Dr. Reddy’s Laboratories - Earnings Call - Q3 24/25

Transcript

Operator (participant)

Ladies and gentlemen, good day and welcome to the quarter 3 FY25 earnings conference call of Dr. Reddy's Laboratories Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. I now hand the conference over to Ms. Richa Periwal. Thank you, and over to you, ma'am.

Richa Periwal (Head of Investor Relations)

Thank you. A very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy's Q3 FY25 earnings conference call. We have with us the leadership team of Dr. Reddy, comprising Mr. Erez Israeli, our CEO, Mr. M V Narasimham, our CFO, and the investor relations team. Earlier today, we have released our results, and the same is also posted on our website. We will kick off today's call with MVN taking us through the financial highlights of the quarter. This will be followed by Erez sharing his thoughts on business performance, post which we'll open the forum for Q&A. Please note that today's call is a copyrighted material of Dr. Reddy and cannot be rebroadcast or attributed in press or media outlets without the company's express written consent.

This call is being recorded, and the playback and the transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. Before I proceed with the call, I'd like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now, I hand over the call to MVN.

M V Narasimham (CFO)

Thank you, Richa. A warm welcome to all. We continued our growth trajectory and delivered consistent results with a double-digit top-line growth and steady margins. We're continuing to invest in our R&D, innovation, and commercial capabilities. This is the first quarter of consolidation of the acquired nicotine replacement therapy business, and this resulted in delivering at a higher quarterly revenues and EBITDA in Q3 FY25 for the company. Let's look at the financial performance of the quarter. For this section, all amounts have been translated into US dollars at a convenient translation rate of INR 85.55, which is the rate as of December 31, 2024. Consolidated revenue for the quarter stood at INR 8,359 crores, which is $977 million, a growth of 16% on year-over-year and 4% QOQ. This includes revenues from the acquired NRT business of INR 605 crores.

Excluding NRT revenues, the underlying growth is at 7.5% on year-over-year basis and a decline of 3% on QOQ. Consolidated gross profit margins stood at approximately 59% for the quarter, an increase of 19 basis points over the same quarter of the previous year, and a decrease of 91 basis points sequentially. The year-over-year increase was primarily on account of improvement in product mix and manufacturing overhead leverage, partially offset by price erosion. Gross margin for Global Generics and PSAI were at 61.3% and 28.6%, respectively. The SG&A expense for the quarter was INR 2,412 crores, which is $82 million, an increase of 19% year-over-year and 5% on QOQ basis. The year-over-year increase was primarily on account of recently acquired NRT business, investment in the new business initiatives, building the capabilities, and higher logistics costs due to increased freight rates.

The SG&A expense as a percentage to the sales was 28.9% and was higher by 82 basis points on year-over-year and 15 basis points QOQ basis. The R&D spend for the quarter was INR 666 crores, which is $78 million, an increase of 20% on year-over-year and a decrease of 8% on QOQ. The continued investment in R&D was primarily towards development of complex generics and biosimilars. The R&D spend was at 8% of the sales and was higher by 25 basis points on year-over-year and lower by 110 basis points on QOQ basis. We expect the investment to be in the range of 8.5%-9% for the full fiscal. The EBITDA for the quarter, including other income, was INR 2,298 crores, which is $269 million, an increase of 9% on year-over-year basis and flat QOQ.

The EBITDA margin stood at 27.5% and was lower by 176 basis points on year-over-year and 95 basis points QOQ basis. The net finance expense for the quarter is around 2 crores as compared to net income of 96 crores for the same quarter last year, primarily on account of unfavorable forex impact and lower interest income post NRT acquisition consideration payout. As a result, profit before tax for the quarter stood at Rs. 1,874 crores, that is $219 million. EBITDA as a percentage of revenues was at 22.4%. This includes profit before tax from the acquired NRT business of Rs. 124 crores. Effective tax rate for the quarter was at 25.1% versus 24.5% in the base quarter. We expect our normalized ETR to be around 25%. Profit after tax attributable to the equity holders of the parent for the quarter stood at Rs.

1,413 crores, which is $165 million, a growth of 2% on YOI and 13% QOQ. This is at 17% of revenue. Reported EPS is INR 16.94. The EPS has been derived on the increased number of shares for the stock split and after non-controlling interest. Operating working capital as of 31st December 2024 was INR 12,782 crores, which is $1.49 billion, an increase of INR 716 crores, which is $84 million over 30th September 2024. CapEx cash outflow for the quarter stood at INR 709 crores, which is $83 million. Negative cash flows for this quarter was 209 crores, which is $24 million. We have a net cash surplus of INR 1,603 crores, which is $187 million as of December 31st, 2024. Foreign currency cash flow hedges in the form of derivatives are as follows.

US dollar is hedged through structured derivatives, $285 million for the next quarter at 83.9 and $681 million maturing over the next financial year, with a minimum protection rate of INR 85.7 to the dollar, which also allows participation when the USD strengthens. RUB 1,903 million, with a minimum protection rate of INR 0.9 to the ruble maturing in the next three months. With this, I now request Erez to take us through the key business highlights.

Erez Israeli (CEO)

Thank you, MVN, and very good morning and good evening to everyone. We have delivered a solid steady quarter with a double-digit top-line growth, an EBITDA margin of 27.5%, and a return on capital employed of 28%. We remain committed to our stated strategy of strengthening our core generic business while also investing in our future growth drivers, primarily in three areas: consumer healthcare, access to innovative products, and biosimilars.

We are focused on driving productivity in research and development, scaling our manufacturing and commercial capabilities, and leveraging our market access to capture opportunities while operating efficiently. Following the completion of the acquisition of the nicotine replacement therapy business in September, we are now focusing on its seamless integration, which will happen in phased manner starting April 2025. During the transition period, the seller Haleon will provide distribution and related services across all markets. In Q3 FY25 is the first quarter of consolidation of NRT business financials. Let me take you through the other key highlights for the quarter. Our double-digit growth in revenue at 16%, with EBITDA margins at 27.5%, ROCE at 28%, and a $188 million net cash surplus.

We launched toripalimab, the first and only immuno-oncology drug approved for the treatment of nasopharyngeal carcinoma and elobixibat, a first-in-class drug to treat chronic constipation under the brand name Bixibat in India. These launches are in line with our strategy to address issues of availability and accessibility of affordable innovation in India through in-house and collaborative efforts. We also made progress on our biosimilar journey. We secured the marketing authorization for rituximab in the UK, and the rituximab has been filed in both US and Europe. On the regulatory front, in November, the US FDA completed GMP inspection at our facility CTO2 in Bollaram, Hyderabad, and issued a Form 483 with seven observations. We have responded to the observations within the stipulated timelines. We have integrated sustainability in our business operation and continue to recognize for our focus efforts in ESG.

We have placed fifth globally among pharma companies assessed in the 2024 S&P Global CSA, with ESG score of 79 out of 100. We continue to be members of the DJSI World Index for the second year in a row, along with DJSI Emerging Markets Index for the ninth year in a row. MSCI ESG rating has been upgraded to A in December. We continue to feature among Nifty 100 ESG sector leaders. Further, Science Magazine named Dr. Reddy's in their top 20 global pharma and biotech employers for the third consecutive year. Now, let me take you through the key business highlights for the quarter. Please note that all reference to these numbers in these sections are in respective local currencies. Our North America generic business recorded revenue of $401 million for the quarter, which was flat on year-to-year basis, with sequential decline of 10%.

The benefits from volume growth and new launches were offset by price erosion, resulting in the year-on-year growth. Sequential decline was on account of lower sales from few products, including lenalidomide. We launched four new products during the quarter, and we closed the full year within 15-20 launches. Our European generic business segment includes NRT financials from the quarter. Europe recorded revenues of $134 million this quarter, a strong year-to-year growth of 142%, and sequential growth of 114%. Excluding the NRT, the segment recorded a year-to-year growth of 22% and sequential growth of 5%. We gained from the growth in our existing products and new product launches, which more than offset price erosion. During the quarter, we launched a total of nine products across markets.

Our emerging market business recorded revenue of INR 1,436 crores in the quarter, with year-on-year growth of 12% and decline of 1% on sequential basis. Year-on-year growth was on account of new products, launches in Russia and the rest of the world markets, and was further aided by higher-based business volumes. We launched 20 new products during the quarter across various countries of the emerging markets. Within this segment, the Russia business grew by 20% year-on-year basis in constant currency. India business recorded revenue of INR 1,346 crores in Q3, with a double-digit year-on-year growth of 40% and sequential decline of 4%. We benefited from the growth in our portfolio, including in licensed vaccine portfolio and new launches. We launched six brands this quarter. As per IQVIA, our IPM rank continued to be a 10, and we outperformed the IPM with MQT growth of 10.3%, while IPM growth was at 7.4%.

However, excluding the in-licensed vaccine portfolio, growth was at 5%. While many of our brands outperformed their respective categories, selected brands in cardiac and gastrointestinal therapy areas witnessed a slower pace of growth. We are poised to return to the market-leading growth in these therapy areas in the coming quarters. Our PSAI business recorded revenue of $97 million in Q3 of FY25, a year-on-year growth of 3%, and sequential decline of 3%. The year-over-year growth was primarily on account of new product launches and improved volumes. We filed 23 Drug Master Files globally this quarter. We invested 8% of our revenues to strengthen our R&D capabilities. Our R&D investment this quarter stood at INR 666 crores, and we are increasingly focusing on developing our complex generic pipelines, including promising GLP-1 assets and biosimilars.

We are also building commercial trade capacities, enhancing our manufacturing and commercial capabilities, and investing in new technologies to capitalize on growth opportunities. We have made 53 global generic filings during Q3 of FY25. We remain committed to sustainability, quality, and operational excellence. We continue to invest in the three areas of strategic focus, which are consumer healthcare, innovative products, and biosimilars. We build a solid foundation for future growth. Our strategic investment in R&D, recent acquisition, and CapEx put us in a position of strength in this journey. We are excited about the opportunities ahead and remain steadfast to drive sustainable growth. With this, I would like to open the floor for questions and answers.

Operator (participant)

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Participants are also requested to ask not more than two questions at a time and to rejoin the queue in case of incremental queries. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Kunal Dhamesha from Macquarie. Please go ahead.

Kunal Dhamesha (Research Analyst)

Hi, good evening, and thank you for the opportunity. The first one on the India business, so we have grown at around 16% year-on-year, but if we just look at the core business, how that performance has shaped up, and we have also mentioned that there is some weakness in cardiac and gastrointestinal segment, lower volume pickup. So is it transitory in nature, or is there something more to be taken into account there?

Erez Israeli (CEO)

Yes, so indeed, if you take out all the other categories which outperform the market, and actually all of them would have a digit beside these two segments, as for both of them, there are solutions in terms of, let's call it, the actual execution of the way we do sales and marketing, as well as the product performance per se. Specifically to gastro, I have no doubt that it will come relatively soon. Cardiovascular may take an additional quarter as we need some more adjustments to do. In both cases, we are investing more in both businesses in order to grow them faster. So we are very much focused on that. Other than that, the business in India did pretty well.

Kunal Dhamesha (Research Analyst)

Sure, sure. It is one more question on our biosimilar foray now. We have already filed it to rituximab now with denosimab, also filed, but with partner. So if you could throw some light on the economics here for denosimab, and in terms of, let's say, eventual launch, can we assume that this would be the second product after rituximab and then followed by another one, abatacept, is the way we should look at?

Erez Israeli (CEO)

Yes, that's how we should look at it. So denosimab is actually supposed to facilitate our abatacept launch because the two products are going for the same segments and give or take to the same type of purpose. So it was also the strategic rationale of why to license the product. We wanted to create the team and the capability in the marketplace to be able to then gain more or faster market share on abatacept. So this was also the rationale. In terms of timelines, normally in the U.S., it takes about 12 months, give or take, for approval. So as we submitted it in December, give or take, this is where we should expect a launch. In Europe, it's a bit slower. We submitted in October, so likely we normally take around 14-15 months to get all the approval.

So that's also where the time that we are supposed to launch denosimab. And yes, it will be after it took rituximab in Europe.

Operator (participant)

Sure, sure. And with your permission, last one for MVN. The INR 1,240 million of NRT PBT that we just suggested, would it include any allocation of interest expense or just the amortization?

M V Narasimham (CFO)

Only amortization. No interest.

Kunal Dhamesha (Research Analyst)

Okay, okay. Thank you and all the best.

M V Narasimham (CFO)

Thank you.

Operator (participant)

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

Neha Manpuria (Senior Analyst)

Yeah, thanks for taking my question. It is on the U.S. business. You mentioned that a few products have seen moderation quarter on quarter, including Revlimid. When Revlimid, we understand there's lumpiness, but what is the reason for the decline in the base business, excluding Revlimid? Because have we lost market share? Is the pricing erosion higher than we were expecting? Any color there?

Erez Israeli (CEO)

So nothing major happened. The products that were declined were the famous products that we got in the competition, like the Ciprodex and the Suboxone. The stuff that the competition entered, some of them nine months ago, some of them six months ago. So there was a certain continuation. This happened also before. Nothing major happened in per se. Against that, most of the growth that compensated for it was primarily market share. It was less about new products and more about market share.

Neha Manpuria (Senior Analyst)

So just to get this correctly, we have lost market share in some of these products and hence the decline. So this is the new base we need to work with. Is that understanding right?

Erez Israeli (CEO)

It's a combination of market share and prices.

Neha Manpuria (Senior Analyst)

Understood. Okay, got it. And my second question is on the consumer healthcare business, on the NRT transaction. Given that Haleon is still running the business for us till the time the integration happens, how should we look at investments in the business and the ramp-up in the NRT pool? Would that happen only after the integration is done? Is that fair to assume that in the next 12 months, the focus would be in actually integrating, and then probably the business would go into investment phase?

Erez Israeli (CEO)

We do have an agreement with them on investment and increase of even investment in certain areas. This is a business that actually is now gaining momentum. It is growing actually for the second year in a row, and we want to continue that momentum, so there is a certain agreement of gross to net, how much market expenses we should put at the time. Once, of course, the market will come to us, we don't need to pay that fee anymore to Haleon, so it will save that amount of money. We are paying a certain amount of money for the services they are giving us as we speak, and it will allow us, of course, to accelerate this process. In terms of priority, absolute integration is a priority, but also to grow the business.

So, to grow the business, to build the capabilities, there is a lot of innovation that was not done there and to introduce it. The real growth will come post this integration, but we are going to invest more also in these 12-14 months that we are going to get the time that we'll get those markets. We are not waiting for that.

Neha Manpuria (Senior Analyst)

Okay. And that investment will flow through our P&L in the SG&A cost. That's a fair assumption?

Erez Israeli (CEO)

Yes. Yeah, absolutely. Absolutely.

Neha Manpuria (Senior Analyst)

Okay. Thank you so much.

Operator (participant)

Thank you. The next question comes from the line of Amey Chalke from JM Financial. Please go ahead.

Amey Chalke (VP and Pharma Research Analyst)

Yeah, thank you so much for taking my questions and congrats to the management on good set of numbers. So first question I have is on semaglutide. We understand that Reddy is one of the players who have filed for the Canada market when the patent expiry is expected somewhere early next year. At present, there are two to three players for this market. By the time we would be launching this product in this market, do you expect the players to increase or what would be the competitive scenario at that point of time? Also, if you can also explain Canada market, how similar is it with respect to U.S. when it comes to price realization, market share gains, etc.? How easy or difficult it is to gain market share in Canada, particularly?

Because we have seen in case of Revlimid, there were a few players who had filed for this product even for Canada, but ramp-up had not been very encouraging. So if you can give some color on the Canada market with respect to semaglutide, unfortunately.

Erez Israeli (CEO)

Sure, I'll do my best. First, the product, if I recall correctly, January 26 is where the patent expiration will happen for Ozempic. And this is the product that the generic version of it is expected to be launched. If we will get approval, I believe we are positioned well to get approval for that period of time. And naturally, it is a very important market for us. Normally, between the time that you submit the product to the Canadian authorities until you get approval is 12-14 months. So people will have to, if they want to be in January 26, they have to already file it to be on time. Anyone that filed after the date is likely to get approval only after that.

What you're going to see is probably a sequence in which people will get approval, and we hope to be the first one in the pack. And of course, for that, we need to get the approval. Second, it's a product that, although possible, but it's not easy to make the API and stuff. And it's, as you know, you need to make the auto injector, the pen, and it requires capacity to align for that. The way you take market share in Canada is, in that respect, similar to what you're familiar with in the United States or in the U.K., in which you are collaborating with the main distributors and the retailers to gain market share. They normally share this product. In this respect, you should look at it like it's a retail product, and that's probably what you do. The reimbursement mechanism in Canada is different.

Every product that is coming is taking by law the reimbursement price down. So in terms of the pricing versus the reimbursement pricing, naturally, the more competition you have, the price will go down accordingly. This is very normal in Canada. So potentially, it could be that in the earlier time, it will be more of a limited competition, and of course, it will intensify over time as more people will join, and the reimbursement price will go down. But to put a scenario, time will tell who will get approval, who will not get approval. At least we believe that we have a good chance of placing.

Amey Chalke (VP and Pharma Research Analyst)

Sure. And one more question related to semaglutide. Considering there is too much demand, which is expected to be there when the generic player enters this market all over the world, I believe there is still, from the supply point of view, there would be a constraint in terms of both API as well as the pen assembly lines. So how are we going to ensure that our execution would be better there? Are we blocking some of this capacity both in the pen as well as API side? How are we going to keep that thing in check?

Erez Israeli (CEO)

We are working on this project, including capacity for the last 10 years. It's not that 10 years ago, we knew that the product would be that big. This is obviously information that came over time. But if you see the level of R&D and CapEx, you can assume that a big portion of it went for this activity. By the way, it's not just the API. It's the API for both the synthetic as well as the semi-synthetic. It's about both internal as well as external options for manufacturing. It is about having access to the relevant devices. We are working on it for quite some time. And indeed, not everybody will have to be able to cater with this magnitude. I agree with that. But I'm assuming that the product is so attractive that eventually it will be a very competitive marketplace.

At least in the initial days, people will have to build a certain level of capacity and market access to make things happen. I just want to make sure that with full transparency, it's not just about a specific market like Canada. There are about 80 markets that can be opened for 2026 because the product is in demand in all the markets in the world, but there are certain markets in which the innovative product has not even come to it. We believe that it's also an actual opportunity in its own right.

Amey Chalke (VP and Pharma Research Analyst)

Sure. Just last question on the SG&A spend. I believe because we have the lenalidomide opportunity at present, which is giving us good cushion to spend more, there is a good amount of discretionary spend which is happening at present. So is it possible for the management to give some visibility on how much the spend is discretionary at present, which could reduce post-Revlimid? Or do you think because these semaglutide kind of opportunities are there, it might continue?

Erez Israeli (CEO)

So, let me take it. I mentioned in the past, we feel very, very comfortable with 25% EBITDA, which allows us to, and we mentioned it in the past, allow us to give a greater return to the shareholders as well as allow us to invest in the system. Absolutely, we took advantage of the fact that we had a few years of generic Revlimid, and we absolutely took it to invest more. With this money, we used to buy the NRT business. With this money, we took more CapEx. We exceeded. We had much more CapEx. The investment that we mentioned before on semaglutide, it was part of it.

And now, in the case that, which I believe will be, that the activities that we mentioned of growing the base as well as the productivity, as well as the big products like semaglutide and abatacept, as well as BD, will allow us to grow, which I believe that this stuff will happen. We will continue to invest also further into the future because we are also building growth engines not just for the immediate future like 2026 and 2027, but also for 2028, for 2029. We are planning to be in the neighborhood for quite some time. If we will not have this money, absolutely, we have the ability because a lot of our expenses are discretionary, especially SG&A in R&D. We will absolutely adjust our expenses closely. So that level of the philosophy that we want to stay profitable, it's important to us.

Amey Chalke (VP and Pharma Research Analyst)

Sure. Thank you so much. I will join them.

Operator (participant)

Thank you. The next question comes from the line of Bino Pathiparampil from Elara Capital. Please go ahead.

Bino Pathiparampil (Head of Research)

Hi. Good evening. A couple of questions from my side. Would you give some color on iron sucrose filing that you have done? Do you expect approval in time near or soon?

Erez Israeli (CEO)

So we filed it actually a long time ago. We recently got a CR on the API side, which we are planning to address. So we thought that it would be good to launch it in these coming months. This right now will be delayed because we need to answer this CR.

Bino Pathiparampil (Head of Research)

Got it. Second on abatacept, some of your competitors have tried in the past, but it seems it's a difficult product, and some of them seem to have given up. What gives you the confidence that your product can see through the FDA approval process?

Erez Israeli (CEO)

We had a very successful phase one. And so far, normally when you pass phase one, you have a good chance to, of course, be very successful in phase three. Also, so far, the rollout and the fact that we even finished the rollout, all the patients is very encouraging. We did it in actually very, very good timing. We have a very we believe in our clinical, and I hope that we will be able to submit sometime next year.

Bino Pathiparampil (Head of Research)

Got it. And last one question, if I can, on lenalidomide. Going into FY26 in 4Q, that is in January 2026, the kind of settlement with volume restrictions are coming to an end. So how should we look at lenalidomide? Will it continue a rough quarterly estimate smoothly till 3Q of next year and then drop off? Or do you think it will get front-ended in the next year?

Erez Israeli (CEO)

I don't know exactly how the quarters will be because this is a decision normally by the customers. It's not that we are planning that way. We are serving the customer in the way they want to be served. But yeah, we likely that we will not sell in this level of pricing, let's say post somewhere September, maybe October of calendar 2025. Now, what exactly how it will work, I don't know. But post that period of time, unlikely that it will come because of the normal what we call shelf adjustment, shelf adjustment, stuff like that. So give or take, until that period of time, you should see similar behavior of the product as you saw in the last couple of years.

Bino Pathiparampil (Head of Research)

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

Operator (participant)

Thank you. Participants are requested to ask not more than two questions at a time and to rejoin the queue in case of incremental queries. We'll move on to the next participant. The next question comes from Surya Patra from PhillipCapital. Please go ahead.

Surya Patra (SVP)

Thanks for the opportunity. So first question is on the NRT portfolio acquisition. See, while we have indicated that the SG&A cost this quarter had seen a kind of uptake post this acquisition and integration. And even after that, the PBT percentage of NRT portfolio, around 21%, looks interesting. So how to think about the profitability of this acquired asset going ahead? Because current quarter is anyway seeing the support of Haleon. And simultaneously, we have also thinking about spending more on building the portfolio and franchise. So while it looks interesting in terms of the profitability compared to our base business, so going ahead, how should we think in terms of the synergy benefit at the margin and profitability level for this acquired asset?

Erez Israeli (CEO)

It should continue to be profitable. So we are absolutely going to finance the additional investment with growth, and we are planning to keep it profitable. There is no plan now to go for, let's say, two, three years of investment and then take it from there. The idea is to indeed spend more, but to keep it in the for sure the 20+ digit on EBITDA should continue on this asset.

Surya Patra (SVP)

Okay. My second point is on the Nestlé Health Science and the domestic business put together. I'm asking this question. So how long that we will take for the Nestlé Health Science to really contribute meaningfully to the growth of the domestic business? That is one. And the second part of the domestic business question is, while we do anticipate this is the business segment, it should be growing the fastest among all other business segments for Dr. Reddy's over the next few years. But right now, it is not even matching the industry growth momentum. So how should one think and what will start contributing incrementally to the anticipated so that it can reach the anticipated growth rate?

Erez Israeli (CEO)

So the question on Nestlé, this will absolutely going to take time. The reason for that is that we need to bring the products to India, and we need to invest behind brands that are not today recognized in India. So it's not that we're investing behind something that is already known. And as I'm sure you know well, it takes time to build brands that both Nestlé and us are very much aligned to that. By the way, so far, the business is going even ahead of expectations. So I'm very happy about it. But in terms of significant contribution to the growth, it will take a couple of years. As for your comment about the India business, I mentioned it with the previous questions. Actually, the business is doing well. We do have two segments that underperform there. We mentioned it also, the GI and the cardiovascular.

We have a plan to bring it back, but the business is actually doing well. What we believe really will drive the business, I'm saying it for quite some time, actually for quite some years, we believe very much in introducing innovation to India, rather than the generics. I strongly believe, I'm emphasizing also today, that the generics growth will decline over time because of various reasons that we discussed in the past. And I believe that the right products to bring to India are technologies that are addressing unmet needs that will technical perfection. And that's what we are building on. I believe in what we phrased and very committed to what we discussed in the past. We are going to grow and become top-ranking in India.

Surya Patra (SVP)

Okay. So the momentum accelerated growth will be seen in the domestic side starting next year onwards, sir, or is it 2027 onwards?

Erez Israeli (CEO)

No. We are growing also today. We are doing it both organic and inorganic. We are growing in 15%-16%. For me, growth is everything. And we are growing faster than the market. The market is growing 7%, and we are going to grow about 15%, which will continue. This will continue. What we do not take into account at this stage because of valuation is, of course, major acquisitions. That's what we discussed in the past. Right now, at least the multiples of India were too high for us, and we are trying to do it organically. This is why it's taking more time. But we are very bullish, and India is a very, very important focus market for us.

Surya Patra (SVP)

Okay. Even the vaccine portfolio should be expensive.

Operator (participant)

May we request you return to the queue for the questions?

Surya Patra (SVP)

Sure. Yeah, yeah. Okay. Thanks.

Operator (participant)

Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to one per participant. You may join back the queue for follow-up questions. The next question comes from Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai (Analyst)

Hi. Thank you for the opportunity. It is my question again on semaglutide. So what kind of addressable market you are looking at outside of the U.S.? You mentioned a lot of markets will open up starting 2026. And with the kind of capabilities which we have built on API or on the device front, what kind of market share you are looking for yourself?

Erez Israeli (CEO)

The markets will open in a certain sequence in 2026. The most notable markets will be Canada, India, Brazil. The 80 markets that we are discussing are primarily markets in which there was no patent protection. These are markets in primarily emerging markets like in Asia, Africa, Latin America. Much smaller markets in Asia, but accumulatively and demand-wise, it can add a very nice growth to that. We are working both B2B and B2C. We have global partners in which they are licensing our product that have great presence in those markets. Some of them we are going to do it by ourselves. It's a combination of selling API, selling finished dose, and of course, marketing of the product. We are going for all the products: Ozempic, Wegovy, and the oral products. Overall, it's something that will come in multi-markets.

This specific product, as you know, US and Europe will come later into the game.

Damayanti Kerai (Analyst)

Okay. But any size indication which you are targeting, say, for the bigger addressable markets?

Erez Israeli (CEO)

It's hard to tell market share because we don't know yet who is going to compete in which one of these markets, etc. But naturally, in all the markets that we will be first, we have a high expectation of performance, obviously, from the market. But any number that I will indicate to you will be wrong. Time will tell. It's not the clairvoyant game. We really don't know.

Damayanti Kerai (Analyst)

Okay. Thank you.

Operator (participant)

Thank you. The next question comes from Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane (Research Analyst)

Yeah. Thanks for the opportunity. Sir, just to abatacept, the timeline to file the product, I missed in the comments. If you could repeat.

Erez Israeli (CEO)

Timeline is too high, sorry?

Tushar Manudhane (Research Analyst)

abatacept biosimilar?

Erez Israeli (CEO)

So if everything will go right, we should submit it in December of 2025.

Tushar Manudhane (Research Analyst)

December of this year?

Erez Israeli (CEO)

December 2025. Yeah.

Tushar Manudhane (Research Analyst)

Got it. And then assuming 12-15 months timeline to the regulatory review cycle, right?

Erez Israeli (CEO)

Like the Muslim said, inshallah. We hope for the best. Normally, it's about 12 months, so let's hope. But let's say from the patent point of view, January of 2027 will be a great timeline if we can achieve it.

Tushar Manudhane (Research Analyst)

Understood. And will this product be manufactured completely in-house, as in drug product as well as drug substance?

Erez Israeli (CEO)

Correct. We will make both the DS as well as DP.

Tushar Manudhane (Research Analyst)

Sorry, I didn't get your comment. Will manufacture?

Erez Israeli (CEO)

You're correct. We will make both drug substance as well as drug product.

Tushar Manudhane (Research Analyst)

Understood. And just one more, if I may squeeze in, with respect to semaglutide, while the addressable market size seems too difficult to highlight, but broadly, given that ex-North America market, let's say Canada, India, Brazil market, can this product do as much as Revlimid has done for us in North America?

Erez Israeli (CEO)

I wish. I don't see it. First of all, the product has the potential to be big, but let's see. We need to see what will be the prices, what will be the market share, etc. But there is a potential for something significant. Like I mentioned before, it's not product replacing one product. The growth post Revlimid will come from four elements that I mentioned before. First of all, the growth of the base products. We have about INR 30,000 crore sales that is going double digit of base business, including, of course, the new product that will be launched that are not the biggest. Second one, we discussed we are aligning our expenses to the relevant revenues that we have. And we are creating that level of productivity as well. Number three, we have those special products like semaglutide and abatacept. And number four, we have BD.

We are all the time doing BD. So all four elements will grow us. It's not one silver bullet. We highlighted specifically the NRT at the time because of the timing in which this product is going to affect, and I'm happy that you guys picked it up. But it's not that NRT will replace non-new elements. It's all the business leaders will have to grow, and this should allow us to continue to grow the company also post the arrangement of Revlimid.

Tushar Manudhane (Research Analyst)

Got it, sir. Thank you.

Operator (participant)

Thank you. The next question comes from Saion Mukherjee from Nomura. Please go ahead.

Saion Mukherjee (Head of Equity Research)

Yeah. Hi. Thanks for taking my question. So just one question on semaglutide. Is the oral formulation available for launch in 2026 in India and the other emerging markets, or it would just be injectable and oral would come sometime later? If you can highlight the timelines for different formulation?

Erez Israeli (CEO)

Oral will come later. In some places, there are also patents on the oral and the formulation. So in most of the markets, it will come between 12-18 months after the Ozempic. But we are planning to be day one in all the places that we can with this product.

Saion Mukherjee (Head of Equity Research)

In calendar 2027, you will see oral launches?

Erez Israeli (CEO)

In some markets, it can be 27. In some markets, it will be 28.

Saion Mukherjee (Head of Equity Research)

Okay. Thank you.

Operator (participant)

Thank you. The next question comes from the line of Foram Parekh from Bank of Baroda Capital Markets. Please go ahead. Ms. Parekh, your line is unmuted. Please proceed with your question.

Foram Parekh (Research Analyst)

Yeah. Am I audible now?

Operator (participant)

Yes, you're audible. Please go ahead.

Foram Parekh (Research Analyst)

Yeah. Thank you for the opportunity. My question is on the European market. So ex-NRT, the European market has grown at 22%. So how sustainable is this growth rate going forward? And if you could explain the reason for this kind of growth. Thank you.

Erez Israeli (CEO)

You're okay. Yes. First of all, it is sustainable. We are launching a product, and so the main, of course, reason is the volume. We are the market leaders primarily in five countries that we are operating. Today, we are working primarily in top five. But we are expanding also to five more, and so it's a combination of new products, volume growth, the product that we launched, and new markets, so it's absolutely sustainable.

Foram Parekh (Research Analyst)

Sure. Thank you.

Operator (participant)

Thank you. The next question comes from the line of Anubhav Agarwal from UBS. Please go ahead.

Anubhav Agarwal (Managing Director and Pharma Analyst)

Yes. Thank you. Two questions. One is for MVN, sir. Just trying to understand the selling expenses in this quarter. So do they include any selling expense for NRT, or they don't?

M V Narasimham (CFO)

Yes. It includes the NRT business SG&A.

Anubhav Agarwal (Managing Director and Pharma Analyst)

Just trying to understand this SG&A, the sequential December over the September quarter, selling expenses excluding amortization is up like INR 50-60 crores, whereas NRT itself should have selling expenses of INR 150 crores plus. So what else has gone down that net increase is only INR 50-60 crores per us?

M V Narasimham (CFO)

So if you look at just maybe as a recap, our last quarter discussion, I think there was one exceptional expense of stamp duty amounting to INR 52 crores recorded in the previous quarter. And this quarter, we have full NRT expenses. So if you look at them, I think you'll get the right match.

Anubhav Agarwal (Managing Director and Pharma Analyst)

Okay. Sure. Second question is on you guys have already mentioned that you have two good products in the U.S. You talked about iron sucrose as a CRL ATI. What about the other? Is there any query or inspection or anything pending for it, or do you still expect the approval for the other product in Singapore?

M V Narasimham (CFO)

So there were no other queries that came recently. As for inspections, yeah, we do expect the inspections in all the sites that were not inspected for quite some time. So we do have about five or six sites I need to count that we should see inspections. Of course, those inspections will come at a time that the FDA will choose to do. But there is no pending activities that they'll say. So the rest is business as normal if you wish.

Anubhav Agarwal (Managing Director and Pharma Analyst)

Just my question was very specific to a product. So you guys have mentioned two approvals. One is talked about iron sucrose. Second is another product. Do you still expect approval of the other product anytime now, or is that pending some query or anything else?

M V Narasimham (CFO)

I don't know which other products you are referring to, but I'm expecting approvals of 50-20 products in the U.S. in addition to iron sucrose.

Anubhav Agarwal (Managing Director and Pharma Analyst)

Sorry. I just, you mentioned the last quarter for.

M V Narasimham (CFO)

Sucrose will get. We just mentioned, because answering your question, that we got the CRL approvals.

Anubhav Agarwal (Managing Director and Pharma Analyst)

Okay. Thank you, guys.

Operator (participant)

Thank you. The next question comes from Vishal Manchanda from Systematix. Please go ahead.

Vishal Manchanda (SVP of Institutional Research)

Hi. Thanks for the opportunity. Hope I'm audible.

Erez Israeli (CEO)

Yes, please.

Vishal Manchanda (SVP of Institutional Research)

Yeah, so on abatacept filing, whether you'll be filing both the IV and the subcutaneous version in December 2025?

Erez Israeli (CEO)

Yes, please. Yes, we do. But the time of launch is not the same because there is additional patent on the subcutaneous, which takes us, if I remember correctly, to beginning of 2028.

Vishal Manchanda (SVP of Institutional Research)

Subcutaneous will be beginning of 2028?

Erez Israeli (CEO)

This is what we believe is the time to enter the market as per our IP people. Yeah.

Vishal Manchanda (SVP of Institutional Research)

Right. Okay. And second, on the semaglutide filing in Canada, are there any device patents that can block your version as a substitutable version to the Innovator copy?

Erez Israeli (CEO)

We don't think so.

Vishal Manchanda (SVP of Institutional Research)

Is your device identical to the Innovator device, or do you have a different device?

Erez Israeli (CEO)

We have a great device.

Vishal Manchanda (SVP of Institutional Research)

Sorry?

Erez Israeli (CEO)

We have an amazing device.

Vishal Manchanda (SVP of Institutional Research)

Got it. And just one final one, whether we should expect your SG&A expenses to stay at current levels, 28% going forward?

Erez Israeli (CEO)

Yeah. Around this level.

Vishal Manchanda (SVP of Institutional Research)

28%?

Erez Israeli (CEO)

Yeah.

Vishal Manchanda (SVP of Institutional Research)

Okay. Thanks.

Operator (participant)

Thank you. The next question comes from Shashank Krishnakumar from Emkay Global. Please go ahead.

Shashank Krishnakumar (Senior Research Analyst)

Thanks for taking my question. I just wanted to get your sense on the broader U.S. biosimilar landscape. Given that our incremental investments are being directed toward biosims, we're increasingly seeing PBMs launching their own private labels. I think starting this year, several Humira biosimilars will also face formulary exclusions. So how do you see the overall U.S. biosimilar landscape shaping up given that there are several products in the pipeline?

Erez Israeli (CEO)

So I'm assuming it's more of a strategic question. So first of all, a lot of products, if you go in, which will come gradually, but for the next decade, will be off-patent. Many, many products. And many biosimilars as well. So in that respect, it's a great opportunity. Second, there will be absolutely products that will be more crowded. And therefore, very high level of competition. And you will have a product that will be less crowded in that respect. Absolutely, we are going to see private labels. We are going to see all kinds of phenomena related to paying for the products. So we are preparing for a very competitive landscape. And like I mentioned in the past, we are not going broad on that. We select certain products that we believe that we can make the difference and can add value to the respective market.

We are trying to go for a limited number, but with hopefully less competition type of a product. And hopefully, we will be right in the way we select it. So far, I believe that the products starting from abatacept are meeting these criteria.

Shashank Krishnakumar (Senior Research Analyst)

Thanks. That's helpful. Secondly, just had a question on DFD-29. Are we also eligible for sales-based royalties here, given that the product has now been approved?

Erez Israeli (CEO)

Yes. Yes, we do. Yeah.

Shashank Krishnakumar (Senior Research Analyst)

Got it. Thank you. That's it from me.

Operator (participant)

Thank you. The next follow-up question comes from Bino Pathiparampil from Elara Capital. Please go ahead.

Bino Pathiparampil (Head of Research)

Hi. Just quick housekeeping questions. One, the depreciation and amortization rate, is this quarter a good benchmark to project it forward?

Erez Israeli (CEO)

No. This quarter's amortization includes NRT business amortization. It will continue.

Bino Pathiparampil (Head of Research)

Yeah, so this rate is a stable rate to look forward to. Okay. Second question, the Russian currency has depreciated. Have you hedged the currency and for how long?

Erez Israeli (CEO)

So we have both. I think we do cash flow and a balance sheet hedges. This quarter, we have a little bit impact, I think, because of the ruble volatility in the balance sheet on the cash flow hedges. I think as per our policy, we don't cover 100%. We cover some extent, and then we are not losing any value.

Bino Pathiparampil (Head of Research)

Okay. This quarter, Russia reported revenue in INR will be roughly at the current market rate of rubles, right?

Erez Israeli (CEO)

Yeah. This quarter, I think it's a constant currency and INR, both 19% and 20%, not much difference, both INR and ruble terms.

Bino Pathiparampil (Head of Research)

Okay. Got it. Thank you.

Operator (participant)

Thank you. The next follow-up question comes from Surya Patra from PhillipCapital. Please go ahead.

Surya Patra (SVP)

Yeah. Just a clarification. Thanks for this. In case of the semaglutide opportunity, what is the level of integration that we are having in terms of our manufacturing capability to the level of advanced, intermediate levels, or it is API and formulation?

Erez Israeli (CEO)

So we are fully integrated for all the stages of the API. We are making the peptides from the basic building blocks as well as the formulation. We are buying the device.

Surya Patra (SVP)

And it is for both solid state as well as liquid state, as you mentioned, the entire value chain that you said.

Erez Israeli (CEO)

The entire value chain. Yeah.

Surya Patra (SVP)

Okay. Sure. So. Yeah. Thank you. Thanks for this.

Operator (participant)

Thank you. Thanks. Ladies and gentlemen, we will take that as our last question for today. I now hand the conference over to Ms. Richa Periwal for closing comments.

Richa Periwal (Head of Investor Relations)

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

Operator (participant)

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