Dr. Reddy’s Laboratories (NYSE: RDY), a global pharmaceutical company, announced a strong financial performance in its Q2 FY 2025 earnings call on [date]. The company reported consolidated revenues of INR 8,016 crores (US$957 million), marking a 17% year-over-year increase.
The increase in revenues was supported by a gross profit margin of 59.6% and an EBITDA of INR 2,280 crores (US$272 million), which is a 5% increase from the previous year. The financial growth was attributed to improved product mix and strategic acquisitions, despite slight price erosion in the generics market.
Key Takeaways
- Consolidated revenues increased by 17% year-over-year to INR 8,016 crores (US$957 million).
- Gross profit margin stood at 59.6%, with EBITDA at INR 2,280 crores (US$272 million), up by 5%.
- Significant regional growth in North America, Europe, Emerging Markets, and India.
- Acquisition of Nicotinell portfolio and partnership with Nestlé India.
- Launched 22 new products in emerging markets and entered licensing agreement with Gilead (NASDAQ:).
- Received multiple regulatory approvals and positive FDA inspections.
- Strategic investments planned for injectables, biosimilars, and APIs.
Company Outlook
- Positive outlook with expectations for continued growth in various markets and segments.
- Strategic investments and product launches planned to enhance market presence.
- Focus on long-term growth and investment in injectables, biosimilars, and APIs.
Bearish Highlights
- SG&A expenses rose to INR 2,301 crores (US$275 million) due to new business initiatives.
- A 4% sequential decline in North America generics revenue.
- A 100% impairment noted for a generic product due to supply issues.
Bullish Highlights
- Strong regional performance with significant year-over-year growth.
- Acquisition of Nicotinell portfolio and operationalization of nutraceutical partnership with Nestlé India.
- Regulatory approvals and positive FDA inspections support future growth.
Misses
- A Form 483 with three observations was issued after a product-specific preapproval inspection, but these were addressed in a timely manner.
Q&A Highlights
- The company is preparing to launch GLP-1 products with internal capabilities in APIs and formulations.
- SG&A expenses are projected to stabilize post-FY 2026.
- The rituximab biosimilar is set to launch in Europe by February 2025, with U.S. approval expected in early FY 2026.
- Nestlé joint venture currently generating modest revenues, with growth anticipated as more products are introduced.
- The company has complete end-to-end manufacturing capabilities for GLP-1 APIs.
Dr. Reddy’s Laboratories continues to demonstrate a strong performance and a clear strategy for future growth. The company’s focus on strategic acquisitions, improved product mix, and expansion into new markets has positioned it well for continued success. With a robust pipeline of products and a commitment to sustainability, Dr. Reddy’s is poised to maintain its momentum in the global pharmaceutical industry.
InvestingPro Insights
Dr. Reddy’s Laboratories’ strong financial performance in Q2 FY 2025 is reflected in the latest data from InvestingPro. The company’s revenue growth of 12.37% over the last twelve months aligns with the reported 17% year-over-year increase in consolidated revenues. This growth trajectory is further supported by a quarterly revenue growth of 16.51% in Q2 2025, indicating consistent expansion.
InvestingPro data shows that Dr. Reddy’s maintains a robust gross profit margin of 59.29%, closely matching the 59.6% reported in the earnings call. This high margin underscores the company’s ability to manage costs effectively while growing its top line.
An InvestingPro Tip highlights that Dr. Reddy’s is a “Prominent player in the Pharmaceuticals industry,” which is evident from its market performance and strategic initiatives mentioned in the earnings report. The company’s acquisitions, partnerships, and product launches across various regions demonstrate its strong industry position.
Another relevant InvestingPro Tip notes that the stock “generally trades with low price volatility,” which could be attractive to investors seeking stability in the pharmaceutical sector. This characteristic aligns with the company’s consistent performance and long-term growth strategy outlined in the earnings call.
It’s worth noting that InvestingPro offers 5 additional tips for Dr. Reddy’s Laboratories, providing investors with a more comprehensive analysis of the company’s financial health and market position.
The company’s market capitalization of $12.87 billion reflects its significant presence in the global pharmaceutical market. With a P/E ratio of 20.31, investors are pricing in the growth potential highlighted in the company’s outlook, including strategic investments in injectables, biosimilars, and APIs.
These insights from InvestingPro complement the earnings report, offering investors a broader perspective on Dr. Reddy’s financial standing and market valuation. For a more detailed analysis, investors can explore the full range of metrics and tips available on InvestingPro.
Full transcript – Dr. Reddy’s Laboratories Ltd ADR (RDY) Q2 2025:
Operator: Ladies and gentlemen, good day, and welcome to the Quarter Two FY 2025 Earnings Conference Call of Dr. Reddy’s Laboratories Limited. As a reminder, all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded I now hand the conference over to Mr. Richa Periwal. Thank you, and over to you, ma’am.
Richa Periwal: 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 Q2 FY 2025 earnings conference call. We have with us the leadership team of Dr. Reddy’s comprising Mr. Erez Israeli, our CEO; Mr. MV Narasimham, our CFO, will be formally called as MVN and the Investor Relations team. Earlier during the day, we have released our results, and the same is also posted on our website. We kick off today’s call with MVN taking us through the financial highlights of the quarter. This will be followed by Erez, sharing his thoughts on operating environment and business performance, post which, we open the forum for Q&A. 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 expressed written consent. This call is being recorded, and the playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statement. The discussion today contains certain non-GAAP financial measures or a reconciliation of GAAP to non-GAAP measures, please refer to our press release. 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 MVN.
MV Narasimham: Thank you, Richa. A very warm welcome to all. It is my pleasure to interact with you for the first time and present results for Q2 FY 2025. We delivered a strong performance this quarter with broad-based top line growth and healthy operating margin, resulting in highest quarterly sales entity. As you all know, we completed the acquisition of the NRT portfolio and create an upfront cash consideration of $458 million of — we also completed the transaction with Nestlé India on 1 August, and all business activities of the nutraceuticals portfolio is now being carried out through our subsidiary, Dr. Reddy and Nestlé Health Science Limited. Following the completion, Nestlé India was allocated share of the subsidiary, representing a 49% stake. We have also recently completed five one-stop click following the approval from Board and the shareholders. Let’s now look at the financial performance of the quarter. For this section, all of whom have been translated into the U.S. dollars at a convenient translation rate of INR 83.76 million, which is the rate as of September 30, 2024. Consolidated revenues for the quarter stood at INR 8,016 crores, which is US$957 million, and it grew by 17% on a on a year-over-year basis and 4% sequential basis. All markets contributed to this quarter’s year-over-year growth. Consolidated gross profit margin stood at 59.6% for the quarter, an increase of 92 basis points over the same quarter of the previous year and a decrease of 81 basis points sequentially. The year-over-year increase was primarily on account of an improved product mix and manufacturing or delivering, particularly offset by marginal price erosion in generic market. The quarter-on-quarter decline was on account of overall mix change. Gross margin for Global Generics and PSAI were at 63% and 30%, respectively. The SG&A spend for the quarter was INR 2,301 crores, which is US$275 million, an increase of 20% year-over-year and 1% on Q-o-Q. The year-over-year increase was primarily on account of investments in new business initiatives, building capabilities, higher freight costs, annual merit increase and content onetime costs related to the acquisition of NRT brands. The revenue spend as a percentage to the sales was 28.7%, and was higher by 138 basis points on year-over-year and lower by 87 basis points Q-o-Q. Excluding the onetime acquisition-related costs, SG&A spend was at 28.1% of sales. We expect SG&A to be in the range of 27.5% to 28% for the full fiscal. The R&D spent for the quarter was INR 727 crores, which is US$87 million, an increase of 33% year-over-year and 17% Q-on-Q. We are developing a robust pipeline of small molecules, biosimilars and now on quality assets to internal and cooperative efforts to drive future growth. The R&D spend was at 9.1% of the sales, was higher by 115 basis points on year-over-year and 100 basis points Q-on-Q. We expect divestment to be in the range of 8.5% to 9% for the full fiscal. The other operating income for the quarter was INR 98 crores, lower versus 180 crores last year due to onetime product-related settlement income in the United Kingdom (TADAWUL:) in the same quarter of the previous fiscal. The EBITDA for quarter was INR 2,280 crores, that is US$272 million, an increase of 5% on year-over-year and 6% Q-o-Q. The EBITDA margin stood at 28.4% to the sale and was lower by 326 basis points year-over-year and higher by 30 basis points in Q-o-Q, excluding the onetime acquisition-related costs, as mentioned earlier, the underlying EBITDA margin stood at 29.1% of the state. Impairment loss of INR 92 crores on intangibles related to a product and the main portfolio that was facing procurement constraints from its contract manufacturers. The net finance income for the quarter is INR 156 crores as compared to INR 123 crores for the same quarter last year. Profit before tax for the quarter stood at INR 1,917 crores, that is US$229 million. PBT as a percentage of revenue was 3.9% excluding the onetime acquisition-related costs and impairment charge has called out earlier. The underlying PBT margin stood at 25.7% of revenues. Effective tax rate for the quarter was at 30%. Pursuing to the amendments in the Finance Act 2024, resulting in withdrawal of indexation benefit, the company reversed a deferred tax asset of INR 48 crores created in earlier period on land. Excluding the impact of this one-time reversal, adjusted ETR for the quarter on the underlying PBT is 25.9%. We expect our normalized ETR to be around 25% for the fiscal. Profit after tax, but before minority interest for the quarter stood at INR1,342 crores, which is US$160 million. Tax margin was at 16.7% of revenues. The non-controlling interest share of profit after tax for the quarter was INR 86 crores. This primarily includes the share of one-time deferred tax assets recognized upon transfer of Dr. Reddy’s nutraceutical branch to the subsidiary. Profit after tax, excluding the non-controlling interest for the quarter stood at INR 1,255 crores, which is US$150 million. This is at 15.7% of revenue, excluding the one-time acquisition-related costs, impairment charge, tax reversal, and non-controlling interest share as indicated earlier, the underlying tax margin stood at 90% of revenues. Reported EPS INR 15.04, the EPS has been derived on the increased number of shares post the stock split and after non-controlling interest. Operating working capital as of 30, September 2024 was INR 12,066 crores, which is US$1,441 million, an increase of INR 511 crores, which is US$61 million over 30, June 2024. CapEx cash outflow for the quarter stood at INR 735 crores, which is US$88 million. The free cash flow generated during this quarter was INR 204 crores, which is US$24 million. Post acquisition related upfront payout, we have a net cash surplus of INR 1,889 crores in US$226 million as of September 30, 2024. Foreign currency cash flow hedges in the form of derivatives are as follows. US$693 million hedge through structured derivatives around rate of INR 83.9 to INR 84.1 to the dollar, maturing over 12 months, which allows participation when USD is strengthened, and rubles 5,290 million with the minimum production rate of INR 0.905 to the rubles maturing in next six months. With this, I now request Erez to take us through the key business highlights.
Erez Israeli: Thank you, MVN, and very good morning, or good evening to everyone who is on the call. Thank you for joining us this time. Our gross momentum continued in Q2 FY 2025 across all markets. It’s translating into yet another quarter of highest ever revenues and operating profits. The quarter witnessed two milestones in our journey towards building new businesses. Our venture with Nestle (NS:) for nutraceutical products in India was operationalized in August. We also completed the acquisition of Nicotinell and related brands in the nicotine replacement therapy category in September. We continue to strengthen our presence in existing spaces by building best-in-class capabilities and commercial infrastructure to leverage our portfolio globally and by driving operational efficiencies. We remain focused on our core businesses of generics and API while also investing in our pipeline as well as growth drivers of the future in line with our stated strategy. Let me take you through some of the other key highlights for the quarter. One, double-digit growth in revenues in Q2 to 17% both reported EBITDA margins and annualized ROCE were over 28%. Adjusting for onetime expenses related to the NRT acquisitions, the EBITDA margins were higher at 29.1%. Net cash surplus was $226 million. This is after making an upward payment of £458 million to the recently acquired NRT portfolio. Our subsidiary, Aurigene Oncology announced promising results of Phase I study for India’s first trial for novel autologous CAR-T cell therapy for multiple myeloma. Further, the US FDA approved the IND for AUR-112, an asset developed by Aurigene Oncology for the treatment of lymphoid malignancies. We have secured a marketing authorization from the European Commission for rituximab biosimilars, our first such EMA in Europe. We recently entered into voluntary license agreement with Gilead Science to manufacture and commercialize HIV treatment drug, Lenacapavir in 120-plus countries. On the regulatory front, the US FDA classified three of our facilities as VAI. This included two of our formulation manufacturing facility in Duvvada and Vizag following the routine GMP inspection in May 2024 as well as our API manufacturing facility in Srikakulam, Andhra Pradesh, following their GMP inspection in June 2024. In August, the US FDA completed a product-specific preapproval inspection of our formulation manufacturing facility, FTO SEZ PU1 in Srikakulam Andhra Pradesh and issued a Form 483 with three observations. They responded to the observation within stipulated time lines. In September, the US FDA completed a routine GMP inspection of our R&D center in Bachupally Hyderabad and closed the inspection with 0 observations. Sustainability continued to remain central for our business strategy, recognizes our focused efforts in sustainability, KPMG India awarded us their ESG Excellence Award in 2024 in the Large-cap Pharmaceuticals & Healthcare category. Further, we are features among the top 15 most sustainable companies 2024 by Business World India. Now let me take you through the key business highlights for the quarter. Please note that all the reference to the numbers in these sections are in respective local currencies. Our North America generics business recorded revenues of $445 million for the quarter with year-over-year growth of 16% and a sequential decline of 4%. The increase in sales volume helped offset single-digit price erosion and additional general competition in certain based products. We launched four new products during the quarter, and we closed the full year with 15 to 20 launches. Our European generating business recorded revenues of $63 million this quarter with a year-over-year and sequential growth of 7%. The increase was largely contributed by revenues from new launches, partially offset by pricing pressure on certain of our products. During the quarter, we launched a total of eight products across markets. Our emerging markets generally business recorded revenues of INR1,455 crores in Q2, recording a strong year-on-year and sequential growth of 20% and 23%, respectively. On a year-over-year basis, market share expansion and revenue from new product launches in rest of the world markets more than offset the unfavorable forex. We launched 22 new products during the quarter across various countries of the emerging markets. Within this segment, the Russia business grew by 27% year-over-year basis and 23% sequentially in constant currency. India business recorded revenues of INR1,397 crores in Q2 with a double-digit year-over-year growth of 18% and sequential growth of 5%. The growth was primarily on account of additional revenues from the recently licensed vaccine portfolio from Sanofi (NASDAQ:) and new brand launches. As per IQVIA, our IPM rank continues to be at 10. We have launched three brands this quarter in addition to integrating the surgical products under our subsidiary Dr. Reddy’s and Nestle Health Science Limited. Our PCI business recorded revenues of $100 million in Q2, FY 2025 and year-over-year growth of 18% and sequential loss of 9%. The year-over-year growth was primarily on account of improvements in volumes and growth in the CDMO business, which is also reported thereunder. We filed 22 Drug Master Files globally this quarter. We invested 9.1 of our revenue to strengthen our R&D capabilities. Our R&D investment this quarter stood at INR727,000. Our efforts are focused on developing complex value-accretive products, including several demand injectables, peptide and biosimilars in line with our patient-centric strategy on an every access and affordability. We have made 60 global generic filings, including two NDAs for the US market during Q2, FY 2025. In addition to investing our development pipelines, we continue to strengthen our process in our core areas of business, while also collaborating to build businesses in three areas: consumer healthcare, access to novel molecules and digital therapeutics. We are also evaluating value creating inorganic opportunities in the existing spaces as well as businesses of the future. We are certain that this strategic investment capital with our sharp focus on improving efficiencies will enable us to deliver sustainable growth as well as profitability. And with this, I would like to open the floor for questions-and-answers.
Operator: Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Kunal Dhamesha from Macquarie. Please go ahead.
Kunal Dhamesha: Hi. Thank you for the opportunity and congratulations on a good set of numbers. First one on the North America business, we have written that the sequential decline is primarily due to volumes. So sequentially, is it fair to assume that the pricing was stable?
Erez Israeli: The prices are relatively stable in the way we normally calculate them. We did not have a major issues on the big products that we normally discuss. As for the sequential, I would not take it too seriously. Part of it is a normal supply chain behavior that comes into inventory of the distributors or inventory of the retailers, we can definitely guide that we’ll continue to grow in America on both — also the base products as well. So I will not read too much into that. You’ll see different numbers in the next quarter.
Kunal Dhamesha: Okay. And this decline in sales volume, one you said is the channel inventory adjustment. And could it also be some seasonal products not kicking in this quarter?
Erez Israeli: Yes. So it was mostly about supply chain. There is no will decline. There is no loss of market share or anything like that. It actually, if you call, we have a gain of market share. So I will not say too much about the sequential decline. I think the area actually interesting that in a situation.
Kunal Dhamesha: Sure. And then the second one on the India business, I know you have posted around 18% growth. But let’s say, we remove the Sanofi vaccine business, would we be at the double-digit growth for our base business?
Erez Israeli: It’s almost there. It’s 9-point-something percent even without the vaccine, yes.
Kunal Dhamesha: Okay. So we have improved a lot from the single-digit-digit to low-double-digit in this quarter?
Erez Israeli: So yes, we are in the double-digit even without the vaccine, obviously, we are well there. So it’s in the right direction. But it’s almost there.
Kunal Dhamesha: Sure. And then do you think that this can again accelerate beyond what we have done in Q2 in the coming quarter? Given the launch momentum has been very strong, right? We have been launching a lot of products in India?
Erez Israeli: Absolutely.
Kunal Dhamesha: Sure. I have more questions. I’ll join back the queue. Thanks.
Erez Israeli: Thank you, Kunal.
Operator: Thank you. The next question comes from Neha Manpuria from Bank of America. Please go ahead.
Neha Manpuria: Yes. Thank your for taking my question. My question — two-part question is related to the US business. Given we have seen a host of facilities being cleared, the clearing inspection in the last few months. When should we start seeing — while we are launching products, we have not really seen high-value launches from Reddy’s in the recent time? So wouldn’t you think we launched certain of these limited competition high-value products for the US business? When do we start seeing that? And second, our R&D has stepped up a fair bit. But I did see filing momentum has been fairly muted. So when does that R&D spend reflects in higher filing or higher quality filing, better filing and therefore, revenue?
Erez Israeli: Yeah. So on the first question, I hope that you’ll see it probably in Q3, but I cannot guarantee that. It’s about the ability to get approval, but we have a couple of those kind of products waiting for approval by the US FDA, and I hope already in Q3, we will see that. But let’s say, the remainder of the year and for sure in effort in manuscripts, we should see a much better take on that. As for the filing of R&D, we are primarily focusing on the, what I call, high quality R&D in terms of — we are not going for the 40 files per year, but we are spending on the, let’s say, more selective type of products, but with a higher value. And we are doing globally, not just in the United States. So every product is going globally plus the investment in similar primarily the abatacept, so this is where the R&D money is going to. I believe that it will actually — there is a better yield in that improvement performance of R&D and we should eventually see it also in the numbers.
Neha Manpuria: Got it, sir. And sir, the R&D spend, how much of this would be for biosimilars in the onco asset? And any updates that we can get on the timing for our two biosimilar filings?
Erez Israeli: Sure. So out of the total R&D, 36% is going to both biologics as well as origin. Origins are innovative arm. And the rest of it is going for the generics, generic is about 50% of the number of the R&D and 14% is attributed to the API. So this is give or take the 5%, but we have about biologics, I believe that the most important products we launched in the beginning of 2017, and this is abatacept, and have a couple of licensing activities that is not impacting the R&D, but will it be impacting, which is the portfolio that we’ll have one of them is denosumab. And, of course, this is on top of what we do now with rituximab and denosumab.
Neha Manpuria: And we were supposed to file deloads [ph] towards the end of this year. Are we on track of filing Cello in the US market?
Erez Israeli: Yeah. So Europe is on time and also the United States will be filed also in the – by the end of the calendar year.
Neha Manpuria: Okay. Thank you so much sir.
Operator: Thank you. The next question comes from Amey Chalke from JM Financial (NS:). Please go ahead.
Amey Chalke: Thank you for taking my question. My first question is on REVLIMID. So in first half, the — whatever sales we might have booked for REVLIMID, you expect the sales to be similar in second half? Or you expect the run rate to be on the lower side?
Erez Israeli: You know, I cannot speak about the sales of REVLIMID per se because of the agreement. But let’s say, you are going to see that it will continue to be very healthy also in the remainder of the year and also in expectancies.
Amey Chalke: Sure. The second question I have, if you can tell us about the preparation for the GLP-1 products for both US and ROW markets, which are going to pace — and expiring or where we are going to launch these products or so? Yes.
Erez Israeli: Sure. So first of all, on the overall question on GLP-1, it’s a very important segment for us, primarily because of focus on peptides, especially on the API side. So we identified close to — in addition to the Semaglutide, Liraglutide, et cetera, we are talking about 14 or 15 GLP-1s that are coming up. Obviously, those will mostly will be with the patent base that will be in the next decade. But let’s say, we are going forward for the entire segment as we speak specifically for Semaglutide we are planning to be on day one in all the markets that will be open and that we will have, of course, from an IP standpoint here as to launch. And that’s basically the plan, and we are ready with our internal capabilities on both API as well as our formulations.
Amey Chalke: Sure. Just last question I have on the spend. Our SG&A spend, excluding amortization or depreciation have gone up sharply over the last two years to three years. I understand we have a big opportunity in US where we are generating good profits, which we are reinvesting in the business. But let’s say, post FY 2026 you expect this SG&A spend to remain elevated like this? Or you expect some correction after?
Erez Israeli: What we — indeed, we increased the SG&A within the year, primarily because of the mix of markets we have. We are focusing more on India, on emerging markets. And these are, as you know, very profitable markets for us. And they paid well also for those SG&A. So we are not investing in the level of SG&A in the B2B market is obviously lower. So part of the SG&A growth is also part of the mix the market that is changing, and it’s actually changing the healthy — in a healthy manner as well. In terms of the growth of the SG&A, it will be much, much more moderated, I will say flat to moderate depends on the quarters and the years that we will discuss because we are — like you said, we had an opportunity to build that kind of a franchise and infrastructure in many, many emerging markets and now it’s well-established. Once the carrier for that will be that we’re naturally going for India for innovative products. We are licensing those products. Naturally, some of these products will require certain investments. So, likely this will do them, but I don’t think it will be materially changed the level of SG&A, and it’s normal to happen and so there is one — so that’s what we’ll have the–.
MV Narasimham: So, I also just want to add, if you look at objective one-time costs of this quarter or SG&A is 28.1% of the sales, and then we expect on a full year basis, it will be in the range of 27.5% to 28%.
Amey Chalke: Sure. Thank you so much. I will join.
Operator: Thank you. The next question comes from Balaji Prasad from Barclays (LON:).
Mikaela Franceschina: Hi, this is Mikaela on for Balaji. Thanks for taking our question. We’re just wondering how you can leverage the situation we make in America for generics gets a stronger emphasis? And if you do increase manufacturing in the U.S., what would this mean for operating margin? Thanks so much.
Erez Israeli: We are not investing manufacturing in the U.S. The products that we are launching in the U.S. will be made outside of the U.S., primarily in India. If I got the question right, so if I miss something, please.
Mikaela Franceschina: Thank you.
Operator: Thank you. The next question comes from Harith Ahmad from Avendus Spark. Please go ahead.
Harith Ahmad: Hi. Thanks for the opportunity. My first question is on the rituximab biosimilar for which we got an EMA authorization recently. So, will you be able to share some color on the timelines for launch and our expectations from this particular product? And for the same product in the U.S., I believe we are awaiting clearance of our facility in Bachupally, which is lastly expected in October 2023. So, what is the status of that inspection, do we have a final classification from the FDA? That’s my first question.
Erez Israeli: Yes. So, thank you for the question. So, the European launch is for February 2025. And as for the U.S., we did submit a response to the U.S. FDA. And obviously, we will wait for the approvals likely that it will be in the first part of FY 2026. So, of course, it depends on when we will get the approval from the U.S. FDA.
Harith Ahmad: Okay. And on generic lowering for which we’ve disclosed the INR90 crore impairment this quarter. So, can you share what percent of the intangibles related to this product has been impaired? What I’m trying to understand is whether this product is completely out of our expectations or do you still expect some revenues from this product?
MV Narasimham: So, we have provided a full carry value because the existing contract manufacturing organization is unable to supply the product, hence we have provided 100% of the carrying value.
Harith Ahmad: Sir, last one with your permission. The intangibles related to the Haleon portfolio acquisition, which I believe is around INR5,500 crores. Over what timeframe will be amortizing this? I’m trying to understand the impact in our P&L?
MV Narasimham: So, largely around 20-plus years. I think it’s — currently, we are just evaluating. I think it will be somewhere, I think the 22 to 23 years range.
Harith Ahmad: Okay. That’s all from my side. Thanks.
Operator: Thank you. The next question comes from Damayanti Kerai from HSBC. Please go ahead.
Damayanti Kerai: Hi. Thank you for the opportunity. My question is on R&D. So you mentioned you are focusing high-quality R&D. So, can you just talk us about like the segments or products, which you are working on? And do think you can launch some material products in say, next 1 to 2 years in the US market especially, which can help you to cover up some sales lost on the REVLIMID part. So that’s my first question.
Erez Israeli: So the — on the first part of the question, like I mentioned to EMEA, about 50% of the R&D goes to generics. So this is primarily peptides and injectable, especially complex injectables. The biologics is going primarily on the pipeline that we have, but most of the money in the short term will go on the clinical trials abatacept. And then we have the investment in the next set of products or first 2 market, which will come later, this is on the API side, mostly GLP-1 in taste product and the oncology products of origin. So this is one. On the second part of the question, yes, there is a healthy pipeline of about 20-plus products that — of that nature that have relatively higher value. Of course, most of them are approval dependent. So it’s how to know when exactly we will launch them, but we are ready for that, and they should contribute to that. And this is including, obviously, semaglutide in which there is a patent data, we were asked before about that and which will be launched once there will be a market opens focus.
Damayanti Kerai: Sure. My related question is, you mentioned subside GLP-1 is one of your focus segments. So I just want to understand, on the R&D part, I understand you are covering the entire product basket, which will open up in market in coming years. But on the manufacturing part, do you have in-house manufacturing capability or you intend to get it done through some manufacturing partners?
Erez Israeli: So we are going to make it in-house, both the API as well as the finished dose. So — and we are primarily dependent on our own internal capabilities.
Damayanti Kerai: Okay. So mostly, it will be done in-house and maybe some parts can be done to external parties?
Erez Israeli: Yes, yes, absolutely. The part that is not done by us is the device. Device itself, we are not making, but the API, our main stress is on the API as we have those certain technology by primarily the macro [indiscernible] allow us to scale it up very nicely and this is probably our major advantage so far in this segment.
Damayanti Kerai: Sorry, I think I missed. So you said API is your strength, but the formulation that can be done through CMOs? Is that right?
Erez Israeli: So we are making the API. We are making the formulations. We can also use CMOs for formulation, but primarily, it will be made by us. And the part that we have to buy is the device we are buying.
Damayanti Kerai: Okay. Understood. My second and last question is on the Nestlé JV. So you concluded the deal in August. Like what kind of sales or any number you have booked in second quarter? Or like — and from here on, what kind of ramp-up you see in terms of like putting more products in the portfolio or in terms of revenue, how should we see updates there?
Erez Israeli: So right now, it’s very small. It’s intensive calls because most of the Nestlé products are not yet registered and abroad to India. So the main intent of these franchises to bring the Nestlé product — Nestlé brands actually that are very successful outside of India to India and to bring them over time. So at this stage, we are talking about tens of calls. It’s — but let’s say, it’s not a material around, somewhere between INR 50 crores, INR 60 crores. It’s not significant. The main impact will come, obviously, on the ability to grow the range in the future. So this is the kind of business that it will take us time to scale it up. But is — but we believe that it’s a very good and very sticky for many, many years to come.
Damayanti Kerai: Okay. Thank you. Thank you for response.
Operator: Thank you. The next question comes from Bino Pathiparampil from Elara Capital. Please go ahead.
Bino Pathiparampil: Hi. Good evening. Just following up on a previous answer that asset, you said could be a launch in early 2027. Did you mean calendar 2027?
Erez Israeli: Yes, calendar 2027, yes.
Bino Pathiparampil: Okay. And I was looking at the Russia growth adjusted for the currency fluctuations, it seems the first half growth in Russia, CIS is a bit muted, probably around the mid single digits. Any particular reason? And what’s the outlook for the rest of year?
Erez Israeli: So like I mentioned, Russia is doing really, really well. So in constant currency, we grew 27%. And indeed, there is some devaluation, but I think we have also the right difference for it. So, overall, this is likely what you’re going to see this high level of double-digit exactly what we’re going to continue to see in Russia. You have some seasonality in Russian products. So, not all every quarter is growing in the same way. But overall, this is the level of growth, especially as some of our peers are not investing in Russia, the way we do, and we are gaining rank as we speak.
Bino Pathiparampil: Okay. And one last question on PSAI. There is a lot of optimism in the market around the CDMO part CDMO business opportunity coming India’s way. Are you seeing that helping your PSAI business in any way?
Erez Israeli: So it does contribute our growth. It’s for us, strategically, I see the CDMO primarily as an area in which help us to build relationships and build capabilities, especially in R&D as the CDMO is working on the products of the future, and it allows us to scale ourselves up both small molecules as well as in big molecules. It’s also contributed to the growth. And I hope that we will be able to see triple digit on the sales of API if not next year, the year after, but in this range of time. So it’s a nice growth. In addition to that, most of the growth in the PCI comes from collaborations and the partners that we have across the globe. This is important pillar, strategic pillar for us as part of the B2B business.
Bino Pathiparampil: Got it. Thank you.
Operator: Thank you. The next question comes from Surya Patra from PhillipCapital. Please go ahead.
Surya Patra: Hell. Yeah. Thanks for the opportunity. So my first question is on the Nicotinell business integration. So having completed the transaction, if you can share your thought process now about your growth plans, your integration strategy across — of this business across various markets and your margin and cost positioning for that business?
Erez Israeli: Sure. So we are going to get the market in a certain sequence. And just to make sure that I’m explaining it in the right way, naturally, it’s a carve-out of brands from activity that Haleon is having today. So for some of those countries, we have to create either legal entity or sales force or distribution agreement or any of that. So there is an agreement of sequence of countries in which we are going to get in which we will be ready to accept those countries with the relevant infrastructure, both internal and external. The starting market will be UK in April. And in the next 12 to 14 months, we should get more than 80% of the sales managed by us. Until then, it will be managed by Haleon. Obviously, in terms of numbers, we will start to recognize them already in Q3. So from Q3 onwards, you will see the full impact of that, including some commissions that we need to pay for Haleon for doing the work for us during this period of time. We see three types of synergies that will come once we will manage it directly. One is our ability to invest and focus on those brands. We feel that this brand has certain lack of focus or lack of attention for several years, and we believe that by doing that, we can increase the growth. By the way, the brand is growing single digit already today. And second, we can bring it to more markets, more countries. And number three, much more important, we appreciate that there is a lot of changes we can do in terms of innovation, whether it’s different products, different packaging, different life cycle management of the brand, et cetera. So between the three, we believe that we can add value to these brands. And so right now, focus is on the integration, like I mentioned, to get it and to build the infrastructure. And post that, obviously, to invest and to go further.
Surya Patra: Second question is about our CDMO business again. because of the manufacturing base and positioning within US, whether this Biosecure Act development, that will offer any kind of a meaningful kind of footprint for our CDMO operation, which has been kind of relatively muted or seeing a kind of muted performance since some time. Do you expect any kind of meaningful kickstart to those kind of momentum there?
Erez Israeli: We do see more projects are coming on the biologics side of the CDMO, which is relatively new to us, but we definitely see that the Biosecure Act that you mentioned, brings more attention to this segment. And yes, I believe that it will translate to future business. And yes, I do see an opportunity. I cannot tell you that it’s huge at this stage, but it’s absolutely in the right direction.
Surya Patra: Okay. Just last one clarification for the US business growth. You mentioned sir, you are seeing some volume-related impact in the quarter. But is it possible to give some sense, excluding of the lenalidomide, what is the kind of means — some color to the growth Y-o-Y for the quarter or for the first half, what growth that we would have seen for the base business?
Erez Israeli: So again, like I mentioned to Kunal, I would not read too much on the sequential. On the year-to-year, we are growing the base business, and it’s not just good enough, so we are growing that. And I will not reach too much about the Q-on-Q because it’s not….
Surya Patra: No. I wanted to just on a Y-o-Y basis, sir, for the first half?
Erez Israeli: Y-o-Y I don’t know.
Surya Patra: Okay. Okay. Thank you, sir. Wish you all the best.
Operator: Thank you. The next question comes from Tarang Agarwal from Old Bridge. Please go ahead.
Tarang Agarwal: Hi, good evening and congrats for a very strong set of numbers. Three questions. First on Russia. The INR 600 crores investment in working capital, what’s driving this now? And basically, just wanted to understand or get a bit more color on the business in terms of how working capital intensive is that business, some dynamics on the market. Some point, I think DRL had a 2.5% market share in that market. How has that moved? And what’s the volume market share there?
MV Narasimham: On this is like a working capital that we have managed the working capital through factoring and short-term loans. Now it is because of the – it is becoming costlier. And then as a group, when we evaluated this working capital funding as a equity from India to subside rate is beneficial at overall level. That’s why we get infusing as an equity towards working capital requirement. And yes, Erez?
Erez Israeli: As for the market share, I don’t remember exactly the numbers, but we definitely increased market share and increased our rent in Russia. So we’re clearly growing primarily because of focus. It’s — you have companies that’s still focusing on this market and companies that less focus. I think this is going to very much to our side. I think that our — that our overall — in terms of market, I think we are in all that in non-mass as well as quarters, we are growing faster than the market in all segments on [indiscernible] data.
Tarang Agarwal: Is just to get a sense, I mean, how big is the covered market in Russia where Dr. Reddy’s operating? And I mean, it’s a sizable business now almost $300 million. So how big is the market? And my sense is that the end market may not be growing, but from your vantage, could you expect this business to grow at the same speed as which you probably see your India business growing?
Erez Israeli: I believe so. I believe that you are going to see continuous growth. Indeed, the market itself is not growing in volumes, but obviously, value, you see a growth because, of course, the situation in a country, price increases, et cetera.
Tarang Agarwal: Okay. Sure. Second, on CapEx, overall, if I see the trajectory over the last three, four years, we see a lot of investments in R&D buying products between market access and as intangibles. In terms of physical infrastructure, if you could give us a sense how — where are you in terms of your utilizations between your injectables, your oral solids and your API business? And what are the kind of investments that you’re looking in terms of expanding your physical infrastructure from hereon?
Erez Israeli: Yes. So, most of our investment is in the following spaces. We are investing in our injectables. We are investing in our biosimilars. And we are investing in the — in our API business. And most of the investment in the API business, which is about right now, let’s say, give or take 50%, it is 60% of the CapEx is primarily to build capacity for the GLP-1 as well as the other peptides in the pipeline that we discussed before, there are many, many peptides not just GLP-1. And we are gearing up for the launches of some of these products in FY 2025, 2026, 2027, et cetera. Some of the GLP-1 in terms of API can be very, very big. And I believe that we are one of the most reliable suppliers today, not just to ourselves, but also to the entire industry of the API, and it’s actually very big opportunity for us in that respect. So let’s say, between the injectables, the biosimilars and the peptides is the lion’s share of the physical infrastructure. And all of it is in India.
Tarang Agarwal: Sure. And last question on the Nestle JV. How long should the current capital contribution between you and the partner should hold the JV and good stead, I mean how far along will we see till further capital contribution of the JV?
Erez Israeli: So I believe that it will take us a couple of years to build a meaningful size, any meaningful brand recognition, primarily because the brands are new. It’s not a branch that take from India. It’s a brand that we need to build. The idea is to build the number one pharmaceutical company. Both companies lead this for the long term. But unlikely that we’ll see a major contribution to profit in the next coming years. So it will be — I don’t think we will — it will be primarily investment and whatever will be likely that we’ll reinvest. So it’s primarily more of a longer-term type of activity. But like I mentioned before, I believe very strictly and very meaningful.
Tarang Agarwal: Okay. Thank you.
Operator: Thank you. [Operator Instructions] The next question comes from Kunal Randeria from Axis Capital (NYSE:). Please go ahead.
Kunal Randeria: Hi. Good evening. On denosumab, the first biosimilar launch in the US should be in year 2024, given that you are yet to file for it, just wondering how many players do you expect will be ahead of you when it eventually launch?
Erez Israeli: You are talking about the denosumab?
Kunal Randeria: Yes.
Erez Israeli: Denosumab, it depends, of course, on the success of the others, but we should be somewhere between number three to number five, I believe.
Kunal Randeria: Right. And would this be like a wait FY 2026 launch?
Erez Israeli: It should be a FY 2026 launch.
Kunal Randeria: Got it. Got it. Secondly, Erez two and a half years back, when you shared your vision in Horizon 2…
Operator: Kunal, maybe request you return to the question queue for the next question, please.
Kunal Randeria: Sure.
Operator: The next question comes from Anubhav Agarwal from UBS. Please go ahead.
Anubhav Agarwal: Yes. Thank you. Just one question on SG&A. So this year, we’ll be about 27.5% to 28%. Can you qualitatively give a sense that once I mean more normalized stage once the generic REVLIMID is more normalized, let’s say, FY 2027, once you have ramped a biosimilar portfolio also infrastructure for that. What would this number look like roughly — and so when I look at pre-COVID, you guys are doing 29%, 30%. Would you go back to that? Or would you retain 27%, 28%. Can you give a rough sense in a more normal stage?
MV Narasimham: I believe it would be in the same range for next year at this point of time, but it will not increase significantly.
Anubhav Agarwal: Yes. But next year, you still have the support of generic REVLIMID. So I’m just trying to understand, one, let’s say, one-off revenues are not there. On a more sustainable base business, what would this — would you go back to pre-COVID number of 29%, 30%? Or would you still be 28%?
Erez Israeli: Sorry, just I understand you’re talking about growth?
Anubhav Agarwal: No.
MV Narasimham: So what yeah, yeah. What I’m just saying, I think as explained earlier, our new products also kick in and thereby like a top line will come. So hence, I know we believe it will continue to be in the — around that range.
Anubhav Agarwal: Sure. And you’re saying that this is beyond next year as well, same range of 28% continues per year.
MV Narasimham: Around that range given, we cannot give exact guidance for the next year, but it would be largely in that range.
Anubhav Agarwal: Great. Thanks.
Operator: Thank you. [Operator Instructions] The next question comes from Vishal Manchanda from Systematix. Please go ahead.
Vishal Manchanda: Hi, good evening and thanks for the opportunity. On rituximab biosimilar launch in Europe, would you would you be selling on your own or you would have a partner there? And what is — how long take to ramp that up to its full potential?
Erez Israeli: We will sell on our own. We have a list of the primarily tenders that we know we can participate and hopefully, we’ll be successful in them. But let’s say, on the B2B side of the [indiscernible], it should be relatively fast in according to the date in which the tenders will be open on the –. In Europe, you have also the physician matters, this obviously will have to do some [indiscernible] and it will take some time. But yes, there is no reason why we should not see this as relatively fine.
Vishal Manchanda: Would this be a $100 million plus operational company?
Erez Israeli: I cannot guide there — that much. I don’t think it will come to this range, but I’m not — I cannot quote numbers for this one.
Vishal Manchanda: Okay.
Operator: Thank you. The next follow-up question comes from Kunal Dhamesha from Macquarie. Please go ahead. Kunal sir, your line is muted. Please proceed with your —
Erez Israeli: Yes Kunal.
Kunal Dhamesha: Yes, can you hear me now?
Erez Israeli: Yes. Yes.
Kunal Dhamesha: Yes. So, just for abatacept timeline that we have given, it is for the biosimilar launch, not new indication that our partner is trying, is that correct understanding?
Erez Israeli: Sorry, I’m not sure I got the question. On the biosimilar, sorry.
Kunal Dhamesha: So, abatacept, I think we are developing biosimilar, and we have out-licensed this biosimilar to Coya for indication of ALS, right? So, the launch timeline that we are talking about is for the biosimilar version that we are developing, right?
Erez Israeli: Correct. Correct. Correct. This is not for the Coya product, the Coya product will come whenever they will finish the clinical price.
Kunal Dhamesha: And what stage of development are we on the biosimilar side in terms of the clinical trial or filing?
Erez Israeli: We are in Phase 3, and we are supposed to gear-up to submit and to launch it in the end of calendar 2026 beginning of 2027.
Kunal Dhamesha: Okay. So, as of now, let’s say, patient enrollment and all will be over? Do we have that details?
Erez Israeli: We are — I don’t know if it’s over or soon to be over, but in a very advanced stage.
Kunal Dhamesha: Sure. Thank you and all the best.
Erez Israeli: Thank you so much.
Operator: Thank you. The next question comes from Surya Patra from PhillipCapital. Please go ahead.
Surya Patra: Just one clarification, sir. when we talk about the GLP-1 API capability. So, here, we do say that it is complete end-to-end integrated at our end itself?
Erez Israeli: So, we have the API. I just want to make sure that we have the API, we are making also the finished product. So, in that respect, it’s completely back integrated and we are buying the device, if I got the question right.
Surya Patra: Yes, we believe it is capabilities — complete chain manufacturing capability that we have. And hence, it is a full end-to-end integrated operation for us.
Erez Israeli: Yes, it is.
Surya Patra: So, yes. Thank you, sir.
Operator: Thank you. As there are no further questions. I would now like to hand the conference over to Ms. Richa Periwal for closing comments.
Richa Periwal: Thank you all for joining for today’s evening call. In case of any further queries, please get in touch with Aishwarya or myself. Thank you once again on behalf of Dr. Reddy.
Operator: Thank you. On behalf of Dr. Reddy’s Laboratories Limited, that concludes this conference. Thank you for joining us, and may now disconnect your lines.
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