Q2 2027 Dr Reddy's Laboratories Ltd Earnings Call

M.V. Narasimham: It's now unmuted.

Speaker #2: It's now on mute. Good day, everyone, and welcome to the Q2 FY27 earnings call of Dr. Reddy's Laboratories Ltd. We appreciate your continued interest in our company.

Aishwarya Sitharam: Good day, everyone, and welcome to Q2 FY27 earnings call of Dr. Reddy's Laboratories Limited. We appreciate your constant interest in our company. I am Aishwarya Sitharam, Head of Investor Relations at Dr. Reddy's. Joining us today are members of the leadership team, Mr. Erez Israeli, our Chief Executive Officer, and Mr. M.V. Narasimham, we call MVN, our Chief Financial Officer. Our quarterly financial results have been published earlier today and are available on our website for your reference. We will start today's call with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights as well as the company's strategic outlook. We will then open the floor for questions. 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: I'm Eshwara Sitaram, Head of Investor Relations at Dr. Reddy's. Joining us today are members of our leadership team: Mr. Erez Israeli, our Chief Executive Officer, and Mr. M.

Speaker #2: V. Narasimham, whom we call MVN, is our Chief Financial Officer. Our quarterly financial results were published earlier today and are available on our website for your reference.

Speaker #2: We will start today's call with MVN providing an overview of her financial performance for the quarter, following that Eras will share his insights on key business highlights as well as the company's strategic outlook.

Speaker #2: We will then open the floor for questions. 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.

Aishwarya Sitharam: 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 today's press release apply to all forward-looking statements made during this call. Before we proceed, I would like to call out a few housekeeping points. All participants will be in the listen-only mode during the opening remarks. Should you need any technical assistance during the call, please use the chat function on your Zoom application. The chat will not be monitored for any questions to the management. This session is being recorded, and both the audio and the transcript will be made available on our website. Please note that this call is the proprietary material of Dr. Reddy's, and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company.

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 today's press release 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.

Speaker #2: Should you need any technical assistance during the call, please use the chat function on your Zoom application. The chat will not be monitored for any questions to the management.

Speaker #2: This session is being recorded, and both the audio and the transcript will be made available on our website. Please note that this call is the proprietary material of DR REDDYS LABORATORIES and may not be rebroadcasted or quoted in any area of public forum without prior written consent from the company.

Aishwarya Sitharam: With that, let me hand the call over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Speaker #2: With that, let me hand the call over to MVN to present the financial highlights for the quarter. Over to you, MVN.

M.V. Narasimham: Thank you, Aishwarya. Greetings, everyone, and thank you for being with us today. It is my pleasure to take you through our financial performance for the second quarter of FY27. The business reported a 1.5% year-over-year decline in revenue, while EBITDA margin was at 20.6% for the quarter. Excluding lenalidomide in North America, the underlying base business maintained its growth momentum, delivering double-digit growth. All financial figures in this section are translated into USD using a convenient translation rate of INR 95.83, the exchange rate prevailing as of 30 September 2026. Consolidated revenues stood at INR 8,671 crores, which is $905 million, a decline of 1.5% on year-over-year, and a growth of 7.4% on sequential basis.

Speaker #3: Thank you, Eshwara. Greetings, everyone, and thank you for being with us today. It is my pleasure to take you through our financial performance for the second quarter of FY27.

Speaker #3: The business reported a 1.5% year-on-year decline in revenue, while EBITDA margin was at 20.6% for the quarter. Excluding Linlamide, in North America, the underlying base business maintained its growth momentum, delivering double-digit growth.

Speaker #3: All financial figures in this section are translated into US dollars using a convenience translation rate of Rs. 95.83. The exchange rate prevailing as of September 30, 2026.

Speaker #3: Consolidated revenues stood at Rs 8,671 crore, which is $905 million, a decline of 1.5% on a year-over-year basis and a growth of 7.4% sequentially.

M.V. Narasimham: Strong underlying base business performance across key businesses, except Europe and API, driven by new product launches and favorable Forex movements, helped mitigate the impact of lower lenalidomide sales. Consolidated gross profit margin was at 52.1%, an increase of 562 basis points sequentially, and a decrease of 254 basis points year-over-year. The year-over-year decline in margins during the quarter was largely on account of lower lenalidomide sales. As a reminder, margins in the preceding quarter were adversely impacted by a provision for inventory and other costs associated with the semaglutide API-related challenges. The reported gross margin for Q2 FY27 was 56.2% for Global Generics and 11.8% for PSAI. The SG&A spend was at INR 2,808 crores, an increase of 6% year-over-year and a decline of 3% sequentially, accounting for 32% of revenue.

Speaker #3: Strong underlying base business performance across key businesses, except Europe and API, driven by new product launches and favorable forex movements, helped mitigate the impact of lower Linlamide sales.

Speaker #3: Consolidated gross profit margin was at 52.1%, an increase of 562 basis points sequentially, and a decrease of 254 basis points year-on-year. The year-on-year decline in margins during the quarter was largely on account of lower linlamide sales. As a reminder, margins in the preceding quarter were adversely impacted by a provision for inventory and other costs associated with the semaglutide API-related challenges.

Speaker #3: The reported gross margin for Q2 FY27 was 56.2% for Global Generics and 11.8% for PSA. The AGNA spend was at ₹2,808 crore, an increase of 6% year-over-year and a decline of 3% sequentially, accounting for 32% of revenue.

M.V. Narasimham: The year-over-year increase was primarily driven by higher personal costs following annual increments, adverse Forex movement, as well as elevated freight costs due to supply chain disruptions arising from the Middle East crisis. The R&D spend was at INR 524 crores, down by 16% year-over-year and 9% sequentially, accounting for 6% of revenues and primarily reflecting lower development expenditures in the generics as compared to the previous year. The EBITDA, including other income, stood at INR 1,783 crores, which is $186 million, a decrease of 614 basis points year-over-year and an increase of 806 basis points sequentially, reflecting a margin of 20.6% of the revenues for the quarter. The profit before tax was at INR 1,228 crores, that is $128 million, representing a margin of 14.2%. Effective tax rate for the quarter was at 25.6% compared to 22.2% in the corresponding period last year.

Speaker #3: The EUR/year increase was primarily driven by higher personnel costs following annual increments, adverse forex movements, as well as elevated freight costs due to supply chain disruptions arising from the Middle East crisis.

Speaker #3: The R&D spend was at Rs. 524 crore, down by 16% year-over-year and 9% sequentially, accounting for 6% of revenues, and primarily reflecting lower development expenditure in generics as compared to the previous year.

Speaker #3: The EBITDA, including other incomes, stood at Rs. 1783 crores, which is US dollars 186 million a decrease of 614 basis points EUR/YEAR and increase of 806 basis points sequentially, reflecting a margin of 20.6% of the revenues for the quarter.

Speaker #3: The profit before tax was Rs. 1,228 crore, that is $128 million, representing a margin of 14.2%. The effective tax rate for the quarter was 25.6%, compared to 22.2% in the corresponding period last year.

M.V. Narasimham: The ETR for the quarter was higher, primarily due to an adverse jurisdictional mix for the quarter in comparison to the same period in the previous year. Profit after tax attributable to equity holders of the parent for the quarter stood at INR 925 crores, which is $97 million, a margin of 10.7% on revenues. Diluted EPS for the quarter is at INR 11.1. Operating working capital as of 30 September 2026 was INR 14,650 crores, which is $1.53 billion, an increase of INR 297 crores over 30 June 2026. Cash CapEx, cash outflow for the quarter stood at INR 186 crores, which is $19 million. Cash flow during the quarter was INR 171 crores, which is $18 million. As of 30 September, we have a net cash surplus of INR 2,502 crores, which is $261 million.

Speaker #3: The ETR for the quarter was higher, primarily due to an adverse 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 Rs. 925 crores, which is $97 million, a margin of 10.7% on revenues.

Speaker #3: Diluted EPS for the quarter is at Rs. 11.1. Operating working capital as of 30 September 2026 was Rs. 14,650 crores, which is $1.53 billion, an increase of Rs.

Speaker #3: 297 crores over 30 June 2026. Cash capex, cash outflow for the quarter stood at Rs. 186 crores, which is $19 million. Cash flow during the quarter was 171 crores, which is $18 million as of 30 September.

Speaker #3: We have a net cash surplus of ₹2,502 crores, which is $261 million. Foreign currency cash flow hedges executed through derivative instruments during the period are $229 million, hedged using a combination of forwards and risk reversal option.

M.V. Narasimham: Foreign currency cash flow hedges executed through derivative instruments during the period are $229 million, hedged using combination of forwards and risk reversal option scheduled to mature by March 2027. These contracts are hedged at a rate of 93.03 to 95.54 for US dollar. With this, I now request Erez to take us through the key business highlights.

Speaker #3: Scheduled to mature by March 2027, these contracts are hedged at rates of $93.032 and $95.544 US dollars. With this, I now request a raise to take us through the key business highlights.

Erez Israeli: Thank you, MVN. Good day, and thank you for your continued interest in our company. Apologize for my voice. I hope it will stay consistent. We remain consistent in our strategic priorities of delivering double-digit growth across geographies and sustainable profitability through strong execution in our core businesses, progress on key assets, continued productivity improvement, and disciplined investment in future growth drivers, both organic as well as inorganic. During the quarter, the underlying business that is excluding lenalidomide in North America continued to perform well, delivering a double-digit growth overall as well as across North America, emerging markets and India. We achieved an EBITDA margin of 20.6%, supported by the strength of our base business and our continued efforts to drive productivity. Subject to successful validation, we expect to relaunch semaglutide both directly as well as to our partners in November 2026, consistent with the timelines communicated earlier.

Speaker #1: Thank you. MVN, good day, and thank you for your continued interest in our company. I apologize for my voice. I hope it will stay consistent.

Speaker #1: We remain consistent within our strategic priorities of delivering double-digit growth across geographies and sustainable profitability. True, strong execution in our core businesses, progress on key assets, continued productivity improvement, and disciplined investment in future growth drivers, both organic as well as inorganic.

Speaker #1: During the quarter, the underlying business, excluding linadulamide in North America, continued to perform well, delivering double-digit growth overall, as well as across North America, emerging markets, and India.

Speaker #1: We achieved an EBITDA margin of 20.6%, supported by the strength of our base business and our continued efforts to drive productivity. Subject to successful validation, we expect to relaunch semaglutide both directly as well as to our partners in November 2026, consistent with the timelines communicated earlier.

Erez Israeli: We also remain focused on advancing abatacept and other complex generics as they move through the regulatory review process in the coming quarters. Let me now walk you through some of the key highlights of the quarter. We partnered with Takeda to bring India first approved dengue vaccine, we call it QDENGA, to the private markets in India in the first half of 2027. We expand our collaboration with Gilead Sciences to enable access to investigational once yearly lenacapavir for HIV prevention in 120 countries. In collaboration with the GARDP Foundation, we secured approval for zoliflodacin, an antibiotic used in gonorrhea treatment in Thailand within six months of US FDA approval. We received US FDA approval for rituximab biosimilar, which will be commercialized in the US through our partners, Fresenius Kabi. We launched nivolumab in India, marking our entry to biosimilar immuno-oncology in India.

Speaker #1: We also remain focused on advancing our dataset and other complex generics as they move through the regulatory review process in the coming quarters. Let me now walk you through some of the key highlights of the quarter.

Speaker #1: We partnered with Takeda to bring India's first approved dengue vaccine, which we call Few Dengue, to the private markets in India in the first half of 2027.

Speaker #1: We expanded our collaboration with Gilead Sciences to enable access to investigational, once-yearly Lenacapavir for HIV prevention in 120 countries. In collaboration with the GARP Foundation, we secured approval for Zollifordasin and antibiotic use in gonorrhea treatment in Thailand within six months of US FDA approval.

Speaker #1: We received U.S. FDA approval for the Rituxima biosimilar, which will be commercialized in the U.S. through our partners, Fresenius Kabi. We launched Nivolumab in India, marking our entry into biosimilar immuno-oncology in India.

Erez Israeli: Both rituximab and nivolumab are developed and manufactured in-house. Generic semaglutide is now approved in 10 countries across Latin America, Africa, the Middle East, as well, of course, as Canada and India. Our CDMO business, under Aurigene Pharmaceutical Services, generated revenues over $100 million in the last 12 months. We continue to receive global recognition for commitment to sustainability. FinanceAsia Awards, a silver medal in the best large cap company in India category, as Asia's Best Companies 2026, reflecting strong endorsement by the Asian investor and analyst community. We improved our CRISIL ESG score to 73 out of 100 from 66, becoming the only pharmaceutical company in the leadership category. 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.

Speaker #1: Both Rituximab and Nivolumab are developed and manufactured in-house. Generic semaglutide is now approved in 10 countries across Latin America, Africa, the Middle East, as well as, of course, Canada and India.

Speaker #1: Our CDMO business under Origin Pharmaceutical Services generated revenues of over $100 million in the last 12 months. We continue to receive global recognition for our commitment to sustainability. Finance Asia awarded us a silver medal in the Best Large Cap Company in India category, as part of Asia's Best Companies 2026, reflecting strong endorsement by the Asian investor and analyst community.

Speaker #1: We improved our CRISIL-ESG score to 73 out of 100 from 66, becoming the only pharmaceutical company in the leadership category. Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies.

Erez Israeli: Our North America Global Generics business reported revenue of $264 million for the quarter, accounting for 29% of our overall revenues and reflecting a decline of 29% year on year, and a growth of 12% sequentially. The decline is attributed to lenalidomide sales versus last year. The underlying base business, excluding lenalidomide, continued to deliver strong double-digit growth, driven by new product launches. During the quarter, we launched six new products, including first to market launch of sugammadex injection. We remain on track to launch additional products, including complex injectable, during the year. Our branded franchise, comprising India, emerging markets and consumer health business in nicotine replacement therapy, or NRT, together accounted for 53% of our overall revenue and continue to provide a strong foundation for stable margin for the company.

Speaker #1: Our North America generic business reported revenue of $264 million for the quarter, accounting for 29% of our overall revenues and reflecting a decline of 29% year-on-year and a growth of 12% sequentially.

Speaker #1: The decline is attributed to linadulamide sales versus last year. The underlying base business, excluding linadulamide, continued to deliver strong double-digit growth driven by a new product's launches during the quarter.

Speaker #1: We launched six new products, including the first-to-market launch of Sugamadex injection. We remain on track to launch additional products, including complex injectables, during the year.

Speaker #1: Our branded franchise, comprising India emerging markets and consumer health business in nicotine replacement therapy (NRT), together accounted for 53% of our overall revenue and continued to provide a strong foundation for stable margins for the company.

Erez Israeli: Our emerging market business recorded revenue of INR 2,059 crore, accounting for 25% of our overall revenue and reflecting a robust growth of 24% year over year and 12% Q on Q. New product launches across markets, including acquisition, coupled with favorable currency movement, drove growth during the quarter. We introduced 27 new products across countries in Q2 FY27. Our India business revenues were INR 1,851 crore, accounting for 21% of overall revenues and consistently delivering a robust double-digit year-on-year growth of 17% and 8% sequentially. Growth was driven by recent launches, including acquired brands, along with price increases and higher volumes. According to IQVIA September 2026 data, our IPM rank improved to 8 for the quarter and 9 for the year.

Speaker #1: Our emerging market business recorded revenue of 2,059 crores rupees, accounting for 24% of our overall revenue and reflecting a robust gross of 24% year over year and 12% Q on Q.

Speaker #1: New product launches across markets, including acquisitions coupled with favorable currency movement, drove growth during the quarter. We introduced 27 new products across countries in Q2 FY27.

Speaker #1: Our India business revenues were ₹1,851 crore, accounting for 21% of overall revenues and consistently delivering robust, double-digit year-on-year growth of 17%, and 8% sequentially.

Speaker #1: Growth was driven by recent launches, including acquired brands, along with price increases and higher volumes. According to Acuvia September 2026 data, our IPM rank improved to 8 for the quarter and 9 for the year.

Erez Israeli: We continue to outperform the Indian pharmaceutical market, IPM, with moving quarterly total growth of 21% versus 14.7% for IPM and moving annual total MAT growth of 19.4% versus 13.2% for the market. Four of our brands feature in IPM top 50 new launches, and we launched four new brands during the quarter. Our European business, which includes NRT, posted revenue of EUR 127 million for the quarter, accounting for 16% of our overall revenues. Revenues declined 6% year over year and 3% sequentially on account of price erosion in generic, partially offset by revenues from new product launches. Growth was further affected by the continuing impact of the operating model changes post-NRT integration, as highlighted last quarter. During the quarter, we launched six new generic products across markets. Our PSAI business reported revenue of $88 million, accounting for 10% of the overall revenues.

Speaker #1: We continue to outperform the Indian pharmaceutical market IPM with moving quarterly total gross of 21% versus 14.7% for IPM and moving annual total MAT gross of 19.4% versus 13.2% for the market.

Speaker #1: Four of our brands feature in IPM Top 50 new launches, and we launched four new brands during the quarter. Our European business, which includes NRT, posted revenue of €127 million for the quarter, accounting for 16% of our overall revenues.

Speaker #1: Revenues declined 6% year-over-year and 3% sequentially, on account of price erosion in generics, partially offset by revenues from new product launches. Growth was further affected by the continual impact of the operating model changes post-NRT integration, as highlighted last quarter.

Speaker #1: During the quarter, we launched six new generic products across markets. Our PSAI business reported revenue of $88 million, accounting for 10% of the overall revenues.

Erez Israeli: Revenue decline of 19% year-over-year and 3% sequentially, primarily on account of lower API volume uptake. Our CDMO business delivered double-digit growth this quarter. During the quarter, we filed 28 drug master files globally. We remain committed to improving the health of our business and to delivering consistent growth and sustainable margins as we continue to strengthen our core business. We are also investing in a future growth driver across peptides, biosimilar, consumer health, and innovation. Our focus remains on progressing key products such as semaglutide and abatacept, driving operational efficiency, and pursuing targeted inorganic opportunities to support long-term growth and shareholder value. With that, I invite your question as we move into the Q&A sessions.

Speaker #1: Revenue decline of 19% year over year and 3% sequentially. Primarily on account of lower API volume uptake our CDMO business delivered double-digit gross this quarter during the quarter we filed 28 drug master files globally.

Speaker #1: We remain committed to improving the health of our business and to delivering consistent growth and sustainable margins. As we continue to strengthen our core business, we are also investing in future growth drivers across peptides, biosimilars, consumer health, and innovation.

Speaker #1: Our focus remains on progressing key products such as semaglutide and abatacept, driving operational efficiency, and pursuing targeted inorganic opportunities to support long-term growth and shareholder value.

Speaker #1: With that, I invite your question as we move into the Q&A sessions.

Aishwarya Sitharam: Thank you very much, Erez. We will now begin the question and answer session. To join the question queue, please use the raise hand option available by the bottom of your Zoom application. If you wish to exit the question queue, you may click on the lower hand option. Participants are requested to ask no 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 Neha Manpuria from Bank of America. Neha, please go ahead.

Speaker #2: Thank you very much, Ariz. We will now begin the question and answer session. To join the question queue, please use the "raise hand" option available in the bar at the bottom of your Zoom application.

Speaker #2: If you wish to exit the question queue, you may click on the lower hand option. Participants are requested not to ask more than two questions at a time and to rejoin the queue in case of any incremental queries.

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 the chat option to reach out to us.

Speaker #2: The first question is from the line of Neha Vanturya from Bank of America. Neha, please go ahead.

Neha Manpuria: Yeah. Hi, thanks for taking my questions. My first question is on SEMA. I think you mentioned that we are on track to resume SEMA in early November. Erez, I think you had given us a volume guidance last time when we had announced the disruption in supplies. Two questions on SEMA. First, is the resumption happening with our own API? Is it the same partner that we're using? And second, given what has happened in Canada, with the one player which is already there, how confident are we of meeting the guidance that we'd given for SEMA?

Speaker #3: Yeah, hi. Thanks for taking my question. My first question is on semi. I think you mentioned that we're on track to resume semi in early November.

Speaker #3: Ariz, I think you had given us a volume guidance last time when we had announced the disruption in supplies. Two questions on semi. First, is the resumption happening without own API?

Speaker #3: Is it the same partner that we're using? And second, given what has happened in Canada with the one player which is already there, how confident are we of meeting the guidance that we had given for semi?

Erez Israeli: I am very confident. The confidence is based on orders that we already have, and we just obviously need to supply. The main issue was with our ability to scale up the API. This problem is solved, and we shipped all the necessary API to our partner to do. We still need to have the results of the validation, so this is still pending, but I am confident that it will be successful. And then we are ready to launch. Most of the quantities will go to Canada, and some of the quantities will go to Latin America, primarily to Latin America, and a little bit to Africa.

Speaker #1: Sorry, I'm very confident. The confidence is based on orders that we already have. We just obviously need to supply. The main issue was with our ability to scale up the API.

Speaker #1: This problem is solved, and we have shifted all the necessary APIs to our partner to handle. However, we still need to receive the results of the validation.

Speaker #1: So this is still pending, but I'm confident that it will be successful. And then, we are ready to launch. Most of the quantities will go to Canada, and some of the quantities will go to Latin America—primarily to Latin America, and a little bit to Africa.

Neha Manpuria: Understood. My second question is on the gross margin improvement that we have seen in the quarter. MVN, if you could give us some color in terms of what is driving this gross margin improvement. Is it fair to assume that, as SEMA comes through, this is the bottom in terms of gross margin, and gross margin should only improve from here?

Speaker #3: Understood. And my second question is on the gross margin improvement that we've seen in the quarter. MBN, if you could give us some color in terms of what's driving this gross margin improvement and is it fair to assume that as semi comes through, this is the bottom in terms of gross margin and gross margin should only improve from here?

M.V. Narasimham: Yeah. Neha, just as we guided earlier, we want to be gross margin in the range 50% to 55%. That is why this quarter, what we see 52.1%. This improvement from last quarter to even this quarter is a combination of the new products and the business mix. That is where I think we will be in this zone certainly in the coming quarters as well.

Speaker #1: Yeah. As we discussed earlier, we want our gross margin to be in the range of 50 to 55 percent. That's why, for this quarter, what we saw was 52.1 percent.

Speaker #1: This improvement from last quarter to this quarter is a combination of the new products and the business mix. That's why I think we will be in this zone, certainly in the coming quarters as well.

Erez Israeli: Your assumption is correct.

Speaker #1: And your assumption is correct. Yes, it will only get better from here. Yeah.

M.V. Narasimham: Yes.

Erez Israeli: It will only go better from here.

M.V. Narasimham: Yeah.

Neha Manpuria: Understood. Thank you so much.

Speaker #3: Understood. Thank you so much.

Aishwarya Sitharam: Thanks, Neha. The next question is from the line of Kunal Dhamesha from Macquarie. Kunal, please go ahead.

Speaker #2: Thanks, Neha. The next question is from the line of Dr. is from the line of Dr. Kunal Damesha from Macquarie. Kunal, please go ahead.

Kunal Dhamesha: Hey. Hi, thank you for taking my question. First one on the one cash flow line item on other assets and liabilities, there is a large change that has happened around INR 1,370 crore. MVN, could you please help us, what is driving that?

Speaker #4: Hey, hi. Thank you for taking my question. First, on the cash flow line item for other assets and liabilities, there is a large change that has happened, around ₹1,370 crore.

Speaker #4: So, MBN, could you please help us? What is driving that?

M.V. Narasimham: This is the one where this SSA claim, what we had, I think there were the payments have happened this quarter. That is one change. And then other balances due to various operation. But that is the biggest one.

Speaker #1: So this is a one where this SSA claim what we had, I think there was the payments have happened this quarter. That is a one change and then other balances due to various operations.

Speaker #1: But that is the biggest one. If you remember, $50 million is what we have provided in Q4 during this H1.

Kunal Dhamesha: Yeah.

M.V. Narasimham: If you remember, $50 million, what we have provided in Q4.

Kunal Dhamesha: Okay

M.V. Narasimham: during this H1.

Kunal Dhamesha: Okay. So the cash flow has happened now. Okay.

Speaker #4: Okay. So the cash flow has happened now. Okay. Great. Thank you. And just continuing on the gross margin front, the other way to look at is there's a sequential improvement in US revenue a meaningful improvement, right?

M.V. Narasimham: Yes.

Kunal Dhamesha: Great. Thank you. Vinod, just continuing on the gross margin front. Or the other way to look at it is there is a sequential improvement in US revenue, a meaningful improvement, right? Would you be able to split between the new product launches driving that and the volume improvement in existing product or pricing improvement? How should we think of that delta in US business and the similar driver and approximate split for the gross margin improvement on a Q over Q basis?

Speaker #4: So, would you be able to split between the new product launches driving that and the volume improvement in existing products or pricing improvement? How should we think of that delta in the US business?

Speaker #4: And the similar driver and approximate split for the gross margin improvement on a QoQ basis?

M.V. Narasimham: So certainly like a new product, what we have launched in bosutinib, sugammadex, I think in the US, I think these products, as compared to our company average gross margins, I think certainly is on the higher side as well as what we have launched, the nivolumab. And the business mix also has contributed to this margin. So Kunal, the main driver-

Speaker #1: So certainly, like a new products what we have launched in certain names, Sugamadex, I think in the US, I think these products as compared to the our company average gross margins, I think certainly is like on the higher side as well as what we have launched the Nivoli map and the business mix also as a contributor to this margin.

Speaker #1: So Kunal, the main driver is actually the business mix because now the businesses that are relatively with high profitability meaning India EM and the NRT, all of them are much more profitable than our average.

Erez Israeli: the driver is actually the business mix because-

Erez Israeli: the businesses that are relatively with high profitability, meaning India, EM, and the NRT, all of them are much more profitable than our average, went to 53%. So-

Speaker #1: Went to 53%. So this is one contribution. The second is what MBN said that the US is more profitable because of the contribution of the new products.

Erez Israeli: Right

Erez Israeli: one contribution. The second is what MVN said, that the US is more profitable because of the contribution of the new products. The combination of both gave that. And the last, we did not increase the expenses. The expenses are essentially flat this quarter. And if you grow the sales double digit, and you don't increase the cost, it obviously lead to this margin improvements.

Speaker #1: The combination of both gave that. And the last, we did not increase the expenses. The expenses are essentially flat this quarter. And so if you draw the sales double digit and you don't increase the cost, it's obviously lead to this margin improvement.

Kunal Dhamesha: Sure. Lastly from my side, would we have also seen some drag from the raw material price increase? Vinod, I think the oil prices are high, and the chemical prices are also high. How should we look at that cost line item from the, let's say, H2 perspective? Do you think that Q2 is when we have seen most of the increase or Q3, Q4, we can see some drag?

Speaker #4: Sure. And lastly from my side, would we have also seen some drag from the raw material price increase and given the I think the oil prices are high and the chemical prices are also high and then how should we look at that cost line item from the let's say second half perspective?

Speaker #4: Do you think that quarter two is when we have seen most of the increase or quarter three, quarter four, we can see some drag?

Erez Israeli: Here, Jeff, I think this because of the war, I can say increases what we have seen in the KSMs, the second one is solvents, and the third is logistics, right outwards what we are exporting material from India to all countries. We have seen the increase on the three fronts, and overall, it has an impact close to 100 basis points on the EBITDA. We believe that is already part of the gross margins, and we believe, I think, this trend will continue for Q3 and Q4 as well.

Speaker #1: So here, I think this is because of the OR. I can say it increases what we have seen in the KSMs, and then the second one is solvents, and the third is logistics, right? Outwards—what we are exporting, metal from India to all other countries.

Speaker #1: So we have seen the increase on the three fronts and then overall it has an impact close to 100 basis points on the EBITDA.

Speaker #1: So we believe that is already part of the gross margins and then we believe I think this trend will continue for Q3 and Q4 as well.

Kunal Dhamesha: Sure.

Erez Israeli: I don't anticipate additional goals, unless, of course, there will be.

Speaker #1: I don't anticipate additional growth unless, of course, there will be—as much as we can predict—additional geopolitical issues. But with our limited understanding, if it will stay the way it is now, we are in the same place.

Kunal Dhamesha: Yeah.

Erez Israeli: You know, as much as we can predict additional geopolitical issues. But with our limited understanding, if it will stay the way it is now, we are in the same place.

Kunal Dhamesha: Sure. I have more question. I will join back with you. Thank you and all the best.

Speaker #4: Sure, I have more questions. I'll join back in the queue. Thank you, and all the best.

Erez Israeli: Thank you.

Aishwarya Sitharam: Thanks, Pal. The next question is from the line of Damayanti Kerai from HDFC. Damayanti, please go ahead.

Speaker #2: Thanks, Kunal. The next question is from the line of Damanthi Kirai from HSBC. Damanthi, please go ahead.

Damayanti Kerai: Yeah. Hi. Good evening, everyone. It is a clarification on semaglutide resumption. You mentioned you have already started supply of API to your fill-and-finish partner. However, what is remaining is the validation. I actually am not clear. I thought validation will be done and then you will supply to your fill-and-finish partner. Can you just help us understand this?

Speaker #3: Yeah, hi. Good evening, everyone. I have a clarification on semaglutide resumption. You mentioned that you have already started supply of API to your fill and finish partner.

Speaker #3: However, what is remaining is the validation. So I am actually not clear—I thought validation would be done and then you would supply to your fill-and-finish partner.

Speaker #3: So, can you just help us understand this?

Erez Israeli: Sure. So you do validation as we had to come back and basically tweak the process on the API, then you do validation of the API. Then when you ship it to our partner, you need now to do validation on the drug products using that API. This is a process that takes about 3 weeks, and so far, give or take, all the activities are on time. That is why it took us to November from the first place. So, so far it is in hibernation, but you have basically validation in each stage of the scale-up of the process.

Speaker #1: Yeah, sure. So you do validation, as we had to come back and basically tweak the process on the API. Then you do validation of the API.

Speaker #1: And then when you ship it to our partner, then you know and you need now to do validation on the drug products. Using that API.

Speaker #1: This is a process that takes about three weeks. So far, give or take, all the activities are on time. And that's why it took us to November in the first place.

Speaker #1: So far, it is an iteration, but you have basically validation at each stage of the scale-up of the process.

Damayanti Kerai: Sure. That is helpful. Another point on semaglutide, as you mentioned, so far it is approved in around 10 countries. Did you secure for more approvals in other markets while you are trying to resolve the API issue? Or you want to go after you resume the supply in the existing or approved market? How do you plan? Because you mentioned you will be targeting to launch in more than 70 countries across the world, right?

Speaker #3: Sure, that's helpful. And another point on semaglutide—you mentioned so far it's approved in around 10 countries. So, didn't you secure more approvals in other markets while you were trying to resolve the API issue, or do you want to go after new approvals once you resume supplies in the existing or approved markets?

Speaker #3: So, how do you plan? Because you mentioned you'll be targeting to launch in more than 70 countries across the world, right?

Erez Israeli: Yeah. The right number is now 89 markets. But it is just that all the markets that the process started, we did not stop. The scale-up issue has nothing to do with the regulatory process, and we do not require any amendment to the file or anything like that. So everything continued, and all the approval we got was in according to the process in each one of those respective countries, and this will continue. Some of the approval in some other markets got delayed because of the scale up, as we needed to ship them samples of the products, and those samples will be now sent to those places. So we will continue with the process for all the other markets as well.

Speaker #1: Yeah, the right number is now 89 markets. But just that, all the markets that the process started, we did not stop. The scale-up issue has nothing to do with the regulatory process.

Speaker #1: And we don't require any amendment to the file or anything like that. So everything continued. And all the approval we got was in according to the process in each one of those respective countries.

Speaker #1: And this will continue. Some of the approval in some other markets got delayed because of the scale up as we needed to ship them samples of the products and those samples will be now sent to these places.

Speaker #1: So, we will continue with the process for all the other markets as well.

Damayanti Kerai: Sure. My second question is on your NRT, the nicotine business. So, a flat performance for last 2 quarters. You mentioned it was due to change in the business model. So when should we see recovery in NRT business?

Speaker #3: Sure. And my second question is regarding your NRT, the nicotine business. The performance has been flat for the last two quarters, and you mentioned this was due to a change in the business model.

Speaker #3: So, when should we see recovery in the NRT business?

Erez Israeli: Last year or last quarter, if you recall, we had to carve out from Haleon. It means that Haleon used to do it, and we gave them certain margins for handling the business. The new business model, it means that now we are selling it, either by ourself or through distributors. But the payment to Haleon is not there anymore. It means normally, in this respect, less sales, but more profit. What I can say about it, the comparison year-over-year will be until we will finish the year. I think we have 2 more quarters like that. In general, the business is doing well. It will grow in the same way that you saw until now, somewhere between high single digit to maybe even double digit. And the profitability is way above the expectations that we put in the business model.

Speaker #1: So last year or last quarter, if you recall, we had to carve out from Helion. So it means that Helion used to do it and we gave them certain margins for handling the business.

Speaker #1: The new business model means that now we are selling it either by ourselves or through distributors. But the payment to Helion is not there anymore.

Speaker #1: It means, normally in this respect, less sales, but more profit. So, what I can say about it is the comparison year over year will be until we finish the year.

Speaker #1: I think we have two more quarters like that. In general, the business is doing well. It will grow in the same way that you saw until now.

Speaker #1: Somewhere between high single digits to maybe even double digits. And the profitability is way above the expectations that we put in the business model.

Erez Israeli: We are very pleased with this one.

Speaker #1: So, we are very, very pleased with this one.

Damayanti Kerai: Sure. Thank you. I will get back in the queue for more questions.

Speaker #3: Sure, thank you. I'll get back in the queue for more questions.

Aishwarya Sitharam: Thanks, Damayanti. The next question is from the line of Tausif Shaikh, from BNP Paribas. Tausif, please go ahead.

Speaker #2: And Damanthi? The next question is from the line of Tosmev Sheikh from BNP Paribas. Tosmev, please go ahead.

Tausif Shaikh: Good evening, and thanks for the opportunity. First question about Azcapotzalco. While the goal date is set for December, is there any incremental update that you would like to share with us, especially from the Bachupally plant?

Speaker #4: Good evening, and thanks for the opportunity. First question about us: while the goal date is set for December, is there any incremental update that you would like to share with us, especially for the Bachupally plant?

Erez Israeli: Yes. The plant went for the inspection. We are still waiting for the IR to come, and the goal date is indeed 22 December, and we are hoping for an approval. It is obviously in the end of the US FDA.

Speaker #1: Yes. So the plant went for the inspection. We're still waiting for the IR to come. And the goal date is indeed December 22nd. And we are hoping for an approval.

Speaker #1: It's obviously at the end with the USFDA.

Tausif Shaikh: Okay, that is helpful. On the R&D spend, which seems lower compared to year-over-year and quarter-over-quarter, where you have mentioned it is on account of lower spend on Global Generics, how do you see this trend going ahead? Shall we assume this is a new base now?

Speaker #4: Okay, that's helpful. On the R&D spend, which seems lower compared to year-on-year and quarter-on-quarter, where you have mentioned it is on account of lower spend on global generics.

Speaker #4: How do you see this trend going ahead? Shall we assume this is a new base now?

M.V. Narasimham: This quarter's R&D is low, absolutely you are right. In coming quarters, what we believe, our R&D is going to be in the range of 7% to 8%.

Speaker #1: So this quarter, R&D is low. Absolutely, you're right. And in the coming quarters, we believe our R&D is going to be in the range of 7 to 8 percent.

Tausif Shaikh: Okay. That is helpful. I will get back in the queue.

Speaker #4: Okay, that's helpful. I will get back in the queue.

Aishwarya Sitharam: Thanks, Tausif. The next question is from the line of Madhav Marda from Millennium. Madhav, please go ahead.

Speaker #2: Thanks, Tosmev. The next question is from the line of Madhav Murdha from Millennium. Madhav, please go ahead.

Madhav Marda: Hi, good evening. Just one question. If I understood right, during the initial remarks, you mentioned about one or few complex injectable launches in the H2 of the year. Could you just clarify, if you could share some more views on that product? Did I hear that right, that we have some complex injectable lined up, Madhav?

Speaker #3: Hi, good evening. Just one question: If I understood correctly, during the initial remarks, you mentioned one or a few complex injectable launches in the second half of the year.

Speaker #3: Could you just clarify like if you could share some more views on that product? Did I hear that right that we have some complex injectable lined up?

Aishwarya Sitharam: Well, we will talk about it more when we get closer towards the end of the year. We do have a few interesting products in our pipeline. We have always spoken about that. We have done a bunch of launches, and we want to continue with that momentum.

Speaker #2: Well, we'll talk about it more when we get closer to the end of the year. But yeah, we do have a few interesting products in our pipeline.

Speaker #2: We've always spoken about that. We've done a bunch of launches. We want to continue with that momentum.

Erez Israeli: Yeah, but I am kind of careful to promise because I got burned in the past when dealing with the approval of complex generics, and some of you who have been with us for many, many years, you remember that. But let us say we have some exciting products ahead.

Speaker #1: Yeah. But I'm kind of careful to promise because I got burned in the past when dealing with the approval of complex generics. Some of you have been with us for many, many years, and you remember that.

Speaker #1: But let's say we have some exciting products ahead.

Madhav Marda: I remember in 2022, we had done the analyst meet in Bombay. I think that time we had shared names of a few products. Is it from that list itself? You are like, disclose four, five products in the pipeline.

Speaker #3: And Babu and 2022, we've done the unlisted in Bombay. I think that time we had shared names of a few products. Is it from that list itself?

Speaker #3: Like you're like disclosed four or five products in the pipeline?

Aishwarya Sitharam: You will know by the end of the year.

Speaker #2: You will know by the end of the year.

Madhav Marda: Okay. Okay, fine. But it is a meaningful product for the US market, is that right?

Speaker #3: Okay. Okay. Fine. But it's a meaningful product for the US market. Is that right?

Erez Israeli: These are meaningful products, yes.

Speaker #1: These are meaningful products. Yes.

Madhav Marda: Okay. Got it. All right, cool. Thank you.

Speaker #3: Okay, got it. All right. Great. Thank you.

Aishwarya Sitharam: Thanks, Madhav. The next question is from the line of Forum Parekh from BOB Capital Markets Ltd. Please go ahead.

Speaker #2: Thanks, Madhav. The next question is from the line of Forum Parekh from Bank of Baroda Capital. Please go ahead.

Forum Parekh: Thank you for the opportunity. My first question is on Europe business, ex of NRT. The growth seems to be declining there, probably because of Germany. How should we look at it? I mean, NRT is also now flattish because of the change in business model, and ex of NRT also, it is declining, which is taking a toll on the Europe business. Can we expect it to go back to double digit?

Speaker #5: Thank you for the opportunity. My first question is on Europe business. X of NRT. So the growth seems to be declining there. Probably because of Germany.

Speaker #5: So how should we look at it? I mean, NRT is also now flattish because of the change in business model, and X of NRT is also declining, which is taking a toll on the Europe business.

Speaker #5: So, can we expect it to go back to double digits?

Erez Israeli: Yeah, it will. First of all, the NRT will grow. The NRT is growing and obviously, that part will positively impact also the relevant part of Europe. Absolutely, you are correct about the performance of this quarter. The next quarter should be better. Let's say the NRT, I am expecting, again, either a high single-digit growth or even double, depends on certain scenarios. As for Europe, I am expecting growth, but it will not be significant growth this year.

Speaker #1: Yeah, it will. First of all, the NRT will grow. The NRT is growing and obviously that's part will positively impact also the relevant part of Europe.

Speaker #1: Absolutely. You are correct about the performance of this quarter. The next quarter should be better. Let's say the NRT I'm expecting again is either high single-digit growth or even double, depending on certain scenarios.

Speaker #1: As for Europe, I'm expecting growth, but it will not be significant growth this year.

Forum Parekh: Sure. On ex of NRT, how should we look at the growth ramping up?

Speaker #5: Sure. And on X of NRT, how should we look at growth ramping up?

Erez Israeli: Ex NRT Europe, you mean?

Speaker #1: XNRT Europe you mean?

Forum Parekh: Yes.

Speaker #5: Yes.

Erez Israeli: It should grow, probably single digit this year.

Speaker #1: It should grow probably single digit this year.

Forum Parekh: Okay, that is helpful. My second question is on SG&A cost. Here also the contribution has come lower to 26% versus earlier trend of 29%. Would this be the new sustainable number to look at?

Speaker #5: Okay, that's helpful. My second question is on SG&A cost. Here also, the contribution has come lower to 26% versus the earlier trend of 29%. So, would these be the new sustainable numbers to look at?

M.V. Narasimham: Yeah. So overall, just want to clarify, our SG&A percentage is 32%. JS said here, we have also spoken about cost productivity, what we are doing is now that is coming visible. Even coming quarters also, at least in this year coming, you may not see significant changes to this number. It is going to be at this level around here and there, I think small changes.

Speaker #1: Yeah. So, overall, I just want to clarify our SG&A percentage is 32%. And just here, we've also spoken about the cost productivity. What we are doing is now becoming visible.

Speaker #1: So, even in the coming quarters, at least in this year, you may not see significant changes to this number. It's going to be at this level, with some small changes here and there.

Erez Israeli: I just want to reiterate, to take the opportunity. We believe that the level that we agree and we discuss it all the time, actually, with all of you, is sustainable. We think that the 20 plus, we are actually aiming for the famous 25% that we are always discussing.

Speaker #1: I just want to reiterate, to take the opportunity, we believe that the level that we agree and we discuss it all the time, actually, with all of you, is sustainable.

Speaker #1: We think that 20 plus—we actually, I mean for the famous 25% that we are always discussing—EBITDA, and this will continue. We are planning to consistently continue to deliver this number.

M.V. Narasimham: EBITDA.

Erez Israeli: EBITDA.

Erez Israeli: This will continue, and we are planning to consistently continue to deliver of this number.

Forum Parekh: Sure. Thank you. Last question is on the India business. We have done good, and IPM growth also is inching up in double digit and is likely to sustain at current levels for the remaining year. Can we expect current run rate of 17% to be the growth rate for the year?

Speaker #5: Sure, thank you. And last question is on the India business. We have done well, and IPM growth is also inching up to double digits and is likely to sustain at current levels for the remainder of the year.

Speaker #5: So can we expect the current run rate of 17% to be the growth rate for the year?

Erez Israeli: It is going obviously to stay a high level of double digits. It is maybe a little bit less or a little bit more, but we are in the right neighborhood.

Speaker #1: It's obviously going to stay at a high level of double digits. It may be a little bit less or a little bit more, but we are in the right neighborhood.

M.V. Narasimham: Also, we want our growth to be higher than the market growth at a few basis points.

Speaker #3: Also, we want our growth to be higher than the market growth, I think by a few basis points.

Forum Parekh: Sure. That is helpful. Thank you.

Speaker #5: Sure. That's helpful. Thank you.

Aishwarya Sitharam: Thanks, Forum. Participants are requested to restrict the number of questions to two to ensure that everyone in the queue gets an opportunity to interact with management. The next question is from the line of Prakhar Neema, who is from BNY Mellon. Prakhar, please go ahead.

Speaker #2: Thanks, Forum. Participants are requested to restrict the number of questions to two, to ensure that everyone in the queue gets an opportunity to interact with management.

Speaker #2: The next question is from the line of Prakhar Nema who's from BNY Mellon. Prakhar, please go ahead.

Prakhar Neema: Firstly, thanks for the question. Thanks for taking these questions. What is the company's strategy for expanding the biosimilar business within research and development and partnership? Could you please shed some light on this?

Speaker #3: Firstly, thanks for the question. Thanks for taking this questions. So what is the company's strategy for expanding the biosimilar business through within research and development and partnership?

Speaker #3: So, could you please shed some light on this?

Erez Israeli: Sure. We are going after both. We, naturally leveraging our Bachupally facilities as well as additional facilities that we will build in the future. Abatacept is going to be the first meaningful product to be launched out of our own facilities. Rituximab is obviously one of them. Abatacept is going to be obviously meaningful, and more products to follow. In parallel to that, we are talking to partners around the world, and we are trying to license products which we do not have in our own internal pipelines. We have it whether globally or for specific regions. Both will continue.

Speaker #1: Sure, we are going after both. So,

Speaker #6: we, um,

Speaker #7: We're naturally leveraging our batch poly facilities, as well as additional facilities that we'll build in the future. And abatacept is going to be the first meaningful product to be launched out of our own facilities.

Speaker #7: Rituximab is obviously one of them. Abatacept is going to be obviously meaningful and more products to follow. In parallel to that, we are talking to partners around the world and we're trying to license product in which we don't have in our own pipeline, in our own internal pipelines.

Speaker #7: And we have it whether globally or for specific regions. So both will continue.

Prakhar Neema: Perfect. Thanks for that. One more question. What is the revenue we can expect for the next three to four years?

Speaker #8: Perfect. Thanks for— and one more question. So, what revenue can we expect for the next 3 to 4 years? It depends on the success of Abatacept.

Erez Israeli: It depends on the success of abatacept, obviously, in the next coming years, because this is going to be a significant product for that. Abatacept should be in the hundreds, so you should expect hundreds of millions of dollars.

Speaker #7: Obviously in the next coming years because this is going to be a significant product for that. And Abatacept should be in the hundreds. So you should expect

Speaker #8: Hundreds of millions of dollars. So, followed by abatacept, then we have pembrolizumab and daratumumab, which will also come in the next, within five years.

M.V. Narasimham: Followed by abatacept, then we have pembro and durvalumab also will come within five years.

Prakhar Neema: Okay. Thank you so much. Thanks for taking my questions.

Speaker #8: Okay, okay. Thank you so much. Thanks for taking my questions. Thanks, Akar. Um, the next question is from the line of Abdul Kader Puranwala from ICICI Securities.

Aishwarya Sitharam: Thanks, Prakhar. The next question is from the line of Abdul Kabir Puranwala from ICICI Securities. Abdul, please go ahead. Abdul, you have been unmuted.

Speaker #8: Abdul, please go ahead. Abdul, you've been unmuted. Just move on, then I'll come back. Abdul, we'll come back to you. The next question is from the line of Vishal Manchanda from Systematics.

M.V. Narasimham: Just move on, then he will come back.

Aishwarya Sitharam: Abdul, we will come back to you. The next question is from the line of Vishal Manchanda from Systematix. Vishal, please go ahead.

Speaker #8: Vishal, please go ahead. Hi, good evening, and thanks for the opportunity. On Rituximab, would it be possible for you to share where we are in terms of market share in Europe?

Vishal Manchanda: Hi. Good evening, and thanks for the opportunity. On rituximab, would it be possible for you to share where are we in terms of market share in Europe?

Erez Israeli: We have single digits of market share in Europe.

Speaker #7: We have a single-digit market share in Europe.

Vishal Manchanda: Low single digit or high single digit?

Speaker #8: Low single digit or like high single digit? Low single digits. Any, any timelines and any guidance as to where we can be? Maybe a year or, uh, 2 years down the line?

Erez Israeli: Low single digits.

Vishal Manchanda: Any timelines and any guidance as to where we can be maybe a year or two years down the line? Do we have the capacities there?

Speaker #8: And do we have the capacities there?

Erez Israeli: Indeed, we were constrained by capacity. We should be better once we will be able to add more qualified capacity for that. At the same time, we are talking about a product with a high level of competition, so I would not expect a significant change because of that.

Speaker #7: So, indeed, we were constrained by capacity. We should be better once we are able to add more qualified capacity for that. At the same time, we're talking about a product with a high level of competition, so I would not expect a significant change because of that.

Vishal Manchanda: Okay. Second, your JV entity in China got a first generic approval for a drug called icotinib in July.

Speaker #8: Okay, and second, you, uh, your JV entity in China got a first generic approval for a drug called icotinib. Uh, in July. Is that, is that contribution, uh, part of your numbers in the current quarter, or will this come in subsequent quarters?

Erez Israeli: Correct.

Vishal Manchanda: Is that contribution part of your numbers in the current quarter, or will this come in subsequent quarters?

Erez Israeli: We are recording our share. We are not recording the sales, we are recording our share of the profit of that. It is part of-

Speaker #7: So we are recording our share of the— So we are not recording the sales; we are recording our share of the profit of that.

Speaker #7: So it's part of the profit, and our share in that is 51%.

Vishal Manchanda: Profit

Erez Israeli: the profit, and our share in that, which is 51%.

Vishal Manchanda: This would be part of the share of profits from JV?

Speaker #8: So this would be part of the JV, uh, share of profits from JV, of course. So, have we kind of started selling this, and is this now— have we ramped up to our full potential?

Erez Israeli: Correct.

Vishal Manchanda: Have we started selling this, and have we ramped up to our full potential? Are we the only generic here, or there are other generics that have entered?

Speaker #8: And are we the only generic here, or are there other generics that have entered? To the best of my knowledge, we started. I don't recall about the competition, so okay. And just one final one on abatacept.

Erez Israeli: To the best of my knowledge, we started. I do not recall about the competition.

Vishal Manchanda: Okay. Just one final one on abatacept. Once we get the approval, how long can we take to get listed on the formularies? Will it be six months or we can start getting market share quickly post-approval?

Speaker #8: Once we get the approval, how long can we take to get listed on the formularies? Will it be like six months, or...

Speaker #7: We can start getting market share quickly post-approval. So the ramp-up, like you said correctly, will be after six months, after we get all the codes and all the registration. But we can initially sell smaller quantities from day one.

Erez Israeli: The ramp-up, like you said correctly, will be after 6 months after we will get all the codes and all the registration. But we can initially sell smaller quantities from day 1. So expect that the launch will be upon approval, but the ramp-up will be correctly after 6 months.

Speaker #7: So expect that the launch will be upon approval, but the ramp-up will be correctly after six months.

Vishal Manchanda: Got it. If I can ask one more on SEMA, if you can guide on where generics are in terms of market share in Canada as on date.

Speaker #8: Got it. If I can ask one more on Sema—if you can guide on where generics are in terms of market share in Canada as of today.

Erez Israeli: As of date, there is only one generic in Canada.

Speaker #7: As of today, there is only one generic in Canada. I don't remember their market share, but let's say that the Canadian market will love to get us quick.

Vishal Manchanda: Right.

Erez Israeli: I don't remember their market share. But let's say that the Canadian market will have to get its way.

Vishal Manchanda: Got it. Thank you.

Speaker #7: Got it. Thank you.

Aishwarya Sitharam: Thanks, Vishal. The next question is from the line of Surya Patra from PhillipCapital. Surya, please go ahead. Sudir, you have been unmuted. Okay. While Sudir joins back in, the next question can be from the line of Dr. Bino Pathiparampil from Elara Capital. Bino, please go ahead.

Speaker #9: Thanks, Vishal. The next question is from the line of Surya Patra from Phillip Capital. Surya, please go ahead.

Speaker #10: Surya, you've been unmuted.

Speaker #9: Okay, while Surya joins back in, the next question can be from the line of Dr. Bino Patiparantal from Elara Capital. Bino, please go ahead.

Bino Pathiparampil: Hi. Good evening to all of you, and congratulations on a great set of numbers. A couple of clarifications. I see from the footnotes this bendamustine deal and some milestones in Russia, which is part of revenue. Where is it included in the revenue breakup? Is it part of US revenue and Russia revenue respectively?

Speaker #8: Hi, good evening to all of you, and congratulations on a great set of numbers. A couple of clarifications: I see from the footnotes these Bentham, Austin deals and some milestones in Russia, which are part of revenue.

Speaker #8: Um, where is it included in the revenue breakup? Is it part of US revenue and Russia revenue respectively? It is, uh, it is in the sales line.

M.V. Narasimham: It is in the sales line.

Bino Pathiparampil: And bendamustine is in the US revenue, and the milestones are in Russia revenue. Am I right?

Speaker #8: And Bentham is in the US revenue, and the milestones are in the Russia revenue. Am I right that the milestone for Russia is part of the EM?

M.V. Narasimham: That milestone of Russia is part of the EM.

Bino Pathiparampil: Okay. Second, what is this bendamustine deal about? What was the logic behind selling the product rights?

Speaker #8: Okay. Um, second, uh, what is this Bentham deal about? Uh, what was the logic behind sending the product rights— selling the product rights? Yeah, that's where I think here we thought a partner, uh, we will get overall as a deal, I think we get a better economics.

M.V. Narasimham: Which one?

Aishwarya Sitharam: Bendamustine outsourcing.

M.V. Narasimham: Yeah. That way, I think here we thought a partner will get overall as a deal, and then we get a better economics. That's why we have given these rights to the partner.

Speaker #8: That's why we have taken given these rights to the partner. Got it. Um, at, um, in the quarter I have seen, I see that the finance income is significantly lower versus ₹290 crore last quarter and, uh, kind of similar numbers in previous quarters.

Bino Pathiparampil: Got it. In the quarter, I see that the finance income is significantly lower versus INR 290 crore last quarter and kind of similar numbers in previous quarters. This quarter is only about INR 90 crore. Is there any reason why the finance income is so much lower?

Speaker #8: This quarter is only about 90 crore. Um, so, uh, is there any reason why the finance income is so much lower? So here, what the exposure we have on the balance sheet is the forex, especially, uh, the movements, as you know, from June to September of the रूबल स्पॉट रेट इस आई थिंक सिग्निफिकेंट वेरिएंस आई थिंक दैट हैज़ गिवन दिस पीएनल डेबिट आई थिंक इन दिस क्वार्टर एस कंपेयर्ड तू द क्यूवन Sorry, this, in this quarter it is lower compared to Q1?

M.V. Narasimham: Well, here, what the exposure we have on the balance sheet is now the Forex, especially the movements as from June to September of the ruble spot rate is, I think, significant variance. I think that has given this P&L debit, I think, in this quarter as compared to the Q1.

Bino Pathiparampil: Sorry, in this quarter it is lower compared to Q1?

M.V. Narasimham: Yes.

Speaker #8: Yes, yes, yes. Okay, um, I'm sorry, one last question. What would be the CapEx for the full year? Because the first half I have seen is much lower than your typical one.

Bino Pathiparampil: Okay. Got it. And sorry, one last question. What will be the CapEx for the full year? Because the first half I have seen is much lower than your typical numbers.

M.V. Narasimham: Earlier we have guided around INR 1,800 crore. My view, it could be a little lower, but definitely I expect around INR 1,600 crore to INR 1,700 crore.

Speaker #8: Earlier, we have guided around ₹1,800 crore. My view is it could be a little lower, but definitely I expect around ₹1,600–1,700 crore.

Bino Pathiparampil: Got it. Thank you. I will join back with you.

Speaker #9: Thank you. I'll join back with you. Yeah, thanks, Dino. The next question is from the line of Amlan Das from J.P. Morgan. Amlan, please go ahead.

M.V. Narasimham: Yeah.

Aishwarya Sitharam: Thanks, Bino. The next question is from the line of Amlan Das from J.P. Morgan. Amlan, please go ahead.

Amlan Das: Sorry. Just wanted one clarification on the abemaciclib scenario. Apart from the IV indication, we also heard from the previous calls that for the subcutaneous indication, you expect an approval in the US in Q4 FY28, and in the non-US markets for both indications in Q1 FY28. Do the timelines remain consistent, or has there been a change in this?

Speaker #8: Sorry, I just wanted one clarification on the abatacept scenario. So, apart from the IV indication, we also heard from the previous calls that, for the subcutaneous indication, you expect an approval in the US in Q4 FY28, and in the non-US markets for both indications in Q1 FY28.

Speaker #8: So, does the—uh, so, does the total time left remain consistent, or has there been a change in this? Consistent. We stay consistent with it. Yeah.

Erez Israeli: Consistent. We stay consistent.

Amlan Das: Okay, and.

Erez Israeli: With it, yeah.

Amlan Das: Okay. Thank you. Thanks for that. The non-US market is also roughly $1 billion for the reference drug. How do you expect the ramp-up in the non-US markets for abemaciclib?

Speaker #8: Okay, thank you. Thanks for that. And the non-US market is also roughly $1 billion USD for the reference drug. So how do you expect the ramp-up in the non-US markets for you for abatacept?

Erez Israeli: We believe that the European market is a very important market for this. It is going to be launched a little bit after the United States, but Europe is, we believe, a significant market.

Speaker #8: We believe that the European market is a very important market for this.

Speaker #7: The— it's a— and it's going to be launched a little bit after the United States, but is European— the Europe is We believe it's a significant market.

Amlan Das: Okay. Lastly, for these markets, the manufacturing would be done in Bachupally itself, right?

Speaker #8: Okay, and lastly, for these markets, the manufacturing would be done in Bajpali itself, right? Correct. Okay, thank you. Thanks for the opportunity.

Erez Israeli: Correct.

Amlan Das: Okay. Thank you. Thanks for the opportunity.

Aishwarya Sitharam: Thanks, Amlan. The next question is from the line of Dhara Ganatra from UTI Pension Fund. Dhara, please go ahead.

Speaker #1: Thanks, Amlan. The next question is from the line of Dhara Ganatra from UTI Pension Funds. Dhara, please go ahead.

Dhara Ganatra: Am I audible?

Speaker #9: Ma'am, I didn't— Yes, we can hear you.

Aishwarya Sitharam: Yes, we can hear you.

Dhara Ganatra: Thank you so much for taking my question. I had one question, largely from the India market perspective. What we have seen in the last two years is that IPM growth has been in high single digits, and in the last six odd months or last three odd months, what we are seeing, that the growth has accelerated. Versus the last two years, the growth was more driven by pricing. This time around, there is a lot more volume growth. Both for Dr. Reddy's and for the industry, what do you think is changing, and what is the outlook for the H2 of the year and going forward?

Speaker #11: Thank you so much for taking my question. Uh, so I had one question, uh, largely from the India market perspective. What we have seen in the last two years is that IPM growth has been in single digits, high single digits, and in the last six-odd months or last three-odd months, what you are seeing is that the growth has accelerated.

Speaker #12: Compared to the last two years, the growth was more driven by pricing. This time around, there's a lot more volume growth. So, both for Dr. Reddy's and for the industry, what do you think is changing, and what is the outlook for the second half of the year?

Speaker #8: And going forward?

Erez Israeli: One thing that changed significantly is obviously the launch of semaglutide and the GLP-1 product. This is a significant addition, both in for volumes. The second one is that you have more new products, like us, innovative products that are coming to the market. In general, this is the main contribution. I believe that if you take the GLP-1, you will get either close to the single digit or to high. I did not do the maths, but this is the main contribution, I believe.

Speaker #7: One thing that changed significantly is, obviously, the launch of semaglutide and the GLP-1 product. This is a significant addition, both for volumes. The second one is that you have more new products like us—innovative products—that are coming to the market.

Speaker #7: So in general, this is the main contribution. I believe that if you take the GLP-1, you'll get either close to single digits or too high.

Speaker #7: I did not do the math, but this is the main contribution, I believe.

Dhara Ganatra: Okay, so you do not see any smaller players vacating the market or slowdown in trade generics or that sort of, that would be driving the IPM growth?

Speaker #12: Okay, so you don't see any smaller players vacating the market, or a slowdown in trade generics, or anything of that sort that would be driving the IPM growth?

Speaker #7: I don't— the main, at least the way I see it also, that the main growth for us is in the places in which you have those utmost demands.

Erez Israeli: Well, at least the way I see also, that the main risk growth for us is in the places in which you have those utmost demands. For us, it is primarily the innovation. The branded generic, those that we are investing behind are doing well. The rest are doing like in the market, like normally, mostly driven by prices.

Speaker #7: For us, it's primarily the innovation and the branded generic. Those that we are investing behind are doing well. The rest are performing as expected in the market, mostly driven by prices.

Dhara Ganatra: Sure. Thank you.

Speaker #7: Sure, thank you.

Aishwarya Sitharam: Thanks, Dhara. We are going to try and see if Abdul can join us now. Abdul, can you please unmute yourself? Abdul, you have been unmuted. Okay, it looks like his continued technical issues at his end.

Speaker #9: Thank you, Sarah. We're going to try and see if Abdul can join us now. Abdul, can you please unmute yourself? Abdul, you've been unmuted.

Speaker #9: Okay, it looks like there are continued technical issues at his end. The next question will be from the line of Vivek Agarwal, from Citi.

Erez Israeli: Okay.

Aishwarya Sitharam: The next question will be from the line of Vivek Agrawal from Citi. Vivek, please go ahead.

Speaker #9: Vivek, please go ahead.

Vivek Agrawal: Thanks, Aishwarya. My question is on abatacept. I am just trying to understand, what can be the fair market share of your biosimilar in the US, let us say, once the product is there, across the formularies, even one year down the line. We have seen in a lot of biosimilars that sometimes the market share remains around 10%, 15%, and some of the products get market share as high as around 50%, 50% kind of stuff. What is your assessment based on the opportunity itself, competitive dynamics, as well as your capacity and capability, like what kind of the market share is a fair market share for this product for you?

Speaker #13: Uh, thanks, thanks, Aishwarya. My question is on Abata. So, just trying to understand, what can be the fair market share of your biosimilar in the US?

Speaker #13: Let's say once the product is there across the formularies, even one year down, one year down the line. Because we have seen in a lot of biosimilars that sometimes the market share remains range-bound to around 10-15%, and some of the products get market share as high as around 50-60% kind of stuff.

Speaker #13: So what is your assessment based on the opportunity itself, competitive dynamics, as well as your capacity and capability? What kind of market share would be a fair market share for this product for you?

Erez Israeli: Thank you. At least at the moment, assuming that we will get approval, we are alone. So in terms of competitiveness, it is us and the innovator. It is a medical benefit product in the United States, so the sensitivity to the price and to market share is not as big as in pharmacy benefit. I know you know that well. I believe that a fair market share can be any number from 15% to 25%. It depends, of course, on the success of the launch. We need also to add that once the subcu will come to the market, it is obviously going to add to the market share, which will come later. We are talking about 28 February. So this is give or take. So it is primarily about the sweet spot between market share and prices.

Speaker #13: No, thank you. The

Speaker #7: At least at the moment, assuming that we'll get approval, we are alone. So, in terms of competitiveness, it's us and the innovator. It's a medical benefit product in the United States.

Speaker #7: So the sensitivity to price and to market share is not as significant as it is in pharmacy benefit. And I know you know that well.

Speaker #7: So, we— I believe that a fair market share can be any number from 15% to 25%. It depends, of course, on the success of the launch.

Speaker #7: We need also to add that—once the Sub-Q will come to the market, it is obviously going to add to the market share, which will come later.

Speaker #7: We are talking about February 28th. So this is Givortek. It's primarily about finding the sweet spot between market share and prices.

Vivek Agrawal: Just a clarification. This 15% to 25% is the entire abatacept market you are talking about or only the IV version?

Speaker #13: Just a clarification, this 15–25% is for the entire AvataSense market you are talking about, or only the IV version?

Erez Israeli: Initially, it will be on the IV. It could be that there will be some movement on that, but we will start with the IV, and the subcu will come in 28 February.

Speaker #7: Initially, it will be on the IV. I mean, it could be that there will be some movement on that, but we will start with the IV, and the Sub-Q will come on February 28th.

Vivek Agrawal: Understood. In terms of confidence on approval based on your discussion with the US FDA. So would you like to assign any kind of probability, how comfortable you are based on your discussion with the agency, type of queries, et cetera? So, what kind of the chances that you have in terms of approval or is there any possibility of getting CRL in December and approval may get delayed by 2 months, et cetera?

Speaker #13: Understood. And, in terms of confidence on approval based on your discussion with the FDA, would you like to assign any kind of probability—how comfortable you are based on your discussion with the agency?

Speaker #13: Uh, type of queries, etc. So, uh, what are the chances that you have in terms of approval? Or is there any possibility of getting a CRL in December, and approval may get delayed by a few months, etc.?

Erez Israeli: You know, I am 33 years in this business. I had my share of scars from these predictions. We feel good about the product. We feel good about the inspection. We feel good about the correspondence with the US FDA. We want and we are preparing to launch in December. If you ask me, "Is there a chance that we will get a CRL?" There is a chance. Obviously, none of us want it, but there is a chance.

Speaker #7: You know, I'm 33 years in this business, and I have my share of scars from these predictions. We feel good about the product. We feel good about the inspection.

Speaker #7: We feel good about the correspondence with the US FDA. We want to and are preparing to launch in December. If you ask me, is there a chance that we'll get a CRL?

Speaker #7: There is a chance. I don't want to—you know, obviously, none of us want it—but there is a chance.

Vivek Agrawal: Understood. The second question is on the US generic business trajectory, right? On a quarter-on-quarter, we have seen improvement, right? A part of the improvement is also being driven by some of the products which may face competition in the incremental quarters Q2 and Q3. Just want to get your understanding how we should look at the US numbers with the North American numbers on quarter-on-quarter. Is there any possibility of dip in Q3, Q4 or you can maintain the current trajectory even going forward in the H2?

Speaker #11: Understood. The second question is on the US generic business trajectory, right? On a quarter-on-quarter basis, we have seen improvement, correct? And a part of that improvement is also being driven by some of the products which may face competition in the incremental quarters—Q2 and Q3.

Speaker #11: So, just want to get your understanding of how we should look at the U.S. numbers with the North American numbers on a quarter-on-quarter basis. Is there any possibility of a dip in Q3 or Q4, or can you maintain the current trajectory even going forward into the second half?

Erez Israeli: For the US, we have, one we discussed is abatacept. The other is obviously semaglutide that are going, it is not the US, but it will going to be including in the North America sales. Also those complex generics that are on paper. If we will have that or the combination of that, we will actually grow versus the current state and for sure sustain it. Yeah, I believe that the numbers are sustainable. Naturally, we have bendamustine obviously after the 6 months, that SKU, we have one SKU that has 180, that will obviously go down. I do not think it will impact significantly, so that we will be able to absorb without a problem. Overall, I am optimistic, but it obviously depends on our ability to be successful with those products that I mentioned.

Speaker #7: So for the US, one we discussed is abatacept. The other is obviously semaglutide and liraglutide. It's not in the US yet, but it will be included in the North America sales.

Speaker #7: And also those complex generics that are on paper. So, if we will have that or the combination of that, we will actually grow versus the current state and for sure sustain it.

Speaker #7: Yeah, I believe that the numbers are sustainable. Naturally, we have Botocenib. Botocenib, obviously, after the 6 months, that SKU— we have one SKU that has 180— that will obviously go down.

Speaker #7: I don't think it will impact significantly, so that we will be able to absorb it without a problem. So overall, I'm optimistic, but it obviously depends on our ability to be successful with those products that I mentioned.

Vivek Agrawal: Understood. Just last question on margins, because the reason I also asked the question on the US business sustainability is that in the coming quarter, you are also indicating or alluding that the R&D spend is also expected to go up, right? I am just wondering, if R&D spend goes up, some of these products like bendamustine comes down, and in this quarter you also had some impact of milestone incomes, et cetera. Just trying to understand from where you are getting confidence that you will be able to maintain close to around 20% kind of margins in the H2.

Speaker #11: Understood. Uh, just last question on margins, because, uh, the reason I also asked question on the US business sustainability is that in the coming quarter Uh, there's— you are also indicating, alluding that the R&D spend is also expected to go up, right?

Speaker #11: So I'm just wondering, if R&D spend goes up, some of these products like Bosutinib come down, and in this quarter you also had some impact of milestone incomes, etc.

Speaker #11: So, just trying to understand where you are getting the confidence that you will be able to maintain close to around 20% margins in the second half.

Erez Israeli: First, we know our numbers. I am sharing that confidence again, we will reach that, and it will even go higher. The reason that we feel it, first of all, is the growth that we see in EM, in India with the consumer health, as well as the United States. Second is the way we control the expenses. Indeed R&D, we will have more, but we will have on the other expenses less, and we are planning to continue to do that. It is primarily the mix, the growth, and obviously, the continued launch of new products. For me, by the way, 20% or 21% is not impressive. We always say that we want 25%. We are recovering from lenacapavir, and that is what we are going to be. But I said it also before, now I think people believe me.

Speaker #7: First, we, you know, we know our numbers. So, I'm sharing that confidence again: we will reach that, and it will even go higher.

Speaker #7: The reason that we feel it, first of all, is the growth that we see in EM, in India, with consumer health, as well as in the United States.

Speaker #7: Second is the way we control the expenses. So, indeed, R&D—we will have more, but we will have less on the other expenses. And we are planning to continue to do that.

Speaker #7: So it's primarily the mix, the growth, and obviously the continued launch of new products. So for me, by the way, 20% or 21% is not impressive.

Speaker #7: We always say that we want 25%. We are recovering from lenalidomide, and that's what we are going to be. But I said it also before—now I think people believe me—we will have 20% plus.

Erez Israeli: We will have 20% plus and if we will launch successfully the way I believe semaglutide, it will be 21% plus.

Speaker #7: And if we will launch successfully, the way I believe, Imamlutide, it will be more. It will be 21% plus. Thanks, thanks, Erez. Congratulations for the get-together numbers and best of luck.

Vivek Agrawal: Thanks, Erez. Congratulations for the great set of numbers and best of luck. Thanks.

Erez Israeli: Thank you so much.

Speaker #7: Thanks. Thank you so much. Thank you, Vivek. The next question is from the line of Prashant Manudhane.

Aishwarya Sitharam: Thanks, Vivek. The next question is from the line of Prashant Manudhane from Motilal Oswal. Prashant, please go ahead.

Speaker #10: From Motilal Oswal, Prashant, please go ahead.

Prashant Manudhane: Yeah, thanks for the opportunity. Just one question from my side. What kind of price erosion we are seeing in case of sugammadex post-launch?

Speaker #14: Yeah, thanks for the opportunity. Just one question from my side. What kind of price erosion have we seen in the case of Sugammadex, post-launch?

Erez Israeli: I do not recall the price erosion.

Speaker #14: I don't recall the price. Very low price. I think whatever initial contract we have signed is continuing. I think a product launch.

Prashant Manudhane: The low price. I think whatever we have initial contract signed, I think it is getting continued. I think, the product launch-

Erez Israeli: That is probably versus the innovator, I do not remember.

Speaker #7: Probably versus the innovator. I don't remember.

Aishwarya Sitharam: Maybe I can get back to you on this later, Prashant.

Speaker #9: Maybe I can get back to you on this later, Prashant.

Prashant Manudhane: Sure. That is it from me. Thanks for the opportunity.

Speaker #15: Sure, but that's it from me. Thanks, thanks for the opportunity.

Aishwarya Sitharam: The next question is the follow-on question from Kunal. The next question is from the line of Dr. Kunal Dhamesha.

Speaker #9: The next question is, and this is a follow-on question from Kunal. So, the next question is from Dr. Kunal Dhamisha. Hey, hi, thanks for...

Kunal Dhamesha: Hey. Hi. Thanks for

Speaker #7: 2027, if I remember correctly. Yeah, I swear I will see if I'm—will keep me honest.

Erez Israeli: 2027, if I remember correctly.

Kunal Dhamesha: Yeah.

Erez Israeli: I swear here we will see if I am. Will keep me honest.

M.V. Narasimham: Yes, the February or March, they say. I think around same period.

Speaker #11: I think around Q3. Yeah, in that quarter we are going to submit. Sure, sure. And, uh, another one on the complex generics launch that we are basically looking forward to in the second half.

Aishwarya Sitharam: Yeah, that quarter.

M.V. Narasimham: Yeah, in that quarter we are going to submit.

Kunal Dhamesha: Sure. And another one on the complex Zedex launch that we are basically looking forward in H2. Are these, or that product particularly is, we are dependent on the IP outcome, on those launches, or is it more just the approvals?

Speaker #11: Uh, are these, uh, or that product particularly, is, uh, you know, we are dependent on the IP outcome, uh, on those launches? Or is it more just the approvals?

Erez Israeli: Approvals. Every approval.

Speaker #11: Approvals, FDA approval. Sure. And, are these Para IV filings?

Kunal Dhamesha: Sure. Are these Para IV filings?

Speaker #7: Launch and approval situation for now. Sure, sure, sure. And lastly, on Abadcept, uh,

Erez Israeli: Launch and approval situation for now.

Kunal Dhamesha: Sure. Lastly on abatacept, you suggested that the ramp-up will happen a couple of quarters later as we get included in the formulary. Just one, when we launch, what kind of commercial infra do we require, especially for the US market?

Speaker #11: You know, you suggested that the ramp-up will happen a couple of quarters later, as we get included in the formulary.

Speaker #11: But just one, uh, you know, when we launch, uh, what kind of infra, uh, commercial infra do we require Uh, you know, especially for the US market and, uh,

Erez Israeli: We started to do it already three years ago.

Speaker #7: So we started to do it already three years ago. The main framework for sales and marketing in North America is already there.

Erez Israeli: So the main framework

Erez Israeli: of the sales and marketing in North America is already there. We will hire a couple of more sales team, so the team that will cover certain geographies. This is still pending, but the lion's share of the team is there.

Speaker #7: We will hire a couple more sales teams, so the team that will cover certain geographies. This is still pending, but the lion's share of the team is there.

Kunal Dhamesha: Sure. So there is not much incremental cost related to that?

Speaker #11: Sure. So there is not much incremental cost related to that? No, not much. Perfect. Thank you and all the best. Thanks, Kunal. The next question on the teams.

Erez Israeli: No, not much.

Kunal Dhamesha: Perfect. Thank you and all the best.

Aishwarya Sitharam: Thanks, Kunal. The next question is from the line of Aman Vich from Astute Investment Management. Aman, please go ahead.

Speaker #9: The next question is from the line of Aman Vij from Astute Investment Management. Aman, please go ahead.

Aman Vich: Yeah. Good afternoon, team. Am I audible?

Speaker #13: Yeah, uh, good afternoon, team.

Speaker #11: Am I audible? Yes, yes, yes. My questions are on the semaglutide side. First, given we expect the validation to be completed by November, where are we in terms of launches in other big markets like Brazil and Turkey, in terms of approval timelines and launch timelines?

Erez Israeli: Yes.

Aman Vich: Yes. My questions are on the semaglutide side. First, given we expect the validation to be completed by November, where are we in terms of launches in other big markets like Brazil and Turkey, in terms of approval timelines and launch timelines? Any rough estimate?

Speaker #11: Any latest commitment?

Erez Israeli: Brazil, likely in Q4, the beginning of Q4. The rest of the markets, we are going to launch in all the smaller markets, either in the end of Q3 or at the beginning of Q4. This is primarily the timelines from the time that we finish validation and we start to sell batch by batch. Some of it may come to the markets in Q3, some will come in January. All of it will be in that time frame, some in December, some in January.

Speaker #7: Brazil, likely in Q4, at the beginning of Q4. And for the rest of the markets, we will—most of the—we are going to launch in all the smaller markets either at the end of Q3 or at the beginning of Q4.

Speaker #7: And this is primarily the timeline from the time that we finish validation and start to sell batch by batch. Some of it may come to the markets in Q3; some will come in January.

Speaker #7: So, all of it will be in that timeframe—some in December, some in January.

Aman Vich: Sure. That helps. Second question is, you have talked about we are still adhering to our guidance of 6 to 7 million devices this year. What are the latest estimates, say, for next 1 to 2 years, say, 2028 and 2029? Where do you see this number?

Speaker #11: Sure, that helps. Second question is, you've talked about still adhering to our guidance of 6–7 million devices this year. What are the latest estimates, say, for the next one to two years, FY28 and FY29?

Speaker #11: Where do you see this number? It obviously depends on the success of this six to seven.

Erez Israeli: It obviously depends on the success of this at 6 to 7. Like I mentioned in the past, the run rate of 12 to 15 million pens that we discussed in the past is still my estimate. Obviously, it can fluctuate as we understand better the markets, once we will get all the approvals, and we will understand the competition in each one of the markets. Right now, take it as a very tentative number. This is what we are preparing for the, let us say, the 12 months from April.

Speaker #7: But, like I mentioned in the past, the run rate of 12 to 15 million pens that we discussed previously is still my estimate.

Speaker #7: But obviously, it can fluctuate as we understand better the markets once we get all the approvals, and we'll understand the competition in each one of the markets.

Speaker #7: So right now, take it as a very tentative number. But this is what we are preparing for the, let's say, the 12 months from April.

Aman Vich: You had mentioned those numbers last time also. I just want to understand, are you more positive on the numbers or slightly negative that point?

Speaker #11: You had mentioned this number last time also. I just want to understand, are you more positive on the number or slightly negative at that point?

Erez Israeli: I did not change my attitude. It is because we need to see the success of the market share that we will take, as well as the success and the market share of our partners. I do not have any additional information. Right now, it is the same, consistent with what we discussed in the past.

Speaker #7: I did not change my attitude. It’s because we need to see the success of the market share that we will take, as well as the success and the market share of our partners.

Speaker #7: So, I don't have any additional information right now. It's the same, consistent with what we discussed in the past.

Aman Vich: Thank you for answering my question.

Speaker #11: Thank you for answering the question.

Aishwarya Sitharam: Thanks, Aman. In the interest of time, we will take one last question from the line of Saion Mukherjee from Nomura. Saion, please go ahead.

Speaker #9: Thank you, Saman. In the interest of time, we will take one last question from the line of Shine Mukherjee from Nobura. Shine, please go ahead.

Saion Mukherjee: Yeah, thanks for taking my question. Just one question on the PSAI segment. The growth has been muted for a while, so how you see that growth playing out? You also mentioned the CDMO revenue is at USD 100 million plus. If you can give some color on the nature of this revenue, is it generics or innovation-related? Also, the new contract that you signed, when you expect that to kick in, is that meaningful? Are there any other CDMO contracts that can be added over the next year or so? Thank you.

Speaker #15: Yeah, thanks for taking my question. Just one question on the PSAI segment. The growth has been muted for a while, so how do you see that growth playing out?

Speaker #15: You also mentioned the CDMO revenues at $100 million plus. If you can give some color on the nature of this revenue— is it generic or innovation related?

Speaker #15: And also, the new contract that you signed—when do you expect that to kick in? Is that meaningful? And are there any other CDMO contracts that could be added over the next year or so?

Speaker #15: Thank you.

Erez Israeli: No, thank you, Saion. So on the CDMO, I believe that the growth trajectory will come. It is a combination of growth in discovery, what you call innovation. So this is growing in double digits. We have also certain contracts with big companies in which they want to transfer their production into our line. So we have several of these projects, as well as a normal CDMO, meaning that we are doing projects for phase III, phase II, for innovative companies. I believe that this business should grow and should reach 2 to 3 times of these numbers in the next 3 to 4 years. This is still our plan. I believe that we should get there. on the API side, part of it is that our older products have less demand.

Speaker #7: No, thank you, Sion. So, on this—on the CDMO—I believe that the growth trajectory will come. It's a combination of growth in discovery, what you call innovation. So, this is growing in double digits.

Speaker #7: We also have certain contracts with big companies, in which they want to transfer their production into our lines. So we have several of these projects, as well as a normal CDMO—meaning that we are doing projects for Phase 3 and Phase 2 for innovative companies.

Speaker #7: I believe that this business should grow and should reach two to three times these numbers in the next three to four years.

Speaker #7: This is still our plan. I believe that we should get there. On the API side, part of it is that our older products have less demand.

Erez Israeli: And part of it is because most of our launches and most of our activities are done more of a, as a B2B of a finished product. This is actually going well. Part of it, we are recognizing as part of PSAI, and part of it we are recognizing as part of the relevant EM or North America. So overall, the B2B is actually growing. The API merchants part of it is declining, because most of the product, the peptides and this kind of stuff, people prefer to buy the finished good rather than to buy the API.

Speaker #7: And part of it is because most of our launches and most of our activities are done more as a B2B offering of a finished product.

Speaker #7: This is actually going well. Part of it we are recognizing as part of PCI, and part of it we are recognizing as part of the relevant EN.

Speaker #7: Or North America. So overall, the B2B is actually growing. The API and merchants part of it is declining because most of the products—like peptides and this kind of stuff—people prefer to buy the finished goods rather than buy the API.

Saion Mukherjee: Understood. Thanks, Erez Israeli. Thank you.

Speaker #7: Understood. Thanks, Iris. Thank you.

Aishwarya Sitharam: Thanks, Saion. That was the last question. Thank you all for joining us today. We value your time and participation on this call. If you have any further questions or need any additional information, please do feel free to reach out to me. With that, we conclude today's earnings call. Thanks, everyone.

Speaker #9: Thanks, Shyam. That was the last question. Thank you all for joining us today. We value your time and participation on this call. If you have any further questions or need any additional information, please do feel free to reach out to me.

Erez Israeli: Thank you.

Aishwarya Sitharam: Thank you. Goodbye.

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