Dr. Reddy’s Laboratories - Q4 20/21
May 14, 2021
Transcript
Operator (participant)
Ladies and gentlemen, good day, and welcome to the Q4 and FY 2021 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations at Dr. Reddy's Laboratories Limited. Thank you, and over to you, Mr. Agarwal.
Amit Agarwal (VP of Finance and Head of Investor Relations)
Thank you. 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 March 31, 2021. 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 transcripts 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. Parag Agarwal, our CFO; and the investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcast or attributed in press or media outlet without the company's express 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.
Gunupati Venkateswar 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 will remain safe and healthy during these challenging times. I would like to start this call by thanking all our teams from the bottom of my heart for the work they are doing for COVID patients in India and the rest of the world.
I also want to thank all our teams who are ensuring the safety of our frontline workers and teams by ensuring all the precautions for COVID. All of us at Dr. Reddy's are driven by our purpose and belief that good health can't wait. We are motivated to serve patients in every possible way and with utmost urgency.
This is reflected in the multiple collaborations we have entered to develop and commercialize a wide range of preventive and curative options for COVID treatment. As you already know, we launched Sputnik V vaccine today, and we have also, over the past few weeks, ramped up our supplies of multiple medicines, including Remdesivir, to meet the surge in demand.
We are also working on the launch of newer treatment options, which we'll bring to the market in the next few months. We have also ensured that supplies of our existing medicines continue uninterrupted, and we continue to meet the market demand for all our markets.
Being sensitive to the current realities, we are extending help in all possible manner to our employees, including additional insurance coverage, converting some of our professional training facilities into dedicated in-house treatment facilities, supporting people with virtual doctor consultations, arrangement of medicines, oxygen, and any other required support.
We also, while we do all this, we remain committed to our strategy of attaining market leadership in our chosen spaces, driving operational excellence with continuous improvement and focus on patient-centric product innovation. Each of our current business will continue to drive growth for the next few years, but we are also investing in building for the future through advancing science, digitalization, and innovation.
These are extraordinary times and call for finding solutions rapidly and making them available to as many people as possible in the shortest possible time. This is what is driving us, and we are all committed to playing our part in helping people to get back to health as soon as. With these opening remarks, I hand over the call to Parag for taking you through the financial performance of the company for the quarter and for the year. Over to you, Parag.
Parag Agarwal (CFO)
Thank you, Prasad. Good evening to everyone, and thanks for joining this call. During these prolonged COVID times, I hope you and your families are keeping safe and healthy. I'm pleased to take you through our results for the Q4 and full year of fiscal 2021. It is yet another year of good financial performance with highest ever sales and EBITDA and a strong cash flow generation from operations. The PBT adjusted for-
Operator (participant)
I'm so sorry to interrupt you, sir. I'm so sorry to interrupt you, sir. May I request you to come a bit closer to the phone, sir?
Parag Agarwal (CFO)
Yes. Is that better?
Operator (participant)
Slightly better. Thank you.
Parag Agarwal (CFO)
Okay. It is yet another year of good financial performance with highest ever sales in EBITDA and a strong cash flow generation from operations. The PBT adjusted for impairments in both the years and for out-licensing and settlement income SITP grew by 45% for the year, despite COVID-related challenges.
Let me take you through the key financial highlights for the quarter and financial year 2021 in a bit more detail. For this section, all the amounts are translated into US dollars at a convenient translation rate of INR 73.14, which is the rate as of March 31, 2021. Consolidated revenues for the quarter stood at INR 4,728 crore, that is $646 million, and grew by 7% on year-on-year basis, and declined by 4% on a sequential quarter-over-quarter basis.
Year-on-year growth has been supported by a growth in most of our businesses. Sequential decline was primarily due to lower sales in branded markets and recognition of milestone income in Q3. The revenues for the financial year 2021 stood at INR 18,973 crore, that is $2.59 billion, and grew by 9%.
Adjusting for $15 million out-licensing income during FY 2020, the growth stood at 13.5%. The growth is supported by new product launches, contribution of portfolio acquired from Wockhardt, improvement in the base business volume, a scale-up in new markets, and favorable products. Consolidated gross profit margin for this quarter has been 53.7%, an increase of 200 basis points year-on-year, and decline of 10 basis points on quarter-on-quarter basis.
The year-on-year increase is primarily attributable to improved product mix and productivity, partly offset with lower export incentives and price erosion in the generic market. Gross margin for the global generic and PSAI were at 57.9% and 31.7% for the quarter. Gross margin for financial year 2021 has been 54.3%, which is an improvement of 50 basis points over financial year 2020. Gross margin for the global generic and PSAI were at 59% and 29.5% for the year. The SG&A spend for the quarter is INR 1,428 crores, that is $195 million, an increase of 13% year-on-year, and a decrease of 1% quarter-on-quarter.
The year-on-year increase is primarily due to additional expenses incurred with the integration of business acquired from Wockhardt, higher trade costs, investments in digital capability building, and higher filing costs.
The SG&A spend for the year is INR 5,456 crores, that is $746 million, and has grown by 9%. The SG&A costs as a percentage of sales was 28.8%, which is similar to previous year. The R&D spend for the quarter is INR 409 crores, that is $66 million, and is at 8.7% of sales. The R&D spend for financial year 2021 is INR 1,664 crores, that is $226 million. R&D percentage of sales stood at 8.7% for FY 2021, which is in line with previous year.
The improvement in R&D productivity is reflected in higher filings across our markets. The EBITDA for the quarter is INR 1,133 crores, that is $155 million, and the EBITDA margin is 24%. The EBITDA for the year is INR 4,748 crores, that is $649 million. EBITDA margin for the year is at 25%, which is in line with our expectations target. Our profit before tax for the quarter stood at INR 807 crores, that is $110 million, and that for the year stood at INR 2,836 crores, that is $387 million. Effective tax rate for the quarter has been 31.4%.
The ETR has been impacted due to de-recognition of deferred tax assets related to depreciation of goodwill, pursuant to a recent change in income tax regulation. Effective tax rate for the year has been at 32.4%, higher primarily due to non-recognition of deferred tax assets on losses arising out of impairment. We expect our normal ETR is in the range of 25%-26%. Profit after tax for the quarter stood at INR 554 crore, that is $76 million, and that for the year stood at INR 1,915 crore, that is $362 million. The forward ETR for the quarter is INR 33.29, and that for the year is INR 116.14.
Operating working capital decreased by INR 139 crores, which is $19 million, against that on December 31, 2020, mainly driven by decrease in receivables, partly offset with increase in inventory. Our capital investment stood at INR 288 crores, which is $39 million in this quarter, and INR 974 crores, which is $133 million during the year.
The free cash flow generated during this quarter was at INR 796 crores, which is $108 million, mainly supported by profitability and decrease in operating working capital. The free cash flow generated during this year's acquisition was at INR 761 crores, which is $104 million. Consequently, we now have a net surplus cash of INR 7,751 crore, that is $102 million as of March 31, 2021.
Foreign currency cash were hedged in the form of derivatives for the US dollar are approximately $675 million, largely hedged around the range of 74.6-77.6 to the dollar. INR 7,200 million at the rate of 0.9906 to the rupee. AUD 10 million at the rate of 67.70 Australian dollar and ZAR 148 million at the rate of 0.96 to South African rand maturing in the next 12 months. With this, I now request Erez to take us through the key business highlights.
Erez Israeli (CEO)
Thank you, Parag, and good morning and good evening to everyone. I hope that you and your loved ones are staying safe, and well, through this surge of pandemic in India. I'm quite happy with the way we have been able to manage our business operation during these unprecedented times.
While we have made significant efforts to bring to market a range of COVID-related drugs as part of, as our part in the fight for global pandemic, we've remained committed to our long-term strategy and continue to push our agenda forward towards accel-accelerating growth in chosen areas. The full year 2021 has indeed been a milestone year for us, which is reflected in the following key highlights.
A successful completions of clinical trials for Sputnik V vaccine in India, leading to an eventual launch to date. Development and launch of several COVID-related drugs, successful integration of business acquired from Wockhardt in India, healthy sales growth supported by all our major markets, attaining EBITDA margin of 25% consistent with our aspiration. ROCE adjusted for impairment charges also moved toward our aspirational target.
Healthy cash flow generation leading to much stronger balance sheet, scaling up of product development pipeline for all of our businesses and pro-productivity improvement across manufacturing, R&D, and commercial section of the business. Now, let me take you through the key business highlights of our business. Please note that all the reference to the numbers in these sections are in respective local currencies. Our North America generic business recorded sales of $237 million for the quarter, with a decline of 5% year-over-year and a growth of 1% on a sequential quarterly basis.
On the back of much higher base of March 2020, which was driven by a pantry loading by patients and significant inventory built up by customers due to the COVID-19 lockdowns at that time. On a full year basis, the sales of the for the business were $948 million, a growth of 4% over the previous year.
Despite all the industry-level headwinds and COVID-related slowdowns, NMG business has managed to grow for the second year in a row. We launched six new products during the quarter, including Vigabatrin tablets, which has been granted CGT status. Overall, the year we launched 28 new products, including one relaunch. We expect this strong new launch momentum to continue through the current year, as well as with similar number of launches.
Our Europe business recorded sales of EUR 45 million this quarter, with a year, year growth of 4% and sequential quarter decline of 5%. On the full year, on a full, full year basis, the sales are 178 million EUR and have grown at a strong rate of 20%. The growth is driven by both new product launches and improvements in volumes sales across the markets.
During the quarter, we launched three new products in Germany, four in U.K., one in Italy, and two in Spain. During the full year, we had 14 new launches across our markets in Europe. We are extremely pleased with the strong turnaround witnessed in both our key pure generic businesses of NMG and Europe.
Our Emerging Markets business recorded sales of INR 885 crores, with a year-on-year growth of 10% and sequential quarter decline of 8%. On a full year basis, the Emerging Markets sales has been INR 3,509 crores and grew at 7%. Within the EM segment, the Russia business in Roubles grew by 10% on a year-on-year basis and declined by 11% on the quarter-to-quarter basis in constant currency.
The quarter-on-quarter decline is largely due to a market slowdown seen in this quarter. In April 2021, Russia business grew by 1% in constant currency. Our business in China has performed well beyond there. During the quarter, we launched 31 new products across Emerging Markets.
Our India business recorded sales of INR 845 crore, with a year-over-year growth of 22% and a sequential decline of 12%. The sequential decline was driven by reduced demand for COVID drugs during this quarter, as the infections remain low and seasonally pattern in our portfolio.
On a full-year basis, our sales was INR 3,342 crore and grew by 15%. Adjusted for sales contribution from the portfolio acquired from Wockhardt, we grew at 8% during Q4 and 2% the full year. While we saw increasing physical connect with the healthcare professional during Q4, the physical activities again reduced significantly in the recent months due to the COVID surge. During the quarter, we launched two new products in the Indian market. After the Q4 report of March 2021, we have now ranked number 11 in the IPM on MQT and MAT basis.
Our PSAI business recorded sales of $108 million, with a strong year-on-year growth of 9% and sequential growth, quarter growth of 14%. On the full-year basis, the sales were $431 million, with a strong growth of 19%.
While there may be fluctuation in quarters and quarter growth trends for this business, or, owing to a change order book cycles, we believe that there is a reasonable headroom for sustained growth in both API as well as the custom services business. On the R&D front, we continue to strengthen our pipeline of products across the markets we focused R&D investment in value asserted assets.
During the quarter, we filed for 57 drug master files globally, including 7 filings made in the U.S. We have also filed 60 formulation products across global markets, including 11 ANDAs and 1 NDA in the United States. In addition to these new filings, we have filed multiple supplements and variations as part of manufacturing or batch record. [Foreign Language] Initiative to enhance our overall competitive position in the U.S. market. As of March 31, 2021, we have 95 cumulative filings pending for approval with the U.S. FDA, which include 92 ANDAs and 3 NDAs.
Operator (participant)
Ladies and gentlemen, we lost the line of the current speaker. We would request you to please hold the line while we join him back to the call. Ladies and gentlemen, we have Mr. Israeli reconnected. Over to you, sir.
Erez Israeli (CEO)
Yeah, sorry about this disturbance, disturbance. Apologies for the inconvenience. We are progressing with phase III trials, so it looks and more on the next wave of biosimilar products, which are a different stage of development. In our proprietary products business, we are progressing with phase III trials for E7777, for CTCL indications. Additionally, efforts are underway to globally monetize key approved in one market assets.
During the current quarter, we out-licensed to Italfarmaco ex-US the development, registration, formulation of the rights of ELYXYB, which is the celecoxib oral solution for the EU five markets. While the current business environment continues uncertain owing to global pandemic, we believe that the foundation is solid, and there are multiple growth levers available for us to sustain this growth trend in FY 2022 and beyond.
Our growth will be primarily driven by the organic moves focusing around pipeline optimization, productivity enhancement, diversification, and capability in marketing and digitalization. Further, our strong balance sheet allows us to continue to invest in the right set of inorganic moves to enable long-term 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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Prakash Agarwal (Deputy Heard of Research)
Yeah. Hi, good evening, and thanks for the opportunity. So first question is on the Sputnik V. Just wanted to understand the opportunity better. So it's about 100 million plus doses, and how should we think about, since we are the marketing, you know, and how should we think about in terms of monetizing this opportunity? I mean.
Erez Israeli (CEO)
Yes. So, first, just to put the database together, we have the rights for the first 250 million dose for India, which translates to 125 million patients. And the initial quantities will come from the imported vials that will come out of Russia. And in the meantime, we have 6 contractors, in which we are qualifying to make the product locally in India.
This is for the country of India in addition, there are discussions with the RDIF of Sputnik Light, as well as additional engagement for the future for India. And we are also in discussions with them about quantities and rights as permitted for other countries. This is the overall view that we have at this stage of Sputnik.
Prakash Agarwal (Deputy Heard of Research)
Yeah, but I mean, just trying to understand the, you know, the, for modeling purpose, even if we assume that we make INR 100, 10% on the current price, so, I mean, the sales opportunity could be as high as INR 2,500 crores?
Erez Israeli (CEO)
You know that we are not giving guidance and we cannot give the -- Today we announced that the price for the imported product will be INR 945 before tax. And the global pricing of Sputnik as decided by the Russians is about $10 that's what we can share.
Prakash Agarwal (Deputy Heard of Research)
Okay, got it. And my second question is on the, you know, the margin trajectory. So clearly we have seen some improvement versus last quarter, which has some one-offs. But we are still tagged below the Q1, Q2, which had obviously lower cost due to lockdowns. And we are a little behind than our 25% aspirational guidance. So, I mean, how do we see this achieving in 2022?
Erez Israeli (CEO)
We are very much on the way there, and we are not giving, again, guidance, but in terms of aspiration, we are very much there. We also put certain efforts in order to make our activities more robust so we invested a little bit more than the average in terms of building capabilities for the future, including digital activities. So in that respect, we are very much committed to the numbers that we shared in the past, on both the EBITDA as well as the ROC.
Prakash Agarwal (Deputy Heard of Research)
Okay, sir. Thanks. I'll join back the queue.
Operator (participant)
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants, we would request you to please limit your questions to two at a time. Should you have a follow-up question, please rejoin the queue. Thank you. The next question from the line of Damayanti Kerai from HSBC Securities. Please go ahead.
Damayanti Kerai (Equity Research Analyst)
Hi, good evening, and thank you for the opportunity. My question is on US business. So we are seeing their consistent launch around 20-25 products per year, but our quarterly sales rate is generally staying within $240-$250 million level. So can you please provide some color on how should or what can drive your sales meaningfully from current quarterly run rate? And what is the price erosion level currently for your portfolio?
Erez Israeli (CEO)
The US market. There is some disturbance on the line.
Operator (participant)
I'm sorry, Jamie, but may I request the participant to please mute yourself while you're not speaking? There's some disturbance from your line. Thank you. You may go ahead now.
Erez Israeli (CEO)
So the US models will continue to be that way. Specifically, now the price erosions is not as steep as it used to be, but the model is the same if certain numbers of our products will face competitions, especially with the big customers, those of course will face price pressure and this trend will continue also in 2022 if it's going to be single digits or double digits, I don't know, but it is going to be the model will continue accordingly.
What will continue to grow is the type of products that we are developing. As you know, we have some more and more you are seeing CGT, and you see products that have higher value. At the same time, it's not just about sales, it's about profit. And, we are doing and taking multiple activities to reduce the cost, to change the cost structure of our molecules, both of the API and the pharma.
And as this will continue, the improvement in the profitability of the U.S. will grow higher. So it's a combination of focusing on the relevant products, which I believe that our portfolio is very promising, productivity and increased market share. The same things that this market had many years ago, I think we are implementing it every quarter better and better.
Damayanti Kerai (Equity Research Analyst)
My second question is in India part. So Q4 definitely has some impact of seasonality, but barring seasonality and uncertainties around current COVID situation, how do you see India business progressing in next few quarters?
Erez Israeli (CEO)
India, first of all, I'm very even though people are losing confidence in India, I personally, as well as the company, very much believe in India, and India is a very, very important, not just market for us, but we are part of the effort to fight pandemic in India.
So I do see growth in India. We have we launched several COVID products, and relaunched also, so products like Remdesivir and Favipiravir, as well as Sputnik today, and more products will come so our COVID portfolio is getting more and more robust as time goes by. In addition to that, we improved our capabilities, and there is a better focus on the big brands in India, which I believe will grow as well so overall, I'm very bullish about India, as well as new activities that we will do in the future, that we will announce when we do them.
Damayanti Kerai (Equity Research Analyst)
Okay. So thank you for your answers.
Operator (participant)
Thank you. The next question is from the line of Kunal Dhamesha from Emkay Global. Please go ahead.
Kunal Dhamesha (Senior Research Analyst)
Good evening, and thank you for taking my question. So first is on EBITDA margin as we continue our journey towards our aspirational goal of 35% EBITDA margin, but from here, what are the three key drivers of the EBITDA margin expansion in your view, in order of importance? Obviously, there will be product mix, et cetera, et cetera, but in the order of magnitude, which you believe would have a greatest impact on our journey, if you could share that, that would be great.
Erez Israeli (CEO)
Yes, sure. The EBITDA, the main drivers are common, although it will sound common to you, but it has, of course, different level, different magnitude, as even in the first 20 and moving forward. One is focus on the relevant portfolio. So we built a future portfolio, which I believe very attractive, and we will very much focus on that. And this portfolio will be bigger as well as more profitable. The second piece is that we are going to increase productivity level of the existing portfolio.
And we have various initiatives that are related to that for quite some time, and they are very good. And our entire operations, which is including to level one, is overall a productivity initiative in the way we conduct our operation and secondly, digital initiatives we invest heavily into digital we very much believe in digitalization as well as in automation, and this is giving a very promising results.
The third is we are increasing market share in those products, on both the branded market as well as the unbranded. Then on top of it, we are bringing the relevant products, like COVID activities, which it's also meeting the need of the hour, as well as helping ourselves in those relevant markets to facilitate additional capabilities. And on top of it, we are going to grow and try to explore our financial capacity for more BD activities. I hope these are the levers that all of them should increase our EBITDA in the future.
Kunal Dhamesha (Senior Research Analyst)
So thank you for that. And, the follow-up would be, you know, we have been speaking a lot about digital initiatives, and we are investing heavily. Would you like to quantify what is our investment of, you know, in terms of investment till now? And, you know, is it likely to go down, drastically in, you know, near term or maybe medium term, and, you know, it will also come up with its own cost savings, which would realize over a period of time, so any color you would like to provide here?
Erez Israeli (CEO)
So the color I can say that if you in FY 21 we put a CapEx so on the operating expenses most of the goal is investment. So whether it's in R&D or in digital or activities that are related to digital so the goal that we have in this is either related to innovations or to debt.
And the growth in CapEx is also related to that in addition to scaling up our injectable operations that in order to facilitate a robust launches of products that will come in FY 2023 and FY 2024. If I recall correctly, we had about, we will take a little bit less than INR 1,000 crores of CapEx in FY 2021, which is more than the years before. It's primarily to prepare for that.
Kunal Dhamesha (Senior Research Analyst)
Sure. And the investment in digital will come down. Do you foresee that it could come down once we are through the cycle and come down drastically in coming quarters?
Erez Israeli (CEO)
The investment-
[crosstalk] At least on the India side.
The investment in digital will be... We will invest in more in the future, and it will replace manual activities. So overall, the expense base will go down.
Kunal Dhamesha (Senior Research Analyst)
Sure. Thank you.
Operator (participant)
Thank you. The next question is from the line of Neha Manpuria from J.P. Morgan. Please go ahead.
Neha Manpuria (Senior Equity Research Analyst)
Thank you for taking my question. My first question, you know, just a continuation of, you know, the operating costs. If I look at our SG&A spend, it's up in the last two quarters, it's been increased up about, you know, INR 130-140 crores. How should I look at this going forward? Do you think the pace of, you know, the increase would be higher as we, you know, invest in digital, you know, try to launch more products because... or, you know, do you think this is the level, which is enough to sustain, the growth that we have planned for the next two years?
Erez Israeli (CEO)
I think, if you look at this-
Parag Agarwal (CFO)
Yeah, go on, Amit.
Erez Israeli (CEO)
You want to take it?
Parag Agarwal (CFO)
Yeah, I can take it, Amit. So, Neha-
Erez Israeli (CEO)
Okay, please, please.
Parag Agarwal (CFO)
Yeah. So the SG&A expense, as a percentage of sales for the full year, as you know, is flattish compared to last year. It has gone up in the last few quarters, primarily driven by two factors one is, we are prioritizing the supply and availability of our products across all markets, and because of COVID impact, the trade costs are higher, and the C&F costs is slightly absorbed because we are prioritizing the supply.
And the second reason is the increased investment that we are making behind digitalization and also higher product filing costs. The levers which impact SG&A are clearly the investments that we make on one hand, and the productivity that we're driving, on the other hand. From one quarter to another, you can expect fluctuations.
As you know, we are actually living in very uncertain times right now. The impact of COVID also impacts this line. I would say that going forward, you can expect to see higher investments in digitalization, as Irakli mentioned. You can also see some of this will get offset by productivity. This is, I think, giving you the shape of SG&A going forward.
Neha Manpuria (Senior Equity Research Analyst)
Okay. Understood. And, Erez, in your opening comment, you mentioned about, you know, Russia market seeing some disruption in the quarter, which led to the quarter-on-quarter growth. Just some color on that, and, you know, was this, you know, something one-off, like temporarily talking, what led to this disruption?
Erez Israeli (CEO)
Can you repeat? I could not hear it, sorry. You, you mentioned quarter-on-quarter market share, was the question?
Neha Manpuria (Senior Equity Research Analyst)
For Russia. Yeah, for Russia, I think in your opening comments you mentioned some impact in the Q4 because of slowdown or disruption in the market. So could you give some color on that?
Erez Israeli (CEO)
Yes. The demand from the customers in this quarter was less than usual and less than anticipated. It's probably the financial situation of those customers, as well as a relatively low season. As you know, our products are very seasonal, and this was Q4. I do not see that as a chronic issue i see that as something that is primarily related to this period of time.
Neha Manpuria (Senior Equity Research Analyst)
Understood. Thank you so much.
Operator (participant)
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Sameer Baisiwala (Equity Analyst)
Thank you so much, and good evening, everyone. Erez, first question on Sputnik. What's the time frame within which you think you can supply to 50 million doses that you have contracted for India? And when do you think that the local manufacturers will start, you know, delivering the supplies?
Erez Israeli (CEO)
Yes, thank you. So I anticipate that between now and July, maybe August, the primary supply will be from Russia. And only the first quantities will come from the Indian manufacturers, hopefully by August, September, if it's still, it depends, of course, on the qualifications of those sites and their ability to meet the bridges study, et cetera but this is at least the anticipation. If this plan is in place, we can deal with these quantities within 12 months.
Sameer Baisiwala (Equity Analyst)
Okay, excellent. And the second question, Erez, is on the US, two products. One is, Kuvan, 500 mg powder. I think you launched the other two forms, but this one is pending a clear approval. So what's holding it back, and when do you see this, this getting approved? And second is on Icosapent ethyl, that's, Vascepa. What's the outlook for the launch, and when do you think you can have, sort of a smooth supply of API?
Erez Israeli (CEO)
Yeah. So, Amit, if you can take the first one, because I don't recall the status of it, bear with me, but we'll give you the details of it in a second as for the second, we indeed faced a shortage of supply. I believe that we overcame it, and we are going to launch within the next, we hope, next two months.
Amit Agarwal (VP of Finance and Head of Investor Relations)
Yeah, and on the first one, Generic Kuvan 500 mg sachet, we expect it sometime in this year.
Sameer Baisiwala (Equity Analyst)
Okay, that's, that's very broad, Amit. So it is not expected in next one or two quarters, but, maybe during H2 of the year, we expect...Okay. Amit, I missed your point on, on Vascepa you said you'll launch it in the next couple of months, but you said something about the API supply would it be, with, with a smooth supply or would it be with a, with a limited supply?
Amit Agarwal (VP of Finance and Head of Investor Relations)
With smooth supply.
Sameer Baisiwala (Equity Analyst)
Oh, excellent. Super. So with your permission, one last question, if I may, and that's about your 95 pending, you know, filings with the FDA so three of them are NDAs. Are these generic, you know, Rems kind of product, or are these specialty branded kind of products?
Amit Agarwal (VP of Finance and Head of Investor Relations)
More of a generic, more of a generic products, not the specialty products which we were having, like, in proprietary product segment.
Sameer Baisiwala (Equity Analyst)
Okay, got it.
Amit Agarwal (VP of Finance and Head of Investor Relations)
These are basically generic products to 505(b)(2).
Sameer Baisiwala (Equity Analyst)
Okay, got it. Thank you.
Operator (participant)
Thank you. The next question is from the line of Nikhil Mathur from Ambit Capital. Please go ahead.
Nikhil Mathur (Equity Research Analyst)
Yeah, hi, good evening, everyone. So my question is around the recent product that you have launched in collaboration with Gland Pharma, which is Ertapenem. I want to understand, now with the company having invested so much in injectable capacity, power, capital, and injectables, why does Dr. Reddy's still have to work with the contract manufacturer with this injectable product?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
I can answer that.
Erez Israeli (CEO)
Sure, yeah.
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
I think the Penems require dedicated facilities, which we don't have, and Gland has dedicated a line to Penems, so we're using that capacity. Our capacity is between oncology and multipurpose. Penicillins, Penems, all of these require specialized, dedicated facilities.
Nikhil Mathur (Equity Research Analyst)
Okay. And, would it be possible, I think, 1 year, 2 years, 3 years time frame, in such products, Dr. Reddy's develops its own capabilities, and hence you won't need to, copy share on such products?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
I didn't understand the question. What was the question? Can you repeat?
Nikhil Mathur (Equity Research Analyst)
My question is that in 1 year, 2 years, 3 years time frame, is the company looking to establish capabilities in this space so that in future, whatever possibilities are there, the company doesn't have to profit share with the co-contract manufacturer?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
I don't think we will ever say that we will do everything in-house. There will always be opportunities to create value through partnerships, and Dr. Reddy's has gained a lot through many partnerships. So I will not say that we will do everything in-house. Of course, where there is a business case, where there is volume, there is capability, we'll do that, but we will not say that we will do everything in-house.
Nikhil Mathur (Equity Research Analyst)
Okay. Okay, and just one more question, Does Dr. Reddy's have any ambitions or plans to enter the U.S. respiratory generic business? Because couple of partners are quite heavily invested in that space. Do you see that as a possibility for Dr. Reddy's as well sometime down the line?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
You talk about respiratory products?
Nikhil Mathur (Equity Research Analyst)
Yes, I'm asking about respiratory products.
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
It's not a big space for us, but, you know, it's something we don't know what we'll do in the future at this time, but right now we are not investing a lot in inhalation.
Nikhil Mathur (Equity Research Analyst)
Any reason why you would not be investing in that?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
Limited, limitations of time, and we are in many areas. And also, we find this area is becoming very crowded.
Nikhil Mathur (Equity Research Analyst)
Okay. Okay, sure. Thanks a lot.
Operator (participant)
Thank you. The next question is from the line of Ranveer Singh from Sunidhi Securities. Please go ahead.
Ranveer Singh (Senior Equity Research Analyst)
Yeah, thanks for taking my question, and good evening, everybody. My question again relates to that Sputnik. Just wanted to understand the price, which has been fixed right now, is for imported consignment, or even if we start manufacturing ourselves or get it manufactured in India, the price will remain the same or the price will be redetermined?
Erez Israeli (CEO)
This is a price that is related to the approved imported product. And it's if and when we will have an approval for the contract manufacturers, I hope we will be able to offer a cheaper price to the market.
Ranveer Singh (Senior Equity Research Analyst)
Okay. And second question, again on Sputnik. Whether RDIF has got a manufacturing agreement with all five players, and these manufactured products will be distributed through you, or they will have a separate distribution agreement with them?
Erez Israeli (CEO)
For the first one, 260 million vaccines, we have the rights from all of these countries. What will happen after that, we will have to discuss and agree with RDIF and, of course, those contractors. At this stage, they're all working for our distribution.
Ranveer Singh (Senior Equity Research Analyst)
Okay. And the last one, if I can. We saw news yesterday that you have entered a licensing deal for a cell therapy product called PRG1801. So just we wanted to understand, you know, more details on it. So what is the outlook? What kind of market actually it will cater to, and what profit we can expect from it?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
I will take it, Erez. So this is a cell therapy. It is, it is in early stages of development with, with our licensing partner. It's not going to be a big product. It's a niche therapy, but it is an area we want to explore because we have a strong presence in oncology, in small molecules as well as biologics.
We are getting into this to, you know, offer a, affordable alternative to Indian patients, and in the process, pick up the skills of cell therapy. We will have a facility which will take the cells, convert them into CAR Ts, and then administer them to the patients. It's an entry into a new space, but in a therapeutic area which is very key to Dr. Reddy's.
At this time, it is too early to predict what will be the margin and all that, because we have to go through the clinical development, and all of that. But our objective in this is to make cell therapies available to Indian patients at affordable prices.
Ranveer Singh (Senior Equity Research Analyst)
But how is the cell therapy market in India currently? How many products,
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
There is no market today.
Ranveer Singh (Senior Equity Research Analyst)
Okay.
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
Today, it is not available to Indians. We have to go abroad overseas to get this done.
Ranveer Singh (Senior Equity Research Analyst)
Okay. Okay. Okay, that's it from my side. Thanks a lot.
Operator (participant)
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Shyam Srinivasan (Research Analyst)
Hi, thank you for taking my question. Just a clarification on the Sputnik V supplies again. When it is locally manufactured, and I think, Erez, you said that largely, supplies will ramp up when the local manufacture starts. I thought there was a rule which says that 60% of the locally manufactured vaccines should be given to the central government, and 50% to state and private. Would that rule apply to you as well?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
I think to the domestic manufacturer, it could be applicable as they stand, but these rules are evolving every day, as you can see. So it's hard for us to predict when supplies ease in the next few months, what exactly will happen. But you're right about that rule for Indian-developed and manufactured medicines. But there are contracts also that Russia and RDIF have signed with the local companies. So we'd like to see how the situation evolves, but we will do whatever the government mandates us to do.
Shyam Srinivasan (Research Analyst)
Got it. And just a linking question on the export opportunities at Sputnik V. You know, given the constraints around local, and the different payers that you're gonna be dealing with, do you think the export opportunity could be a much larger opportunity given our presence in emerging markets?
Gunupati Venkateswar Prasad (Co-Chairman and Managing Director)
I think, Erez-
Erez Israeli (CEO)
I'll take it. Yeah, I'll take it. Got that. The export, we have two routes for engagement with RDIF one, all that it is made in Russia and goes to other countries, and that we are having several discussions. And we do see an opportunity for those markets out of that route. As for the potential additional capacity in Russia, indeed, the intent is that India will be a big hub for Sputnik also in the future, and therefore, a portion of that quantity once fulfill what is needed for India will be also for export.
Shyam Srinivasan (Research Analyst)
Got it. Thank you. And the last question-
Erez Israeli (CEO)
But this is not concluded. At this stage, it's in discussion.
Shyam Srinivasan (Research Analyst)
Got it. Thank you. Thank you, Erez. And the last question is on the PSA, PSAI business. We've seen good growth, and looking at the press release, it seems to suggest it's largely volume-led growth, and we have seen price erosion. So which means how, what is the sustainability of this in the fiscal 2022? And from a capacity for API and PSAI, are we good? And is that inventory-led demand that we actually saw in the first half of last year, do you think it's continuing or what, what's driving this volume development?
Erez Israeli (CEO)
Yes. So I think what the main drivers of the business is a good execution on our end in order to provide you know a proper products in the right service in the right course especially giving the time with the relevant cost. So it's primarily driven by focusing on those products in which we can have a global market share and this is the main drivers. In terms of geography it's primarily driven by Asia China and Japan and Korea as well as some products in the United States.
And as for the future, the API will grow, but it will fluctuate, and there will be quarters that it will look soft, and there will be quarters that it will look up, because it's primarily the timing of and the pickup of those inventory by the customers. So it's not going to be a kind of a linear quarter on quarter necessarily, but absolutely, our API business will grow and become more profitable.
Shyam Srinivasan (Research Analyst)
Thank you, Erez. All the best.
Operator (participant)
Thank you. The next question from the line of Alok Dalal from CLSA. Please go ahead.
Alok Dalal (Stock Analyst)
Yes. Hi, good evening. Any updates on Copaxone and NuvaRing filing?
Erez Israeli (CEO)
We got the recent CRL, and we are still working on its solution.
Alok Dalal (Stock Analyst)
This is for both product, is it?
Erez Israeli (CEO)
You asked about Copaxone, no? You, the next is NuvaRing. What was the question, sorry?
Alok Dalal (Stock Analyst)
NuvaRing, we are still waiting for the feedback.
Erez Israeli (CEO)
Yeah, go ahead.
Alok Dalal (Stock Analyst)
So I was asking about an update on Copaxone and NuvaRing.
Erez Israeli (CEO)
Yes. So Copaxone I gave you this is, we are still working on the CRL that we received in, in January. And, and in the case of NuvaRing, we submitted the CRL response, in the December, and we are waiting for the feedback, which is likely to come 10 months from submission. So we will get it, by October.
Alok Dalal (Stock Analyst)
Okay. Will these be FY 22 launches?
Erez Israeli (CEO)
Unlikely for both of them.
Alok Dalal (Stock Analyst)
Okay. And second and last question, how should we think about the capital allocation strategy, next 2, 3 years? And how important will acquisitions be a part of this?
Erez Israeli (CEO)
Sorry, and how the last part of the sentence, yeah?
Alok Dalal (Stock Analyst)
How important will acquisitions or inorganic growth be a part of this approach?
Erez Israeli (CEO)
Yes. So we do have a very, very good balance sheet and a relatively big financial capacity. So we are looking for opportunities all the time, and we will be keen to take a deal that we find suitable for our strategy. Having said that, we are not, i said it in the past; this is still the philosophy of the company we are not in a shopping spree. We are going to go after assets that fit us well. Primarily the focus will be products, brands, or certain capabilities that we want. It's globally, but the main focus will be India and emerging markets.
Ranveer Singh (Senior Equity Research Analyst)
Okay. And, CapEx will be higher than FY21?
Erez Israeli (CEO)
CapEx will be around the same numbers, maybe a bit higher, if everything will go through. Depends, of course, on the COVID-related activities and restrictions that we will be able to do. I'm assuming that it will be give or take around the same neighborhood that we had in FY 2021.
Alok Dalal (Stock Analyst)
Okay. Thank you for taking my question.
Operator (participant)
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Amit Agarwal for closing comments.
Amit Agarwal (VP of Finance and Head of Investor Relations)
Thanks, everyone, for joining us today for the earnings call. In case of any further queries, please reach out to the investor relations team. Stay safe and healthy. Thank you.
Operator (participant)
Thank you. On behalf of Dr. Reddy's Laboratories Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.