Dr. Reddy’s Laboratories - Q4 19/20
May 20, 2020
Transcript
Operator (participant)
Ladies and gentlemen, good day, and welcome to the Dr. Reddy's Q4 FY 2020 Earnings Conference Call. 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal. Thank you, and over to you, sir.
Amit Agarwal (Head of Investor Relations)
Very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter and full year ended 31 March 2020. Earlier during the day, we have released our results, and the same are also posted on our website. This call is being recorded, and the playback and 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. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's, comprising Mr. G V Prasad, our Co-Chairman and Managing Director, Mr. Erez Israeli, our CEO, Mr. Saumen Chakraborty, our CFO, and the investor relations team.
Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be redistributed, or attributed in press or media outlets without the company's expressed written consent. Before I proceed with the call, I would 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 Mr. G V Prasad. Over to you, sir.
G V Prasad (Co-Chairman and Managing Director)
Thank you, Amit. Good evening, good afternoon, and good morning to all the participants. I do hope that you and your families continue to remain safe and healthy during these unprecedented times. Let me quickly provide you with an update on the current situation and how we as an organization are playing our part within the overall healthcare system in these extraordinary times. Our foremost priority is to ensure the health and safety of our employees, patients, healthcare professionals, customers, suppliers, and community at large. We have enhanced the safety requirements across all our working locations, enforced physical distancing norms, mandated use of protective gear, and enabled remote working across all our global office locations.
We have accepted the new reality and swiftly implemented an effective business continuity plan across the functions, and have been able to ensure that all our operations continue right through the pandemic situation without compromising on the health and safety of our employees. From a supply perspective, together with the inventory on hand and the continued manufacturing support, we have been able to address the enhanced product demands across various markets. We launched several new products, overcame logistical barriers, and through effective customer engagement, have continued the business. In the branded markets, we've been able to effectively leverage the virtual connect model to support healthcare professionals, patients, and other people.
Overall, we are truly inspired to see how colleagues across the company have risen to the occasion and overcome every obstacle in the way to fulfill our mission, which is to ensure continued supply of medicines to patients and doctors under safe conditions. We are also playing our part of being an effective, socially responsible corporate citizen, and extending support to the communities through various initiatives, such as supporting the healthcare workers, staff, and police and other public servants by providing them with PPE kits, masks, sanitizers, gloves, as well as food assistance to the marginal sections and migrant worker families. With this, I hand over the call to Saumen for taking you all through the financial performance of the company.
Saumen Chakraborty (CFO)
Thank you, Prasad. Greetings to everyone. The current year financial performance has been quite good, with the highest ever sales and EBITDA, and a strong free cash flow, thereby turning net cash to plus. Let me take you through the key financial highlights for the quarter and FY 2020. For this section, all the amounts are translated into U.S. dollars at a convenience translation rate of INR 75.39, which is the rate as of March 31, 2020. Consolidated revenues for the quarter stood at INR 4,432 crore, that is $588 million, and grew by 10% on a year-on-year basis, and by 1% on a sequential quarter basis. Year-on-year growth has been supported by good performance in North America, EMEA, Europe, and emerging markets.
Sequentially, while there has been good growth in EMEA and Europe, our branded markets had lower sales. The revenues for FY 2020 stood at INR 17,460 crore, that is $2.32 billion, and grew by 13%. The growth has been primarily supported by improvement in the base business volume, new product launches, and proprietary product out licensing income. However, partially impacted due to price erosion. As regards to COVID-19 related impact, while we saw some incremental sales in certain markets, that is, U.S., Europe, and Russia, due to increase in panic buying, our sales got impacted or deferred in PSAI, India, and few emerging markets. Otherwise, on an overall basis, there is no major impact on Q4 or FY 2020.
Consolidated gross profit margin for this quarter has been 51.5%, which is a decline of 90 basis points on year-on-year basis, and a decline of 260 basis points quarter-on-quarter. The sequential quarter decline has been primarily on account of, A, impact of changes in the business mix, and B, increase in inventory provision or write-offs related to this quarter. Gross margin for the Global Generics and PSAI were at 55.9% and 28.4% for the quarter. Gross margin for FY 2020 has been 53.8% against 54.2% in FY 2019. Gross margin for Global Generics was 56.8%, and PSAI was 24.1% for the full year.
The SG&A spend for the quarter is INR 1,218 crores, that is $162 million, and declined by 1% year-on-year, and by 4% quarter-on-quarter. The SG&A spend for the year is INR 5,013 crores, that is $665 million, and has grown by 3%. The SG&A cost as percentage to sales declined from 31%, 31.6% in FY 2019 to 28.7% in FY 2020, indicating the leverage benefit on improvement in sales. The R&D spend for the quarter is INR 419 crores, that is $66 million, and is at 9.5% of sales. The R&D spend for the FY 2020 is INR 1,541 crores, that is $204 million.
R&D as a percentage to sales stood at 8.8% for FY 2020, against 10.1% in previous year. Other income for the year includes an amount of INR 346 crore, arising out of the settlement income received in quarter one. The EBITDA for the quarter is INR 1,001 crore, that is $133 million, which is around 22.6% of the revenue. The EBITDA for the year is INR 4,643 crore, that is $666 million, and around 26.6% of the revenue. Profit before tax for the quarter is INR 714 crore, with a year-on-year growth of 22%. PBT for the full year is INR 1,803 crore, a decline of 20% over FY 2019.
This decline was due to the impairment charges of INR 1,677 crore taken during the year, and just for this, the PBT would have grown by a healthy 55%. Profit after tax is higher than PBT during the quarter and full year, due to recognition of tax credit and creation of deferred tax assets in line with the requirements of accounting standards. We expect that the ETR would be around 22% for the next year. Reported EPS for the quarter is INR 46.01, and for the full year is INR 117.40. Operating working capital increased during the quarter by around INR 439 crore, which is $58 million.
The increase is primarily attributable to an increase in receivables due to higher sales and delay in certain collections, which we expect to normalize in the current year. Net working capital days, however, have remained in line with last quarter, supported by reduction in inventory levels. We invested INR 150 crore, which is $20 million towards capital investment in this quarter. The free cash flow generated during this quarter was lower at INR 7 crore, which is around $1 million, mainly constrained by an increase in receivables, which we expect to improve from current quarter. The free cash flow generated during FY 2020 is healthy at INR 2,313 crore, and lead us to now have a net surplus cash of INR 397 crore as on March 31, 2020.
Our net debt to equity ratio is at -0.03, and reflects our strong balancing position. Foreign currency cash flow hedges for the next seven months in the form of derivatives for U.S. dollars are approximately $265 million largely hedged around the range of INR 72-INR 76.3 to the dollar. In addition, we have cash flow hedges of RUB 1 billion at the rate of INR 1.0283 to the ruble, maturing over the next 10 months. With this, I now request Erez to take to the key business highlights.
Erez Israeli (CEO)
Thank you, Saumen. Good morning, good evening to everyone. I'm very happy with the way we have adapted and continued our focus on execution, even during these challenging times. We made good progress to implement our strategy toward diversification, creating more opportunities with less risk, and attaining self-sustainable business model for each one of our businesses. The FY 2020 has been a very good year for us, which is reflected through the following: A, successful in obtaining the VAI status for CTO 6 after five years, and desired outcome for all other site inspection by the USFDA. B, a PBT growth of 55%, adjusted for impairment charges during the year. EBITDA growth of 36% and improvement in the EBITDA margin. Improvement in the ROCE, adjusted for impairment charges during the year. Healthy cash flow generation, leading to much stronger balance sheet.
Turnaround performance for our North America Generics and our Europe business. Healthy double-digit growth in branded markets. Continued traction towards development of product pipeline across business, and productivity improvement seen across manufacturing, marketing, and R&D. Let me now take you through the key business highlights for each of our businesses. Please note that all the reference to the numbers in this section are in respective local currencies. Our North America Generics, our North America Generic business recorded sales of $250 million for the quarter, with a strong growth of 17% year-over-year and 11% on sequential quarter basis. The quarter witnessed an overall increase in demand, driven by panic loading by patients and inventory built up by customers due to COVID-19 lockdowns.
Further, we also benefited from continued activity on new product launches, coupled with favorable market share gains across some of key products, including naloxone-
Amit Agarwal (Head of Investor Relations)
Suboxone.
Erez Israeli (CEO)
Suboxone, sorry. In all, we launched five new products in this quarter, including our second CGT product, naloxone hydrochloride injection, a first to market generic launch for Vimovo and Daraprim, Daraprim. On a full year basis, we launched 27 products, including four relaunches of the earlier discontinued products. We expect the new launches momentum to continue during the year, with about 25 product launches lined up despite uncertainty due COVID-19. On a full year basis, the scale has been $910 million, a growth of 6% over the previous year, signifying the strong reversal in decline witnessed over the prior two years. Our Europe business recorded sales of EUR 43 million, with a strong year-on-year growth of 81% and sequential growth of 10%.
On a full year basis, the sales are EUR 148 million and has grown at a phenomenal rate of 53%. This performance is driven by improvement in base business, new product launches, and ramp up in three new markets, France, Italy, and Spain. During the quarter, we launched one product in Germany, three products in U.K., two products each in France, Italy, and Spain. The current year has reset a new base for this business, and we look forward to continued growth from here, from here on. Our Emerging Markets business recorded sales of INR 804 crore in Q4, with a year-on-year growth of 15%. However, a sequential quarter decline of 13%. On a full year basis, Emerging Market sales has, has been, INR 3,281 crores and grew a healthy rate of 14%.
Within the EM segment, the Russia business in Q4 grew at 9% in constant currency on a year-over-year basis, but a decline of 17%, quarter-over-quarter on the back of a high base in Q3, owing to one-time supply of Reditux standard volumes. In FY 2020, Russia grew by 9% in constant currency. The overall growth in Emerging Market was led by higher volume and new product launches, which was partially impacted due to price erosion in few markets. During the quarter, we launched 10 new products across these markets. Our India business recorded sales of INR 684 crore, with a year-over-year growth of 5%. However, a sequential quarter-over-quarter decline of 10%. The growth was impacted due to logistics-related disruption caused by COVID-19 lockdowns.
On a full-year basis, our sales was INR 2,895 crore and grew by 11%. As per the secondary sales reported by IQVIA, we registered steady growth of 11.4%, ahead of total market growth of 10.8% in March 2020. Our PSAI business recorded sales of $99 million, with a year-on-year growth of 3% and sequential quarter growth of 2%. Here, too, the growth was impacted due to the logistic-related disruption. On a full-year basis, the sales were $362 million and grew by 4%. We continue to witness a very healthy order book for the business, and are hopeful of a good growth coming in. On the quality and compliance front, we have turned a new leaf with the resolution of pending issues for all of our sites.
The recent audit outcome for all of site inspection has been positive. Quality continue to remain a key focus area and priority for the company going forward. During this quarter, we filed 45 formulation products across global markets, including 300 in the U.S. market. As of 31st of March 2020, we have 99 cumulative filings pending for approval with the U.S. FDA, including 97 ANDAs and two 505(b)(2) NDAs. We also filed 59 master files globally, including seven filings made in the U.S. We continue to strengthen our pipeline and products across the markets. We are also working on few molecules related to COVID-19 disease. In our proprietary products business, recently, U.S. FDA approved our NDAs for oral liquid celecoxib formulation, named Elyxyb.
In this latest product, emerges from Dr. Reddy's portfolio for acute migraine treatments, we are actively working to commercialize this product through partners. Overall, we are making good progress in building and advancing a strong pipeline of high-value, globally relevant assets. We are continuing our efforts to monetize select assets through partnership and licensing transactions that maximize their value. The rituximab phase III trial is progressing as per plan, and in parallel, we are working on multiple other biosimilar products which are different states of development. Currently, we are going through a phase of uncertain business environment, where, wherein the possibility of volatility remains high. However, there are certain structural tailwinds also for us, such as opportunities for improving our market share across multiple markets and ramping up relevance in our global API business.
Overall, we remain hopeful to continue to grow and emerge as a much stronger company, meeting the expectations of all of our stakeholders. With this, I would like to open the floor for questions and answers.
Operator (participant)
Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may please press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Also, as a reminder, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to two per participant. For any further questions, you may come back for a follow-up. The first question is from the line of Yash Gupta from Angel Broking. Please go ahead.
Yash Gupta (Equity Research Analyst)
Thank you for giving us the opportunity, sir. So my first question is on the domestic business. How you are looking at the Indian domestic business for the next two quarters, as the MR productivity will come down and the number of prescriptions will, maybe come down in the near future?
Erez Israeli (CEO)
So we don't know how the market will evolve. I cannot predict it, we cannot predict it. Naturally, there is going to be an impact on the fact that patients could not visit physical physician store, and there will be a certain impact on that. On the other hand, we do see also a place in which the demand is higher. So, I believe that once the lockdown will be over, India will eventually ramp up toward normal consumption. When exactly it will be, I wish I knew.
Yash Gupta (Equity Research Analyst)
Okay. Thank you, sir.
Operator (participant)
Thank you. The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.
Anubhav Agarwal (Director)
Hi, good evening. One question is, when we look at the IQVIA data, it shows that the U.S. generic market volumes were down in the last 45 days in April and May. Just wanted to check, how has been the primary sales trend? How have you seen that, that impact is largely the secondary sales, or have the primary sales been impacted as well?
Erez Israeli (CEO)
So we, right now, we see a healthy demand coming from the customers. So we see the IQVIA numbers as well. Right now, what we see is a normal activity on our side.
Anubhav Agarwal (Director)
Okay, that's helpful. Second question is on generic Suboxone. So earlier, you had mentioned that you have enough capacity that you could double your market share. The authorized generic has almost exited the market. Our market share has gone up, let's say, 15%-20%, but we, given our capacity size, we could have got much higher market share. So just wanted to understand, what was the constraint here? The reason I'm asking is, Innovator still has 40% share, so, just trying to understand our ability to take market share here.
Erez Israeli (CEO)
We are able to take more market share, yes.
Saumen Chakraborty (CFO)
No, but we haven't done as well as we could have done. Like, Sandoz who exited had 25% share, we could only take 5% share out of that.
Erez Israeli (CEO)
You ask if there is a constraint, I don't see, I don't see a constraint on our side.
Saumen Chakraborty (CFO)
So there is always a lag between a contracted and actual reported sales.
Anubhav Agarwal (Director)
Okay, you mean to say that, you have taken high share, it will reflect in future. Is that what you're meaning, Saumen?
Saumen Chakraborty (CFO)
No, I'm—I don't want to imply that, but I'm just saying there is always a lag which is there between the two. That also you need to keep in mind. So I'm not implying anything.
Anubhav Agarwal (Director)
Okay, sure. Thank you.
Operator (participant)
Thank you. The next question is from the line of Neha Manpuria from JPMorgan. Please go ahead.
Neha Manpuria (VP)
Thank you for taking my question. My first question is on the India business. You know, I know that the Wockhardt deal is still pending, but, you know, what's your thought process, you know, post the completion of that acquisition? You know, what are the key areas that you want to focus on in that business?
Saumen Chakraborty (CFO)
So, right now, we are, you know, waiting for the closure because the definitive agreement was signed, but the closure is contingent to completion of all the conditions precedent. And along with the closure, we'll have the full integration plan, and then we can give full response to your question. Right now, it is too soon to be sure.
Neha Manpuria (VP)
By when do we expect the closure of the deal?
Saumen Chakraborty (CFO)
It should be happening during this quarter. We'll get back to you whenever it happens.
Neha Manpuria (VP)
Sure. My second question is on generic Vascepa. You know, post litigation in the district court, just wanted to get a sense on where we are in terms of the product with the FDA?
Erez Israeli (CEO)
So, it's a great win for us. And we believe that this is a product with a lot of potential. And right now, as you know, there is still a legal process in there, and we are working toward exploiting the potential of this one.
Neha Manpuria (VP)
Do we have a target action date in this, or is there a CRL on this from an FDA perspective?
Erez Israeli (CEO)
There is no regulatory issue on this one.
Neha Manpuria (VP)
Okay, understood. Thank you.
Operator (participant)
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Prakash Agarwal (Deputy Head of Research)
Yeah, thanks for the opportunity, and congratulations on good numbers. So just one statement you made on the U.S. business, COVID-related stocking in the U.S. So can you quantify that roughly? And also, the stocking continues or the previous participant asked that volumes have come down, and you mentioned your volumes are okay. So for you, you know, are you the beneficiary of some shortages in the market? If you could clarify that as well. Thank you.
Erez Israeli (CEO)
So in the end of March, indeed, there was some piling up of inventories in the U.S. preparation for the COVID-19 situation. This is not happening anymore. Now it's a normal trend of activities. There is nothing special now.
Prakash Agarwal (Deputy Head of Research)
Okay. But sir, you mentioned that your sales are okay, I mean, you're not seeing a drop, so I was just thinking if this one-time COVID restocking not happening, are the volumes going up due to some shortages or some new launches are taking that share? If you could just clarify that.
Erez Israeli (CEO)
First, we have new launches, and we launched also in the end of March, and we continue to launch also in this quarter. This is absolutely helping us. We have some product with gain market share, and we expect also to get more. Overall, like I mentioned, it's so far, it is normal. I would call it normal way of doing business in the United States.
Prakash Agarwal (Deputy Head of Research)
Okay. And lastly, if you could give any guidance in terms of number of product launches like you gave last year, in the U.S. and also outlook on PSAI business. Thank you, sir.
Erez Israeli (CEO)
I mentioned in my script, it was about 25 products for the U.S.
Prakash Agarwal (Deputy Head of Research)
Okay, and outlook for PSA business, since you mentioned you've been filing a lot of DMFs, how should we... So since in the past it has been like single-digit growth with muted margins, how do we see this business scaling up over the next 12 to 24 months?
Erez Israeli (CEO)
It will be a great business going forward. We are not giving guidance, as you know.
Prakash Agarwal (Deputy Head of Research)
Okay, sir, I have no question. I'll join back with you. Thank you.
Operator (participant)
Thank you. The next question is on the line of Nithya Balasubramanian from Sanford C. Bernstein. Please go ahead.
Nithya Balasubramanian (Analyst)
Yeah, hi, thank you for the opportunity. So the first question is on the U.S. pricing environment. So can you tell us a little bit about what you're reading right now, post-COVID? Price, is pricing better because supply is more, more important right now than pricing? And, my second question was around, SG&A and productivity improvement. You've obviously done really well in the recent past. So is this right now at a maximum level, or do you think there are more efficiencies, to be extracted?
Erez Israeli (CEO)
So on the first question, the pricing situation in the U.S. got stabilized over time, and every year it's getting better. So naturally, there will be continue to be price decrease in the U.S. This is the business model that we, but it got stabilized versus the years before. Actually-
Nithya Balasubramanian (Analyst)
But do you think COVID specifically is helping or?
Erez Israeli (CEO)
Maybe, but it's yet to see. We need more time for that to see the pattern. Right now I cannot comment on COVID-19. I really don't know. On the productivity, it's not cost, it's productivity. We were able to make and generate the growth actually without adding to our infrastructure costs, even including the inflation. So, and this is primarily by leveraging the activities in our sites, in our R&D, in our marketing to do more, some place to do more with the same, some place to do more with less. We are not yet at the productivity level that I'm expected to be, so there is more potential for productivity improvement in the company going forward. In some areas, even much more. We have a quest to be the most productive on earth in what we do, and we are on the way there.
Nithya Balasubramanian (Analyst)
Are there specific areas that you can highlight? Is it sales force productivity or manufacturing cost optimization? What specific levers do you think you'll be focusing on going forward?
Erez Israeli (CEO)
First, it's about to leverage the activity globally. It means that if you have one product, we want to sell it in many markets, and to give that service to as many markets as we can from one operation center. Then the manufacturing to do it to be modernized, digitized facilities that will be able to do it in the most efficient manner. Then the time to market, the cycle time of the activities, and of course, also the other, it means new SG&A, including the markets. So productivity is everywhere. But the primary cost that we have is naturally on the back end, which is the stuff that we are buying, plus the sites that we have.
Nithya Balasubramanian (Analyst)
Thank you.
Operator (participant)
Thank you. The next question is from the line of Vishal Biraia from Aviva Life Insurance. Please go ahead.
Vishal Biraia (Research Analyst)
Hi. The higher growth in Europe that we saw in this quarter was mainly led by some large tenders or, I mean, any other important aspects that you would like to point out here?
Erez Israeli (CEO)
It was a better performance of the European teams in five countries, but primarily in Germany. Plus, new markets that we entered, primarily with injectable products, mainly Spain, France, and Italy. So it's a combination of the fields, not just one product in the market. It's an overall activities, better performance of our European team.
Vishal Biraia (Research Analyst)
Okay. And, and what would be your guidance for the whole year of 2021 in terms of growth in Europe that you see, some qualitative?
Erez Israeli (CEO)
We are not sharing guidance, sorry.
Vishal Biraia (Research Analyst)
Okay, Saumen, you mentioned that you've experienced an improvement in receivables gradually. What will drive the improvement in receivables, and actually, what caused them to rise?
Saumen Chakraborty (CFO)
Could you please repeat your question?
Vishal Biraia (Research Analyst)
On the receivables, could you elaborate a bit more as to what led to the increase in receivables?
Saumen Chakraborty (CFO)
Yeah.
Vishal Biraia (Research Analyst)
What will lead to the increase?
Saumen Chakraborty (CFO)
Yeah. Part of the receivables is in line with the increase in sales, but part of the receivables was because of some collection, which we saw in, the recent months we have been able to do it. So that's why I say that, you know, temporarily, what got increased in the quarter ending March, will get normalized in the quarter going forward.
Vishal Biraia (Research Analyst)
This increase was primarily in-
Saumen Chakraborty (CFO)
Overall, our receivables both in India as well as some other markets. But overall, our cash cycle remains in line with what it was in the previous years.
Vishal Biraia (Research Analyst)
Okay. And lastly, some perspectives on... qualitative perspectives on filgrastim. As to how do you see the pricing, the competition shaping up? Any perspectives on this?
Erez Israeli (CEO)
It's going to continue to be great product for us.
Vishal Biraia (Research Analyst)
Okay. Thank you.
Operator (participant)
Thank you. The next question is from the line of Kunal Dhamesha from Systematix. Please go ahead.
Kunal Dhamesha (Analyst)
Hi, thanks for taking my question. So my first question is related to capital deployment. Now that we have net cash plus, and we are kind of generating INR 2,000 crore plus of cash every year, I think the Wockhardt acquisition that we have done, you know, would largely be paid through the cash approval only. So post that, what are our priorities, given the COVID challenges, are we seeing enough opportunities in India to invest or whether share buyback is on the cards?
Saumen Chakraborty (CFO)
So, in terms of deployment category, our primary lever for growth has been always on the R&D side... So R&D and technology, along with innovation, will be one area of deployment. And, as I already, I mentioned that, in next year, we would like to even spend more on R&D, even on absolute amount, so that will be there. Inorganic growth, we have been focusing, but very strategically with the articulation which Teva has already done earlier in the past. We have chosen specific spaces where we want to attain leadership.
In line with those specific spaces, we are thinking, you know, strategically about inorganic growth, and we are very comfortable in terms of our balance sheet, so it should not be, you know, difficult for us if we get, you know, right kind of target to move on in that particular area. We are deploying quite a bit of resource. I will go beyond capital in terms of overall resource, even in terms of capacity building, including the digital, because this is one thing which we feel will help us, both in terms of improving productivity and creating real differentiation. So there have been, you know, certain platforms where we have taken some early advantage, but there are many platforms where we really want to build end-to-end, you know, digital capabilities.
And that includes even, you know, application of AI, machine learning, as well as all the analytics. So there have been, as I talked in my media presentation earlier during the day, that the CapEx cash outflow has been less during FY 2020, but there were projects which were approved, so further investment will be there, mostly in the injectable area and also our biosimilar capacity expansion. So that will be another area of, you know, capital deployment, which will be there. Beyond that, in terms of our organic expansion, whether it is in terms of marketing, brand building, and also, you know, in some of the new markets within emerging markets area, there also we'll be deploying our resources. Does it respond to your question?
Kunal Dhamesha (Analyst)
Yes, partly. So on CapEx side, how much we are planning to put for biosimilar and injectable? And what would be our maintenance and maybe the development CapEx, let's say, this year or maybe, you know, next couple of years?
Saumen Chakraborty (CFO)
So granular details I will not be able to give you, but overall, the CapEx for FY 2021 could be in excess of INR 1,000 crore.
Kunal Dhamesha (Analyst)
Okay. Okay. Okay, and my second question is related to the launches, let's say, in Germany, France, Spain, Italy. So the new product launches that we are doing, are we launching the same product that we have in the portfolio, like you had said that you'll be leveraging whatever product portfolio we have, or as of now, we are launching a new product?
Erez Israeli (CEO)
Yes. No, that's exactly that. So we, if you recall in previous discussions, we said that we want to leverage our portfolio globally, and the products that we launched are primarily products that we have also in the United States, or we will have in the United States, depends on the time of launch.
Kunal Dhamesha (Analyst)
Okay, and so based on that, I actually believe we have a long runway to go in terms of product launches, because we have 100 plus products in U.S.
Erez Israeli (CEO)
Yes, and we will have much more in the U.S., and we will have much more in Europe. We just started to come in Europe.
Kunal Dhamesha (Analyst)
Okay. Okay. Great, thank you.
Operator (participant)
Thank you. The next question is on the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Sameer Baisiwala (Analyst)
Thanks, and good evening, everyone. Great quarter. Is it possible to update us on generic Copaxone and NuvaRing in terms of timelines to resubmit data with FDA?
Erez Israeli (CEO)
Yes, so we are working on both CRL and planning to submit it within the next few weeks or months.
Sameer Baisiwala (Analyst)
Okay, great. And, what would be your best... would you see getting to market in the current fiscal year?
Erez Israeli (CEO)
I don't know. I learned from these two products that after we got multiple CRL, so better not to predict. Once we will get approval, we will launch it.
Sameer Baisiwala (Analyst)
Okay, great. The second question is, can you update us on the business plan for China, in terms of where are we in terms of product filings and, how do you see the ramp-up going forward?
Erez Israeli (CEO)
China is a very important market for us, and we ramped up our activities there. So we are not sharing yet the specific numbers for China, but let's say the strategy that I communicated in the last meeting in San Francisco is still valid.
Sameer Baisiwala (Analyst)
Okay, great. One final from my side. In terms of your capacity utilization now, how is it versus pre-COVID across your network?
Erez Israeli (CEO)
We never stopped working. We had some bumps for a couple of weeks, but we never stopped working. And overall, there will be no impact that is related to COVID-19 production.
Sameer Baisiwala (Analyst)
Great. I've got a few more and get back with you. Thank you so much.
Operator (participant)
Thank you. The next question is from the line of Kishor from Kotak Mahindra. Please go ahead.
Kishor Chavan (Associate VP)
Good evening, sir. Set of numbers. Just would like to understand the gross margin, if there is any inventory, like, write-off, if adjusted for that, then what would be the gross margin likely for the quarter?
Saumen Chakraborty (CFO)
I cannot get into that final level of details. I said that, normally, you know, the price, you know, so which happens, that is, that impacts gross margin. We have been always trying to improve, productivity and various other measures to contain that. But there is a specific sequential decline, I said, the inventory write-off, as well as the change in the business mix. Because you have seen, there are certain business, for example, Europe has grown tremendously, and with the branded market sequentially has declined, it has its consequential impact on the overall gross margin for the organization.
Kishor Chavan (Associate VP)
Understood. So would you like to call out for, like, FY 2021 range of gross margin?
Saumen Chakraborty (CFO)
See, I have earlier also said the way we put our business model, it is with, you know, deliver a gross margin, which is north of 50%. If we look at how we have done over various quarters across several years, it fluctuates. But, it could be fluctuating from quarter-to-quarter based on specific events in that quarter. Normal expectation range will be between 52%-54%.
Kishor Chavan (Associate VP)
Okay, sir. And, similarly on R&D, as a percentage of sales?
Saumen Chakraborty (CFO)
Difficult to predict. It will depend on how much will be the sales, but R&D on an absolute, as I said, will increase. You can take it up 9%-10% of sales, maybe on R&D.
Kishor Chavan (Associate VP)
Sure. And just lastly, at least on the India side, where it seems the supply chain, supply side issues are very much resolved, maybe in terms of capacity utilization or in terms of the distribution of the product. But is the willingness of patient to reach out to doctors, if that takes time, then, like, then would it mean that we just continue to see the system, the channel, but ultimate sale would get delayed by three, four months?
Erez Israeli (CEO)
So we will naturally, there will be an impact on the market because of that reason that you mentioned, and it will also impact us. And all of the channels on our case will stay open, and we will continue to serve any customers that we may be. I believe that it will improve in the future once the lockdown will be over.
Kishor Chavan (Associate VP)
Okay. Thanks, thanks.
Operator (participant)
Thank you. The next question is from the line of Nikhil Mathur from Ambit Capital. Please go ahead.
Nikhil Mathur (VP)
Yeah, hi, good evening, everyone. I just have one question. Since this COVID outbreak, we have seen that a number of plants, be it for innovators or for the industry as a whole, number of plants have been given clearances by the USFDA. But the clearance statuses that has been given is largely voluntary action indicated, and very less plants have been given an action that's no action indicated. So my simple question there is, does a voluntary action indicated leave room for FDA to come back and cite certain non-compliant issues at a particular facility? Or are you confident enough that even with the VI status, the facilities are, patients are absolutely quite resolved from a product team and horizon?
G V Prasad (Co-Chairman and Managing Director)
So VI does not mean they'll come back. It means that the action plan that we submitted is acceptable, and the site is cleared here. NAI is applicable only when there is no action at all at that facility. That means there is no Class 3 at all. So I don't think it has anything to do with COVID, but it's more about the GMP status of the action plan and accepting the acceptability of that.
Nikhil Mathur (VP)
Okay, sure. That was the question. Thank you.
Operator (participant)
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Damayanti Kerai (Analyst)
Hi, good evening, everyone. Thanks for the opportunity. Sir, can you quantify how much of sales were impacted due to logistic disruption in the quarter? And are we remain confident about recovering most of the sales which were delayed?
Saumen Chakraborty (CFO)
So, we are again, not giving granular details of how much we have been impacted due to logistics. It has been, like, particularly in India, we said that, you know, otherwise we have been growing very well during the year. Last quarter, in the last fortnight of March, there was genuine problem in terms of, you know, dispatching, and we can only recognize revenue subject to the proof of delivery being there at the end of our, you know, distributors. So, in terms of, you know, recovery, it all depends on, you know, how this whole COVID-19 pans out, so we cannot predict at this point of time. But, whatever could not have been dispatched due to logistics when it opened up, they got dispatched, if that is your question.
Damayanti Kerai (Analyst)
... Okay, sure. And, how-
Erez Israeli (CEO)
Just to make sure, all the staff that was, we were not able to recognize in March, naturally, we could recognize when, when it reached the customer level. That's what Saumen trying to say.
Damayanti Kerai (Analyst)
Sure. My second question is, how we are looking, India in terms of launches plan? Last year obviously was very strong year in terms of launches. How we are planning for next one or two years in terms of new launches for India market?
Erez Israeli (CEO)
It's going to continue to be strong for us as well.
Damayanti Kerai (Analyst)
Okay, similarly, 25, 30 launches a year, that range we should look at?
Erez Israeli (CEO)
We are not giving guidance on that. It's going to be very, very healthy.
Damayanti Kerai (Analyst)
Okay, sure. Thank you. That's all for my side.
Operator (participant)
Thank you. The next question is from the line of Alok Dalal from CLSA. Please go ahead.
Alok Dalal (Investment Analyst)
Yeah, good evening. One question on the injectable pipeline for the U.S. So your last update says about 30 injectable products awaiting approval. How do you see the launch pipeline for FY 2021?
Erez Israeli (CEO)
It's the same as last time we discussed. It's still a big portion of our portfolio in values is in injectables, and it will continue to be like that also going forward.
Alok Dalal (Investment Analyst)
Okay. Can you guide as to, out of 25 new launches, how many could be injectable?
Erez Israeli (CEO)
We are not giving this kind of information.
Alok Dalal (Investment Analyst)
Okay, that's it from my side. Thank you.
Erez Israeli (CEO)
Thank you.
Operator (participant)
Thank you. The next question is from the line of Aditya Khemka from DSP Mutual Fund. Please go ahead.
Aditya Khemka (Investment Analyst)
Yeah, hi. Thanks for the opportunity. So, Saumen, did I hear you correctly? So, the R&D budget for FY 2021, you are saying around 10% of sales?
Saumen Chakraborty (CFO)
I didn't say that. I only said on absolute amount will be higher than FY 2020. It all depends on sales, but I said approximately it could be 9%-10% of sales. That's what I mentioned.
Aditya Khemka (Investment Analyst)
Okay, uh-
Saumen Chakraborty (CFO)
I'm not really comfortable for that as a guidance.
Aditya Khemka (Investment Analyst)
No, fair enough. And secondly, you also guided towards a CapEx of over INR 1,000 crore for FY 2021. Safe to assume a similar run rate for FY 2022 as well?
Saumen Chakraborty (CFO)
To be right here to comment on that. I said, you know, some of the project that we started and approved in FY 2020, so the cash flow of that is going to spill over to FY 2021. So for FY 2021, I could tell. FY 2022, we cannot talk anything right away.
Aditya Khemka (Investment Analyst)
Right. So my question really is that, you know, if you see on your costing side, be it R&D or your capital expenditure, I see slightly, you know, more higher amounts dedicated to R&D and CapEx versus just the six months earlier when we spoke, or three months earlier when we spoke. So what is driving this optimism in terms of R&D investments and capital expenditure? Are you guys seeing more demand for which you need more capacity or more opportunities for which you need higher R&D? What is driving this higher expenditure of both R&D and capital expenditure?
Erez Israeli (CEO)
When we discuss our strategy, our strategy suggests that a leadership in the spaces that we discussed in the past. So if in the past the main investment was towards the United States, now we are going for a more diversified space. So first of all, we have more products to more countries that will require more quantities. The primary investment is that we are going to ramp up to make, to develop more products and more differentiated products, so it's a combination of both. On the capacity side, it's primarily more investment in India products.
Aditya Khemka (Investment Analyst)
Understood. If I might follow up on that-
G V Prasad (Co-Chairman and Managing Director)
We are also, we're also investing in modernizing some of our older plants, and that will require some level of investment.
Aditya Khemka (Investment Analyst)
Got it, Prasad, sir. Thank you. Just one follow-up on that. So, you know, we had earlier alluded to an aspirational target of achieving 25% EBITDA margin by FY 2022. In the wake of the higher capital expenditure and the slightly higher R&D budget that we are speaking about, do you think that's still an achievable target?
Erez Israeli (CEO)
Yeah, first, I never said FY 2022. I did say 25%, and I believe that it's achievable and we will achieve it.
Aditya Khemka (Investment Analyst)
Got it. Thank you.
Operator (participant)
Thank you. Ladies and gentlemen, we will take the last question from the line of Saion Mukherjee from Nomura. Please go ahead.
Saion Mukherjee (Managing Director and Head of Equity Research)
Yeah, thanks for taking my question. So just on the biosimilar bit, you mentioned about CapEx there. Is it more to do with the regulated markets or the opportunity you see in the emerging markets? Can you give some more color on that biosimilar business?
Erez Israeli (CEO)
Capacity is for overall markets, because we are using the products for all the spaces that we are there. We are not dedicating capacity for a specific market, and our products are, by and large, global. So it's a capacity for each one of the relevant spaces that we have. Especially on the... If you remember that we discussed the space of the hospital product, this is a global process for us, in which we want potentially to sell to every country that wants to have affordable products with high quality. So this is a truly global business. As for the biologics, again, it's a global market, in which we will be self-sustained for the United States and Europe, and with couple of products in which we will have, hopefully partnership that will help us to market those products in those areas and to finance our R&D.
Saion Mukherjee (Managing Director and Head of Equity Research)
Okay. Okay, thank you.
Operator (participant)
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Amit Agarwal for closing comments.
Amit Agarwal (Head of Investor Relations)
Thank you, everyone, for joining us today for the earnings call. In case of any further queries, please reach out to the investor relations team.
Operator (participant)
Thank you very much, sir. Ladies and gentlemen, on behalf of Dr. Reddy's, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.