Dr. Reddy's (RDY) Q2 2027 Earnings Call Transcript

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DATE

Friday, Oct. 23, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Aishwarya Sitharam
• Executive Officer - Erez Israeli
• Chief Financial Officer - Mannam Venkatanarasimham

TAKEAWAYS

• Consolidated Revenue -- $905 million, representing a 1.5% decline year over year primarily due to lower sales of Lenalidomide in the North American market.
• EBITDA Margin -- 20.6%, reflecting a decrease of 6 basis points year over year as the company manages lower high-margin generic sales and rising freight costs.
• North America Revenue -- $264 million, accounting for 29% of overall revenues and representing a 29% decline year over year due to price erosion and generic competition.
• Emerging Markets Revenue -- ₹2,059 crore, growing 84% year over year driven by new product launches and acquisitions across various regions.
• India Revenue -- ₹1.85 thousand crores, growing 17.8% sequentially due to recent launches of acquired brands and increased volumes.
• Europe Revenue -- €127 million, declining 6% year over year on account of price erosion in generics and operating model changes post-integration.
• PSAI Revenue -- $88 million, representing a 19% decline year over year due to lower volume uptake in the active pharmaceutical ingredient business.
• Gross Margin -- 52.1%, representing a decrease of 254 basis points year over year following lower Lenalidomide sales and provisions for inventory.
• SG&A Spend -- ₹2,810 crore, accounting for 32% of revenue and increasing 6% year over year due to higher personnel costs and elevated freight expenses.
• R&D Spend -- ₹524 crore, representing 6% of revenue and declining 16% year over year due to lower development expenditure in the generics segment.
• Net Profit -- ₹925 crore, reflecting a margin of 10.7% on total revenues for the period.
• Diluted EPS -- ₹11.1, as reported for the second quarter of the fiscal year.
• Net Cash Surplus -- $261 million, providing liquidity for targeted inorganic opportunities and future growth drivers.
• CapEx Guidance -- ₹1.6 thousand crores to ₹1.7 thousand crores, focused on capacity expansion for biosimilars and future generic pipelines.
• CDMO Revenue -- Over $100 million, representing trailing 12-month performance for the Origin Pharmaceutical Services business.
• Emerging Markets New Launches -- 27 new products, introduced across multiple countries during the second quarter.
• India Market Rank -- Improved to eighth for the quarter, outperforming the overall Indian pharmaceutical market with a quarterly growth of 21%.
• Drug Master Files -- 28 globally, filed during the quarter to support the Pharmaceutical Services and Active Ingredients division.
• Semaglutide Approvals -- 10 countries, with management planning to relaunch the product in early November 2026.
• Working Capital -- $1.53 billion, an increase driven by payments for legal claims and operational balance changes.

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RISKS

• Israeli stated, "If you ask me, is there a chance that we will get a CRL? There is a chance," acknowledging the regulatory uncertainty surrounding the upcoming December goal date for abatacept.
• Venkatanarasimham warned that the company experienced "elevated freight cost, due to supply chain disruptions arising from the Middle East crisis," which impacted operating margins by approximately 100 basis points.
• Venkatanarasimham noted that the European business faced "price erosion in generics," which contributed to a 6% year-over-year revenue decline in that region.

SUMMARY

Dr. Reddy's Laboratories Limited (NYSE:RDY) reported a slight decline in consolidated revenue for the second quarter, largely influenced by the tapering of Lenalidomide sales in North America and price erosion in European markets. Management noted that while the headline figures were affected by these high-margin product cycles, the underlying base business maintained double-digit growth across India and emerging markets. The company is currently focused on scaling up its complex generic pipeline and biosimilar portfolio to diversify revenue streams. Profitability was further challenged by macroeconomic factors, including increased logistics costs and a higher effective tax rate resulting from jurisdictional mix changes.

• Management expects to resume the supply of generic semaglutide to partners and global markets by November 2026 following the successful resolution of scale-up challenges.
• The company is awaiting a regulatory decision for its abatacept biosimilar, with a PDUFA goal date set for Dec. 22, 2026.
• CEO Israeli indicated that the CDMO business is targeted to grow two-fold to three-fold over the next three to four years, driven by a combination of discovery projects and innovative manufacturing contracts.
• Dr. Reddy's expanded its collaboration with Gilead Sciences to provide access to lenacapavir for HIV prevention in 120 countries, strengthening its global footprint in infectious disease treatments.
• The company partnered with Takeda to launch the Dengvaxia dengue vaccine in the Indian private market, scheduled for the first half of 2027.
• The India business improved its market rank to eighth, supported by four brands featuring in the top 50 new launches within the Indian pharmaceutical market.
• CEO Israeli stated, "The main issue was with our ability to scale up the API. This problem is resolved, and we shipped all the necessary API to our partner."

INDUSTRY GLOSSARY

• PSAI: Pharmaceutical Services and Active Ingredients, a business segment focused on producing raw materials and contract research.
• MAT: Moving Annual Total, a rolling 12-month calculation used to assess market performance trends.
• IPM: Indian Pharmaceutical Market, the domestic pharmaceutical industry in India.
• CDMO: Contract Development and Manufacturing Organization, a company that serves other pharmaceutical companies on a contract basis.
• API: Active Pharmaceutical Ingredient, the biologically active component in a drug.
• DMF: Drug Master File, a submission to the FDA used to provide confidential information about facilities or processes used in manufacturing.
• sBLA: Supplemental Biologics License Application, used to seek approval for changes to an already licensed biological product.
• CRL: Complete Response Letter, an FDA communication indicating that an application will not be approved in its current form.
• NRT: Nicotine Replacement Therapy, products used to help people quit smoking by providing low doses of nicotine.

Full Conference Call Transcript

Aishwarya Sitharam: Welcome To the quarter 2 FY27 earnings call of doctor Reddy's Laboratories Limited. We appreciate your continued interest in our company. I am Aishwarya Sitharam, Head of Investor Relations at Dr. Reddy's. Joining us today are members of the leadership team, Mr. Erez Israeli, our Executive Officer, Mannam Venkatanarasimham (we call him MVN), our chief financial officer. Our quarterly financial results have been published earlier today and are available on our website for your reference. We will start today's call with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights as well as the company's strategic outlook. We will then open the floor for questions.

All commentary and analysis during this call are based on our IFRS consolidated financial statements Please note that certain non GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. I would like to remind everyone that the Safe Harbor provisions outlined in today's press release apply to all forward-looking statements made during this call. Before we proceed, I would like to call out a few housekeeping points All participants will be in the listen only mode during the opening remarks. Should you need any technical assistance during the call, please use the chat function on your Zoom application. The chat will not be monitored for any questions to the management.

This session is being recorded, and both the audio and the transcript will be made available on our website. Please note that this call is the proprietary material of doctor Reddy's and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. With that, let me hand over the call to MVN to present the financial highlights for the quarter over to you, MVN.

Mannam Venkatanarasimham: Thank you, Aishwarya. Greetings, everyone, and thank you for being with us today. It is my pleasure to take you through our financial performance for the quarter of FY27. The business reported a 1.5 year over year decline in revenue, while EBITDA margin was at 20.6% for the quarter. Excluding Lenalidomide in North America. The underlying base business maintained its growth momentum delivering double digit growth. All financial figures in this section are translated into US dollars using a convenience translation rate of ₹95.83 The exchange rate prevailing as of September 30, 2026 Consolidated revenues stood at ₹8.01 thousand crores, which is US$905 million, a decline of 1.5% on a year-over-year And a growth of 7.4% on a sequential basis.

Strong underlying base business performance across key businesses, except Europe, and a 52.1%, increase of 562 basis points sequentially and a decrease of 254 basis points year over year. The year over year decline in margins during the quarter was largely on account of lower Lenalidomide sales As a reminder, margins in the preceding quarter were adversely impacted by a provision for inventory and other costs associated with the semaglutide API-related challenges. The reported gross margin for Q2 FY27 was 56.2% for Global Generics and 11.8% for PSA. The SG and A spend was at ₹2.81 thousand crores. An increase of 6% year over year and a decline of 3% sequentially, accounting for 32% of revenue.

The year over year increase was primarily driven by higher personnel cost following annual increments adverse forex movement, as well as elevated freight cost, due to supply chain disruptions arising from the Middle East crisis. The R&D spend was at ₹5.24 crores. Down by 16% year over year and 9% sequentially. Accounting for 6% of revenues and primarily reflecting lower development expenditure in the generics as compared to the previous year. The EBITDA including other income stood at ₹17.83 crores, which is US$186 million, a decrease of 6 basis points year over year, an increase of 806 basis points sequentially, reflecting a margin of 20.6% of the revenues for the quarter.

The profit before tax was at ₹1 thousand crores, that is US$128 million. Representing a margin of 14.2%. Effective tax rate for the quarter was 25.6%, compared to 22.2% in the corresponding period last year. The ATR for the quarter was higher primarily due to an adverse jurisdictional mix for the quarter in comparison to the same period in the previous year. Profit after tax attributable to equity holders of the parent for the quarter stood at ₹9.25 crores, which is US$97 million, a margin of 10.7% on revenues. Diluted EPS for the quarter is at, ₹11.1.

Operating working capital as of September 30, 2026, was $14 thousand crores, which is 1.53 billion US dollar, an increase of ₹2.97 crores over June 30, 2026. Cash, CapEx, cash outflow for the quarter stood at ₹1.86 crores, which is US$19 million. Cash flow during the quarter was ₹1.71 crores, which is US$18 million. As of September 30, we have a net cash surplus of ₹2.5 thousand crores. Which is US$261 million. Foreign currency cash flow hedges executed through derivative instruments during the period are US$229 million hedged using combination of forwards and risk reversal option. Scheduled to mature by March, 2027. These contracts are hedged at a rate of 93.03 2. 95.54 per US dollar.

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

Erez Israeli: Good day. Thank you for your continued interest in our company. Apologize for my voice. I hope it will stay consistent. We remain consistent with. In our strategic priorities of delivering double-digit growth across geographies, and sustainable profitability. Through strong execution in our core businesses, focus on key assets, continued productivity improvement disciplined investment in future growth drivers, both organic as well as inorganic. During the quarter, the underlying business that is excluding Lenalidomide in North America continued to perform well, delivering a double-digit growth overall as well as across North America emerging markets and India. We achieved an EBITDA margin of 20.6%, supported by the strength of our base business and our continued effort to drive productivity.

Subject to successful validation, we expect to reload semaglutide both directly as well as to our partners by November 2026, consistent with the timelines communicated earlier. We also remain focused on advancing abatacept and other complex generics as they move toward the regulatory review process in the coming quarters. Let me now walk you through some of the key highlights of the quarter. We partnered with Takeda to bring India first approved dengue vaccine, we call it Dengvaxia,. To the private markets in India in the first half of ‘27. We expanded our collaboration with Gilead Science to enable access to the investigational once yearly, lena capavir for HIV prevention in 120 countries.

In collaboration with the GARDP foundation, we secured approval for zoleifotacin. And antibiotic use in gonorrhea treatment in Thailand within 6 months of USFDA approval. We received US FDA approval for rituximab biosimilar which will be commercialized in The US through our partners Fresenius Kabi. We launched nivolumab in India marking our entry to biosimilar immuno oncology in India. Both rituximab and nivolumab are developed and manufactured in house. Generic semaglutide is now approved in 10 countries, across Latin America, Africa, The Middle East, as well, of course, as Canada and India. Our CDMO business under Origin Pharmaceutical Services generated revenues over $100 million in the last 12 months.

We continue to receive global recognition for our commitment to sustainability finest Asia awards, a silver medal in the best large cap company in India category, as Asia's Best Companies 2026, reflecting strong endorsement by the Asian investor and analyst community. We improve our CRISIL ESG score to 73 out of 100 from 66 becoming the only pharmaceutical company in the leadership category. Let me take you through the key business highlights for the quarter Please note that all financial figures mentioned are reported in the respective local policies.

Our North America generic business reported revenue of $264 million for the quarter, accounting for 29% of our overall revenues and reflecting a decline of 29% year-on-year and a growth of 12% sequentially. The decline is attributed to lenalidomide sales versus last year. The underlying base business, excluding Lenalidomide, continued to deliver strong double-digit growth driven by new product launches, During the quarter, we launched 6 new products including first to market launch of Sugamadex injection. We remain on track to launch additional products, including complex injectable during the year.

Our branded franchise comprising India, emerging markets, consumer health business in nicotine replacement therapy or NRT together accounted for 53% of our overall revenue and continue to provide a strong foundation for stable margin for the company. Our emerging market business recorded revenue of ₹2,059 crore accounting for 25% of our overall revenue, reflecting a robust growth of 84% year over year, And 12% Q-on-Q. New product launches across markets, including acquisitions,, coupled with favorable currency movement drove growth during the quarter. We introduced 27 new products across countries in Q2 FY27. Our India business revenues were ₹1.85 thousand crore, accounting for 21% of overall revenues and consistently delivering a robust double-digit year-on-year growth of 17.8% sequentially.

Growth was driven by recent launches, including acquired brands along with price increases and higher volumes. According to IQVIA, September 2026 data, our IPM rank improved to 8. For the quarter and 9 for the year. We continue to outperform the Indian pharmaceutical market, IPM, with a moving quarterly total growth of 21% versus 14.7% for IPM and moving annual total MAT growth of 19.4% versus 13.2% for the market. 4 of our brands feature in the IPM Top 50 new launches and we launched 4 new brands during the quarter. Our European business, which includes NRT,, posted revenue of €127 million for the quarter accounting for 16% of our overall revenues.

Revenues declined 6% year over year and 3% sequentially. On account of price erosion in generics, partially offset by revenues from new product launches. Growth was further affected by the continued impact of the operating model changes post NRT integration as highlighted last quarter. During the quarter, we launched 6 new generic products across markets. Our PSAI business reported revenue of $88 million accounting for 10% of the overall revenues. Revenue declined of 19% year over year, and 3% sequentially. primarily on account of low API volume uptick. Our CDMO business delivered double-digit growth this quarter during the quarter, we filed 28 Drug Master Files globally.

We remain committed to improving the health of our business through delivering consistent growth and sustainable margins. As we continue to strengthen our core business, we are also investing in future growth drivers: growth peptides, biosimilar, consumer health, and innovation. Our focus remains on progressing key products such as semaglutide and driving operational efficiency and pursuing targeted inorganic opportunities to support long-term growth and shareholder value. With that, I invite your questions as we move into the Q&A session.

Operator: Thank you very much, Erez. We will now begin the question and answer session. To join the question queue, use the raise hand option available on the bar at the bottom of your Zoom application. If you wish to exit the question queue, you may click on the lower hand option. Participants are requested. Not to ask 2 questions at a time and to rejoin the queue in case of any incremental queries. I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please do feel free to use the chat option to reach out to us.

The first question is from the line of Neha Manpuria, Bank of America. Neha, please go ahead.

Neha Manpuria: Yeah. Hi. Thanks for taking my question. My first question is on sema. I think you mentioned that we are on track to resume sema in early November. It is. I think you had given us, you know, a volume guidance last time when we had announced the disruption in supplies. 2 questions on sema. First, is the resumption happening with our own API? Is it the same partner that we are using? And second, you know, given what has happened in Canada, you know, you know, with the 1 player which is already there, how confident are we of meeting the guidance that we would given for sema?

Erez Israeli: So I am very confident. The confidence is based on all the orders that we already have. And we just need obviously to supply. The main issue was with our ability to scale up the API. This problem is resolved, and we shipped all the necessary API to our partner. We still need to have the results of the validation. So this is still pending, but I am confident that it will be successful. And then we are ready to launch Most of the quantities will go to Canada and some of the quantities will go to Latin America, primarily to Latin America and recently to Africa.

Neha Manpuria: Understood. And my second question is, on the gross margin improvement that we have seen in the quarter. MBN, if you could give us some color in terms of what is driving this gross margin improvement And is it fair to assume that as sema comes through, this is the bottom in terms of gross margin, and gross margin should only improve from here.

Mannam Venkatanarasimham: Yeah. They had just. As we gathered earlier, we want to be gross margin in the range 50% to 55%. that is why this quarter, what we say, 52.1. This improvement from last quarter to even this quarter is a combination of the new products and the business mix. that is where I think we will be this year, certainly in the coming for quarters as well. And your assumption is correct. Yes. It will only go better from here. Yeah. Understood. Thank you so much.

Operator: Neha. The next question is from the line of is from the line of Dr. Kunal Dhamesha from Macquarie. Kunal, please go ahead.

Kunal Dhamesha: Hey. Hi. Thank you for taking my question. First 1 on the 1 cash flow line item. On other assets and liabilities. There is a large change that has happened around ₹1.37 thousand crore. So, MBN, could you please help us what is driving that?

Mannam Venkatanarasimham: So this is the 1 where this SSA claim, what we had, I think there was the payments have happened this quarter. That is 1 change, and then other balances are due to various operations. But that is the biggest 1. That should remember, $50 million that we provided in Q4. Okay. Okay. During this h 1. Okay. So the cash flow has happened now. Okay. Yeah. Great. Thank you.

Kunal Dhamesha: And, you know, just continuing on the gross margin front, or the other way to look at is a sequential improvement in U.S. revenue, a meaningful improvement, right? So would you would you be able to split between the new product launches driving that and the volume improvement in existing product or pricing improvement how should we think of the delta in US business? And the similar, you know, driver and approximate split for the gross margin improvement on a Q-o-Q basis.

Mannam Venkatanarasimham: So, certainly, like, a new products, what we have launched in I think, the U.S. I think these products as compared to the. our company average gross margins, I think, certainly is on the higher side as well as what we have launched, nivolumab. And the business mix also has a contributor to this margin.

Erez Israeli: So, Kunal, the main driver is actually the business mix because now the businesses that are relatively with high profitability meaning India, EM, and NRT, All of them are much more profitable than our average. Went to 53%. So that is 1 contribution. The second is what has been said that The U.S. is more profitable because of the contribution of the new product. The combination of both gave that. And the and the last the. We did not increase the expenses. Expenses are essentially flat this quarter, And so if you grow the sales double digit and you do not increase the cost, it is obviously lead to this margin improvement.

Kunal Dhamesha: Sure. And lastly, from my side, we have also seen some drag from the raw material price increase and the. You know, the. I think the oil prices are high and. You know? The chemical prices are also high. And then how should we look at that cost line item from the, you know, let's say, second half perspective? Do you think that quarter 2 is when we have seen most of the increase, or quarter 3, quarter 4, we can see some drag? So your.

Mannam Venkatanarasimham: Just I think this because of the war, I can say the increases what we have seen in the KSMs And then the second 1 is solvents, and the third is, like logistics freight for what we are exporting material from India to all other countries. So we have seen the increase in on the 3 fronts. And then overall, it has an impact close to 100 basis points on the EBITDA. So we believe that is already part of the gross margins, and then we believe, I think, this trend will continue for Q3 and Q4 as well.

Erez Israeli: And so far as I do not anticipate additional growth unless, of course, there will be, you know, as much as we can predict, additional geopolitical issues, But with our limited understanding, if it will stay the way it is now, we are in the same place.

Kunal Dhamesha: Sure. I have more questions. I will join back the queue. Thank you, and all the best.

Operator: Thanks,. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai: Yeah. Hi. everyone. This is a clarification on resumption. So you mentioned you have already started supply of API to your partner. Fill and finish partner. However, remaining is the validation. So I actually am not clear, I thought like validation will be done, and then you will supply to your fill-and-finish partner. So can you just help us understand this?

Erez Israeli: Sure. So you do validation as we had to come back and basically tweak the process on the API. Then you do validation of the API. And then when you ship it to our partner, you need to do validation on the drug product using that API. This is a process that takes about 3 weeks. And so far, give or take the all the activities are on time. And that is why it took us to November from the first place. So far, it is in process,, but you have basically validation in each stage of the scale up of the process.

Damayanti Kerai: Sure. that is helpful. And, other point on semaglutide you mentioned so far, it is approved in around 10 countries. So, did not you secure for more approvals in other markets? Are you trying to resolve the API issue? Or want to go after you resume the supply in the existing, or approved market? Because you mentioned you will be targeting to launch in more than 70 countries across the world. Richa?

Erez Israeli: Yes. The right number is now 89 markets. But that said, in all the markets that the process started, we did not stop. The scale up issue has nothing to do with the regulatory process. And we do not require any amendment to the file or anything like that. So everything continued. And all the approval we got, it was according to the process in each 1 of those respective countries, and this will continue. Some of the approval in some other markets got delayed because of the scale up. As we needed to ship them samples of the products and those samples will be now sent to these places.

So we will continue with the process for all the other markets as well.

Damayanti Kerai: Surya. And my second question is on your NRT, the nicotine. So a flat bit. A flat performance for the last 2 quarters. And you mentioned it was due to change in the business model. So when we should see recovery in our business So last year or last quarter, if you recall, we had to carve out from Haleon.

Erez Israeli: So it means that Haleon used to do it, and we gave them certain margins for handling the business. The new business model, it means that now we are selling it either by ourselves or through distributors. And the. And. But the payment to Haleon is not there anymore. It means normally, in this respect, less sales but more profit. So what I can say about it, it is the comparison year over year will be until we will finish the ERA. See, we have 2 more quarters like that. In general, the business is doing well. It will grow in the same way that you saw until now. Somewhere between a high single digit to maybe even double digit.

And the profitability is way above the expectations that we put in the business model. So we are very, very pleased with this 1.

Damayanti Kerai: Sure. Thank you. I will get back in the queue for more questions.

Operator: The next question is from the line of Tauseef Shaikh from BNP Paribas. Tauseef, please go ahead.

Tauseef Shaikh: Good evening, and thanks for the opportunity. First question on abatacept. While the gold date is set for December, are there any incremental update that you would like to share with us especially for the virtual. From the Vachubali plant?

Erez Israeli: Yeah. So the plant, went for the We are still waiting for the IR to come. And the goal date is indeed December 22nd, and we are hoping for an approval it is obviously in the hands of the U.S. FDA. Okay.

Tauseef Shaikh: that is helpful. On the R&D which seems lower compared to Y-o-Y and q on Q-o-Q, where you have mentioned is on account of lower spend on GlobalGenrix. How do you see this trend going ahead? Shall we assume this is the new base now?

Mannam Venkatanarasimham: So this quarter is R&D is low. Absolutely, you are right. And then coming quarters, what we believe, our R&D is going to be in the range of 7% to 8%.

Tauseef Shaikh: Okay. that is helpful. I will get back in the queue.

Operator: Thanks, Tauseef. The next question is from the line of Madhav Marda from Millennium. Madhav, please go ahead.

Madhav Marda: Hi. Good evening. Just 1 question. If I understood right during the initial remarks, you mentioned about like 1 or a few complex injectable launches in the second half of the year. Could you just clarify, like, if you could share some more views on that product? Did I did I hear that right that we have some complex injectable lineup?

Erez Israeli: Well, we will talk about it more when we get closer towards the end of the year. But, yeah, we do have a few interesting products in our pipeline. We have only spoken about that. We have done a bunch of launches. We want to continue with that moment. Yeah. But I am kind of careful to promise because I got burned in the past when dealing with the approval of complex generics. Some of you have been with us for many, many years, and you remember that. But let's say we have some exciting products ahead.

Madhav Marda: And, MVN, in 2022, we have done the Analyst Meet in Bombay that time we had shared names of a few products. Is it from that list itself? You had disclosed 4 or 5 products in the pipeline.

Erez Israeli: You will know by the end of the year.

Madhav Marda: Okay. Okay. Fine. Alright. But it is a meaningful product for the U.S. market. Is that right? These are meaningful products. Yes. Okay. Got it. Alright. Good. Thank you.

Operator: Thanks, Madhav Marda. The next question is from the line of Foram Parekh from Bank of Baroda Capital. Please go ahead.

Foram Parekh: Thank you for the opportunity. My first question is on your European business ex-NRT. So, the growth seems to be declining there. Probably because of Germany. So, how should we look at it? I mean, NRT is also now, flattish because of the change in business model. And ex-NRT also, it is declining, which is taking a toll on the Europe business. So can we expect it to go back to double digit?

Erez Israeli: Yeah. It will. First of all, the NRT will grow. The NRT is growing and obviously that part will impact also the relevant part of Europe. Absolutely, you are correct about the performance of this quarter. The next quarter should be better. Let's say the NRT I am expecting against either high-single-digit growth or even double-digit, depends on certain scenarios. As for Europe, I am expecting growth, but it will not be significant growth this year. Sure. And on ex-NRT, how should we look at growth ramping up? ex-NRT Europe, you mean? Yes. It should grow probably single-digit this year. Okay.

Foram Parekh: that is helpful. My second question is on SG&A costs. Here also the contribution has come lower to 26% versus earlier trend of 29%. So would this be the new sustainable number to look at?

Mannam Venkatanarasimham: Yeah. So overall, just want to clarify our SG&A is 32%. And just as you know, here we have also spoken the cost productivity. What we are doing is now that is visible. So even coming quarters also, at least in this year, coming. You may not see, like, a significant changes to this number. it is going to be at this level. Around here and there, I think, small changes.

Erez Israeli: I just want to reiterate to take the opportunity We believe that the level that we agree and we and we it all the time actually, with all of you. Is sustainable. We think that the 25% We are always discussing EBITDA. EBITDA. And this will continue and we are planning to consistently continue to deliver of this number.

Foram Parekh: Sure. Thank you. And last question is on the India business. So, we have done good, and IPM growth also is inching up in double digit. And is likely to sustain at current levels for the remaining year? So can we expect current run rate to be the growth rate for the year?

Erez Israeli: it is going to obviously to stay a high level of double digit. it is maybe a little bit less or a little bit more, but we are in the right neighborhood. Also, we want to be. Our growth to be, like, higher than the market growth that include basis points.

Foram Parekh: Sure. that is helpful. Thank you.

Operator: Thanks, Foram. Participants are requested to restrict the number of questions to 2 to ensure that everyone in the queue gets an opportunity to interact with management. The next question is from the line of Prakhar Nema, who is from BNY Mellon. Please go ahead.

Analyst: Firstly, thanks for the question. Thanks for taking these questions. So what is the company's strategy for expanding the biosimilar business through within research and development and partnership? So could you please share some light on this?

Erez Israeli: Sure. We are going after both. So we naturally, leveraging our batch pooling facilities as well as additional facilities that we will build in the future. And abatacept is going to be the first meaningful product to be launched out of our own facilities. Rituximab is obviously 1 of them. Abatacept beta set is going to be obviously meaningful and more products to follow. In parallel to that, we are talking to partners around the world and we are trying to license products which we do not have in our own pipeline, in our own internal pipelines. And we have it whether globally or for specific regions. So both will continue. Perfect. Thanks. And 1 more question.

So what is the revenue we can expect for the next 3 to 4 years? It depends on the success of abatacept. Obviously, in the next coming years because this is going to be a significant product for that. And abatacept should be in the hundreds. So you should expect hundreds of millions of dollars. So followed by abatacept, then we have a pembrolizumab, daratumumab will also will come in the next within 5 years.

Analyst: Okay. Okay. Thank you so much. Thanks for taking my questions.

Operator: Thanks,. The next question is from the line of Abdulkader Puranwala from ICICI Securities. Abdulkader, please go ahead. Abdulkader, you have been unmuted. Just move on, then it will become back. I will come back to you the next question is from the line of Vishal Manchanda from Systematix. Vishal, please go ahead.

Vishal Manchanda: Hi. Good evening, and thanks for the opportunity. On Rituximab, Would It Be Possible For You To Share Where Are We In Terms Of Market Share In Europe?

Erez Israeli: We have a single digit of market share in Europe? Low single-digit or high single-digit? Low single-digits.

Vishal Manchanda: Any timelines and any guidance as to where we can be Maybe a year or 2 year down the line. And do we have the capacities there?

Erez Israeli: So indeed, we were constrained by capacity. We should be better, once we will be able to add more qualified capacity for that. And the. At the same time, we are talking about the product with the high level of competition. So I will not expect a significant change because of that.

Vishal Manchanda: Okay. And second, your JV entity in China got a first generic approval for a drug called icotenin in July. Is that contributing to your numbers in the current quarter or will this come subsequent quarters?

Erez Israeli: So we are recording our share of the.

Mannam Venkatanarasimham: So we are not recording the sales. We are recording our share of the profit of that. So it is part of Profit. The profit and our share in that, which is 51%.

Vishal Manchanda: So this would be part of the JV. Share of profits from JV? Got it. So have we kind of started selling this And is this now? Have we ramped up to our full potential? And are we the only generic here, or there are other generics that have entered?

Erez Israeli: To the base of my knowledge, we started. I do not recall about the competition. So, okay.

Vishal Manchanda: And just 1 final 1 on abatacept. Once we get the approval, how long can we take to get listed on the formularies? Will it be like 6 months? Or we can start getting market share post approval?

Erez Israeli: So the ramp up, like you said correctly, will be after 6 months, we will get all the codes and all the registration. The initial. But we can sell smaller quantities from day 1. So expect that the launch will be upon approval, but the ramp up will be correctly after 6 months.

Vishal Manchanda: Got it. If I can ask 1 more on sema, if you can guide on where generics are in terms of market share in Canada? as of date?

Erez Israeli: As of date, there is only 1 generic in Canada, right? I do not remember their market share. But let's say that the Canadian market will love to get to get some. Got it. Thank you.

Operator: Thanks, Vishal. The next question is from the line of Surya Patra from PhillipCapital. Surya, please go ahead. Today, you have been unmuted. Okay. While Surya joins back in, the next question can be from the line of Dr. Bino Pathiparampil from Elara Capital. Bino, please go ahead.

Bino Pathiparampil: Hi. Good evening to all of you and congratulations on a great set of numbers. Couple of clarifications. I see from the footnotes, this deal and some milestones in Russia, which is part of revenue. Is it included in the revenue breakup? Is it part of U.S. type revenue and per share revenue respectively?

Mannam Venkatanarasimham: It is it is in the sales line, and bendamustine is in the U.S. revenue, and milestones are in the Russia revenue. Am I right? That milestone of Russia is part of the EM revenue. Okay.

Bino Pathiparampil: Second, what is this deal about? What was the logic behind sending the product rights? Selling the product rights?

Mannam Venkatanarasimham: Sure. When there was no licensing. Yeah. that is where I think here we thought a partner will get overall as a deal, and then we will get a better economics. that is why we have taken the given this rights to the partner.

Bino Pathiparampil: Got it. In the quarter, I have seen. I see that the finance income is significantly lower versus the ₹2.90 crore last quarter and kind of similar numbers in previous quarters. This quarter is only about ₹90 crore. So is there any reason why the finance income is so much lower?

Mannam Venkatanarasimham: So here, what the exposure we have on the balance sheet, I. Now the forex especially the movements, I do not know, from June to September of the ruble spot rate has a significant variance that has given this P&L debit, I think, in this quarter as compared to the Q1. Sorry, in this quarter, it is lower compared to Q1. Yes. Yes. Yes. Okay.

Bino Pathiparampil: Okay. I am sorry. 1 last question. What will be the CapEx for the full year? Because the first half I have seen is much lower than your typical 1.

Mannam Venkatanarasimham: Earlier, we have guided around ₹1.8 thousand crore. Of course, my view, it could be a little lower, but definitely, I expect around ₹1.6 thousand crore to ₹1.7 thousand crore.

Bino Pathiparampil: Thank you. I will join back with you.

Operator: Yeah. Thanks, Bino. The next question is from the line of Milan Das from JPMorgan. Milan, please go ahead.

Analyst: Sorry. Just wanted 1 clarification on the abatacept scenario. So apart from the IV indication, we also heard from the previous calls that for a subcutaneous indication, you expect an approval in the U.S. in Q4 FY28 and in the non-U.S. market, both indications in Q1 FY28. So do the. So the timelines remain consistent, or has there been any change in this?

Erez Israeli: Consistent. We stay consistent with it. Yeah.

Analyst: Okay. Thank you.

Operator: Thanks for that.

Analyst: And the non-U.S. market will start roughly $1 billion for the reference drug. So how do you expect the ramp up in the non US markets for you for abatacept?

Erez Israeli: We believe that European market is a very important market for this. The. it is a. And it is going to be launched a little bit after The United States, but it is a European. The Europe, we believe, is a significant market. Okay. And lastly, for these markets, the manufacturing would be done in Bachupally itself, right? Correct.

Analyst: Okay. Thank you. Thanks for the opportunity.

Operator: Thanks, Milan. The next question is from the line of Tara Ganatra from UTI Pension Fund. Tara, please go ahead. Yes. We can.

Analyst: Thank you so much for taking my question. So I had 1 question largely from the India market perspective. What we have seen in the last 2 years is that IPM growth, has been in high single digits. And in the last 6-odd months or last 3-odd months, what we are seeing is that the growth has accelerated versus the last 2 years the growth was more driven by pricing. This time around, there is a lot more volume growth. So both for Dr. Reddy and for the industrial industry, what do you think is changing, and what is the outlook for the second half of the year? And going forward?

Erez Israeli: 1 thing that changed significantly is obviously the launch of semaglutide and the GLP 1 product. This is a significant addition both in volumes. The second 1 is that you have more new products. Like us, innovative products that are coming to the market. So in general, this is the main contribution. I believe that if you take the GLP 1, you will get either close to the single digit or too high. I did not do the math, but this is the main contribution, I believe. Okay. So you do not see any smaller player vacating the market or, you know, slowdown in trade generics or that sort of. That would be driving the IPM growth?

The main, at least, the way I see also that the main growth for us is in the places in which you have those utmost demands. it is. For us, it is primarily the innovation. The branded generic, those that we are investing behind are doing well. Rest are doing like in the market, like normally. Mostly, driven by prices. Sure. Thank you.

Operator: We are going to try and see if Abdulkader can join us now. Abdulkader, can you please unmute yourself? Abdulkader, you have been unmuted. Okay. Looks like, there is continued technical issues at his end. Okay. The next question will be from the line Vivek Agarwal from Citi. Vivek, please go ahead.

Vivek Agarwal: Thanks, Aishwarya. My question is on Abatacept. So just trying to understand what can be the fair market share of your biosimilar in The US? Let's say, once the product is there, across the formularies, even 1 year down. 1 year down the line. Because we have seen in a lot of biosimilars that sometime the market share remains range-bound to around 10% to 15%, and some of the products get market share as high as around the 50% to 60% kind of stuff. So what is your assessment based on the opportunity itself, competitive dynamics, as well as your capacity and capabilities, what kind of the market share is a fair market share? For this product for you?

Thank you.

Erez Israeli: The at least at the moment, assuming that we will get approval, we are alone. So in terms of competitiveness, it is us and the innovator. it is a medical benefit product in United States. So the sensitivity to the price and to market share is not as big as in pharmacy benefit I know you know that well. So we. I believe that a fair market share can be any number from 15% to 25%, It depends, of course, on the success of the launch. We need also to add the. That once the subcu will come to the market, it is obviously going to add to the market share, which will come later.

We are talking about February 2028. So this is give or take. So it is it is primarily about the switch spot between market share and prices.

Vivek Agarwal: Just a clarification. This 15% to 25% is for the entire abatacept market you are talking about or only the IV version?

Erez Israeli: Initially, it will be on the IV. And it could be that there will be some movement on that, but we will start with the IV and the subcu will come in February 2028.

Vivek Agarwal: Understood. And in terms of confidence on abatacept based on your discussion with the FDA, so would you like to assign any kind of probability? How comfortable you are based on your discussion with the agency? Type of queries, etcetera. So what kind of chances that you have in terms of approval, or is there any possibility of a CRL in December and the approval may get delayed by a few months, etcetera?

Erez Israeli: You know, I am 33 years in this business. And I had my share of scars from these predictions. We feel good about the product. We feel good about the inspection. We feel good. we feel good about the correspondence with the US FDA. We want to and are preparing to launch in December. If you ask me, is there a chance that we will get a CRL? There is a chance. I do not want to you know, obviously, none of us want it. But there is a chance. Understood.

Vivek Agarwal: Second question was on The US generic business trajectory, right? On a quarter on quarter, we have seen improvement, right? And a part of the improvement is also being driven by some of the products, which may face competition in the incremental quarters, Q2 and Q3. So just want to get your understanding how we should look at the U.S. numbers, the North American numbers, quarter on quarter. Is there any possibility of dip in 3Q, 4Q? Or you can maintain the current trajectory even going forward in the next. In the second half?

Erez Israeli: So for the U.S., we have-- 1, we discussed, is abatacept. The other is obviously semaglutide that is going not to the U.S., but it will be included in the North America sales. And also those complex generics that are on paper. So if we will have that or the combination of that, we will actually grow versus the current state and for sure sustain it. Yeah. I believe that the numbers are sustainable. Naturally, we have Bosutinib. Bosutinib, always after 6 months that SKU, we have 1 SKU. That has 180 that will obviously go down. I do not think it will impact significantly, that is why we will be able to absorb without a problem.

So overall, I am optimistic, but it obviously depends on our ability to be successful with those products that I mentioned.

Vivek Agarwal: Understood. Just last question on margins. Because the reason I also asked the question on The US business sustainability is that in the coming quarter, You are also indicating or reading that the R&D spend is also expected to go up, right? So I am just wondering if R&D spend goes up, some of these products like Bosutinib comes down and in this quarter you also had some back-end milestone incomes, etcetera. So just trying to understand from where you are getting confidence that you will be able to maintain close to around 20% kind of margins in the second half?

Erez Israeli: First, we, you know, we know our numbers. But. So I am I am sharing that confidence. We have reached it, and it will even go higher. The reason that we feel it, the first of all, is the growth that we see in EM, in India, with the consumer health as well as The United States. Second is the way we control the expenses. So indeed, R&D we will have more, but we will have on the other expenses less. And we are planning to continue to do that. So it is primarily the mix, the growth, and obviously, the continued launch of new products. So maybe by the way, 20 or 21% is not impressive.

We always say that we want 25. We are recovering from lenalidomide. And that is what we are going to be. But said it also before. Now I think people believe me. We will have a 20%-plus. And if we will launch successfully the way I believe semaglutide, it will be more; it will be 21 plus. Thanks. Thanks, Erez. Congratulations for the great set of numbers and best of luck. Thanks.

Operator: Thank you so much. I am Vivek, The next question is from the line of Tushar Manudane from Motilal Oswal. Please go ahead.

Tushar Manudhane: Yes. Thanks for the opportunity. Just 1 question from my side. What kind of price erosion we have seen in case of Sugammadex? Post launch I do not recall the price of the vial. No.

Mannam Venkatanarasimham: Price, I think. Whatever we have in the initial contract signed, I think it is getting continued.

Erez Israeli: I think a product launch, we are probably best the innovator. I do not remember.

Aishwarya Sitharam: Maybe I can get back to you on this. Later, Vishal.

Tushar Manudhane: Sure. Then that is it from this. Thanks for the opportunity.

Operator: The next question is. I think it is a follow-on question. So, the next question is from the line of Dr. Dhamesha.

Kunal Dhamesha: Hey. Hi. Thanks for the follow-up. Just 1 on the abatacept sBLA filings. Where are we in that process?

Erez Israeli: We are supposed to submit it, if I remember correctly, in February. February 2027? 2027. If I remember correctly. Yeah. Sure. Sure. I will see if I am keep me on it. Yes. If you are familiar, it is March. Let's say, think around.

Kunal Dhamesha: Sure. Sure. And another 1 on the complex generics launch, that we are, basically looking forward in the second half. Are these. Or that product particularly is we are dependent on the IP outcome on those launches or is it more just the approval?

Erez Israeli: Approvals. Every approval.

Kunal Dhamesha: Sure. And are these Para IV filings? Launch and approval situation.

Erez Israeli: For now.

Kunal Dhamesha: Sure. Sure. Sure. And lastly, on abatacept, you suggested that the ramp up will happen you know, a couple of quarters later as we get included in the formulary. But just 1, when we launch, what kind of commercial infra do we require I mean, especially for The US and when do we start the build out of that?

Erez Israeli: So we already. We started to do it already years ago. So the main framework of the sales and marketing in North America is already there. We will hire a couple of more sales team. So the team that will cover certain geographies, this is still pending. But the lion's share of the team is there. Sure. So there is not much incremental cost related to that. No. Not much.

Kunal Dhamesha: Perfect. Thank you, and all the best.

Operator: Thanks, Kunal. The next question-- The next question is from the line of Aman Vij from Astute Investment Management. Please go ahead.

Analyst: Yeah. Good afternoon, team. Am I audible? Yes. Yes. Yes. My question is on the semaglutide side, First, given we expect the validation to be completed by November, Where are we in terms of launches and other big markets like Brazil and Turkey in terms of approval timeline and launch timelines and your rough estimate.

Mannam Venkatanarasimham: Brazil likely in Q4. The beginning of Q4.

Erez Israeli: And the rest of the markets So we will most of the. We are going to launch in all the smaller markets either in the end of Q3 or at the beginning of Q4. And this is primarily the time lines that from the time that we finish validation and we start to sell batch by batch. Some of it may come to the markets in Q3, some will come in January. So all of it will be in that time frame. Some in December, some in general. Sure. That helps. Second question is you have talked about we are adhering to our guidance of 6 to 7 million devices this year.

What are the latest estimates, say, for next 1 to 2 years? By 2028 and 2029? Where do you see this number? It obviously depends on the success of this 6 to 7 But like I mentioned in the past, the run rate of 12 to 15 million pens that we discussed in the past still my estimate. But obviously, it can fluctuate as we understand better the markets once we get all the approvals. And we will understand the competition in each 1 of the markets. So right now, Takeda is a very tentative number. But this is what we are preparing for the let's say, the 12 months from April. You had mentioned those number last time.

I just want to understand, are you more positive on the number? Or slightly negative? at that point. I did not change my attitude. it is because we need to see the success of the market that we will take as well as the success and the market share of our partners. So I do not have any additional information right now, it is the same consistent with what we discussed in the past.

Analyst: Thank you for answering my questions.

Operator: Thanks, Aman. In the interest of time, we will take 1 last question from the line of Saion Mukherjee from Nomura. Saion, please go ahead.

Saion Mukherjee: Yeah. Thanks for taking my question. Just 1 question on the PSAI segment. The growth has been muted for a while. So how do you see that growth playing out? You also mentioned the CDMO revenues at $100 million-plus. Can you give some color on the nature of this revenue, is it generics or innovation related? And also the new contract that you signed when you expect that to kick in, is that meaningful? And any other CDMO contracts that can be added over the next year or so. Thank you.

Erez Israeli: No. Thank you, Shyam. So on the CDMO, I believe that the growth trajectory will come. it is a combination of growth and discovery, what you call innovation, So this is going in double digit. We have also certain contracts with big companies in which they want to transfer their production into our lines. So we have several of these projects. And as well as a normal CDMO, meaning that we are doing a project for Phase III, Phase II, for innovative companies. I believe that the that this business should grow and should reach 2x to 3x of these numbers in the next 3 to 4 years.

This is still our plan, I believe, that we should get there On the API side, part of it is that our older products have less demand. And part of it is because most of our launches and most of our activities are done more of as a b to b of a finished product. This is actually going well. Part of it, we are recognized as part of PSAI and part of it, are recognizing as part of the relevant EM or North America. So overall, the B2B is growing. The API merchants part of it is declining, because most of the products, the peptides, and the.

This kind of stuff, people prefer to buy the finished goods rather than to buy the API. Understood.

Saion Mukherjee: Thanks, Saion. Thank you.

Operator: Thanks, Saion. That was the last question. Thank you all for joining us today. We value your time and on this call. If you have any further questions or need any additional information, please do feel free to reach out to me. With that, we conclude today's earnings call.

Erez Israeli: Thanks, everyone. Thank you.

Mannam Venkatanarasimham: Thank you.

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