Kedar Upadhye - Former Director Umang Vohra - Chief Financial Officer, Executive Vice President and Member of Management Council Kallam Satish Reddy - Managing Director, Chief Operating Officer, Member of the Management Council, Executive Director, Chairman of Management Committee and Member of Investment Committee

Saion Mukherjee - Nomura Securities Co. Ltd., Research Division Bino Pathiparampil - IIFL Research Sonal Gupta - UBS Investment Bank, Research Division Girish Bakhru - HSBC, Research Division Sameer Baisiwala - Morgan Stanley, Research Division Nitin Agarwal - IDFC Securities Ltd., Research Division Ravi K. Agrawal - Standard Chartered plc, Research Division Prakash Agarwal - RBS Research Ranjit Kapadia - Centrum Broking Private Limited, Research Division Krishna Prasad - Kotak Securities Ltd., Research Division Rahul Sharma - KARVY Stock Broking Limited, Research Division Anubhav Aggarwal - Crédit Suisse AG, Research Division Koushik Pal Anshuman Gupta

Ladies and gentlemen, good day, and welcome to Dr. Reddy's Laboratories Limited Q2 FY '13 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Kedar Upadhye. Thank you, and over to you sir.

Good morning, and good evening to all of you. And thank you for joining us today for Dr. Reddy's Earnings Call for Quarter 2 of Fiscal 2013. Earlier during the day we have released our results, and the same are also posted on our website. We are conducting a live webcast of this call, and a transcript shall be available on our website soon. The discussion and analysis in this call will be based on IFRS consolidated financials. To discuss the business performance and outlook, we have today Satish Reddy, our Chief Operating Officer; Umang Vohra, our Chief Financial Officer; Abhijeet Mukherjee, President and Head of Global Generics and the Investor Relations team. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcast or distributed in press or media outlet without the company's expressed written consent. Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in this press release also pertains to this conference call and webcast. After the end of the call, in case any additional clarifications are required, please feel free to get in touch with the Investor Relations team. Now I would like to turn the call over to Umang Vohra.

Good morning and good evening to everyone. Let me begin with the key financial highlights. For this section, all the figures are translated to U.S. dollars at a convenience rate of INR 52.92 to the dollar. I'm happy to report strong revenue growth and a healthy margin profile for this quarter. Our consolidated revenues are at $544 million for the quarter and grew by 27% year-on-year. Revenues from our Global Generics segment is at $380 million for the quarter and grew by 25% year-on-year, driven largely by the U.S., India and the emerging market territories. Revenues from the Pharmaceutical Services and Active Ingredients segment, which we shall call as PSAI later in the call, are at $149 million and grew by 33% year-on-year. Consolidated gross profit margin for the quarter is at 53.1% and is stable compared to last year as well -- as compared to last year, as well as the sequential quarter. Gross profit margin for Global Generics and PSAI segments this quarter is at 59.4% and 35.8%, respectively. SG&A expenses, including amortization for the quarter, are at $151 million and have grown by 11% year-on-year. R&D costs at $33 million for the quarter approximately 6% of revenues. EBITDA for the quarter at $145 million is 27% of revenues and grew by a robust 47% over the previous year. We are beginning to see the effect of operating leverage on our SG&A. During the last full year of FY '12, the average SG&A was 30% of revenue, and for the current quarter it is reduced to 28%. In the current quarter, due to the appreciation of the rupee, our ForEx line contains a reversal of the loss on account of the time value options, which was recorded in the last quarter relating to our option contracts. This will…

Thank you, Umang. On the performance for the quarter, I'm extremely happy to notice the continuing improvements of our operating profit [ph]. There has been an impressive execution by the key geographies for the U.S. Generics, India and emerging markets in the Global Generics segment. PSAI segment also demonstrated a good performance for the quarter. I will now cover some of the specific business highlights for each of our key markets. Please note that in this section, the revenue numbers referred to are in local currencies at respective period average exchange rates. Revenues for the North America business for this quarter are at $187 million, reflecting a year-on-year growth of 38%. There was also good progress on the sequential quarter basis, which was in line with our target and expectations for the quarter. During the quarter, we launched 2 key products, metroprolol succinate and the montelukast family of products and further strengthened the Bristol-based antibiotics portfolio with the launch of the amoxicillin range of products. The revenue in market share for atorvastatin, metoprolol and montelukast, reflect which has commenced in this quarter. Current quarter also witnessed the sustained progress in the large limited competition candidates mainly: ziprasidone, Tacrolimus, fondaparinux, clopidogrel, et cetera, plus the ramp-up in the antibiotics portfolio and products from our Shreveport facility. While a shade of exclusivity for ziprasidone got over due in the quarter, we still expect it to be a key molecular in our portfolio since there is a limited number of new actions. Moving onto India. I'm quite satisfied to see our business rebounding to a healthy growth trajectory on a sustainable basis model. Revenues at INR 3.88 crores a piece for the quarter represents a year-on-year growth of 12% despite a high base in the represented quarter in the previous year. On a…

[Operator Instructions] The first question is from Saion Mukherjee from Nomura.

On the cash flow hedge losses, do you expect it to come down in the subsequent quarters? And the second question related is that the seed between Global Generics and PSAI margin, which margin is basically impacted because of these cash flow hedge losses?

Saion, the hedge for quarter 3 and quarter 4 of our hedges is significantly closer to 52 and slightly more than that. So hedge losses will reduce going forward. In terms of the segments, we are not providing that guidance but it's largely around the Global Generics portfolio where you see the investor cash flow in the margin.

Okay. And one more question, on your Europe strategy, now we have not seen any traction there, any meaningful traction. So what are your thoughts on the euro business? And on the whole, is Europe a profitable business for Dr. Reddy's now?

I'll take that question. I think Europe, we discussed in the earlier calls as well. It's a difficult geography, not just for us but for all other players today. The Generics opportunity has been relatively depressed in terms of making it a viable goods. Having said that, we mentioned last time that Europe is a single-digit percentage of the revenue of Global Generics. And to that extent, while as we are putting effort to ensure that it turns around, it will not have a significant impact on the results. Going ahead, the broad strategy is to be focused on the tender-based commodity businesses and sort of take advantage of our complete Generics drive in North America and see which products are applicable for Europe as well and see how we can get better value. But this is 2 to 3 years activity.

Is it EBITDA positive, Europe Generic business today?

Yes, Saion. It is EBITDA positive.

The next question is from Bino Pathiparampil from IIFL .

If I look at your SG&A except for amortization, it has actually come off quarter-on-quarter despite currency depreciating in the quarter on average. So is there any reason why that has come off?

Bino, there's been more control that was imposed in markets like Russia, et cetera, due to the delayed uptake of the season. So some of the spending is on account of -- is an account of that.

Okay. And can I have the PSAI growth in constant currency?

Sure. [indiscernible] Yes. So when you say constant currency, which currency? Is it rupee or dollars? Which number?

No. If some part of that revenues I assume will be rupee revenue, some part will be dollar revenue, some part will be euro revenue, if there were no movements in those currencies, then roughly what will be the growth?

Bino, we showed that the PSAI business is that we also do euro billing, we also do dollar billing and we do rupee billing as well. And the trend nowadays is that some of the customers who you bill to in dollars have plants in India, so you eventually end up billing to them in rupees. So the rupee growth rate, I think, is about 33% for the PSAI business. What we can do is sit back and create the API and CPS for you. And API is...

That is in the range of 31% on a year-on-year basis on a constant currency.

Okay, right, right. So -- and my last question for PSAI business as well as the U.S. business, U.S. Generics business, both of them looked poised for 30%-plus kind of growth this year, U.S., especially in dollar terms looks poised for 30%-plus growth next year. When we go forward to FY '14 on this strong base, what can we look forward to? I'm not asking for a guidance, but are we looking at the possibility of a similar growth or is it likely to slow down to 20% level or 10% level? Some random thoughts around that.

Bino, we are not providing guidance on a year-on-year basis, but we have indicated earlier that as a result of the strong base this year, the next year we feel we face growth challenges, right? And I think we've seen a margin growth in the next year on account of the huge base that we built up in the last 2 years. So we're not giving a firm guidance as yet. And we will probably won't year-on-year, except to say that the same growth may not repeat in the next year going forward.

The next question is from Sonal Gupta from UBS.

I had a couple of questions. One was just on the U.S. business side. You've dropped -- I mean, in your limited competition, you mentioned clopidogrel. Is the pricing in that market really that good?

Yes. I don't think clopidogrel can be classified under a limited competition product. It's what we call backward integrated, a solid running product. But it's certainly not one of the limited competition. We have good market share as you'd probably -- you're aware of, but it's not a limited competition product.

And it doesn't mention Omeprazole. So anything that we have -- how is the pricing in that product trended? Is there more pressure there or something like that?

You're talking of Omeprazole and the RX?

I guess you have OTC.

Yes, OTC, yes. So OTC, I think, we have a very fair market share. It's largely between 2 players, almost equally, in terms of the volume share, equally distributed. And it's one of our flagship products.

So there's not been any significant pricing pressure in that or something like that?

No. It's just between 2 companies.

Okay. And my -- the other question was on the India business. I mean, you might say 12% is -- I don't know, on a high base? But it is still lagging. I mean, we've seen this business sort of continuously underperform the market for a long period of time with sort of Apache performance. What is really the sort of structural game plan here? I mean, what do you think will drive growth in this business for the next 2, 3 years?

If you look at the 2 quarters and take the overall growth for India business, I think we are more or less at the market growth, and which itself we think is recovered a long way from the way the business was performing in the last couple of years, actually, at least. So we've come a long way and beyond just the growth in revenues, the underlying health indicators are certainly providing us a lot of confidence in terms of the track that is on the recovery part. The attrition of people have dropped, and several other things in terms of our brand focus, prescription data. So all in all, I think we feel much better. We're not -- certainly not saying that we're doing very well compared to a lot of companies doing better than us. But from where we were to where we are, gives us a lot of confidence.

But can you give some granularity in terms of what are you targeting? How do you see this business more of being growing over the next 2, 3 years? I mean, what will be the key growth drivers for you? Will it be field force expansion? Will it be new product launches, new therapy launches? How do you see this business doing?

Well we've been saying, of the things, if you recollect the conversations earlier, we clearly said that the first attempt will be to get back to market growth rates. So it's only that thing. [ph] So we clearly said that we need to get back on the market growth rates. That is the main thing. Having seen the consistency of that getting closer to the market growth rates based on the improved performance as well as what we see from the diagrams [ph] and figures, we are now in a position to say that Reddy's is now putting into play certain plans by which you'll see that we will likely be -- we will beat the market growth rates. Now to give granular details as to how much is that going to be, where are things going and we're doing all that, that's not really been the practice. You would actually see from the way the growth will happen in the next few quarters and numbers speak for themselves.

So you expect this trend to sustain?

Yes.

The next question is from Girish Bakhru from HSBC.

First question I have is on the RoW markets, though small in size and growth rate has been kind of very robust, what exactly is driving that?

I think we had mentioned earlier that the strategy we are following is-- and depth in the markets rather than a wider market, different new markets opening up that type of strategies. So we are in very few specific markets, and I think there is a focus in terms of our therapy you want to follow, the way we want to sort of move into those markets, and that's paying dividend in terms of certainly growing in all those key markets, not just higher, but much higher than the market growth. So South Africa, Venezuela, these markets are doing well for us. Russia, probably they're putting to the other markets other than Russia, I guess. So all those markets, I think, are gaining sizable in terms of size becoming significant slowly. And the more important thing is the growth rate is clearly ahead of the market rate, which is giving us a lot of confidence.

Okay. And just on the U.S. side, I mean -- and we know that there's FTF launch in Q4. I just wanted to get a sense in Propecia, how do you see the completion for 6 months?

I think it's known, there's one more company coming after 6 months. We would be for first 6 months, just us, and then 6 to 9 months, 2 companies and post 9 months, there would be others coming in.

Okay. On the OctoPlus side, if you can share, have you also taken in the rights for this interferon product? And if so, what is the strategy with that given that OctoPlus was looking to out-license that product? So how would you like, take forward that particular project?

Girish, we are not going to comment on that, because I think, we've given an intent to acquire this. The information that you ask for is pretty much in public domain. But we're not going to comment on our intent to take the interferon product forward or not or what rights. I think it's there in public domain, you can gain a sense of it.

All right. And then just lastly on this ANDAs, I mean, we have seen that number of pending approval ANDAs have come off from 18, say, FY '12, to 63 now. Is it because some ANDA's are being withdrawn?

I think it's because we've had the required number of launches and approvals in launches in the past 6 -- 4 to 6 quarters. And also the strategy going forward for ANDA filings is not really in numbers but in quality of files. So seeing a decrease possibly in terms of selective filings, and you're seeing an increase in the approvals that we've got over the past 4 quarters, so the equation is probably bearing out in that time.

The next question is from Saniel Chandrawat from Morgan Stanley.

This is Sameer. A quick question on fiscal '14. I know you already talked too much about it, but just correct me if I'm going wrong. As far as India, Russia, et cetera, Indian markets are concerned, you're growing at double-digit, and as far as the U.S. is concerned, you would have at least 2, 3 of these big ticket items, which are getting only benefit of 3 months to 6 months in the current fiscal year. So I think next year they can put together, they can easily contribute a $300 million, which again is a double-digit growth on your this year's U.S. business success. So I mean, why do you think that fiscal '14 would be just be a marginal growth? I know you wouldn't give specific numbers, but just logic, should this probably at least hit mid-teen kind of a picture?

Broadly, you're right. But the point is that as you know, U.S. market we see erosion with new people coming in, getting approvals. And so as they come in, we have to either give up share or we adjust prices. So that has to be factored in. So overall, although you're right, that some of the products launched has limited year revenue this year, which will go into the entire 12-month pain, that launch is new launches next year. And erosion intensity, which we have seen this year, is expected to continue, I guess.

Okay. And just one quick question. You expecting 2 more niche low competition meaningful launches in fiscal '13. Can you attest on that?

We are not providing specifics, certainly not, but yes, we're expecting 2 initial launches apart from [indiscernible].

You remain on course for that?

So far.

The next question is from Nitin Agarwal from IDFC Securities.

Umang, on the U.S. business, you mentioned revenues of $187 million. So that translates into a pin-up exchange rate of against 50-odd, which was there in Q1. So we haven't really gained anything much on the current year from day 1 on this quarter?

That's right because our hedges are largely in the same range as the previous quarter.

And you see that, sorry...

No. So we see that changing in the quarters, the next quarter and the quarter after that. In fact, in quarter 4, we should be almost at 52.50, 53 as our hedging.

And how do you see that playing out in the subsequent quarters based on the hedging, which is there right now?

On quarter 1, quarter 2 and so the next year is largely in the range of $55.

Okay. So if you stay around this level, so we're looking an average additional close 55 compared to 50 which was there in the first half of the year?

That's right.

Okay. Secondly, on the PSAI business, you were talking about -- you did mention about the contract research services business doing extremely well. Can you still throw some light upon how -- I mean, how do you see the business really playing out into the side of the business, some of the growth performance, and how does that strategically fit as far as a medium-term growth particularly is concerned? I mean, medium growth plans for the business?

So I think that in terms of the overall size, our Custom business is a smaller share of the PSAI business. I'd also like to add that this quarter we've had some orders which have, for some large pharma, which shows the benefit in the custom business. And I think this business is largely linked to such type of orders. And the predictability of that is not completely certain as of now. So it would still continue to be in the smaller subset of the PSAI business. I can't give you, as of now, what kind of growth rate, et cetera it would continue at going forward.

And this would be what, about 20%, 25% of your overall PSAI business right now, or it will be a smaller portion of that?

No, I think that's roughly ballpark what that number can be.

And lastly on the CIS seasonality part that you mentioned, what was the seasonality issue, which was there which has sort of deferred sales for the next quarter?

It's -- the onset of winter in Russia plays a role in pharmaceutical uptick. And so last year, since the liquidity in the market was okay in Russia, September saw a pretty high pull-in of pharmaceuticals, which resulted in a muted October last year. This year is, so we see, the reverse of that. So weighted for the first snow, which actually happened 2, 3 days back in Russia, and this month we're seeing very robust growth. So nothing much to read between -- in this. I think we will be back in Russia this quarter.

The next question is from Ravi Agrawal from Standard Chartered.

Just on the PSAI business, I mean, you're mentioning that your cash flow hedges essentially flow to your generic business. And seeing the segment regrowth, which you have mentioned for each of these geographies in PSAI, in North America, Europe, essentially, I mean, the sense I get is that the benefit this quarter on a Y-o-Y basis has essentially been on account of the currency and not so much on volumes. Is that the correct assessment for this business for the quarter?

For which business, Ravi? Are you talking about PSAI?

Yes, that's right.

I don't think that's right, because the PSAI business has also grown if we look at it in each of the billing -- in the billing currency terms. So we've seen it grow in dollar terms, we've seen it grow in euro terms. We've seen it grow in rupee terms. So it's not all on account of that.

Okay. And because your growth rate's around 25%, 26%, and I guess that's where -- and you mentioned that the cash flow hedge is essentially on account of your generic business, so I was thinking...

It could also be because the mix of the business has changed. As I mentioned earlier, we are increasingly selling what we used to sell in the U.S., 2 plants in India, all generic companies as well.

Okay. I had a question again on PSAI. Remember in the last quarter you have mentioned that there was some, I think some flow-through of sales to the subsequent 2 quarters, and I guess some benefit of that has come in these quarters, because clearly 23% is a very high number. I mean, is that going to continue for the next quarter at least or is this below this is there, which was expected to happen or it's pretty much happened in this quarter?

That should continue at least for the next 1 to 2 quarters. I think we have indicated in quarter 1 that the base would move up. We had a relatively [indiscernible] quarter 1 for the PSAI business. And the way we're looking at it right now, I think we're seeing that the current level of base would probably continue going forward.

My final question on the SG&A. I mean, the half-year run rate, is that a better run rate to assume going forward? Or should we take the basis we've established this quarter? I mean, you have mentioned that Russia has seen a lower SG&A amount. Just wondering going forward, is this the new normal now, INR 750 crores to INR 800-odd crores?

I think the half run rate is probably better than the current quarter.

The next question is from Nimish Mehta from MP Advisors. [Technical Difficulty] Sorry, the line has been disconnected. We'll move on to the next question. The next question is from Prakash Agarwal from CIMB.

On other income, I see, I mean, the last few quarters our run rate had been around $200 million and this quarter we were at $394 million. So anything specific that has happened or...?

Prakash, this other income consists of sale of Spain [ph] chemicals in API and similar other nature of the operating income. It could -- you could probably take the $200 million run rate as well for this item.

Okay. And on the question on the U.S. piece, the Fondaparinux. Any, I mean, what is the scenario in terms of pricing? And have you seen more kind of production issues being sorted out in terms of more supplies you're able to do it and expected launch into Europe please?

So production issues are completely sorted out. We have ample stocks, but the market has broadly settled down between innovative [indiscernible] generics and us. So at this juncture, I think the share between the 3 is more or less settled down. There could be a little bit of movement here and there but otherwise, I think it's a good robust business, and no supply scenario. As far as Europe is concerned, I think we are fine, so when we get approval, we'll launch.

And when could we see that launch happening in Europe? Is it a fiscal '14 kind of thing or...?

I think you should ask the regulatory bodies in Europe, but some time next fiscal.

The next question is from Ranjit Kapadia from Centrum Broking.

My first question refers to the atorvastatin market. We have launched atorvastatin this last quarter, and can you give us some flavor how the market looks? And the second question refers to the domestic market. You have said that the market, in the domestic market we have grown by 12%. However, the Biosimilar business has grown by 24%. So can you throw some light there? The Prilosec brand have grown much a slower pace?

So the first question is on atorvastatin. I think you'd recall that we got into the market about several weeks after the launch took place, which had put us on a certain disadvantage against other players. So we had to wait, but we persisted, and we got a reasonable market share, compared to the entry versus -- the timing of entry. So I think we are quite okay on atorvastatin. So that's the first question. The second one is regarding Biosimilars and the growth in Indian markets. So Biosimilars, although it's a robust -- showing very robust growth, but it's not a very large percentage of the total pie. So just because Biosimilars grew by 24%, it would be unfair to sort of deduce that the rest has grown more than 12%. It is a very small percentage of the total sale in spite of the fact that we are banking a lot on the growth of these products.

And sir, can you give this atorvastatin market, what is the average price for now?

It's a very, very aggressively like all large big molecules, it's anywhere depending on where one is, anywhere between 98.5% erosion to 99% erosion.

The next question is from Krishna Prasad from Kotak securities.

My question is actually regarding Biosimilars. If you could provide an update on the Mulk [ph] deal and particularly on where we are in Russia with respect to the introduction of that product?

The Mulk [ph], I think it's a bit too early to provide anything because it's an ongoing work. Russia, specifically on rituximab, [indiscernible].

Krishna, what is your question on rituximab?

What is the state it's currently and when we would expect the potential launch in this regard that we see over the next 12 months?

So that we wouldn't be able to provide. Again, it's a question, that depends on the regulatory pathway. We have partnership, we are progressing but we can't say for certain when we get approval and launch.

But any sense on when we would -- are we currently in the process of running a trial in Russia or is that already been completed and being submitted to the regulator?

Those details, this is a key asset. We have -- are progressing [indiscernible] business. So I wouldn't be able to provide you with all the details on exactly where it is and how we are strategizing our progress.

So just on the U.S. pipeline, I think you've talked about strategy of complex generics. In terms of the visibility on the pipeline and when we expect some of these launches, is there a sense that you could provide us, I mean, whether would that be in the second half of FY '14 or is that more like beyond that period?

It is a broad question. I think our strategy is to slowly move from -- or as much as we can, move from plain vanilla products to limited competition products. And that's a journey, which will unfold over the next 4 years and beyond, actually. So as we speak, we have a few good products in our portfolio. We are hopeful of, as we move ahead into next year and the year after, few more approvals, and then gain more and more momentum. Any specifics on this is just not possible to provide, because they have competitive intelligence and all other aspects of it.

The next question is from Rahul Sharma from KARVY Stock Broking.

I just wanted to know how the ramp-up you're seeing in Tacrolimus and the other new products and how is the Lansoprazole OTC shaping up?

So Tacrolimus, there are quite a few companies, still we have a good market share in this product and we're doing well. As far as Lansoprazole, OTC is a bit of a disappointment, because maybe you're aware that the innovator's brand as well is not doing very well for various reasons. There's a PPI dive in the market, the pricing which is at a higher-level and so on and so forth. So naturally it's expected the store brand also would not do so well.

Okay. And I just wanted a clarity on market share on your OTC segment and how do you see metroprolol and new products, which you've launched which are low competition products faring going ahead?

OTC market share we'll have it available in the public domain. We are doing well because we are quite specific about our OTC launches. [indiscernible] is our switch product, so we have quite a few of those with first entry advantage, and we are quite happy with our share of those products. Metropolol, again we've come in late. Although, it's a fantastic product to be in. So we are slowly carving out our market share. Beyond that, I wouldn't be able to comment on this, but this is going to be a good robust product for next year as well.

Okay. And sir, just wondered, what is the status of olanzapine OTC?

Very small product. I mean nothing much to talk about there. And it is offline on the product specific information.

The next question is from Anubhav Aggarwal from Credit Suisse. Anubhav Aggarwal - Crédit Suisse AG, Research Division: For the U.S. business, your quarterly sales ramped up very encouragingly from almost $158 million in June quarter to $187 million now. Could you just help with one data point there? In terms of the data from 160 million moving to 187 million, how much of the products that you launched in this quarter would have contributed to this data?

Anubhav, we won't be able to give you the numbers, but a large part of the traction has been in existing launches. The new launches of Metroprolol, Accolate [ph], et cetera, would shape out in the subsequent 2 quarters from the fiscal. Anubhav Aggarwal - Crédit Suisse AG, Research Division: And just one related question, [ph] would this have been a significant quarter in terms -- because see, we booked -- it was 6 months exclusivity booked sales for this in the March quarter and the June quarter, so would this have been a significant quarter from [indiscernible] perspective?

Not as significant as the earlier quarter. And also since the exclusivity expired this quarter, we also provided for said [ph] stock and related adjustments. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay, got you. So there were no one-off sales and we should expect this base to be, let's say, improved upon as we get more market share in metropolol and atorvastatin?

Yes. Atorvastatin I think more or less, we have achieved our market share. We will see that unfolding over the next few months and full quarter basis. Yes metropolol may be somewhat cheerier [ph], yes. Anubhav Aggarwal - Crédit Suisse AG, Research Division: So a total contribution was indeed there in this quarter, in the $187 million?

It was marginal, Anubhav.

The next question is from Koushik Pal from Kotak [indiscernible].

I just want to know what was the OTC revenues [indiscernible] U.S. share. And if you can share the growth rate also both on a quarter and half-year basis?

OTC in U.S. has not been anything new this quarter. The products, which we had launched earlier have been doing well. On the PPI front, Omeprazole magnesium as we just talked has been doing well. Little on the -- the allergy season has been a little slow this year. So maybe it will pick up towards Q3, Q4 of this year, this financial year. As far as Russia businsess is concerned, I think the onset of the season I think we will see more traction as we just discussed the season of just taking off. But overall, the nonseasonal OTC product are doing very well in Russia.

Okay. Can you maybe help me out with the total OTC revenue on H1 if possible?

Koushik, I'll share with you offline.

The next question is from Shalin Shah [ph] from [indiscernible] Capital.

Just following up with our previous speaker's question on OTC, would it be 20%, 21% of your U.S. revenues in rupee terms? Are those the way we see that in Q1 FY '13?

Ballpark roughly be the same but we can share that data with you offline.

Sure no problem. And this impairment charge of about 70 crores [ph] operational that we've taken, is there any further carrying value left to that you see something like this recurring now?

So there is recurring value, but we don't think that there should be anything recurring at least over the next 2 to 3 quarters.

The next question is from Suria Patra [ph] from Systematic Shares and Stock.

Sir, in fact, again, on the same topic of PSAI. Sir, in fact this quarter, it is a stronger growth number. And in recent past possibly you have added some technologies, the speculative technology also in this basket, and we are again acquiring this OctoPlus again in that same segment. So are we thinking that the growth in the PSAI will be possibly better compared to the Global Generics business going ahead and possibly the mix would be to some extent moved towards this PSAI going ahead?

The OctoPlus acquisition, the intended acquisition of OctoPlus is -- it doesn't have a very significant service business. The logic for that and the rationale for that is to help us with our drug development capability. And so that will not be a significant contributor to PSAI growth. PSAI would continue to grow and this custom business would continue to grow based on contracts that we are generating or lock-ins that have happened with key customers.

Okay. Was there any chance that there is PSAI to some extent move forward going ahead compared to the Global Generics business?

No. I think, well let me put it this way, I don't think it can be bigger than the Global Generics business. And I am not sure that -- so it will -- and like I indicated earlier in the call, we see the current quarter trend that would continue for the PSAI business over the next 2, 3 quarters.

Okay. One more just on the other operating income, can you please repeat once again what are the components of the other operating income?

So we have the nature of this income is where we liquidate these pain chemicals maybe our business largely. So this quarter may have a little bit higher. You could refer to H1 run rate, probably you can model it.

One more line item only. In the net finance income, where we reported this INR 37-odd crores. And that ForEx gain is the INR 18-odd crores and the net income, interest income of INR 3 crores. The balance total, what is that?

For the ForEx gain that would be about INR 43 crores -- INR 34 crores is the ForEx gain in that line.

The next question is from Sonal Gupta from UBS.

Just continuing with -- on the U.S. ANDA. Is there a strategy, I mean, just an observation, is there a strategy in terms of you stop -- you're filing less Para IV filings, is that a correct observation to make?

Broadly, we are in that direction for 2. One is there are less Para IV opportunities as such, and there is just the refiling [indiscernible] Para IV attempts doesn't sort of return any money. So the focus is largely on limited competition products. Having said that, if there are opportunities out there we find, of course we'll go ahead.

But I mean now these limited competition -- I mean you're not seeing Para IV opportunities in these limited competition products, are you?

Not as [indiscernible]. These would have anyway, the complexity is in terms of technology or other aspects of meeting clinic and several other things. So this would have a higher lifecycle than 6 months it could take. There could be some patents we will be challenging, but the objective is not to be in the 180 -- the flash 180-day type of.

Right. And just again on the U.S. business, do you still expect to meet your guidance of about $900 million of revenues for this year? And I mean do we see a significant step up even in the second half from U.S. revenues?

We didn't give a guidance for the U.S. specifically. We ballpark indicated that it would be tracking at the rate, which could be suggestive on an annual basis of about $900 million. But we are still holding to the $800 million to $900 million range for the U.S. business, depending on the approvals that we get for products that hopefully going to be launched in the next 2 quarters.

In that case, you do expect further step-up I guess?

Anyway, you could say that, because there will be new products launched but you will also have possibly new entrants entering existing products.

Ladies and gentlemen, due to time constraints we will take one last question from [indiscernible] from Morgan Stanley.

Can you just share your thoughts on the evolving domestic pricing policy, and specifically, whether the pricing mechanism would be cost base? Or what is the market price for the [indiscernible] drugs.

So Sameer, it's still going to be -- I mean, we still have to wait for what the decision is going to be, because some will be easy in the sense that there is some kind of an undertaking, which from the group of researchers are finalizing the policy, they have to come out -- in order to work the policy we can estimate [ph]. So there is going to be cost base or market-based. We believe it's going to be market based because that's what really makes sense in terms of benefiting both the consumers as well as the industry. So we still have to wait and see because -- it won't be all because once the policy comes out, there'll also be some opposition to that from the people who are also fighting the case through petition. So I think the rollout of the policy, something we still have to wait and see for the timeline because the first step is what kind of a mechanical [ph] view [ph]. The second thing would be when it would be actually be demanded [ph] . So I would still focus of that is going to take some more time than what people actually anticipate.

Sure. Appreciate that. Just in case there's a standoff between the legislature, which is a group [indiscernible] how does it affect the court? I mean, who is the overriding factor, is it the group of units [ph] or is it the Supreme Court? Whose deal gets finalized?

I think one of the things, I think there are 2 steps for that reason. So firstly, the government's based on the Supreme Court's observations, right, and the guidance for which us [ph] we are providing and how we come out with the policy because it's not absolutely [ph] the thing [indiscernible] the Supreme Court has full cost base, that's not what we believe, right. So the first step is that once you having to work on that because as, while the policymaking is welcome, it's not periodical [ph]. So we still have to wait and see what that comes up. All this is trying to say that even if the government were to create or what was required I'm seeing that is still a challenging quarter.

I see. And the other question is, what percentage of your sales -- are U.S. sales cut down, I mean how much from each line? Just trying to understand your risk diversification.

A significant portion. Having said that, new plant is just operational at the moment and the objective is certainly is to dispute risks. But at the moment, they can push it.

Okay. And just finally, assuming you do CapEx of $720 million this fiscal, can you share with us how would this be spent, location of greenfield, Brownfield, API formulations?

It will be largely be as it spent. It would also be spend that we are putting together in some API programs on account of either vertical integration or [indiscernible]. Broadly, this splits up is on the new projects, this could be in the range of almost 60% to 70% and upwards, maybe even more than 70% would be new projects, including as he said new products in API for which we are expanding capacity, et cetera.

Ladies and gentlemen, that was the last question. I now hand the conference back to Mr. Kedar Upadhye for closing comments.

Thank you all for joining Dr. Reddy's management for this quarter 2 fiscal '13 earnings call. In case of any additional clarifications, please feel free to refer to Investor Relations team. Thank you.

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