Ladies and gentlemen, good day and welcome to Dr. Reddy's Q3 FY2022 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations. Thank you and over to you.

Thank you. A very good morning and good evening to all of you. And thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter ended December 31st, 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 transcript shall we made available on our website soon. All the discussions and analytics 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 comprising 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 rebroadcasted 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. Parag Agarwal. Over to you sir.

Thank you, Amit, and greetings to everyone. I hope all of you are keeping well. We had yet another quarter of good performance in terms of year-on-year growth in revenues and profits, vitamin gaining healthy EBITDA margin, and generating good cash flows. Let me take you to the key manager highlights for the quarter in a bit more detail. For this section, all the amounts are translated to U.S. dollar at a convenient stock rate of 74.39, which is the rate as of December 31, 2021. Consolidated revenue for the quarters today to 5320 . That is $715 million, and grew by 8% on year-on-year basis and declined by 8% on a sequential quarter basis. Year-on-year growth has been supported by growth across most of our businesses and was driven by good base business performance and recent launches. Sequentially, our revenues were impacted on a higher base of Q2, which had a higher contribution from over limited products. And because mission of out-licensing income in our proprietorship business. Consolidated gross profit margin for this quarter has been at 53.8%, which was flat over previous year, hard over the margin increased by 40 basis points on quarter-on-quarter basis. Gross margin for the global direct and went at 57.8% and 22.5% respectively for the quarter. The end unit spend for the quarter is growth that is $207 million, an increase of 7% year-on-year, and a decrease of 3%, quarter-on-quarter. But year-on-year increase is in line with our business growth, and on account of continued investments in sales and marketing activities for banks in India and emerging markets. As a percentage of sale, our SG&A has been at 29%, which is lower by 20 basis points year-on-year. The R&D expense for the quarter is Rs 415 crores, that is U.S. $56 million, and…

Thank you, Parag. A good morning and good evening to everyone. I hope you and your family are all safe and healthy. I'm pleased to share that we had a strong financial performance during the quarter without any benefit for one-offs or COVID-related trades. We've grown year on year across our key businesses. And both EBITDA and our fee margins are closer to our exposition and target of 25% each, while we continue to invest in our future growth business. We have been able to achieve this inspite certain industry level headwinds like the higher level of price erosion across the Generics segment in the U.S. market, increasing commodity prices, and higher freight costs. This sustained performance shows the resilience. We have been able to build a diversified business model to mitigate such external headwinds. We also generated significant cash flow during the quarter, and are now having a cash Netscape surplus, which will enable us to invest for future growth. Let me take you to the key business highlights for the quarter. The reference of these numbers and these sections are in respective local currencies. Our North America generic business recorded sales of $248 million for the quarter, with a EBITDA growth of 6%, while the sequential quarter decline of 2%. During the quarter, we continued to gain market share for some of our key products, including a recent launch of subjects. However, the sales were impacted due to price owing to some of our products and has been the case for entire sector. And seasonal demand variations for few of our key products launched for new products in the United States during this quarter. Our Europe business recorded sales of $ 47 million Euros, and was largely flat both year-over-year and sequentially. During the quarter, we launched four…

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. The first question is from the line of Kunal Dhamesha from Emkay Global. Please go ahead.

Good evening and thank you for the opportunity. So the first question is, on the U.S. you have maintained that the calculation has been but if you do a back calculation, is the prices on a sequential basis, it's somewhere in the U.S. on this quarter?

So we did see a bookkeeper kind of global phenomenon. It's continue to be a global-based situation. But in the Q4, a relatively larger number of products with competition and the investors ' work on the overall basis, it's more likely double-digit. But despite that, we're still growing. So we managed to offset this origin with new products, with market share, as well as with productivity activities. So this is still and the growth of about, I think now nine out of ten quarters we are growing in the year. And this will continue to be account of the nominals in the future, in which I do see growth, maybe slower than other markets but we are still going to grow in .

We can be on this or whether the contribution across India and emerging markets who would like to be a percentage of revenue for the first nine months?

It was primarily in the second quarter, not so much in the third quarter. So third quarter was without a major sense of COVID products. And we will see probably also more in the Q4. In this respect to the main contribution of this portfolio will be in the second, as well as in the fourth, not so much on the fourth.

And in there was contribution influx

In the third quarter, not so much. That's why on the sequential basis, when you compare India, that's why there is a decline, because it was relatively large contribution during the second quarter, but not so much in itself. The second day I remember looks very much like affected by the Delta, where this one is the Omnicon with in-between, and actually there was no another way before, not so much demand.

Sure. And just start on the follow-up on that. Now that we are seeing has equaled with minnows contribution at least for the first nine months. You see that to continuing at or do you see microwave contribution would not be a big part in the ?

So we are preparing for that. We are preparing for that. So all the activities around the intervention, whether it's vaccines or as well as community treatments, whether it's the full vaccine, we have , and additional products that we are working on. The area. Naturally, we don't know how the -- this pandemic really work. It's how to predict how it's going to be, but we are prepared for this.

Okay. And in case it doesn't pan out, do still have growth pillars in place to grow on this day?

Absolutely. We will continue to grow in the spirit that we have discussed in the past, double digit growth, 25. While financing the business with or without the new product. This is the --

Okay. That's it. Thank you.

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Thank you for taking the question. It is -- you just mentioned about double-digit price erosion in the U.S. Could you give us some color on how this is trending in the quarter, given that this product should we see this a bit into more normalized price erosion? Any color on that?

It should be. I believe that most of the products that face the origin were already there. And I don't anticipate -- the business model -- the transition we use will continue as it normally does. So the business model will not change, but in terms of the products that were affected by that, I believe that most of the effect is behind us.

Understood. And just to understand given -- we saw double-digit price divergence in the U.S. But if you look at our genetics cross margins, these improved close to about a 100 basis points in quarter-on-quarter. Any color on -- I am still -- despite the fact that we had headwinds in terms of raw materials cost, etc. What drove this improved margins?

Yes. So it is a combination of what I discussed. First, launch of the products which will change the mix, so to improve mix. Second, is productivity activity that we're doing on cost improvement programs and others, and third, is market share with the relevant products in which we have the productivity. So we were preparing for us and for these phenomena, and like I mentioned in my script we are growing despite of those So I'm not so concerned about this going forward.

Understood. And the last question is under India. Did you -- I think you mentioned there was no COVID product contribution. Should that mean there was no contribution from -- or, very little contribution from Sputnik in the quarter?

Yes, in the quarter 2, there was a relatively higher demand because it was very much affected in the time by the Delta wave. And this quarter, luckily, there was no such a demand in India. And so what we are going to see is the contribution in India in Q2, as well as we are going to see some in Q4 because of the But Q3 was very less.

And what about the export opportunity for Sputnik, are we in discussions with the government to allow us to export, given that the booster trial will just starts to that in sometime away?

We can export. We can export the products, the vaccine as well as the other products.

Okay. And you've started exporting it in the current quarter or not yet?

In Q3, we did not export the COVID products.

Understood. Thank you so much.

Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets. Please go ahead.

The question is, can you share your observation on the commodity and raw material price, whether you have seen some kind of moderation compared to second quarter? And how do you see this part moving up in next few quarters?

Yes, we did see. And we saw it in three areas with some commodity intermediate, especially on the folding us in the API. The second is in the energy cost, especially few months ago, especially in India. And the third is on the fright -- on the freight and the shipping cost. All of that we absorbed within the mountains, so we counted the major rates with the other activities to offset the debt. I believe that the trend is behind us in a way that will not confuse with the additional hike invest money to Some of the prices did not go down yet to the original level, but I don't anticipate additional inflation in depth magnitude .

So, very broadly, we can assume that the peak is over and price might see, I'd say, more and more duration from here on?

That's not as one can predict, it looks better now. How to predict the pandemic and the geopolitical situation in the world, assuming no other big event, which would be

Thank you. And my second question is, can you talk a bit about your biosimilar portfolio which you are working on, and which are your target markets for key product?

You're talking about COVID?

For biosimilars.

Biosimilar? Yes, we are publishing globally. We have Rituximab, which is -- we have now intercommercially with most of the noble market. And the timely markets for today is India and Russia. The and the additional for biosimilars, they're primarily for emerging markets. In addition to that, we are in the development. As I shared in my script, we signed a deal with United States and we did -- and we will see if we will do it by ourselves. So Rituximab is going to be our first global products, and we have, right now additional three products in clinical trials, as well as additional products that are in the pre -clinical stage. So overall, it's a healthy portfolio to cover us very nicely from above 2024 until 2031-2032 in which we will launch all of these products.

And my last question is, have you heard any update on your Duvvada plant from the USFDA?

We did not receive any feedback from the USFDA as of today, and we normally takes 90 days and 90 days of view in sometimes next week. So we need to -- around that date, we'll probably get a feedback. We had a two months to submit certain data as part of our commitment with the response to the USFDA of the that we got and we submitted on time and in full. And we are waiting the and hopefully, we'll get the .

That's helpful. Thank you. I'll get back in the queue.

Thank you. The next question is from the line of Ashwini Agarwal from Investments. Please go ahead.

Hello. Am I already there?

Yes, yes, please.

My first question it would be on this three seatings, which we helped off debt, that would be -- mostly be commercialization in Q3, FY2022. Can you just update me the status for like what is the right no current situation on tech part?

Which -- really, Ashini, we couldn't get your question. Can you please repeat?

Yeah, sure. So the question is on the resting, which we have the pre -filled syringe, which we have been -- we'll be launching in Q3 of FY2022. So can you just update me with this status right now?

Currently, it is for the U.S. and Europe. and basically, they have for calendar 2022 launch. So as of now, that's the status.

Okay. And my second question would be a bit odd, but, actually, I wanted to understand on that part. Whenever we launch the product, how -- what is the average duration at which we can command the premiumisation compared to when it becomes, you can say, a normal order of pricing products?

I don't think there will be a way to comment on that part.

Okay. Okay. No issue. Thank you. Thank you so much.

Thank you. The next question is from the line of Surya Putra from Phillip Capital, please go ahead.

Thank you for this opportunity. So, just on the pricing rising situation in the U.S. wanting in turn, is it largely due to Dr. Reddy's specific that double-digit price risen situation? And possibly could be because there are more number of pilot three launches by you. Is that the situation or it is broad-based, double-digit, kind-of price arisen and that you have in U.S.?

It's the business model in the United States, so naturally every company is facing collapse erosion. And, I think, the propulsion of the price erosion is very much based of how many of your products are efficient, and what is the timing in which the customers are issuing the other piece. So the -- in our case, we had, as we launched, let's say in the last few years above 84, that's United States, so naturally, those boards by design would face competition. There are proportion out of the entire basket. So let's say that's why percentage per se, is less -- for me, at least, indicator of the health of the business. The health of the business the way I dictate it's growth and EBITDA and our. And so far, it's pretty healthy and we are maintaining the margins and even growing little bit connected despite of it.

Sure. The second pointing on the U.S. has had been going and revenue contributor and our earning contributor for us. But in the recent times we have obviously thought about diversifying our focus towards the market, new market in China and all. And also, accordingly reducing of R&D spend focus targeted for the U.S. market. So let's say fiver year down the lane, is it fair to continue further on the sale of North America, of in North America has been recommended in what currently 80?

We did describe our strategy for the last four years. And so we have been investing in other markets for growth, in India markets, and this is providing us by using the same fixed assets based on portfolio assets, our knowledge, etc. So this is allowing us . And yes, I think it's fair to say that these markets will grow faster than years. So the United States will continue to be an important market for us. Just want to emphasize running. And we will continue to invest and grow United States. The other emerging markets, India will grow faster than United States. So therefore, then the average way to United States will decrease -- is decreasing already, and will decrease over time. And the capital allocation is done accordingly to the diversification efforts.

Okay. Just ask one question on this Revlimid. So whether we have been -- and we have already launched the product in Canada, and that is also in signs market for this product. Whether we had been the appropriate number of , the kind of revenue that the product could have generated out of Canada market, and then we have achieved the right signs for revenue out of it, effect will take longer time to achieve that peak bookings and open the market from the SME.

Yeah. And you calibrate will take a bit longer because in the way that the Canadian process is working, is directing each one of the relevant provinces in Canada. And then, for each one of them to participate in the relevant sales processes with the tenders or other mechanism in which each one of the states is providing. Of this, suspecting a bit longer. It's not the Day 1 launch that we have -- you see in the United States, in that respect. In any case, the launch in the U.S. and the launch in Canada are unrelated, as the launch the U.S. is part of a certain while in Canada, it's naturally a free market situation. So I would not hold a kind of -- it's not the same situation I would note draw a conclusion one market to another. Last but not least, we are going to launch these product not just in United States, we are going to launch it also in Europe, as well as in some emerging markets. So this is going to be a global product for us.

Okay. Thank you.

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley, please go ahead.

Hi. Thank you very much. And good evening to everyone. The first question is for bank which in the U.S. Good job done on the market share gain, I think it's not stabilizing around 11% - 12% for last few weeks. So have we reached the peak or what's the outlook over here? And is it a supplier that is holding you back?

We -- I think we -- I think that the product is doing well. We are planning to continue to do well also on the next quarters to come. There is still a lot of markets here to gain with this product as the innovator's still holding a nice market share. And the -- and in terms of supply, it is not constraining us at this stage.

So then why is the market share in early double-digit and not much higher if supplier is not holding it back? So what's the roadblock?

The roadblock is in the desire of customers to take the product format.

Okay. But so that's little counter intuitive because generic is lower cost -- lower priced, so most of the time customers are too happy to take generic product. Is anything different with you?

No, nothing different.

That's fine. Second question is, on the Russia, Ukraine business, given the geopolitical situation, what's your read of the situation? Have you seen any disruption or any problem in a business that you are doing over there?

The Ukraine-Russia situation is beyond my paycheck. That -- we are both -- Russia is a very important market for us. Will continue to be an important market for us, and there -- unless there will be any -- hopefully not, I wish not, but if there will be any adversity, we'll have to accordingly be prepared for it, and we are. But I wish that it will be only peace in the world and calmness.

So far, have you seen any impact on the business?

No.

Okay. Great. One final question, if I may, which is on your Health Tech platform. Is there any update to how has been the progress? Anything you can share on the physical infrastructure that you have built especially for online pharmacy fulfillment and diagnostic side. And how many cities have you rolled out? What's the plan going forward for next four or six quarters?

Sure. It is going very nicely. We basically on the last stages of finishing the . We are now present in five cities, went to 10 cities in the next few weeks. And this will cover of course the mainland cities of India including Mumbai and Delhi. And accordingly, will be the roll-out of the companies that will join this platform, so our main way to grow this business is by convincing the companies to work with us and the engage and basically insured by our insurance in these product. And of course, holding out the roots and we say, by contributions as well as groups to provide excellent service. This is very neat projects and I'm very proud of the beginning and the delivery, delivering it very much. It's a good thing for us and I believe it's a very good thing for India

Okay. Great. Thank you so much.

Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs, please go ahead.

Hi. Good evening and thank you for taking the question. Just a first one is on the PSAI business. In your opening remarks, Erez, you mentioned we expect performance to improve quarter-on-quarter. What's driving that optimism? I remember last quarter we had the shop inventory de -stock from some of our customers. So can you help us understand the dynamics in the FDA business?

Sure. So if we are taking out the, I like to call it COVID-related behavior by companies in the business consumption, the main driver of growth will be the launches that will be in the marketplace of FY2023, FY2024, and FY2025 by the customers, both by internal use as well as external use. And if we use the , meaning the top products that used to drive this are going to be changed by products that will be launched in that area, which will be one, more profitable and second, the biggest in their size. This will drive the growth on the base API. PCI is comprised also on our CGM activities that are slightly picking up. And we are very much believing it, so most of the savings that is done now are small projects which are in Phase 1 and early Phase 2 and naturally some of this products will come to Phase 3 and beyond that. And of course, sales as a growth driver for the CDMO, CMO type of the business, which is as I discussed in the first part of our to activities and it's seeding and picking up. The sales are -- we are selling . And the PCI, and it's picking up, and with launches of pharmaceutical products that we are serving in Japan, as well as in some Middle Eastern and African countries. So the combination of the three should grow PCI in the future.

That's very helpful. Is it early can you quantify some of the non-EPI perfections in the PSA A, I see there are other projects that you are talking about?

At this stage of the two sections are not big, we're not going to give yet a specific proportion. But the dominant big, there will be more and more meaningful. And right now, still most of the PCL comprised of API, of the API in consistence. And in the case of Q2, it was a comparison, some COVID as well. So which was not in that magnitude in Q2. So some of the sequential trend is related to corporate.

Very helpful. Second question is on the Sputnik V. Some of the early comments, you said that actively looking for register of booster, right? And the trial we're doing it as just to -- what's the reason for bringing the client with other vaccines?

Yes, we will -- we'll have to get approval from the authorities here in India for the protocol of the trial. And the base on this -- pending this approval of the protocol, we will advertise with other vaccines as another option, both private as well as the government for the booster in the future. We believe that the booster will be part of our life and we'll have to take it one or twice a year now. And we believe that we want to be ready for that.

Got it. last question. Again, in your opening remarks, you have no net cash M&A. Can you just help us understand what those therapy areas are, is there a geographical plans as well? Is that some of the assets or products that you will be looking to acquire?

So we are looking for opportunities in all of our spaces, all the geographies. India, naturally, as well as the emerging market in United States and Europe, in all of those geographies, there are now active projects. Some of them can be faster and within the next few weeks, if of course will be concluded. In some of them maybe later. The nature of the capital allocation will be the same as we're discussing the cost. We are not in a shopping spree. We see it as complementary grow -- organic growth. At the same time because we're very comfortable financial situation, we are planning to use that, so now let's see which of the projects will be -- actual events when it come to conclusion. But they likely that the -- that we will see multiple gains in the next coming months.

Got it. And thank you so much, Erez, and all the best. Thank you.

Thank you.

The next question is from the line of Ashish Tekwani from Motilal Oswal Management. Please go ahead.

Thanks for the opportunity. From the Sputnik you said, obviously we have got permission from the government to export. Can you quantify the doses that we are planning to export or you're open to export any amount or there is a restriction?

No restriction. I cannot specify now a specific number, but we -- but no restrictions that will prevent us to export.

Okay, but these numbers will be reflected in fourth quarter, you believe so?

It depends on the type of approval that we left for that, for example, if the Sputnik will be approved eventually, as the vaccine will be into that as a booster supplement to get the booster for other products, then we look at WHO. If all of this will happen, it can create a nice opportunity for us. And of course, the quantities will be accordingly. So it depends of course on the type of proposal that is relevant for this market at this particular time.

Okay. So to get this thing clear. You cannot export till you get some sort of approvals from various agencies. Is that the right understanding?

No, no. We can export, but naturally, our customers will not buy at all that is not approved for use in development markets, and for the relevant patients that want to use it. They should be approved in that specific country for the use, either as a vaccine or as a booster. This is where the -- from there will derive the quantities.

Okay. But actually, I do understand, this productive approved from most of the Scandinavian countries. How about that?

This is not part of our agreement with the Russians, so this will come directly from Russia not from us, with this type of markets.

Okay. Got that. The next question was on this year participant after this, but I missed data. I thought -- you were supposed to launch in quarter three, right? Through . We have launched operator out, there is a delay, and in the delay there, why so?

I did not get the question, sir.

Yes basically, the near as mentioned, are indicated with the calendar 2022, is when they expect to launch the product in both Europe and Europe market.

So do you say that we are still two to three quarters, probably two or three quarters away from the launch?

They have not specified the quarter but maybe on next one or two quarters it may happen. But obviously, we don't have the specific dates.

Okay. Fair enough. But just last question on this price erosion in the U.S. It's been quite a while letting the up facing double-digit price erosion. But as the on those to the -- we felt that by the end of March the intensity of the price erosion should gradually start coming off. In your experience, and what do you think the market would be on similar line, would you also say that intensity would eventually come out for by end of March?

As I mentioned before, if the price erosion and the magnitude for price erosion is not top down, it's bottom up, meaning these depends on the products that is facing this specific competition. And in our case, most of our portfolio , so likely that we'll not going to see a number around for these specific products and hence it will probably come down. So it's not a top down, it's a bottom up. And that's from this level of -- hello, Ashish?

Mr. , do you have any further questions? Mr. , I can't hear you. Please unmute your line and respond.

No response. We take the next question from the line of Shrikant Akolkar from Asian Market Securities. Please go ahead. Shrikant Akolkar, your line is unmuted. Please go ahead with the question.

.

We take the next question from the line of Kunal Dhamesha from Emkay Global. Please go ahead.

Thank you for the opportunity again. , asking, one thing happening that's one of the , but have we supplied any initial inventory to Brazilian , or it will happen once the come down. And I assume that we will also take on many walks of life.

So just to serve as part of the deal, all the , all the activities of these more level than . And therefore, are just had certain financial arrangement which was in Once they will go, we will enjoy extreme value of this will come from the launch. So we're not supplying and not involving the launch, and we are not aware of the date. We are going to be advice by them when they will be

Okay, sure. Thank you.

The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Yes, thanks for the follow-up. I hope my voice is audible. There seems to be some disruption. Just one final question, how are you thinking about your indictable portfolio for the U.S. market? As in how many been filed, and are there any complex long-acting type type product, product that you've done the finding, and when can we start to see the approval cycle begin for these?

Yes. So it's naturally very important to us not just in U.S. but also globally. And the answer is yes, we do have a -- this complex generic assets as part of the efforts. Some of it are too close time to develop. This time we are still in development. Overall, the injectable and the generic will drive the growth in the United States on the generic and to grow faster than the retail product.

Very specifically, have you filed some of these high-value complex injectables?

We did find some high-value complex injectables, yes.

Okay, and the PAI done in does it relate to one such product?

Some of these products are coming from yes.

No, no, the question is, is the PAI Pre -Approval Inspection done related to one such complex, large injectable product?

The PI was not related to specific products like that, but naturally, when hear the PI, they're not checking on you just specific products we are checking the entire sire.

Okay. Got it. Thank you so much.

Thank you. Ladies and gentlemen, we take the last question from the line of Alok Dalal from CLSA. Please go ahead.

Yeah. Good evening, question forward on Bovada. Would you still expect to grow in the U.S. next year if there is an adverse observation on Bovada from the FDA?

First, we hope not to have this adverse effect. And the second, we are -- and so this stage, we are not looking for some others that we don't have the sites. But these sites are very First, important for the growth in the united, but not just next year, but also in years to come.

And any update on internally, have you decided to go ahead with the launch or drop it?

We did not finish all the evaluation, but unlikely that you'll see launch in the next few months.

And lastly, any update on Copaxone?

They're still in process. We -- it's now in the FDA crores. The goal is in their crores. Meaning, that we have submitted all the relevant information and we are waiting for the response again. I believe that at least, I don't think likely to see a launch in the next few months.

Okay. Thank you very much for taking my questions.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Thank you all for joining us today for the earnings call. In case of any please reach out to

Thank you very much, sir. Ladies and gentlemen, on behalf of Dr. Reddy's, that concludes this conference. We thank you all for joining us. And you may now disconnect your lines.