Speaker #2: 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 that option.
Speaker #2: The first question is from the line of Neha Manpuriya from Bank of America. Neha, please go ahead.
Speaker #3: Yes. This is my first question is on the EBITDA margin guidance that we had mentioned that, you know, we should be able to get to 20% EBITDA even without CEMA.
Speaker #3: Now, given how the quarter shaped up, even if I were to adjust for CEMA Middle East, I think you mentioned high teams. You know, how should we think about the margin improvement from here even assuming that, you know, there's still uncertainty about when and how much CEMA comes back?
Speaker #1: Neha, just a technicality—this is the first part of the question. If you can repeat, we heard you from the middle.
Speaker #3: Okay. My question was that we had given a guidance of 20% margins excluding CEMA. So, you know, just wanted to get a sense of how we improve the current high teams margin that you've indicated adjusted for CEMA and the Middle East impact, given that we still uncertain about, you know, when CEMA comes back and how much it comes back in the second half.
Speaker #1: Neha, just to make sure that if we are taking out from the 12.5 and we take out the impact of what we provide, plus and hear that what we did not sell, just to make sure that and in addition to PLI and the rest of the staff, what I said, the high teams, it's actually around 18%.
Speaker #1: Okay. So, this quarter, the equivalent of the 19% last quarter is 18% for this quarter. We are still—I maintain what we discussed a few weeks ago—that we are in the neighborhood of 20% and likely to stay there, and that’s what we are saying we will do in the next quarter, including the next quarter, which will not be with imaglutide.
Speaker #1: So that's still the case to be in the neighborhood of the 20%. As we will resume because we with the assumption that we will come back with imaglutide in November, of course, under this assumption, the margins will be higher than that.
Speaker #1: So, we are maintaining what we discussed in June.
Speaker #3: Understood. And second question is on the US business. There seems to be a decline quarter on quarter despite the fact that we launched Canada.
Speaker #3: We had bosutinib, and I'm adjusting the shelf stock adjustment, you know, in the base quarter here. What exactly happened in the US, Rina? Because given we had the bosutinib FDF launch, I would have assumed some channel filling as well as the Canada supplies.
Speaker #1: So, nothing happened. It's actually in the right direction. There was some timing of procurement of the product, and the launch of the product was very successful.
Speaker #1: So, overall, I'm still maintaining double-digit growth for the US market. Quarter on quarter, as you saw already in this quarter, we grew double digits.
Speaker #1: And it will continue throughout the year. So it's a double-digit growth in the United States. It's just timing of product and nothing special.
Speaker #3: Okay. Thank you so much.
Speaker #2: Thanks, Neha. The next question is from the line of Dr. Kunal Damesha from Macquarie. Kunal, go ahead, please.
Speaker #4: Hi. Good evening. Thank you for the opportunity. First question on abatacept. Update. So two aspects here. One on plant inspection where we have got 7 observations and we have submitted the response.
Speaker #4: But let's say when we compare the observation with the last inspection, which had like 5 observations, you know, how does those compare? And second aspect, from an ongoing dialogue perspective with the US FDA on the product approval, what are the types of query we are receiving?
Speaker #4: Is it on data on the clinical side, manufacturing related, CMC related, color here would be helpful.
Speaker #1: Sure. So, the observation—the seven—were very different. Then those got, and we believe that, are addressable. And we sent all the relevant information to the US FDA on Friday, which was well within the stipulated time.
Speaker #1: So, this is underway. Now we will seek feedback, obviously, from the FDA on what we submitted. As related to the BLA, we have not received any queries as we speak.
Speaker #1: The goal date of the product is still in December. And this is still intact. We did not have any query or any ask as of date.
Speaker #4: Sure. And on that, let's say, inspection, what is your understanding? Would it require another inspection, or, you know, the response you have submitted would suffice?
Speaker #1: To my opinion, we should get approval.
Speaker #4: Sure, sure. So that's the first question. The second question is, you know, some of the productivity measures that we have talked about in the past, right, that we will try to improve the efficiencies.
Speaker #4: But the way I see it, when I look at the standard expense without R&D, after removing R&D, quarter on quarter, it is still higher, right?
Speaker #4: So, is there any specific, you know, cost-saving measures we are undertaking? If yes, what's the quantum in terms of savings that we can see?
Speaker #4: And when those measures would be visible in the overall, you know, performance?
Speaker #1: So Kunal, MVN decide we even we said like our absolute SDA amount, like FI26, FI26 largely in line with FI26 actuals. This quarter, because whatever growth you have seen, largely that growth is on account of adverse forex rates movement as well as there is a elevated price cost on account of the Middle East conflict.
Speaker #1: These two are almost what the increase, what the growth you have seen on either Q-on-Q or on the year-on-year, almost has a 75 to 80 percent on account of these two factors.
Speaker #1: Otherwise, the absolute amount is almost—it's like if you take it out, then there is not a much significant increase. So just to Kunal, we are planning to go double digit.
Speaker #1: And we are planning to grow the associate cost by a low single digit. So the productivity measures will be primarily that the sales that associate, obviously with this SNN, will grow much faster than the expenses.
Speaker #1: But as we grow in most of our 52% now for business is branded markets. So naturally, in such a case, we need SNN to grow the business.
Speaker #1: And what is important, they will grow the sales much faster than the cost. In this case, we are talking about a gap of 10% to 12% between the sales growth and the cost growth.
Speaker #1: And that's where the productivity you are going to see.
Speaker #4: And when should we start, you know, seeing this difference in the growth? I assume it would be gradual, right, eventually? Or is it just linked to the revenue?
Speaker #4: And not any specific cost measure?
Speaker #1: No, no, it is. First of all, you already see that. If—and I know it's hard because of all those one-time activities and/or war activities.
Speaker #1: But you already see it. And as time will go by, it's obviously we'll see it more. But the way to see it is that eventually that the margin that the growth in emerging market most of the SNM is in emerging market.
Speaker #1: The gross in emerging markets is currently north of 15%, and in some places, it's more than 20%, while the cost is in a very low single digit.
Speaker #1: Gross. If we take out the one-time activities.
Speaker #4: Sure. And last one, if I may just squeeze in. You know, one is we have around ₹3,000 crore of cash on the balance sheet.
Speaker #4: Right? And so what kind of opportunities are we looking at from the business development activity? And secondly, on today's announcement from, you know, US President on tariffs on generics, as to how we think about the overall development.
Speaker #4: I know the details are missing, but what would be your initial impression of that, and how would you tackle it? Thank you.
Speaker #1: Sure. So, just the first one was the tariff. Was the second at the $3,000 cash, cash? So first of all, we are engaged in this development.
Speaker #1: They also mentioned it in my script. There are actually quite a few deals that we are engaging in, across all sectors, and in generics and innovation.
Speaker #1: In biosimilars. And hopefully we can announce those deals as we sign them. So, the cash and the balance sheet will be used for, you know, organic growth.
Speaker #1: On the tariff, we've been there last year. There is obviously it's a tweet and between tweet to the reality a lot of things likely to happen.
Speaker #1: As we speak, I don't see any reason to be concerned. Even as even in according to the tweet, we are supposed to have two years of without tariff.
Speaker #1: It's not practical to move any facility in two years. You know it well. Everybody knows it well. So I'm assuming that it's an opening for a discussion and dialogue, which the IPA here in India as well as the association in the United States are already engaged in.
Speaker #1: So we will see as it evolve personally I don't at this stage give too much weight to that.
Speaker #2: No, sir, if I I may add almost 25 to 30% of our revenues are actually being manufactured by CMOs in the US. So we already have that as a as a starting point.
Speaker #1: Yeah, but I will not give too much weight at this stage for that. Let's see how it will evolve. We've been there last year.
Speaker #1: And between what we started and how it ended, it was very, very different.
Speaker #4: Sure. Thank you, and all the best.
Speaker #1: Thank you.
Speaker #2: Thanks, Kunal. The next question is from the line of Torsif Sheikh from BNP Paribas Exchange. Tarsif, please go ahead.
Speaker #4: Thanks, Eshwari, for the opportunity. Good evening. First few question on semaglutide pens and API. Can you tell us how many pens has Dr. Reddy able to sell during the quarter?
Speaker #4: And a broad breakup, region-wise, would be helpful.
Speaker #1: 180,000. Yes. So we sold 180,000 pens before we stopped. We were supposed to sell more, by the way. But obviously that's also part of the reason why there is a relatively high level of provision that we have to do on material and batches that will not be used.
Speaker #1: Obviously most of it will be for the market of Canada. We have also for India as well. We are still maintaining what I said, nine days ago, that with the assumption that we will finish and this is still the timelines that in the around the third week of September, we are supposed to finish all the testing of the API.
Speaker #1: And then supply to our partners from one source. We have the slotting and agreement with them, and if everything goes well, we should be able to supply the market with six to seven million pens between November and March.
Speaker #1: That's still the same place that we are.
Speaker #4: Yeah. That's helpful. Second question on the SEMA API. Just wanted to confirm that Dr. Reddy is also supplying this API to many global pharma manufacturer player who are also your competitors in Canada and other markets.
Speaker #4: Just wanted to understand your strategy over here. I mean, how much percent of capacity Dr. Reddy plans to keep for captive consumption for the future?
Speaker #1: No, we have plenty of capacity. The issue is the theoretical capacity—I'll say 'theoretical' because we need to scale up in a satisfactory manner. But we have plenty of capacity for both third-party as well as ourselves.
Speaker #1: We are talking about the theoretical—it can come to 550. But let's say, even with the known scale-up, it can be north of 300 as capacity.
Speaker #1: At this stage, it's not relevant. It's more about the quality of the API, not...
Speaker #4: Oh, that's helpful. The last question about us. What would be your timeline for the launch if the product has to be approved from the CMO side?
Speaker #4: Can we expect some delay from the earlier guidance that we had planned for calendar year 2027?
Speaker #1: About the safety, it's not out of CMO. About the safety, it's made by our own facility in Bachupally. And that's the facility that underwent the FDA inspections.
Speaker #1: The timing is the launch of on approval. We are right now the goal that is December. So obviously we hope for that. But we need to see whether we will get additional query and if that will stay intact.
Speaker #4: But I guess I think we have filed the product from two of the facets, right? The other one is from the CMO side. We have done the dual filings for the product, right?
Speaker #1: About the set was filed only from our Bachpuli site.
Speaker #4: Understood. That's helpful. I'll get back in the queue.
Speaker #2: Thank you, Tarsif. The next question is from the line of Tamil Thikkerai from HSBC. Tamil, please go ahead.
Speaker #5: Hi, thank you for the opportunity. My question is again on semaglutide. As you continue to work towards resuming supplies after addressing the OSS issues, we understand that in some of your targeted markets, new players are getting approvals, etc.
Speaker #5: So we understand you are B2B suppliers to a few of them. But nonetheless, by the time you get back in these market, how do you assess the competition scenario and your ability to gain market share there?
Speaker #1: So we believe right now that the demands for the six to seven million pens will be there. For us. And it's even backed with orders.
Speaker #1: So, we believe that we'll be able to sell all the six to seven. Obviously, it's a bummer. We cannot deny it—we see the consequences.
Speaker #1: It's we lost the four months of sales for that. So obviously from the 10, 11 to the six, seven, this is the impact on us.
Speaker #1: But we feel that we will stay there, that the demand for the product is still very high. And the people that will enter the market in this four months, to the best of our knowledge, there are not that many, at least in the markets that we are planning to get approvals.
Speaker #1: So, it's a bummer, but we believe that the product will stay solid for us.
Speaker #5: Okay. I also wanted to understand, with this API issue—will it impact the review of the application for semaglutide in some of the markets, apart from, obviously, Canada, where you have an approved product?
Speaker #5: But say in Brazil or in other market, will the applications will be halted till the time you resolve the API issue?
Speaker #1: No, because the specs stay the same, so we are not changing the specs or the quality. It was just our ability to meet the specs in the scale updates on the API.
Speaker #1: Which we need to resolve. But the file is good, and the quality of the drug product is good. So I don't anticipate any delays or a change to our applications anywhere.
Speaker #1: Including Brazil.
Speaker #5: Okay. So in how many countries you have filed semaglutide application? So far?
Speaker #1: How many we filed already?
Speaker #2: More than 20, 30 countries.
Speaker #1: For sure. So the program of the 80 countries remain the same. If I remember correctly, but please forgive me if I'm not fully accurate, is around the 30 countries already.
Speaker #1: If I remember correctly.
Speaker #5: Sure. And my last question is, how should we look at R&D and tax rate from here on? We understand this quarter had some benefit on the taxes.
Speaker #5: But on a normalized basis, how should we look at it for the full year?
Speaker #1: So our tax rate around between I think 24 to 25 percent on the full year's basis. And R&D, what we have stated earlier, it is in the range of seven to eight percent.
Speaker #5: Okay. And any major R&D programs after Abatacept? Where you plan to spend majority?
Speaker #1: So we have a long pipeline for the future. Both on the peptides as well as additional biosimilars. This is likely that will be closer to the seven percent that can be said.
Speaker #1: But most of the R&D spend right now is going to products post-2034, between 2034 to 2040. That's where the R&D goes.
Speaker #1: Besides, of course, some allocation that comes for licensing fees as well as remediation of products. But mostly, it's for later products.
Speaker #5: Sure, thank you. I'll get back in the queue.
Speaker #2: Thank you, Tamil. The next question is from the line of Shayan Mukherjee from Nomura. Shayan, please go ahead.
Speaker #3: Yeah, thanks for taking my question. Since you last addressed the SEMA situation, is there any progress in terms of root cause analysis, and how do you see the possibility of a resolution?
Speaker #3: How do you sort of assess the risk of that program at this stage?
Speaker #1: So we identified the root cause. We also started activities at the sites. There is a program management process that takes us again to around September 22nd, September 23rd.
Speaker #1: The success rate is high. I don't know the exact percentage. If I need to throw out a number, it's somewhere between 80 to 90 percent.
Speaker #1: But there is a chance that it will fail. I just want to make sure. It's not 100 percent, but we feel relatively confident. Let's cross our fingers on that.
Speaker #3: I see. Okay. And just one last one on capex. What's the guidance for this year on capex and for next year, please?
Speaker #1: So we see, I think this year close to at this point of time, I think around 1,800 crores on the full year basis.
Speaker #3: And will this come down next year, you think?
Speaker #1: Hopefully that's what is our expectations. But around that range. Because I don't know, there is a continuously for the specific product investments in the biosimilars and the peptides.
Speaker #1: And then a regular CapEx aside.
Speaker #3: Okay. Thank you.
Speaker #1: But already if you see that earlier, we were in the 2,500 to 2,700 crores range. And then from there, we have just this year reducing to 1,800.
Speaker #1: I believe I think at that stays at that level.
Speaker #3: Okay. So if I can just ask one question because you mentioned about Middle East conflict. And freight cost, etc. What's the level of impact either as a percentage of sale or in absolute amount, if you can quantify?
Speaker #1: It would be both solvents and the freight on the EBITDA is close to around one percent.
Speaker #3: Okay. And is there any improvement now? Because the conflict seems to have escalated once again. So how do you see it for the rest of the year?
Speaker #1: So we believe I think even as long as it continues, I think because earlier we thought, I don't know, suppose it's a stop, then it is all the solvent prices and we have seen the decline.
Speaker #1: And now because of once again the war is going on, we believe I think this will stay at least up to December this level of increase.
Speaker #3: I see. Okay. Thank you.
Speaker #2: Thanks, Shayan. The next question is from the line of Rahul Jivani from IIFL. Rahul, please go ahead.
Speaker #3: Yeah. Thank you, sir, for taking my question. Sir, I had I wanted some clarity in terms of a base business growth. Now, if I look at our North America revenue base in FY 22 was close to a billion dollars.
Speaker #3: And if I take this quarter's number, then we are analyzing at around $950 million. Now, over these past four years, we have launched around 90 to 100 products in the US.
Speaker #3: We did a main acquisition as well, which contributed $100 million in terms of incremental revenue. So despite these launches and the main acquisition, where have we struggled in terms of driving growth in the base US business?
Speaker #3: So, if you can, please comment on that.
Speaker #1: No, sure. Obviously, we faced on the base of the FY 22 or any other year that you're referring, a significant price erosion that was through this period of time.
Speaker #1: In some of the years, it was even in double digits. In some of them, it was in single digits. This is, and you know that very well.
Speaker #1: A very normal for the United States. And against that, we brought a new product, some brought a small value and some less. Overall, I'm reiterating what I'm saying all along, that the US market, the generic piece of it, is at the best single digit growth without the upside.
Speaker #1: And from time to time, there is a upside that comes and we had upside through the years whether it was Lina Dulema and then before that there was other products.
Speaker #1: So that piece of the market is a single digit even low single digit type of a market. And in which new product complex for price erosion.
Speaker #1: That piece, the reason that we are still there beside that is that this group of product is what's feeding the growth in emerging market as well as in Europe.
Speaker #1: So, the leverage growth and what you see now in Europe, as well as in emerging markets, is primarily the US portfolio that is growing there.
Speaker #1: So we moved from investing in the US to take a product and launch it globally. And so overall, the ROI of the product that we launch in the years that you mentioned are actually give us a very, very good ROI.
Speaker #1: Just, it's not coming in the United States. We see it in the other markets. In addition to that, we are obviously diversifying ourselves into other business models.
Speaker #1: As we stated. But to your analysis, your correct in this period of time, if you take out product like Lina Dulema, your analysis is correct.
Speaker #3: Sure, sir. And do you think that we have lagged peers in terms of R&D productivity for the US generic business, given that many of our Indian peers have been able to launch products in, let's say, respiratory segment or injectables, which has allowed them to scale up their US portfolio while we obviously seem to have had pretty muted performance on the US business over the past four to five year periods.
Speaker #3: So is there any issues in terms of the productivity for our R&D business? And do we have any measures in terms of evaluating this R&D productivity, particularly for the US generic business?
Speaker #1: So to your question, yes, we failed in certain complex generics. We even stated some of them in the past, like iron sucrose, like conjugated estrogens, like some of the peptides where we were late.
Speaker #1: So the answer is yes. We did have these issues. I believe that we corrected it. Obviously, as we know very well, the R&D expenses of today's product that we will launch on average 10 to 12 years from now.
Speaker #1: So obviously, the products that we launch in this period of time were products that were developed before that. And we absolutely had productivity issues.
Speaker #1: And I believe that we took the right measures to correct it. And again, I agree with your observation. I believe that we took care of it.
Speaker #3: Oh, sure, sir. And last question from my end on a battleship. I was also under the impression that we would file a battleship from the partner facility as well.
Speaker #3: But right now, you're saying that a battleship is only filed from Bachupali. So do you see any risk to a battleship now in terms of, let's say, contributing to us in FY 28?
Speaker #3: And are we evaluating an alternate side filing for a battleship?
Speaker #1: So a battleship was never meant to be filed from a CMO. It was developed and meant to be filed out of Bachupally from our CCM5, which is our drug substance.
Speaker #1: And our FFM2, which is the fill and finish—both of them are in Bachupali. So that was always the plan. There was some discussion in the past about whether, because of tariffs, we should get a, kind of—in the case of tariffs, should we get a CMO in the United States.
Speaker #1: We did engage with this issue. But tariff became not relevant. Plus, any CMO that will do now will have to be post-approval supplement because first they will have to approve the product.
Speaker #1: And then based on that, you can add the information about the CMO. So any activity like that will be a post-approval supplement and will also require a relatively high cost, because as you know, CMO of biologics products is not cheap.
Speaker #1: At the moment, the launch will be out of Bachupali. About the risk, there are two types of risk. One is in the case that we will have additional query on the GMP.
Speaker #1: And I believe that is addressable, like I mentioned. But it is possible to get. And second, queries about the queries that we may get on the BLA.
Speaker #1: If we get this naturally, it can delay the launch of a battleship. As we speak today, the target date for the battleship is mid-December 2026.
Speaker #3: Sure, sir. That's it from my side. Thank you.
Speaker #2: Thanks, Owen. The next question is from the line of Vivek Agarwal from Citi. Vivek, please go ahead.
Speaker #4: Thank you, Suriya. Thanks for the opportunity. Just want to understand the India business. We have done a good growth in the quarter. So just want to understand what is the organic growth if we remove a couple of small acquisitions that we have made in this quarter.
Speaker #4: Thank you.
Speaker #2: Hi, India.
Speaker #1: In India, if we remove the recent acquisition, it's 15%?
Speaker #4: 15.5.
Speaker #1: 15.5% fully organic.
Speaker #4: Understood. And that does that include semaglutide supply as well?
Speaker #1: Not much, Vivek.
Speaker #4: Understood. Thank you. Just one more question on Bosutrinil. So does this include a full quarter impact of launch, or is it just a very small launch in this quarter?
Speaker #3: It's one month.
Speaker #2: There's been a month actually.
Speaker #4: Less than a month.
Speaker #1: It's about two weeks of supply, and we have exclusivity on the 400 mg.
Speaker #4: Understood. Thank you. That's all from my side. Thank you.
Speaker #1: Thank you.
Speaker #2: Thanks, Vivek. The next question is from the line of Dr. Binupati Parampal from Elara Capital. Binu, please go ahead.
Speaker #4: Hi, good evening. Just a couple of quick questions. One, in Canada, I believe we had an arrangement to provide semaglutide to Sandoz as well.
Speaker #4: Does that deal still hold? And are they going to wait for our supplies to be back?
Speaker #1: Yes, it still hold. And we believe that if supply will come back in November, we'll be able to meet the commitment to Sandoz.
Speaker #4: Got it. And second on Bosutrinil, I believe it's a partner product. You are selling it in the market. What would be the broad profit share arrangement?
Speaker #4: Is it equal or do you make only a distribution margin?
Speaker #1: So, overall, if you see, the margin from this product is above the company average margin.
Speaker #4: Got it. Thank you.
Speaker #2: Thanks, Binu. The next question is from the line of Suryapatra from Philip Capital. Surya, please go ahead.
Speaker #3: Yeah, thanks for the opportunity. My first question is about the NRT. You mentioned in the opening remarks that we have seen a decline this quarter.
Speaker #3: This is after the complete integration of the acquisition. So, can you give some sense of what led to this kind of decline?
Speaker #3: And whether this is a kind of trend likely to be seen even in subsequent quarters?
Speaker #1: No, the trend is a trend of growth. What we had this quarter is that in some markets, because of the cut-off and inventory that were in the market, we did not sell in some weeks in this quarter.
Speaker #1: And that's what led to that. Plus the timing of the tender in Brazil, in which we won, but we sold more in the quarter and we did not sell in this quarter.
Speaker #1: So overall, you should see continued growth and very, very healthy margins. So far, so good on this one.
Speaker #4: So, apart from what Erea said, Suriya, another point is that there is a till March 2026. Last year, I think we were just depending on Helion.
Speaker #4: I think they were doing. Then we are paying certain fee. And this year, we completed the integration by March 2026. The entire sales, we are operating.
Speaker #4: And then as part of this new model, and then what the Helion was offering earlier, rebates and discounts, were not impacting the sales lane.
Speaker #4: But this year, now since we are directly distributing the product to the distributors and then, with the rebate discounts I think we are giving, that is now part of the gross to net in the revenue line.
Speaker #4: And then corresponding, there is a reduction. Overall, if you look at on the profit, it is a neutral, absolutely there's no impact. And then it's a continuously overall of this business, EBITDA is margin is very healthy.
Speaker #4: And the business momentum is continuing in the very right direction. Yeah?
Speaker #2: All right. Thanks. Thanks, Surya. The next question is from the line of Shashank Krishnakumar from MK Capital. Shashank, please go ahead.
Speaker #4: Yeah, hi. Thanks for taking my question. Here’s my first one—it was on a Rituximab filing. I think one of our competitors has received interchangeability recently.
Speaker #4: So does our filing also include comparative data? So that on approval, would we also get interchangeability on this product?
Speaker #2: Rituximab.
Speaker #1: Yeah. So our Rituximab, for sure, will be interchangeable. As you know, we got delays because Rituximab approval in the United States got delayed.
Speaker #1: So for us, it's mostly to obtain approvals because the US FDA inspection, PI, was for both, about the Rituximab. Once we go, our partners will not have a problem to switch products.
Speaker #1: So, our products will also be interchangeable.
Speaker #4: Got it. Thank you. That's helpful. And second one on Denosumab. I think obviously our filing was stuck because of issues at our partner's facility.
Speaker #4: I believe our partner has addressed the FDA's observations, but the resubmission obviously has to happen at our end. So have we resubmitted the BLA for Denosumab?
Speaker #1: The BLA is coming only from our partner. It is also making the products in the net. And we are now in discussions with the partner about what to do with this product.
Speaker #4: Got it. Thank you. That's it from my side.
Speaker #2: Thanks, Shashank. Participants are requested to restrict the number of questions to just one, to ensure that everyone on the call gets an opportunity to interact with management.
Speaker #2: The next question is from the line of Yogesh Soni, Hightong Securities. Yogesh, please go ahead.
Speaker #3: Good, thanks for the opportunity. So my question is with regards to the semaglutide API provision that you have taken. If you could help us understand, what would have happened had this provision not been taken? What would have been the pen volume that would have been sold?
Speaker #3: So, the question is to understand what is the opportunity loss that we have faced as a result of this API provision.
Speaker #1: So, the opportunity is about three to four million pens, assuming that we are coming back in November.
Speaker #3: Understood, and thank you for that. My second question is just to understand: in one and a half months of commercialization in the Canada market, what kind of market share did we enjoy in the semaglutide space?
Speaker #1: Yeah, so we did not have the chance to sell much, so I cannot really speak on market share. Obviously, we were one of the first to launch along with Apotex.
Speaker #1: So naturally, by the time that we come back, it will probably not be only the two of us. So naturally, when you are two, it's a relatively high market share.
Speaker #1: But we did not manage to get market share per se, as we did not sell much.
Speaker #3: I can squeeze in one more question. So, given that we are looking to resume the supplies from November, what kind of— I mean, what is the confidence in doing around six to seven million pens, given that Apotex would have already scaled up its market share in the next three to four months?
Speaker #3: So, how difficult does this target seem to us?
Speaker #1: So the confidence is high. It's not just Canada for us. By that period of time, we'll have approval in quite a few markets. Plus, we have engagement with partners.
Speaker #1: We mentioned some of the names. So the confidence is very high, actually. All of our partners are looking forward that we'll come back. So like I mentioned before, I believe that we will have a solid demand for these six to seven million pens.
Speaker #1: And also, I believe that our relationship with our partners will allow us to make this product as required. We just need to give them the API.
Speaker #3: Thank you, Erea, for your clarifications.
Speaker #2: Thanks, Yogesh. I will once again request everyone to restrict the number of questions to just one, since we have many in the question queue.
Speaker #2: The next question is from the line of Amlan. He'll be from JP Morgan. Amlan, please go ahead.
Speaker #5: Yeah, can you hear me? Sorry. Yeah, so my question is regarding the Canada market. We have seen that a third competitor has also gotten approval recently.
Speaker #5: And one of the other competitors is saying they are targeting a December-end approval. So, with three to four peers in the market, what kind of pricing do you see in the Canada market when supply resumes for you in November?
Speaker #1: Yeah. The partner that got approval is using our products. So and I'm not anticipating any more prices because the price went day one to the type of market that reflects the three players and above.
Speaker #1: So I do not anticipate additional kind of pricing or reimbursement pricing. Naturally, once we'll come back and we'll see how many more, we may have to change rebates or stuff like that.
Speaker #1: This is yet to be seen. But at the moment, the one that got approval is also waiting for us to resolve the operational issues.
Speaker #5: So just to put a perspective, what kind of prices do you expect then? So would it be in the range of $30, say, or would it be lower than that?
Speaker #5: Could you give us a directional sense on that?
Speaker #1: As you know, and I discussed it in previous meeting, the price in Canada is $78 Canadian. And then from that, you need to have the margins that you need to give to the relevant retailers depends on the type of market that you do, whether it is a private market, public market, or cash market.
Speaker #1: So it ranges from 38%, which is for retail, and for what you call the private market, and then it also depends on how many patients are reimbursed by the relevant provinces.
Speaker #1: You may need to give an additional 5% to 6% to the relevant province. That did not change from our previous meetings. It's the same set of numbers.
Speaker #5: Okay. Thank you. My next question is certainly give us yeah. So you had credit for a double-digit growth in the US. So is it the guidance for a base business excluding semaglutide or just wanted a clarification on that?
Speaker #1: Yeah, semaglutide is in Canada, so we are not selling in the United States. So, yeah, it's without semaglutide. And without—sorry.
Speaker #5: Without. Okay. Excellent. Primarily for the E40QS, it will be a double-digit growth.
Speaker #1: It's a double-digit growth and was already that this quarter. Yeah.
Speaker #5: Okay. Okay. Thanks.
Speaker #2: Thanks, Amlan. The next question is from the line of Sumit Gupta from Antique. Stop broking. Sumit, please go ahead.
Speaker #3: Hey, hi. Thanks for the opportunity. Sir, what are the biologic sales globally as of now? And when can we expect it to break even?
Speaker #1: Sorry again.
Speaker #2: Biologics.
Speaker #3: On the biologic sales, how much is it now?
Speaker #2: It's about 2% of the overall.
Speaker #1: It's about 2% of our sales and we are supposed to be profitable the day that we launch our bottle sales.
Speaker #3: Okay. And how should we see a better set going forward? Let's say over the next two to three years, what will the timeline look like, do you expect?
Speaker #1: So we submitted the IV products in the United States. Like I mentioned before, December is the goal date. That's the earliest we can get approval.
Speaker #1: We can launch upon approval.
Speaker #5: Europe IV also required.
Speaker #1: The Europe IV was also filed, but it's very, very small because in Europe, it's primarily the sub-queue. In terms of the sub-queue, it will be in 2028.
Speaker #1: Likely, around March of ’28 or February or March ’28, United States, and probably around September to October in Europe.
Speaker #3: Understood, sir. Thank you.
Speaker #2: Thanks, Amlan. The next question is from the line of Vishal Manchanda from Systematics. Vishal, I would request you to restrict yourself to just one question, please.
Speaker #4: Yeah. Hi. Thanks for the opportunity. On our biologic plant inspection, can you share whether we had any observations related to sterility assurance?
Speaker #1: No, there is not as such. And like I mentioned before, all the observation are addressable and we already answered them.
Speaker #4: And do you expect any scale-up issues in Abatacept, like we see in like we saw in semaglutide?
Speaker #1: It's obviously a very, very different product. I hope not. We are not planning that, but in pharmaceuticals, you never know. But right now, we are optimistic.
Speaker #4: Got it. And PLI incentives, if you can call out, do we expect any meaningful number here?
Speaker #5: So in the first quarter financials, no PLI.
Speaker #4: Anything in the next nine months, meaningful?
Speaker #5: So once I think semaglutide supply resumes, I think as per PLI scheme also, we should have for the setup products minimum growth. Once we assess and then if the growth is there and then PLI, we start accounting.
Speaker #4: Got it. Thank you.
Speaker #2: All right. In the interest of time, we will...
Speaker #5: Continue. Continue.
Speaker #2: Okay.
Speaker #5: Allow that.
Speaker #2: The next question is from the line of Krishnendu Saha from Quantum Mutual Funds. Krishnendu, please go ahead.
Speaker #3: Krishnendu, can you hear me? Hello?
Speaker #5: Yes. Yes.
Speaker #3: Yeah. So just quickly, we are supplying the partner the Sandoz, Aspen, and others. Is there any penalty we have to pay for failure to supply?
Speaker #2: Failure to supply.
Speaker #5: So here, as per what orders we received from India, like a torrent and USV, so whatever is as per the agreement, suppose whatever it is, that's already taken care.
Speaker #5: And then in case of Sandoz, Aspen, I think at this point of time, we don't expect any such claims.
Speaker #3: Okay. And just to jog my memory, the API is being supplied from a US every year plant, or which plant is it coming from?
Speaker #5: This is from our WiseC plant, C2 or 6.
Speaker #3: Is this a US?
Speaker #5: US every year approved plant.
Speaker #3: So, if anything, if there is an OAI from this plant, does our approval in Canada get—does it set us back?
Speaker #1: Sorry, sorry, sorry.
Speaker #5: There's no OAI.
Speaker #1: There is no OAI. It's A.
Speaker #3: No, no.
Speaker #5: Say it out loud.
Speaker #1: If there will be an OAI, then it will affect the US, maybe the Canadian will that, but it's a very pathetical because the US inspected the plant already this year and we got approval.
Speaker #1: So not relevant.
Speaker #3: Thank you.
Speaker #1: But that's a hypothetical question. Canadian and American are different regimes.
Speaker #3: Yeah. And it's from the Indian plant. Okay. And is this 40 mg which we have exclusivity? How big is the market size just from our knowledge, please?
Speaker #2: 400 mg, you mean?
Speaker #3: Yeah, sorry. Yeah, yeah. Sorry, my mistake.
Speaker #2: Yeah, I think overall the product is a large one. It's in the billions.
Speaker #3: And just the 400 mg, any idea?
Speaker #2: It will come back on that. Sorry.
Speaker #5: I think that's where I will just text it. Come back.
Speaker #3: And how is the nicotine patch doing for us as of now? Any growth rate you're seeing out there? It's a profitable business for us.
Speaker #3: So, can you just give me some thoughts on that?
Speaker #1: It's profitable and it's growing, and we are very happy with it. We have answered these questions before. If we could not repeat questions, we’re happy to give more over time, but please let us.
Speaker #3: Sure. Thank you. Thank you very much.
Speaker #2: And just to answer your question, Boston is about $300 million as far as the market is concerned.
Speaker #5: Market, yes.
Speaker #2: Yeah.
Speaker #3: Yeah. Thank you.
Speaker #2: The next question is from the line of Gupesh Tatia from Launch Equity Capital. Please, please go ahead.
Speaker #3: Yeah. Hi. Am I audible? Yeah. My question is on interchangeability in Canadian markets. So there are these various provinces which give out interchangeability designation.
Speaker #3: And also, I think private insurers also give interchangeability designation. And most of this insurance has a clause of mandatory generic substitution. So could you give color on what it takes to get this interchangeability designation?
Speaker #3: And when I mean, when that happens, my expectation is all of the prescription volume will move to generic. So, when do we expect that to happen?
Speaker #3: So any color on that will be helpful. And the other aspect also is so Innovator's product is recombinant product and our product is synthetic product.
Speaker #3: So does that create some problems for this interchangeability tag?
Speaker #1: So there is no problem with interchangeability in any market. The product is approved as generics, and the type of API doesn't affect it.
Speaker #1: So the semaglutide is approved as a generic product. No issues of interchangeability. And you don't need to prove anything. Beyond what the normal submissions, we had to show obviously comparability as well as all the relevant safety like immunogenicity and other data.
Speaker #3: So next year then, generic will have 80, 90 percent market share in Canada. Is that a fair thing to assume?
Speaker #1: I don't know about that. It's about also the confidence of the people. At least at the launch time, the allocation of the retailers assumes 60% and then will grow.
Speaker #1: I believe.
Speaker #3: Insurance-driven markets. Pardon, pardon for interruption. Insurance-driven market. I'm not asking about out-of-pocket or retail.
Speaker #1: I'm trying to answer that. It started with 60% and likely to go higher. What exactly the number will be, I don't know, but yeah, I believe that as the confidence in the supply will be there, it's going to be primarily generic market, yeah.
Speaker #3: Okay. And then just quickly, when do we expect Brazil approval for us or any of our partners? Any time estimate you can give?
Speaker #1: It should be shortly. All the stuff about the rejection has been reversed, and we are expecting approval in the next few weeks.
Speaker #3: Okay, thank you. Thank you for answering my questions.
Speaker #2: In the interest of time, we'll take one last question from Shine Mukherjee. I think he's joined back the queue.
Speaker #3: Yeah, thanks. Yeah, thanks for taking the follow-up. Just one question—a couple of questions. So, in the US, I think you mentioned 2025 launches.
Speaker #3: How many are we expecting through the rest of the year? And are there any material launches that are lined up or that you expect?
Speaker #1: So altogether, right now we are targeting 27. And at least, we are supposed to have a reasonable launch, let’s call it. I cannot share yet the name of the product.
Speaker #1: Already in the next couple of weeks, so in the second quarter.
Speaker #3: And how large is the opportunity? Can you give an idea about the size or the revenue potential from that launch?
Speaker #1: It should be in the range of tens of millions of dollars. That's for a specific launch.
Speaker #3: Okay. Thank you. And MVN, if you can talk about I understand biologics and peptide facility operations are not generating enough any revenues at this point.
Speaker #3: What's the revenue-cost mismatch there? What's the cost that is hitting the P&L on account of this, which is not generating any revenues?
Speaker #5: So in the biologics, like already we invested for like a CCM5 for the aborter step, certainly we are just waiting for approval. And then whatever is the expenses is already it is a hitting in our P&L.
Speaker #5: Similarly, what the capacities we have created for peptides, both for API and formulations of fill-finish also, it is there. Once these two products come back, definitely then it will give the profit positive.
Speaker #3: Yeah. But I was wondering if you can quantify the amount of cost that you're incurring on account of these two at this point.
Speaker #5: Maybe I'll just come back.
Speaker #3: Okay. Okay.
Speaker #5: Thanks.
Speaker #3: No. Thank you. Yeah.
Speaker #2: That was the last question. Thanks, Shine. Thank you, everyone, for joining us today. We value your time and your participation on this call. If you have any further questions, or need any additional information, please do feel free to reach out to me.
Speaker #2: With that, we conclude today's earnings call. Thank you. Thank you, everyone.
Speaker #1: Thank you.
