Kedar Upadhye - Head of Global Generics Finance & Investor Relations and Senior Director Saumen Chakraborty - President, Chief Financial Officer, Global Head of Human Resources, Information Technology & Business Process Excellence and Member of The Management Council Kallam Satish Reddy - Vice-Chairman, Managing Director, Chief Operating Officer, Member of The Management Council, Chairman of Management Committee, Member of Shareholders' Grievance Committee and Member of Investment Committee Abhijit Mukherjee - President of Global Generics and Member of the Management Council

Anant Padmanabhan - Cowen and Company, LLC, Research Division Arvind Bothra Arvind Bothra - BofA Merrill Lynch, Research Division Sonal Gupta - UBS Investment Bank, Research Division Anubhav Aggarwal - Crédit Suisse AG, Research Division Bino Pathiparampil - IIFL Research Girish Bakhru - HSBC, Research Division Vivek Agrawal - MP Advisors Saion Mukherjee - Nomura Securities Co. Ltd., Research Division Ranjit Kapadia - Centrum Broking Private Limited, Research Division Prakash Agarwal - CIMB Research Nitin Agarwal - IDFC Securities Ltd., Research Division Sameer Baisiwala - Morgan Stanley, Research Division Kartik A.

Mehta - ICICI Securities Ltd., Research Division Monica Joshi - Avendus Securities Private Limited, Research Division

Good morning, and good evening to all of you, and thank you for joining us today for Dr. Reddy's Earnings Call for Quarter 1 of FY '14.

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 Vice Chairman and Managing Director; Saumen Chakraborty, President and Chief Financial Officer; Abhijeet Mukherjee, President and Head of Global Generics business; 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 today's press release also pertains to this conference call and the 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 Saumen Chakraborty, our CFO.

Thank you, Peter. Good evening, and good morning 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 translation rate of INR 59.52 to $1, which is the rate as of 30th, June, 2013. Consolidated revenue for the quarter were at $478 million.

We registered year-on-year growth of 12%. The revenues from our Global Generics segment are at $368 million and grew by 15%.

This growth is largely driven by continued progress in North America and emerging market territories. Revenues from our Pharmaceutical Services and Active Ingredients segment, that is the PSAI segment, are at $99 million, with year-on-year growth of 6%.

Consolidated gross profit margin for the quarter is at 52.8%, which is largely in line with the previous year. Corresponding value for Global Generics and PSAI segment for the year for this quarter are at 61.6% and 19%, respectively.

GG gross profit margin improved primarily on account of higher contribution from new product launches in North America Generics, whereas PSAI gross margin declined on the back of lower number of launch molecules stores upfront, and relatively higher overhead during the quarter. SG&A expenses, including amortization for the quarter, are at $148 million, an increase of 6% over the previous year, and representing 31% of the revenue.

The overall increase in absolute terms was primarily on account of normal year-on-year salary increments and the effects of rupee depreciation against multiple currencies. R&D costs for the quarter are at $41 million, representing 8.5% of revenue versus 6.2% in the previous year.

The increase in R&D expense during the quarter was as planned, and is in accordance with our strategic plan of our R&D activities at larger focused segment. EBITDA for the quarter is at $96 million, which is 20% of sales, and registered a year-on-year growth of 13%.

Profit before tax for the quarter at $70 million is 14.5% of revenues. The annual effective tax rate for FY '14 is likely to be in the range of 21% to 22%, which is similar to previous year.

Key balance sheet highlights are as follows. Our working capital decreased marginally by $2 million over 31st, March, 2013.

Capital expenditure for the quarter is at $33 million, part of which the key projects include our injectable facility and biosimilars expansion. Foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are approximately at $510 million, largely hedged around INR 56.60 to $1.

In addition, our balance sheet is up $300 million. Net debt at $236 million represents a net debt-to-equity ratio of 0.19.

With this, I now request Satish to take us through key business highlights.

Thank you, Saumen. Good evening, and good morning to everyone.

The financial year 2014 has started on a very interesting note. What clearly gives me satisfaction is the portfolio mix of our new launches.

We have been talking about diversifying to other dosage forms like injectables and the greatest share of complex products in our portfolio. The recent launches of generic versions of zoledronic acid, Decitabine and Donepezil Hydrochloride 20 mg in the U.S.

market is going through a big shift in our portfolio. Our increased R&D spend at 8.5% for the quarter is a reflection of one personal aspect of our strategy.

The Indian pharmaceutical market has witnessed the impact of the pricing policies that is aimed at regulating prices of select drugs through the Drug Price Control Order of 2013. The implementation of this policy is underway.

However, the pharmaceutical companies and the trade continue to grapple with the disruptions in the marketplace in the form of decreased channel inventory and strike by the trade. The impact for Dr.

Reddy's is expected to be roughly about 4% of the revenues on this count, and we have plans in place to mitigate the impact. In the emerging markets, CIS countries and rest of the world geographies continue with aggressive market penetration, despite concerns on currency devaluation, especially in Venezuela.

In the API side of the business, changes in the stocking and launch pattern of some of our key customers had a bearing on the demand for launch materials during the quarter. The Custom Pharmaceuticals business witnessed good traction in orders from innovative companies.

Now let me take you through some of the business highlights for each of our key markets. Please note that in this section, all references to numbers are in respective local currencies at average exchange rates.

Starting with the North America Generics business. Revenues for the quarter are at $192 million, and grew by a healthy 21% on year-on-year basis.

This growth is largely attributable to new product launches over the past 12 months and market share gains in select key molecules. This quarter, we witnessed the launch of 2 new products, the zoledronic acid injection, which is the generic version of Reclast and lamotrigine extended-release tablets.

We hope zoledronic acid will turn out to be a good opportunity in the medium term. While we have the benefit of these new launches, normalization of Finasteride 1 mg sales and seasonal effect on our anti-allergy OTC product and antibiotics portfolio led to a deformed sequential quarter basis.

However, our recent launches of Decitabine and Donepezil in the month of July present a good opportunity in the short to medium term. On the India business, revenues for the quarter were flat at INR 349 crores.

We saw some amount of market disruptions in the form of trade strike in Maharashtra for the major part of the month of June. While this quarter results towards the end of the month, the subsequent billings made in the last few days got accounted as sales cut-off as part of accounting practice and got carried forward to Q2.

In addition, the implementation of the new pricing policy also caused some amount of de-stocking in the trade due to which the order flow was weaker. After publication of the revised price notifications in June, we are seeing stability coming back in the market, and hope to recover a part of the shortfall in the second quarter.

Despite these challenges, our June 2013 and Q3 growth was 14.5%, as against the IPM growth of 10.1%, which gives us confidence on the continuing momentum in our India business. The coming 5 to 6 months will be interesting to watch from the perspective of marketplace realignments.

On the emerging markets front, the Russia revenues at $65 million for the quarter grew by 3% in global terms, primarily because of high base effect of the previous year and changes in the market stocking pattern. Our secondary sales growth data for the quarter indicate a healthy market demand.

CIS markets grew by 24% on a year-on-year basis on the back of new product introductions in Ukraine. Rest of the world markets grew by 8% on a year-on-year basis despite the devaluation impact in Venezuela.

Performance of our European operations was in line with our expectations. The business model has transitioned to a lean and simplified structure.

Our PSAI business grew by 6% on a year-on-year basis. Active Ingredient business had a challenging quarter because of the decrease in new product introductions by our customers.

In addition, we are witnessing volume and price concession on the products launched last year, and the general decrease in the stockholding period at our customers' end. We hope this trend would normalize over the coming quarters.

With this, I would now like to open the session for question and answers.

I had a couple. First, on the last call, you had mentioned a few high-value product launches in the U.S.

that were deferred or pending at the FDA. So could you just talk about how many of these products are still remaining?

So again, we mentioned last time that specifics, we're not going to provide, but as you know, we have launched Decitabine. We're the first in the market.

Donepezil 20 mg has also been -- have just been launched. But regarding the product, which are likely to come eventually, I think -- I don't think we're willing to comment because the approvals are not exactly in our control.

That said, this is going to be a busy year, similar to last year.

Okay. And then of the 64 ANDAs and 8 first-to-files, could you give us a sense of how many are injectable drugs?

Well, on a broader perspective, I think we are gradually moving from just being on oral solid company to a little more diversified in terms of different types of dosages, injectables being primary of them and -- but in the longer term, I think, probably, somewhere in the range of 30% [indiscernible] 17%. The 30% revenue, the 30% would come from nonoral solids, so that's a broad 30% to 35%.

But could I apply that to the number of ANDAs as well? Would you say about 30% of those ANDAs?

I wouldn't be able to give you -- on the specific number. The value of assets vary from product to product so [indiscernible]

Just a couple of questions. One, on the U.S.

regulatory front, where you've seen increased action from USFDA in terms of requirement for higher number of batches for test, and also just wanted your sense on how has been the cost of filing ANDA increasing especially after GDUFA and has it impacted the approval timelines? That's it.

So 2 things, you asked about the number of batches increasing -- increases from calendar year next year, so probably sometime from September onwards, we'll have to get into taking few batches. So far, we are still on 1 batch for last stability period.

We are still within that 1 batch byproduct. Having said that, the cost of development is not so much dependent on the number of batches.

I think the whole effort by most companies are shifting from [indiscernible] to somewhere differentiated as much as profitability in terms of high-entry barriers products. In the development of those, it has been a longer journey and there has been a need in clinical support.

So clearly, now I think it's not so much dependent on 1 batch and 2 batches of shifts in terms of the cost. It depends on how smartly, how quickly you can get to the end line, and that would sort of decide the cost of development of our product.

The second thing you're asking about the timeline's approval. Certainly, the first phase of GDUFA implementation, we're seeing a lot of sort of churn in terms of the dealers, which all generic companies are witnessing.

But we are hopeful that moving ahead, I think we can settle down, and hopefully by next year, we would see somewhat faster turnaround.

So just a clarification on your first answer, does this new norm of 3 batches apply to the existing or your pending ANDA filings or that is on an incremental basis?

No, no, the new filings. This would be -- this would all be on the new filings.

But having said that, the current approach of regulatory agency is to have a very detailed development back up. So there are still batches to be taken eventually supported in the implementation of the management.

So that part of it is not the major part of the cost, is what I was trying to highlight.

Okay, fair enough. Just a quick one on the PSA front.

You mentioned that the new product approvals have been fewer [indiscernible] kind of approaching. What kind of outlook do we have for PSA business, especially in the wake of your much lower margins in this quarter in PSA?

Right. So this hasn't been even just for the first quarter in the sense that -- 2 key reasons that I highlighted.

One is clearly that the launches, which were to be done by the customers, right, which are generic companies, some of them didn't pan out the way it was to supposed to be, right? So for different reasons for the customers.

In some cases, it was just delay approvals. In some cases, it was about the formulation not working out, things like that, in country who supports the -- plan to launch the drug.

These are some of the reasons, right. So that was one aspect of it, right?

The second aspect of it also was erosion in prices of some of the existing products which are already on the market, where we expected a higher sales, right. So that was the effect there.

Now we expect these things to normalize. That's what I was saying towards the end of my script, saying that, hopefully, in the next 2 to 3 quarters, we should see some normalization of that.

But whatever we lost in the first quarter, I mean, that those were difficult to make up for the next couple of years.

Just first to start with -- I just wanted to understand in terms of the R&D spending, clearly, how it accelerated, especially over the last couple of quarters. So just wanted to -- I mean, could you highlight how much of this is going through because of -- or what portion of R&D spending is going towards clinical trials, et cetera, which is what -- is that the major reason for the acceleration?

Right. So again, that big number that we talked about, right, the 8.5% of sales, which we said has increased, so it covers everything.

It covers all the way from the API development to generic development to biologics to propriety products. It covers everything.

Now like Abhijit talked about the shift in the portfolio itself over a period of time towards more difficult to make products and products with entry barriers. So there is some cost attached to that so you see some reflection of that.

There's also the cost on the Biologics front. There's also cost from the PSAI front because [indiscernible] is now part of the institution, right, so the company that we acquired.

So that R&D cost also is captured in the PSAI. So all [indiscernible] I'm not able to give you specifics of how much increase in what, but I'm just giving you a general trend, which we indicated last year or in the last quarter in the earnings call, saying that this would be the outlook for the year that the R&D cost will increase.

Right. No, I understand that.

But I think the thing is that, I think, for a company of your size and scale, I mean, 8.5% is extremely high. So do you expect it to remain in this range over the next 2, 3 years?

I mean, especially, I mean, once you really start clinical trials on your biosimilars, I mean, that it will be able to accelerate even further from here?

Yes. I think the indication that we give that the R&D costs will be 8% of sales, right, 8% to 9% is what we clearly indicated last year, and I think it's within that range.

And the reason [indiscernible] seeing that as we move towards more complex products, as we get into more clinical trials based from the biologics and also the increased growth in sales, and this is the kind of trend that we indicated and we'll stick to that.

He's asking whether it will go beyond.

No, no, no. If you're saying it will go beyond that, no.

It will fall in this range, 8 to 9, stick to that.

Okay. And just in terms of India, what is your outlook for the full year now, I mean, given all these impacts?

I mean, do you still see yourself still growing close to market or do you think -- I mean, how do you see this?

Well, very broadly, yes. The first quarter was impacted by other issues and some other events which stand out.

Typically, second and part of the third quarter is seasonally [indiscernible] to the India business. Some cut-off effect was spilled over to second quarter.

So broadly, we would be in the range of our own plans and in line with the market.

Okay. And just one last.

I mean, could you just shed some light on how do you see the Russian market growing? I mean, because the growth has been normalizing.

Is this the trend that we sort of expect to continue, given that in constant currency terms, also your growth has now slowed down very significantly. So I mean, what is the broader outlook in terms of -- and how do you -- how is the market really growing?

And related to that, where do you see yourself?

For Russian market, we don't particularly have a concern. Let me give a couple of reasons.

One is, I think, last year, Q1 was quite high and there's a reason for it. There was a shorter winter, and when the season changes, we had larger sales in oncology and other type of products which happened in Q1 last year.

This year, there was an extended winter. The seasonal change came later, and we're already witnessing much better Q2, that's one.

Second thing is there are some changes in Russia in terms of [indiscernible] their holidays. So this quarter, there was a 10-day [ph] holiday which had the large part of the country not having -- getting through the holiday season, which also affected the sales in Q1.

But overall, Russia, I think, we're fairly confident that we would pretty much land where we have our plans are, strong Q2 seasonally, plus the impact that I just mentioned, Q3 should be good. Overall, I think we are not concerned about Russia.

One question on the R&D, just a clarification, how do you consolidate or total? Is it the total -- is it line by line addition or total or just total expense of or the net loss of total that goes into entire R&D?

Line-by-line consolidation. It is 100% subsidiary now.

It's a complete line-by-line consolidation.

Okay. So the actual R&D increases exact -- or only entirely in the business?

Yes. Some sales is G&A as well as R&D, so everything has been dropped in each of the line.

Okay, that's helpful. Second is question Naproxen.

In the disclosure which you gave, your Naproxen sales in PSAI has more than doubled in last year. Just a question, has the market expanded so much?

And if yes, in which geography? Or you have gained very large in terms of market share?

We have gained on the market share part.

So much that your sales had doubled?

Okay. Partly, of course, is the overall market increase, but mostly it is because of the market share.

Okay. One clarification on the PSAI business.

The margin -- gross margin disclosure which you gave, 19% this quarter, versus what you've been averaging about 30% for previous quarters is a very, very sharp decline. Unless you had a very high concentration of the product there where you grossed very, very significant margin.

If that's the case, for the next 2 or 3 quarters, should we see about 30% gross margin for this? Or was there a very high one-off inventory, in fact, this quarter so that margins would ramp up in the next 2 quarters?

Yes, earlier as we have said, the PSAI business performance, it will be very difficult to adjust from a particular quarter thing, there could be fluctuations. Overall margin level last year, we hit around 30%, so as we get to the next quarters and all, it will be more clearer what kind of margin level we can expect from PSAI.

But definitely, it will inch back towards the normal margin level we expect from PSAI.

So there was no one-off inventory writeoff or something in this quarter. It was just the margin compression or price compression on the existing product?

Also based on the product mix in terms of the products mix in various kind of margin brackets to the thing that's holding this quarter is from the lower margin kind of a product rather than higher margin.

But there was no one-off writeoff, there's no such thing.

There is no such thing, yes.

Last clarification, x betapharm European sales. They have dipped about 30% year-on-year.

Is it impact of price in one of the markets or is it expiry of any old contract which is not renewed?

For the contract strategy we're talking about is that we are moving out of the tender driven-business very consciously. Actually, with this price compression, what happened was that our gross margin have substantially improved in Europe.

And we're moving in a direction which is [indiscernible] would make these business contracts profitable and meaningful. But in the process, we end up just continuing to sort out, get out of businesses which do not add to the value position and put pressure on the return on capital.

Which market are you talking about, the U.K., here?

We're in Germany and U.K., both.

Yes, because my question was pertaining to x betapharm, basically, mainly comment about the U.K. market there?

We're reporting on Germany as well. I mean, Germany last year, we had several molecules in the tender, which gave a topline without a meaningful bottom line.

This year, the gross tenders are over. And we have not set off participated in those new levels.

So that has [indiscernible] the dynamics of the business in Germany.

But if you were talk only about U.K., would you comment to mean the same that you have opted to, let's say, not participate on some of the low-margin contracts, that's why your sales have declined 30% in quarter [ph]?

Yes, the U.K. business, as you know, is a very, very small part of the whole team, but you're right.

I think we are consciously, we are moving away from sales which have a pretty low gross margin. It has -- and we have done some of those.

May I know the actual U.S. revenue in dollars?

It's $193 million, Bino.

$193 million, okay. And Finasteride also practically 0 or very minimal in this quarter?

Finasteride was minimal. As we said, it has come up compared to quarter 4.

This quarter 4 was the first quarter of the launch of Finasteride. It was minimal, yes.

Right, okay. One question on PSAI.

You said that there are some changes or some developments like price erosion, et cetera, that has happened. So now after knowing these things, which are unlikely to change materially as we go forward, would you say that you have enough visibility to have a decent growth over last year's level in constant currency terms?

Yes. What I was trying to indicate was that the first quarter didn't go well, right?

So that's what I said, because of this reason that I just indicated. So all I expected is for the rest of year for things to normalize in the API business.

So I won't be able to specifically comment on exactly what the growth is going to be at this point of time. Suffice to say that it's like this, we normalize, of course, so that's what it is.

Okay. And your press release mentioned about some stocking pattern change in Russia.

Could you just elaborate on that?

Yes. So you're talking about seasonal impact which I just explained on the call?

Is it the same thing that is mentioned in the press release that talks about the stock pattern change?

Yes. We broadly were alluding to that, yes, yes.

Okay. And finally on the RoW, how big was the impact of depreciation in Venezuela?

Or rather, can you give some indication of constant currency growth, assuming [indiscernible]

Bino, we'll take it off-line. We'll give you the numbers off-line.

Just on the India side. Wanted some color on basically the ritux sales.

I mean, just if you look from the '12, '13 numbers, INR 100 crores biosimilars portfolio. Do you have a number to this?

I mean, would ritux be INR 100-crore brand or is it stabilizing at current levels? I mean, I'm just trying to assess where do you see that number going into the next 2, 3 years.

And just on that, any update on the expansion of ritux launch in other markets?

The biosimilar revenue for the quarter in India were INR 22 crores.

Right. But my question was if I adjust on the last year number of INR 100 crores, ritux being INR 30 crores or INR 35 odd crores, would ritux have a potential to be INR 100-crore brand in India?

Well, as you are aware rituximab has more competition now. There is the so-called authorized brand.

There is another competitor which has come in. And having said that, we are actually -- the good thing is we also have the highest market share in the India market as we see.

But of course, the growth would be challenged a little bit by the various competition. And there is, of course, organic growth of the molecule get more accessed into the country.

So not a large change, there will be some growth but not a very large one.

Right. And what about the possible plans to launch this in Russia and Brazil?

Where are we there on that?

So again, we have plans progressing. It's not in our control but certainly progressing as far as Russia is concerned.

But as far as other markets are concerned, the public domain deal would not be in progress, and that would come in the present time. The progress on the molecule is going on as we have been in some other things.

So that will be a global phenomenon.

Right. And the second question was on the Japan deal which was called off.

Any costs related to that, that were, say, booked in the quarter? And what is the strategy now for that market?

So in the quarter, we didn't have any cost for Japan. We didn't incur anything for a specific deal.

But has any -- I mean, were there any significant investments that went from your side in the joint venture?

No, nothing very significant.

It seems that Dr. Reddy's the only generic filer for the co-packs on generic, as the generic opportunities opening in 2014.

So I just want to know when we should expect Dr. Reddy's to participate in that opportunity?

There are other filers for sure. I think you can look up and do a little more research.

I will not name them. I mean, there is litigation.

Recently, there was [indiscernible] we're not the only filer, but this is a molecule that will have several filers. Kindly get to the market but their development started earlier than ours.

Okay. So we're expecting 2014 or 2015, do you think?

Vivek, the only one comment on launch [indiscernible]

All right. Another question is your SG&A expense, you turned around 6% growth year-on-year.

So any color on that?

So I think like what's earlier explained, as we go forward, we could expect reasonable operating rates. And some part of marketing spend may have been muted in this quarter.

As we go forward in the subsequent quarters, a part of this still might get incurred. I guess we have seen some operating units benefit on the SG&A impact.

[indiscernible] some of these costs vary from quarter-to-quarter.

My first question is related to the U.S. market.

Can you share some color on the dacogen launch, how it went and what's the market situation like? And how long you expect to be the only player in the market?

And also regarding some of the other launches you had like Toprol XL and isotretinoin, what is the kind of market share ramp-up and how far we can go in terms of market share for these products?

So dacogen went very well, very well, actually, we were expecting approval a little earlier, but when that came in, we were the first one in the market. How long the other competition -- other competitors would come in, again, that certainly is not in our control.

We really don't know. But so far, so good.

Isotretinoin, you asked, I think we have some benefit of having the full year this year. There is some ramp-up, a good ramp-up in market share.

It will be on track, some of it will be seen as we move ahead. But I had mentioned that metoprolol has substantial price erosion with [indiscernible] coming in and we have to take market share, it had some erosion.

So certainly these things needs to be calibrated beyond its manufacturing. I would say tretinoin has not been as big as we were thinking.

But a little bit over time, late market even the molecule so doesn't take a little bit of time. We're moving ahead of our own share plans, but certainly not in the same league as metoprolol.

What is your market share expectation for dacogen, being the first player in the market?

We're doing quite well. We are doing very, very well.

Can you share some number based on the initial orders that you...

[indiscernible] and we hope and I hope on behalf of us that we remain a little more longer in the market around.

Okay. And my second question is related to R&D spend.

It's going up pretty rapidly. Based on the disclosures that you have made, a large chunk of this spend is towards innovation and biologics.

And in fiscal '13, it was like 40% of the total spend, up from something like 15% or so in FY '09. Now do you think going forward, this ratio is going to go up further?

And a related question is that your Propriety business, which I believe has the innovation spend included, is running in a bit loss of around INR 250-odd crores for the last 2, 3 years. So what's the outlook?

I mean, basically, the spend that we are making here, how do you see and when do you see these losses coming down?

Okay. So it's like -- this is how we have planned the trajectory in terms of how the R&D spend is going to be, where it's going to be.

Broadly, we're able to say that, again, based on the growth in sales over the years [indiscernible] percentage of between 8 to 9. We still remain committed to that in terms of what it is.

Because obviously, biosimilars, when they go through the different phases of clinical trials, especially since we are adjusting for regulated markets, you will see that we'll keep in line with that. That is also in line with the growth in sales growth trajectory which we also anticipate.

So that's how we see it.

So do you expect as a percentage of your total R&D spend, spend on innovation and biologics can go higher than 40%?

Yes, sure. So my question is that as a percentage of your total R&D spend, spend on innovation and biologics is increasing from 15% in '09 to almost 40%.

So do you expect it to move further to something like half of your total R&D spend is going on innovation and biologics? And if yes, then the other question is what is the visibility of revenues?

Because on the Propriety business, we see a lot of -- around INR 250 crores every year now. And the revenues from Biologics, what, even if it is in the semi-regulated markets like Russia or any visibility that you can give that when do we see these investments...

I got the question now, Saion. What I'm saying is you don't see the trajectory for both biologics because we are span, which is very near term, there is some which are medium term.

And even for Propriety Products, there is [indiscernible] in place to make the business more viable, right, through fields of many different things. So it will be in line.

That's why I can't tell you exactly when this is going to happen because of -- that one's internal in terms of what we are doing. But all I'm just saying is that there is [indiscernible] that sales growth trajectory is the trajectory which also -- this percentage of sales trajectory for R&D is going to repeat.

And that's what I'm trying to say.

My question relates to PSAI business in Europe, how you see this business panning up. [indiscernible] PSAI business in Europe?

So Ranjit, we'll probably not comment on region-by-region performance, but it's an already expendable [indiscernible] order of trajectory for the balance 3 quarters of the year, and we do expect some of the trends to normalize.

Question is related to U.S. markets again.

I mean, if you look sequentially, excluding Propecia, we are probably flat despite having good products -- product launches. So I mean -- and I also see a comment made that there's been traction in the older products like dacolumus [ph] and fondaparinux, which were launched some quarters back.

So what are we missing here, I mean, in terms of sequential growth in the U.S. business on dollar terms?

So I didn't mention fondaparinux in particular. I stopped at metroprolol.

There has it, blanketing your question. There are erosions in products.

You mentioned Finasteride, [indiscernible] and [indiscernible]. And there is also erosion.

The Q1 is the quarter in which you have bought the [indiscernible] anti-allergy product which are down, as well as the antium peptase [ph]. They come down in the first quarter.

Part of this is being covered by the reflect launch. Some price increases taken very effectively and some market share increases.

So that's where the whole -- the math works out.

But going forward, is it fair to assume much better sequential growth because, I mean, our product launches have increased quite a bit? Is that fair assumption?

Sorry, I think there are product launches. There are erosions coming.

So -- but I think the -- aside of the whole kind of launches that you have done, both limited units and [indiscernible], Decitabine than the amount of business we make. The rest of the year, as I said, there are -- there is hope that it'd a busy year as usual depending on approvals that come.

So overall, I think we are probably by it.

Understood. And secondly, your comments on the recent -- comments on the E.U.

regulatory -- some framework on the biosimilars. So I mean, does that help us in being a little faster-track?

Or how are we placed on the EU launches for biosimilars production?

Well, we've said the marks are no command assets development. It's still working as a plan.

Satish explained that there were internal milestones, and that's focusing as a plan. And I think so the combined entity, the understanding and progress hopefully would be systematic.

Difficult to put finance to it.

No, no. I understand that.

I was just hinting [ph] at the E.U. regulatory framework that we saw a couple of weeks back, which talks about a little faster approval timelines on the biosimilars front.

So if you could...

It doesn't change anything significantly. That's -- if that's what you mean.

Okay. And lastly on understanding, I mean, the basic questions asked on India, Russia and PSAI where we have probably done weaker than expectations.

So I understand, I mean, Russia was a base effect, which is expected to come back. India was because of the DPCO and the Mumbai thing and expected to come back in the quarter or so.

And PSAI, again, we expect on a normalization to happen. Is that correct?

Yes.

But I mean, in Russia, I mean, obviously, we'll come back in the near term. But what is the outlook for a 2- to 3-year perspective given the talks on Pharma 2020 and the investments that we might have to require?

Any outlook there, please?

Those aspects of Pharma 2020, local manufacturing, retailing, more than doubling [indiscernible], et cetera, so we would grow by the changes in the northern land, how or when -- and when, what would be implemented again. Emerging market in every country has -- like we have the challenges on the price control, and we get to claim the channel issues.

Similarly every country has some challenges. I bet.

But do we see an upward shift in the short term, midterm? At the moment, no.

Okay. But we have to bid for a local investment there as...

Of course, with the demands. Of course.

My question -- in the past, we've talked -- we've been talking about R&D cost increases. But how do you calibrate it with the EBITDA margins?

I mean, I guess in the previous calls, we've -- I guess if I remember it correctly, you've told that you'll calibrate it so that whatever EBITDA margin increases that you have, probably set up against R&D cost increases. Is that [indiscernible] still, it stays intact?

Or R&D increase, cost increases are independent of that -- the overall trajectory for EBITDA margin?

So this quarter, our EBITDA margin remained at 20% like last year. So there will be some calibration we will do.

But we get a broad indication that for a future growth driver, we are going to definitely spend more meaningfully on R&D and are being concerned on which part we are going to spend more and all. Obviously, we'll do an overall calibration within the company.

We see shutdown by some in medium term and long term.

[indiscernible] really understand. My point is more in terms of -- so is it going to be up?

So how do you view the EBITDA margin trajectory for the business? I mean, R&D trajectory is pretty much defined, so [indiscernible]

[indiscernible] as R&D goes up as a percentage of sales. We'd like to see the G&A as a percentage of sales decline, so we'll calibrate that -- those kind of...

Okay. And secondly, on the PSAI business, just to -- for clarity, when you say normalization in the remaining quarters, so what do you exactly -- I mean, do we mean growth coming back in those businesses?

I mean, what exactly is normalization really?

[indiscernible] indicator compared to the previous year's quarters. All we said was the first quarter.

Anyway, it's not up to the mark, right? So it increased in terms of getting to the growth rates of the previous quarters and on an overall year basis, that we should normalize, right?

So in a sense, there should be -- on a full year basis, you should be able to grow close to that -- closer number than we did last year?

Yes. Say that -- so I won't say that yet because all I'm saying is the first quarter, the sales that we have lost, I don't think we'll regain because it is true that some of the market share is the declines.

So we need to just go and fall back. But overall, if you ask me, is there a growth in the segment?

Yes, there will be growth in the segment.

Okay. And lastly, on discussions into this business, you talked about traction with the innovators of certain products.

Can you give us some sense on the kind of business which we have in the custom synthesis? I mean, what -- I mean, how many products do we have in the deep, ready, working with innovators in these -- there's 3 stages of -- number of [indiscernible] that is commercialized that you're working with?

Some sense on the nature of that business?

So this is a business where we contract out with innovator companies, right? So the ones where we said we have gained traction is to do with the existing products of these companies in the market, right?

So these are in these off-patent products, certain shift in manufacturing sites, which one of the innovator companies want to do. So it's a mix of all those things.

So it is not really about early-stage comforts as of today in terms of what I'm talking about. [indiscernible] other companies are.

I cancel that.

So it's not essentially early [indiscernible] months? I'll think [indiscernible] the latest compounds?

I mean, products which are already commercialized R&D markets for some time?

Yes, yes.

One question is your ANDA cost versus 3 to 4 years back, if it was costing you, I don't know, $1 million per ANDA filing. What is it -- is the number for your company's filings that you're doing now?

Sameer, it can vary. It can vary very -- quite widely.

The -- that $1 million is more like [indiscernible] probably, at [indiscernible], you doing that one [indiscernible] few pilots 2014. The game is changing, and there are products on one end where the chemical cost of the product itself in the $10 million.

There are products where it is a few pilots [indiscernible] So it -- there is -- but if you're kind of growing for that which are high-energy value, there's a very wide range of products. Let's talk of topicals.

Topicals, they are very methodic as well. Probably you've read of Viruvet [ph] productions.

They're not -- there's Q1, Q2, and -- but in -- but then upside, they're equally limited. And then you go for somewhat limited composition topicals.

There were all these product estimates. Now some of them you're not [indiscernible] gone into, but we'll see if those -- as it comes.

But those could be in the range of $4 million, $5 million assets. So the development cost, let's say, is not a large factor going ahead.

It depends on which effect -- yes, picking up which effect comes in each quarter. So some of this.

But what -- with the size and scale which you have, I don't think that would but each mentioned on overall R&D costs, so the mix of all businesses. That's not going to shift very drastically.

Okay. And a quick clarification on CapEx.

My understanding was Dr. Reddy's filed a DMF, I think, late last year and haven't seen any court case on this.

So has the company filed an ANDA on this product?

Yes.

Okay. And have you been litigated?

Or is it through you?

Those [indiscernible] we won't be able to share -- talking about the suit.

Okay, excellent. Do you -- I mean, there was making a big deal out of a probability of these ANDAs and specifically targeting even the genocity [ph] of the product?

And do you think you would be in time for the first wave of launches?

Well, so the characterization, genocity, all these things that could cause -- like all other companies, we are putting in our best efforts in getting signed behind assets. But there are -- there is lots to these assents actually, not just genocity and characterization.

There are other specifics, things which have to come to play. But it's high on our priority.

That is because other companies filed much earlier. Where they are, we don't know.

So the approval timeline's difficult to say in such complex products. But it's a high-priority product for us.

Yes. I mean; just -- if you are to look at your overall gross margin for the Global Generics business, it was actually the highest in the last 6 quarters or so.

With the product pipeline that we have and the overall regime mechanism in place, is it fair to assume that we'll be able to at least maintain this or maybe improve this in the next 3 quarters or so?

So, Kartik, we've stopped giving guidance on the sales and margin. The reason we are at 62% for that particular quarter, in quarter 1 is because of this product mix, with all price increases that we'd alluded to.

So gross margin is a function of several things. We would probably not like to comment on the balance of the quarter, sorry.

Okay. But we have almost hedged between 55 to 60 now.

So assuming that the similar type of quality of products and the launches are maintained, is it a fair assessment that we'll not go below 60?

Oh, we are not commenting on that. As we said, any -- we wouldn't like to give any kind of a financial guidance, so please...

Just on the India business, we mentioned the -- in the opening remark that the impact is about 4%. Did I hear that right?

Yes, of India set.

So are you factoring this with any assessment of the volume gains that are -- volume gains that you'll make? Or is it that it's actually the most pessimistic scenario you will only lose 4%?

So the figure is around INR 55 crores from last year's base. It's roughly about 3% of the business.

Having said that, on the largest hit is on one of our large grant called OMIS [ph] . So we'll try certainly to see whether that lowering of price can improve accessibility, and we are putting a source in that direction.

Having said that, we'll see how it pans out.

Recently, under [indiscernible] lifted a ban from OTC manufacturing. So what will be the impact on company?

We didn't get your question. Can you please...

Yes. Recently, under [indiscernible] lifted a ban from OTC manufacturing from -- in the state.

So what will be the -- its impact on company?

I think you're confusing it if it's the lift from the ban on expansion [indiscernible] for API plants.

No. Yes.

So what will be its impact?

No impact. I mean, it's [indiscernible].

Then, I mean [indiscernible] around 60 ANDAs you have filed. Out of it, 8 are FTF status.

So what markets are that you're expecting from it?

[indiscernible] it's something that we'll come back to you offline.

Okay. And any further expansion plan that you have in terms of geography as well as in terms of capacity?

Nothing's major to talk about right now.

Just 2 questions. One is if you could give us a broad ballpark about how your PSAI business is segmented in custom synthesis and EPS.

That's one. Secondly, your filing status and your litigation status on Rapamune, And do you expect to be in the market only 2014?

So on the [indiscernible], it's roughly 70-30 within PSAI, and it will keep varying depending on uncontrollables.

So 70 is EPS?

Yes.

Okay. And on Rapamune?

What's the second question, Monica?

Just your filing and your litigation status on Rapamune, whether you are a Para III filer. Have you been litigated if you're a PARA IV?

And do you expect to be in the market post-pediatric exclusivity ends in Jan '14?

Well, which molecule are you talking about? Can you refer to the generic name, please?

This is Pfizer's Rapamune. Just...

You can reach us. Okay.

Yes. So again, yes, we have tentative approval out in the FDA website.

And again, it's probably the end -- there is a defined launch for this product.

Do you have settled a date -- certain launch?

Well, we have tentative approval already and subject to debate, which is in public domain.

And okay. And so -- I'm sorry then.

I'm not aware of the date. Is it in 2014?

It's in calendar year 2014, yes.

Thanks to all for joining Dr. Reddy's senior management for quarter 1 FY '14 earnings call.

In case you have additional clarifications, please feel free to get in touch with the Investor Relations team. Thank you, and good day.