Dr. Reddy's Laboratories Ltd. Sponsored ADR Stock

Good day, everyone, and welcome to Quarter 1 FY '27 Earnings Call of Dr. Reddy's Laboratories Limited. We appreciate your continued interest in our company. I'm Aishwarya Sitharam, Head of Investor Relations at Dr. Reddy's. Joining us today are members of the leadership team. Mr. Erez Israeli, our Chief Executive Officer; and Mr. M.V. Narasimham, 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 insight 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 our press release today apply to all forward-looking statements made during this call.

Before we proceed, I would like to call out a few housekeeping points. [Operator Instructions] The session is being recorded and both the recording as well as the transcript will be made available on our website shortly. Please note that this call is the proprietary material of Dr. Reddy's Laboratories Limited and may not be rebroadcasted quoted in any media or public forum with our prior written consent from the company.

With that, let me hand the call over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Thank you, Aishwarya. Greetings to everyone on the call. It is my pleasure to walk you through our financial performance for the first quarter of FY '27. The business reported revenue decline of 5.6% and an EBITDA margin of 12.5% for the quarter, reflecting the impact of lower limit revenues, which contributed to the corresponding period last year as well as a provision of INR 240 crores for inventory and other costs associated with the recent semaglutide EPA-related challenges. Notably, the underlying base business, excluding Lenalidomide, continued to deliver healthy double-digit growth across all key geographies, including North America, supported by new product launches and favorable currency movements. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 94.66, the exchange rate prevailing as of June 30, 2026.

Consolidated revenues stood at INR 8,071 crores, which is USD 853 million, a decline of 5.6% year-over-year and a growth of 7.4% on a sequential basis. Strong performance across key markets, further aided by favorable ForEx was offset by lower Lenalidomide sales. And other revenues declined primarily due to change in operating model post integration under which rebates and discounts are offered to distributors and recognize net up revenues. As compared to the transition period when sales were managed by the seller, [indiscernible] this change in operating model is profit neutral.

Consolidated gross profit margin was at 46.5%, a decrease of 1,000 basis points year-over-year and an increase of 169 basis points sequentially. The decline in margins during the quarter was largely on account of lower Lenalidomide sales, the semaglutide EPA-related production mentioned earlier as well as higher solvent costs on our account of Middle East conflict.

The reported gross margin was 51.6% for Global Generics and 4.5% for PSAI. Excluding the semaglutide EPA-related production mentioned earlier, the overall margin was 49.4%, while that for Global Generics was 53.8% and for PSAI was at 12.9%. The SG&A spends was at INR 2,082 crores, an increase of 12% and 4% sequentially, accounting for 36% of revenues. The year-over-year increase was primarily driven by higher personnel costs due to annual increments, adverse ForEx movement, targeted investments in the branded business as well as elevated freight cost arising from disruptions related to the Middle East crisis.

The R&D spend was at INR 577 crores, declined by 8% year-over-year and up 6% sequentially, accounted for 7.1% of revenues and reflecting lower biosimilar development expenditure as compared to the previous year. The underlying EBITDA, including other income, stood at INR 1,009 crores for the quarter, which is USD 107 million, a decrease of 14, 16 basis points year-over-year and 55 basis points sequentially, reflecting a margin of 12.5% of the revenues, excluding the semaglutide EPA-related potion, the margin was at 15.4%.

As a result, the profit before tax was INR 553 crores, that is USD 58 million, representing a margin of 6.8%. Excluding the semaglutide EPA-related production, the margin was at 9.8%. Effective tax rate for the quarter was 21.3% compared to 26% in the corresponding period last year. The ETR for the quarter was lower primarily due to reversal of previously recognized tax promotions, no longer required, consequent to the favorable resolution of the tax assessment pertinent to earlier year and favorable durational 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 INR 443 crores, which is USD 47 million, a margin of 5.25% on the revenues before adjusting for the semaglutide EPA-related provision mentioned earlier. Diluted EPS for the quarter is INR 5.32. Operating working capital as of 30th June 2026 was INR 14,353 crores, which is USD 1.52 billion, a decrease of INR 81 crores for 31st March 2026. CapEx cash outflow for the quarter stood at INR 307 crores, which is USD 32 million. Cash flow during the quarter before acquisition-related payout was negative INR 216 crores, which is negative of [ $23 million ]. As of June 30, 2026, we have a net cash surplus of INR 3,057 crores, which is [ $323 million ].

Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 354 million hedged using a combination of forward risk reversal options, scheduled to mature by March 2027. These contracts are hedged at the rate of USD 92.34 to USD 94.634, global USD 2.8 billion hedged at FX rate of [indiscernible] with majority falling within the next 3 months.

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

Thank you, MVN, and good day for all of you. We appreciate you joining us today, and thank you for your continued interest in our company. We remain consistent in our strategic priorities and committed to delivering growth and profitability to disciplined execution as the operating environment continue to evolve. We are focused on strengthening our base business and building future growth engines in peptides, biosimilar, consumer health and innovation, while pursuing targeted business development initiative to augmented organic growth efforts.

The underlying base business delivered healthy double-digit growth across all key geographies, including North America. The quarter's EBITDA margins were adversely impacted by semaglutide related challenges, including lower sales provision for injected benches, loss of production linked incentives and other associated costs. As well as the conflict in the Middle East. Excluding this impact, we estimate that the EBITDA margin would have been in the high teens. We are working towards resolving the issue and are planning to resume semaglutide commercial supplies by November.

Importantly, there is no risk to any patient who has consumed the product. Patient safety and product quality remains our highest priorities and will continue to guide us in every decision we make.

We remain confident of a strong second half of the fiscal with the resumption of semaglutide supplies. The strength of our base business and our ongoing productivity initiatives will continue to support double-digit base business growth and steady margin improvement.

Let me now walk you through some of the key highlights of the quarter. We commercialized a few key complex generic products, including the anticancer drug, [ Bosutinib ], a first-to-market launch with 180 days of generic drug exclusivity for the 400-milligram strengths and [indiscernible] used in a treatment of lung disease in the United States. In Canada, we are the first company to secure approval for the launch of semaglutide for the treatment of type 2 diabetes.

We launched over semaglutin India and remain committed to building this important metabolic franchise complemented by nutrition offerings such as Celevida GLP+ to our collaboration with Nestle. We continue to make process bringing innovation to patients in undeserved markets through partnership, our in-license novel therapy toripalimab for treatment of nasopharyngeal carcinoma has entered the INR 100 CR club in less than 2 years of launch in India. During the quarter, we partnered with Innoviva Specialty Therapeutics to develop and commercialize [indiscernible] used in treatment of hospital-acquired bacterial pneumonia in selected markets across South and Central America, the Caribbean, Russia and CIS countries.

Through our collaboration with [indiscernible] and our subsidiary, Origin Pharmaceutical Services, we achieved an important milestone in access [indiscernible] approval for [ zaliflordacin ], a first-in-class treatment for uncomplicated Gonorrhea. The approval came just 6 months after USFD approval, making Thailand the first LMIC country to approve the product.

On the regulatory front, the U.S. FDA completed a pre-license inspection PLI at our biologics manufacturing facility in Bachupally, Hyderabad in June 2026 and issued a [indiscernible] observations, which we already responded well within the stipulated time lines.

Our commitment to good governance and sustainability continue to be recognized globally. During the quarter, we celebrated 25 years of our new Stock Exchange listing, reinforcement our distinction as the first non-Indian pharmaceutical company listed at exchange as well as our commitment to global best parties in governance, compliance and capital market access. FTSE Russel placed us as the top 1% worldwide while TIME-Statista ranked as 165th globally and 5 among in companies among the world's most sustainable companies.

Let me take you through the key business highlights for the quarter. Please note that all the financial figures mentioned are reported in their respective local currencies. Our North American generic business reported revenue of $236 million for the quarter, accounting for 27% of overall revenue and reflecting a decline of 41% year-over-year and a growth of 19% sequentially. The year-on-year decline was primarily on account of lower revenue [indiscernible]. The underlying base business delivered double-digit growth aided by new product launches during the quarter.

During the quarter, we launched 6 new products in the region, including complex generics, such as [indiscernible]. And we remain on track to bring more such products to the market as we progress through the year.

Our branded franchise, including India, Emerging Markets and Consumer Health business in equity replacement therapy or NRT together accounted for 42% of our overall revenues and remain an important source of stable margins for the company.

Our emerging markets business recorded revenue of INR 1,833 crores, accounting for 22% of our overall revenues and reflecting a robust growth of 31% year-on-year and 2% quarter-on-quarter. Growth was driven by new product launches across market and favorable currency movement. During the quarter, we introduced 43 new products across countries.

Our India base revenues were INR 1,780 accounting for 21% of our overall revenues and delivering robust double-digit year-on-year growth of 17% and 10% sequentially. This performance was primarily driven by the innovation franchise, new launches, including acquired brands, price increase and volume growth. [indiscernible] June 2026 data highlights our continued outperformance of the Indian pharmaceutical markets and moving quarterly total growth of 14.6% versus 13.5% for the IPM in the moving annual total MAT growth of 13.5% versus 11.1% for the market. Our IPM rank stood at 9 for the quarter and 10 for the year. We launched 7 new brands during the quarter, further enhancing our domestic presence.

Our European business, which includes NRT posted revenue of EUR 131 million for the quarter, accounting for 18% of our overall revenues. Revenues were broadly in line with the corresponding period last year and decline represents sequentially on account of a price evolution as well as the impact of operating model. Changes post NRT integration explained by NBN, offsetting the contribution from new product launches in Generics. During the quarter, we launched 24 new generics products across market, further expanding our European product portfolio.

Our PSAI business reported revenues of $91 million, accounting for 11% of the overall revenues. Revenues declined 5% year-over-year and 10% sequentially, primarily on account of lower API volume uptake during the quarter, we filed 38 drug master 5 globally. We remain focused on strengthening our core business while building the next wave of growth across peptide by similar consumer health and innovation. We'll continue to advance key products such as semaglutide and abatacept, improved operational efficiency and pursue value-accretive business develop opportunities to drive long-term value creation.

With that, I invite your questions as we move into the Q&A session.

Thank you very much, Erez. [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.

Just my first question is on the EBITDA margin guidance that we had mentioned that we should be able to get to 20% EBITDA even without sema. Now given how the quarter shaped up, even if I were to adjust for sema, Middle East, I think you mentioned 5. How should we think about the margin improvement from here even assuming that there's still uncertainty about when and how much sema comes back?

Neha, just a technicality is the first part of the question, if you can repeat, we heard you from the middle.

Okay. My question was that we had given a guidance of 20% margins, excluding sema. So just wanted to get a sense of how we improve the current high teens margin that you have indicated adjusted for sema and the Middle East impact, given that you're still uncertain about where in sema comes back and how much it comes [indiscernible]?

Neha, just to make sure that if we are taking out from the 12.5% and we take out the impact of what we provide, plus and here that what we did not sell just to make sure that -- and in addition to PLI and the rest of the stuff, what I say the high teens, it's actually around 18%, okay? So this quarter, the equivalent of the 19% last quarter, it's 18% for this quarter. We are still, I maintain what we discussed a few weeks ago that we are in the neighborhood of the 20% and likely to stay, and that's what we have saying we will do in the next quarter, including the quarter next quarter, which will not be with semaglutide.

So that's still in the case to be in the neighborhood of the 20%, as we will resume because we -- with the assumption that we will come back with semaglutide in November, of course, under this assumption, the margins will be higher than that. So we are maintaining what we have discussed in June.

Understood. And second question is on the U.S. business. There seems to be a decline quarter-on-quarter despite the fact that we launched in Canada. We had bosutinib. And I'm adjusting the shelf stock adjustment in the base quarter here. What exactly happened in the U.S. because given we had the bosutinib FDF launch, I would have assumed some channel spending as well as the Canada suppliers?

[indiscernible] is actually in the right direction is -- there were some timing of procurement of the product. We -- and the launch of the product was very successful. So overall, I'm still maintaining a double-digit growth for the U.S. market. Q-on-Q, as you saw already in this quarter, we grew double digit, and it will continue throughout the year. So it's a double-digit growth in the United States. It's just timing of product and nothing special.

The next question is from the line of Dr. Kunal Dhamesha from Macquarie.

First question on abatacept update. So 2 aspects here. One on plant in section where we have got 7 observations, and we have submitted the response. But let's say, when we compare the observation with the last inspection, which had like 5 observation, how does those compare? And second aspect from an ongoing dialogue perspective with the U.S. FDA on the product approval, what are the types of query we are receiving? Is it on data on the clinical side, manufacturing related, CMC-related color here would be helpful.

Sure. So the observation, the 7 were very different than those go, and we believe that they're addressable. And we sent all the relevant information to the U.S. FDA on Friday, which was well within the stipulated time. So this is undergo, and now we will seek a feedback, obviously, from the FDA of what we submitted.

As related to the BLA, we did not receive any query as we speak. The goal date of the product is still in December, and this is still intact. We did not have any query or any ask as of date.

Sure. And on that, let's say, inspection, what is your understanding? Would it require another inspection or the response you have submitted would suffice?

To my opinion, we should get approval.

Sure. Sure. So that's the first question. Second question is, some of the productivity measures that we have talked about in the past, right, that we will try to improve the efficiencies. But the way I see it, when I look at the SG&A expense without R&D -- after removing R&D, Q-on-Q is still higher, right? So is there any specific cost saving measures are we undertaking. If yes, what's the quantum in terms of saving that we can see and when those measures would be visible in the overall performance?

So Kunal, we decide, we said like our absolute SG&A amount like the FY '26 largely in line with FY '26 actuals. This quarter, because whatever growth you have seen, largely that growth is on account of adverse ForEx rate movement as well as there is a elevated freight cost on account of the Middle East conflict. These 2 is like almost what the increase, what the growth you are seeing on either Q-on-Q or on the year-over-year, almost at 75% to 80% on account of these 2 factors. In other ways, absolute amount is almost is like if you take it out and then there is not a much significant increase.

So just to, Kunal, we are planning to grow double digit. And we are planning to grow the associate cost by low single digits. So the productivity measures will be primarily that the sales that's associated, obviously, with [indiscernible] will grow much faster than the expenses. But as we grow in most of our 52% now of our business is branded markets. So naturally, in such a case, we need SNM to grow the business.

And what is important, they will grow the sales much faster than the cost. In this case, we are talking about the gap of 10% to 12% because this between the sales growth and the cost growth. And that's where the productivity we are going to see.

And when should we start this difference in the growth. I assume it would be gradual, right, eventually? Or it's just linked to the revenue, and not any specific cost measure?

No, no, it is. First of all, you already see that -- and I know it's hard because of all those onetime activities and -- or activities. But you already see it. And as time will go by, it's obviously we'll see it more. But the way to see it is that eventually that the margins -- that the growth in emerging markets, most of the S&M is in emerging markets. And the growth in the emerging market is right now also 15%. And in [indiscernible] it's more than 20%, while the cost is in a very low single-digit growth. If we take out the onetime activities.

Sure. And last one, if I may just squeeze in. One is we have around INR 3,000 crores of cash on the balance sheet, right? And so what kind of opportunities are we looking at from the business development activity? And secondly, on today's announcement from an U.S. President on tariffs on generics as to how we think about the overall development. I know the details are missing, but what would be your initial impression of that? And how would you tackle that?

Sure. So just the first one was [indiscernible]. So first of all, we are engaged in is development. I also mentioned it in my script. There are actually quite a few deals that we are engaging in all sectors and in generics and innovation, in biosimilars. And hopefully, we can announce those deals as we sign it.

So the cash and the balance sheet will be used for inorganic. On the tariff, we've been there last year. There is -- obviously, it's a tweet. And between tweet to the reality, a lot of things likely to happen. As we speak, I don't see any reason to be concerned even as -- even in according to the tweet, we are supposed to have 2 years of without tariff. It's not practical to move any facility in 2 years. You know it well. Everybody knows it well. So I'm assuming that it's an opening for a discussion and dialogue about the IPI here in India, as well as association in the United States already engaged on that. So we will see as it evolved. Personally, I don't, at this stage, give too much way to that.

So if I may add, almost 25% to 30% of our revenues are actually being manufactured by CMOs in the U.S. So we already have that as a starting point.

But I will not give too much weight at this stage for that. Let's see how it will evolve. We've been there last year and between what we started and how it ends, it was very, very different.

The next question is from the line of Tausif Shaikh from BNP Paribas [indiscernible].

First few questions on semaglutide pens and API. Can you tell us how many pens as doctor be able to sell during the quarter and a broad-based breakup region wise would be helpful?

Yes. So we sold 180,000 pens before we stopped. We were supposed to sell more, by the way. But, obviously, that's also part of the reason why there is a relatively high level of provision of -- that we have to do on material and ventures that will not use. Obviously, most of it will be for the market of Canada. We have also for India as well. We are still maintaining what I said 90 days ago that with the assumption that we will finish, and this is still the time line that in the -- around the third week of September, we are supposed to finish all the testing of the API, and then supply to our partners once source. We have the slotting an agreement with them. And if everything will go well, we should be able to give to the market 6 million to 7 million pens between November and March. There's still the same place that we are.

Yes. That's helpful. Second question on the semi API. Just wanted to confirm that Dr. Reddy's is also supplying this KPI to many global pharma manufacturer player were also your competitors in Canada and other markets. Just wanted to understand your strategy over here? I mean how much percent of capacity Dr. Reddy's plans to keep for captive consumption for the future?

No. We have plenty of capacity. The issue -- the theoretical capacity [indiscernible] because we need to scale up in a satisfactory manner, but we have plenty of capacity for both party as well as ourselves. We are talking about the [indiscernible], but let's say, even with the -- with the non scale up, it can be about north of 300 as capacity. At this stage, not relevant. It's more about the quality of the API not the capacity.

The last question, abatacept, what would be your time went for the launch if the product has to be approved from the CMO side. Can we expect some delay from the earlier guidance which we have planned in calendar year 2027?

Abatacept is not out of CMO, but is made by our own facility in Bachupally, and that's the facility that were -- that underwent the FDA inspections. The timing is a launch of [ Fornafova ]. We are -- right now, the golden date is December. So obviously, we hope for that, but we need to see whether we will get additional query and if that will stay intact.

But I guess, I think we have filed the product from 2 of [indiscernible], right. The other one is from CMO side. We have done the dual -- dual filings for the product right?

Abatacept was filed only from Bachupally site.

The next question is from the line of Damayanti Kerai from HSBC.

My question is again on semaglutide. So as you continue to work towards resuming supplies after addressing the OSS issues, we understand in some of your targeted market, new players are getting approvals, et cetera. So we understand your B2B supplier to a few of them. But nonetheless, by the time you get back in these markets, how do you assess the competition scenario and your ability to gain market share there?

So we believe right now the demand for the 6 million to 7 million pens will be there for us. And it's even back with orders. So we believe that we'll be able to sell all the 6 to 7. Obviously, it's a bummer. We were not denied. We see the consequence, it's -- we lost 4 months of sales for that. So obviously, from the 10 to 11, into the 6, 7, this is the impact on us. But we feel that we will state that the demand for the product is still very high. And the people that will enter the market in these 4 months to the best of our knowledge, there are not that many at least in the markets that we are planning to get approvals. So it's a bummer, but we believe that the product will stay solely for us.

Okay. And also wanted to understand this API issue, will it impact the review of application for semaglutide in some of the market apart from, obviously, Canada is something where you have approved product, but say, in Brazil or in other markets, will the applications will be halted until the time you resolve the API issue?

No, because the specs stay the same. So we are not changing the specs of the quality. It was just our ability to meet the specs in the scale a bench on the API, which we need to resolve. But the file is good and the quality of the drug product is good. So I don't anticipate any delays or a change to our applications anywhere, including Brazil.

Okay. So in how many countries you have filed semaglutide application so far?

How many we filed already?

[indiscernible].

For sure. So the program of the 80 countries remain the same. If I remember correctly, but please forgive me if I'm not fully accurate, it's around 30 countries already, if I remember correctly.

Sure. And my last question is, how should we look at R&D and tax rate from here on. So we understand this quarter had some benefit on the taxes. But on a normalized basis, how should we look for the full year?

So our -- I mean, the tax rate around between, I think, 24% to 25% on the [indiscernible] and R&D., what we have stated earlier, it is in the range of 7% to 8%.

Okay. And any major R&D programs after Abatacept where you plan to spend majority?

So we have a long pipeline for the future both on the peptide as well as additional biosimilars. This is likely that will be close to the 7% that being said. But we -- most of the R&D spend is right now going to products post 2034, between 2034 to 2040 type of -- that's where the R&D goes, besides, of course, some allocation that comes for licensing fee as well as remediation of product, but mostly it's for later product.

The next question is from the line of Saion Mukherjee from Nomura.

Since you last addressed on the sema situation, is there any progress in terms of root cause analysis? And how you see possibility of a resolution? How do you sort of assess the risk of that program at this stage?

So we identified the root cause. We started also the activities in the sites. There is a program management that takes us again to around September 22, September 23. The success rate is high. I don't know to say exactly percentage. If I need to say a number, it's somewhere between 80% to 90%, but there is a chance that it will fail. I just want to make sure it's not 100%. But we feel relatively confident. Let's cross our fingers on that.

I see. Okay. And just one last one on CapEx. What's the guidance for this year on CapEx and for next year, please?

So we see, I think, this year close to -- at this point of time, I think, around INR 1,800 crores on a full year basis.

And will this come down next year, you think?

Hopefully, that's what is our expectations, but around that range because I don't know there is a continuously for the specific product investments in the biosimilars and the peptide and then regular CapEx is signed.

Already, if you see that earlier, we were in the INR 2,100 crores to INR 2,700 crores range. And then from there, we have just this year's [indiscernible] believe, I think that, that stays at that level.

Okay. Sir, if I can just ask one question because you mentioned about Middle East conflict and freight cost, et cetera. What's the level of impact either as a percentage of sales or an absolute amount, if you can quantify?

It would be both solvents and the freight on the EBITDA is close to around 1%.

Okay. And is there any improvement now because the conflicts seem to have escalated once again? So how you see for the rest of the year?

So we believe, I think even as long as it continues and because earlier, we thought [indiscernible] stop, then it is up all the solid prices, and we have seen the decline. And now because of, once again, the war is going on. We believe this will stay at least after December this level of increase.

The next question is from the line of Rahul Jeewani from IIFL.

Sir, I had -- I wanted some clarity in terms of our base business growth. Now if I look at our North America revenue base in FY '22 was close to $1 billion. And if I take this quarter's number, then we are annualizing at around $950 million. Now over these past 4 years, we have launched around 90 to 100 products in U.S. We did a main acquisition as well, which contributed $100 million in terms of incremental revenue. So despite these launches and main acquisition, where have we struggled in terms of driving growth on the base U.S. business. So if you can please comment on that.

No, sure. Obviously, we faced on the base of the FY '22 or any other year that you're referring a significant price erosion that was through this period of time. In some of the years, it was even in double digit. Some of them, it was in single digit. This is and you know that very well, very normal for the United States. And against that, we bought a new product, some brought a small value and some less.

Overall, I'm reiterating what I'm saying all along that the U.S. market, the generic piece of it is the best single-digit growth without the upside. And on time to time, there is an upside that comes and with upside through the years, whether it's by [indiscernible] before there was other products. So that piece of the market is a single digit, even low single-digit type of a market in which new product complex for price erosion. That piece, the reason that we are still there beside that is that this group of product is what's feeding the growth in American market as well as in Europe. So the leverage growth and what you see now in Europe as well as in the emerging market, it's primarily the U.S. portfolio that is growing them. So we moved from investing in the U.S. to take a product and launch it globally.

And so overall, the ROI of the product that we launched in the years that you mentioned actually give us a very, very good ROI. Just it's not come in United States, we see it in the other markets. In addition to that, we are obviously diversifying as a sale to other business bonded, as we stated. But to your analysis, you are correct in this period of time, if you take out product like [indiscernible] your analysis is correct.

Sure, sir. And do you think that we have lagged the peers in terms of R&D productivity for the U.S. generic business. Given that many of our Indian peers have been able to launch products in, let's say, respiratory segment or injectables, which has allowed them to scale up their U.S. portfolio, while we obviously seem to have had pretty muted performance on the U.S. business over the past 4- to 5-year period? So is there any issues in terms of the productivity for our I&D business. And do we have any measures in terms of evaluating this R&D productivity, particularly for the U.S. generic business?

So to your question, yes, we [ failed ] in the certain complex generics. We have instated some of them in the past like I have also called [indiscernible] like some of the peptides that we were late. So the answer is yes. We did have these issues. I believe that we collected it. Obviously, as we know very well, the R&D expenses of today's product that we will launch on average, 10 to 12 years from now. So obviously, the products that we launched in this period of time were products that were developed before that, and we absolutely add productivity issues. And I believe that we took the right measures to correct it. And again, I agree with your observation. I believe that we took care of it.

Sure, sir. And last question from my end. On abatacept, I was also under the impression that we would file abatacept from the partner facility as well. But right now, you are saying that abatacept is only filed from Bachupally. So do you see any risk to a abatacept now in terms of, let's say, contributing to us in FY '28. And are we evaluating an alternate site filing for abatacept?

So abatacept was never meant to be filed from a CMO. It was developed and meant to be filed out of Bachupally from our CCM 5, which is our drug substance in our FFM, which is the filing finish, both of them in Bachupally. So that was always the plan. There was some discussion in the past whether because of tariff we should get a kind of -- in the case of tariff, should we get a CMO in the United States. We indeed engage with this issue. But a tariff [indiscernible] became not relevant plus any CMO that we'll do now will have to be post-approval supplement because, first, they will have to approve the product. And then based on that, they can -- you can add the information about the CMO.

So any activity like that will be a post-approval supplement and will require also relatively high cost because, as you know, CMO of biologics product is not cheap. At the moment, the launch will be out of Bachupally. About the risk, there are 2 types of risk. One is in the case that we will have additional query on the G&P. And I believe that is addressable, like I mentioned, but it is possible to get. And second, query is about -- the queries that we may get on the BLA. If we will get this naturally can delay the launch of abatacept. As we speak today, the goal date for abatacept is in mid-December 2026.

The next question is from the line of Vivek Agrawal from Citi.

Just want to understand the India business, they have done a good growth in the quarter. So I just wanted to understand what the organic growth if we remove a couple of small [indiscernible] that we have made in this [indiscernible]?

In India, if we remove the recent acquisition, it's 15%?

15.5%.

15. 5%, fully organic.

Understood. And does that include semaglutide supply as well?

Not much, Vivek.

I understood. Just one more question on bosutinib. So does this -- does that include a full quarter impact of launch? Or it's just a very small launch in this product?

It's a 1 month [indiscernible] .

It's 2 weeks of supply, and we have exclusivity on the 400 mg.

The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

Just a couple of quick questions. One, in Canada, I believe we had an arrangement to provide semaglutide to Sandoz as well. Is -- does that deal still hold? And are they going to wait for our supplies to be back?

Yes, it's still hold, and we -- and we believe that if supply will come back in November, we'll be able to meet the commitment to Sandoz.

Got it. And second on [indiscernible], I believe it's a partner product you're selling it in the market. What would be the broad profit share arrangement. Is it equal? Or do you make only a distribution margin?

So overall, if you see this margin from this product is above company average market.

The next question is from the line of Surya Patra from PhillipCapital.

My first question is about the [indiscernible]. You mentioned in your opening remarks that we have seen a decline this quarter. This is after the integration -- complete integration of the acquisition. So can you give some sense that, okay, what led to this kind of decline? And whether this is a kind of a trend likely to be seen even subsequent quarters?

No. The trend is a trend of growth. What we had this quarter is that in some markets, because of the cutoff and inventory that were in the market, we did not sell in some weeks in this quarter, and that's what led to that plus the timing of the tender in Brazil in which we won, but we sold more in the quarter, and we did not sell in this quarter. So overall, you should see continued growth and very, very healthy margin. So far so good on this one.

So apart from what Erez said, Surya is another one is because there is a till March 2026 -- last year, we were just depending on Helion. I think they were doing, then we are paying certain free. And this year, we completed the integration by March 2026, the entire sales we are operating. And then as part of this new model and then [indiscernible] was offering earlier rebates and discounts were not impacting the sales frame. But this year, now it seems like we have directly distributing the product to the distributor customers and then what the rebate discount setting we are giving, that is now part of the gross to net in the revenue line. And then corresponding there is SG&A reduction.

Overall, if you look at on the profit, it is neutral. Absolutely, there is no impact and then it's continuously over of this business. EBITDA margin is very healthy, and the business momentum is continuing in the very right direction.

The next question is from the line of Shashank Krishnakumar from Emkay Capital.

Erez, my first one is on our rituximab filing. I think one of our competitors has received interchangeability recently. So does our filing also include comparative data so that on approval, would we also get interchangeability on this product?

Yes. So our rituximab for sure will be interchangeable. We -- as you know, we got delays because rituximab approval in the United States got delayed. And so for us, it's mostly open approvals because the U.S. have the inspection, I was both about separituximab. Once we go, our partners will not have a problem to switch products. So our products will be interchangeable.

That's helpful. And second one on denosumab. I think, obviously, our filing was stuck because of issues at our partner's facility. I believe a partner has addressed the FDA's observations, but the resubmission obviously has to happen at our end. So have we resubmitted the BLA for the denosumab?

The BLA is coming only from our partner, is also making the products in that. And we are now in discussions with the partner of what to do with this product.

[Operator Instructions] The next question is from the line of Yogesh Soni, Haitong Securities.

Sir, my question is with regards to the semaglutide API provision that you have taken. If you could help us understand had this provision not being taken, what would have been the pen volume that would have been sold? So the question is coming to understand what is the opportunity loss that we have faced as a result of this API provision?

So the opportunity is about 3 million to 4 million pens, assuming that we are coming back in November.

Understood. And second question is just to understand, I mean, in 1.5 months of commercialization in the Canada market, what kind of market share did we enjoy in the semaglutide space?

Yes. So we did not have the chance to sell much. So I cannot really speak on market share. Obviously, we were 1 of the first to launch along with Apotex. So naturally by the time that we'll come back, we'll probably going to be only the 2 of us. So naturally 1 year or 2, it's a relatively high market share, but we did not manage to get market share per se, as we did not say much.

I can squeeze in one more question. So given that we are looking to assume the supply is on November. So what kind of -- I mean what is the confidence of around [indiscernible], given that Apotex have already scaled up its market share in the next 3 to 4 months. So how difficult does target seem to us?

So the confidence is high. It's not just Canada for us by that period of time, we'll have approval in quite a few markets, plus we have engagement with partners. We mentioned some of the names. So the confidence is very high, actually. All of our partners are looking forward that will come back. So like I mentioned before, I believe that we will have a solid demand for this 6 million to 7 million pens. And also, I believe that our relationship with our partners will allow us to make this product as required. We just need to give them the API.

[Operator Instructions] The next question is from the line of Amlan Jyoti Das from JPMorgan.

So my question is regarding the Canada market. So we have seen that a third competitor. I also found [indiscernible] recently, and one of the other companies are saying targeting December end approval. So with 3 to 4 peers in the market, what kind of pricing do you see in the Canada market when supply resumes for you in November?

Yes, the partner that got approval is using our products. So -- and I'm not anticipating any more prices because the price went day 1 to the type of market that reflects the 3 players and above. So I do not anticipate additional kind of pricing to -- or reimbursement pricing. Naturally, once we'll come back and we'll see how many more, we may have to change rebates or stuff like that, this is yet to be seen. But at the moment, also the one that got approval is waiting for us to resolve the operational issues.

So just to put a perspective, what kind of prices do you expect [indiscernible] put it in the range of $30, say, or be lower than that, but could you just give us a directional sense on that?

As you know, when I discussed it in previous meeting, the price in Canada is CAD 78. And then from that, you need to have the margins that you need to give to the relevant retailers. It depends on the type of market that you do, whether it is a private markets, public market or cash market. So it is ranged from 38%, which is for the retail and for what you call the private market. And then in accordance, depends on how many patients are also reimbursed by the [indiscernible], you may need to give additional 5% to 6% through the relevant products. That did not change from our previous meetings. It's the same set of numbers.

My next question is on the U.S. So your credit for double-digit growth in the U.S. So is it the guidance base business, excluding semaglutide [indiscernible] just wanted a clarification on that?

Yes, semaglutide is in Canada. So we are not selling in the United States. So yes, it's without semaglutide [indiscernible]

Okay. Actually a [indiscernible] it will be double-digit growth.

It's a double-digit growth and was already that this quarter, yes.

The next question is from the line of Sumit Gupta from Antique Stock Broking.

Sir, what are the [indiscernible] sales globally as of now? And when can we expect it to break even?

Sorry, again.

On the [indiscernible] sales, how much is it now?

It's about 2% of the overall.

It's about 2% of our sales, and we are supposed to be profitable at the day that we launch [indiscernible].

Okay. And like how should we see a better set going forward that over the next 2 to 3 years, what will the time rate do you expect?

So the -- so we have -- we submitted the IV products in the United States. Like I mentioned before, December is the goal date. That's the earliest we can get approval. We can launch upon approval. The [indiscernible] Europe IV was also fine, but it's very, very small because in Europe, it's primarily the subcu. In terms of the subcu, it will be in 2028, likely around March of '28, February or March in the United States and probably around September to October in Europe.

The next question is from the line of Vishal Manchanda from Systematix.

On our biologic plant inspection, can you share whether we had any observations related to sterility assurance?

No, there is not as such. And like I mentioned before, all the observation are addressable, and we already answer them.

And do you expect any scale-up issues in abatacept like we've seen like we saw in semaglutide?

It's obviously a very, very different product. I hope not. We are not planning that. But [indiscernible] you never know. But right now, we are optimistic.

Got it. And PLI incentives, if you can call out, do we expect any meaningful number here?

So in the first quarter financials, no PLI.

Anything in the next 9 months meaningful?

So once I think semaglutide supply resumes, I think as for PLS, we should have further set up products, minimum growth. Once we assess and then if the growth is there and then PLI start accounting.

The next question is from the line of Krishnendu Saha from [indiscernible] Mutual Funds.

Just quickly, we are supplying the partner, the Sandoz Aspen and others. Is there any penalty we have to pay for failure to supply?

So here, as per like what of orders were received from India like Torrent and [indiscernible] whatever is that as per the agreement supportability that's already taken care. And then in case of [indiscernible], I think at this point of time, we don't expect any such schemes.

Okay. And just to jog my memory, the API is being supplied from a U.S. [indiscernible] plant or which plant is it coming from?

This is from our Vizag [indiscernible] approved plan.

So if anything, if there's an OAI from this plant, does our approval in Canada gets [indiscernible] back?

There's no -- There is no OAI. If there will be an OAI, then it will affect the U.S., maybe the Canadian will that, but it's a very protetical because the U.S. inspected the plant already this year, and we got approval, so not relevant. [indiscernible] hypothetical question. Canadian and American are different regimes.

Yes. And it's from the Indian plant. Okay. And this 40 MG, which we have exclusivity, how big is the market size just from my knowledge, please?

400 mg, you mean?

Yes, sorry. My mistake.

Yes. I think overall, the product is a large one. It's in [indiscernible].

Just the 400 mg any idea?

I [indiscernible].

And what -- how is the nicotine patch doing for us as of now? Any growth rates you're seeing out there because it's a profitable business for us. So can you just [indiscernible]?

It's profitable and is growing, and we are very happy with this. We answered these questions before. If we can not repeat questions. We are happy to give over time, but please let us...

And just to answer your question, [indiscernible] about $300 million as far as the market is concerned.

The next question is from the line of [indiscernible] Equity Capital.

My question is on interchangeability in Canadian market. So there are these various provinces, which gives out interchangeability designation and also I think private insurers also give interchangeability designation. And most of this insurance has a clause of mandatory generic substitutions. So could you give color that what does it take to get this interchangeability designation. And when -- I mean, when that happens, my expectation is all of the subscription volume will move to generic. So when do we expect that to happen? So any color on that will be helpful.

And the other aspect also is -- the innovator product is recombinant product and our product is synthetic products. So does that create some problems for this interchangeability tag?

So there is no problem with interchangeability in any market. The product is approved as generics and the type of API doesn't affect it. So the semaglutide is approved as a generic product. No shows of interchangeability, you don't need to prove anything beyond what the normal submissions we had to show obviously, comparability as well as all the relevant safety like immunogenicity and other data.

So next year, then Generic will have 80%, 90% market share in Canada. Is that a fair thing to assume?

I don't know about that. It's about also the confidence of the people. At least at the lunch time, the allocation of the retailers assume 60%, and then we'll grow.

Insurance driven market. Pardon for interruption, insurance-driven market. I'm not asking about out-of-pocket or retail.

I'm trying to answer that. It started with 60% and likely to go higher. What exactly the number will be? I don't know, but yes, I believe that as the confidence and the supply will be there, it's going to be primarily a generic market share.

Okay. And then just quickly, when do we expect Brazil approval for us or any of our partners? Any time estimate you can give?

It should be shortly. All the stuff about the rejection that was reversed, and we are expecting approval in the next few weeks.

In the interest of time, we'll take 1 last question from Saion Mukherjee, I think he has joined back the queue.

Just 1 question -- a couple of questions. So in the U.S., I think you mentioned 20, 25 launches. How many we are expecting through the rest of the year? And are there any material launches that are lined up or you expect?

So altogether right now, we are targeting 27. And at least, we are supposed to have a reasonable launch, let's call it, I cannot share the name of the product, already in the next couple of weeks. So in the second quarter.

And how large is the opportunity? Can you give an idea about the size of the revenue potential from that launch?

It should be in the range of tens of millions of dollars, that specific launch.

Okay. And MVN, if you can talk about -- like I understand biologics and peptide facility operations are not generating enough -- any revenues at this point. What's the revenue cost mismatch there? What's the cost that is hitting the P&L on account of this, which is not generating any revenues?

So in the biologics like already we invested for like [indiscernible] base, certainly, we are just waiting for approval and then whatever is the expenses is already is hitting in our P&L. Similarly, what the capacities we have created for peptides both for API and formulations will finish also. It is there. Once these 2 products comes back and definitely, the natural profit positive.

Yes. But I was wondering if you can quantify the amount of cost that you're incurring on account of these 2 at this point.

Maybe I'll just come back.

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

Thank you.

Good day, everyone, and thank you for joining us on such short notice. I'm Aishwarya Sitharam, I Head Investor Relations at Dr. Reddy's. Joining us today are members of the leadership team, Mr. Erez Israeli, our Chief Executive Officer; and Mr. M.V. Narasimham, MVN, our Chief Financial Officer.

As you're aware, earlier today, we've made a disclosure regarding semaglutide, a key product in our portfolio. And we've organized this call to provide clarifications around this disclosure and also to answer any questions that you may have. We will start today's call with Erez providing a brief overview on the matter, and then we will open the floor later for questions. I would like to remind everyone that we are currently in our silent period related to our Q1 FY '27 financial results. And I would request everyone to restrict the questions to the topic on hand.

Before we proceed, I would like to call out some housekeeping points. [Operator Instructions] The session is being recorded and both the audio as well as the transcript of this call will be made available on our website. Please note that this call is the proprietary material of Dr. Reddy's Laboratories Limited 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 the call over to Erez. Over to you.

Thank you so much, Aishwarya. Good day, everyone. I really, really appreciate that you came both in short notice as well, for some of you it's very early in the morning. So I really, really appreciate that. And given the importance of this product, and our commitment to both transparency, governance as well as the relationship with you, the relevant stakeholders. We just recently met many of you. It was important for us to communicate the development as related to semaglutide as early as possible. It's something that we got to know about yesterday, and we managed to do it fast and crisp in order to make sure that we are both in compliance as well as maintaining a good relationship and I believe the right transparency.

To support the growing demand for semaglutide injection globally, we scaled up the synthetic API manufacturing process at our API facility with the intent of increasing the API output. While the API itself met the specification, one of the impurities was found to be out of specification upon testing. It means that it was degrading while we made the formulation, upon testing of the finished drug product. As a result, we are undertaking a thorough investigation to determine the root cause and implement, obviously, the necessary process improvement.

And after that, we will complete the validation of the revised manufacturing process of the parameters before we can resume commercial supplies, which means -- I'm a bit out of the script, but which means that at the time that we made the validation of the scale-up, we saw while we tested the API that it's out of specs and therefore, it requires to repeat the validation. This is of the new material and not related to the old material that we sent. Subject to the successful validation, we will resume commercial supply to our long-term partner, OneSource, and we will be on track to supply hopefully 6 million to 7 million pens between Q3 and Q4 of FY '27.

I would like also to highlight 4 important points. One, our manufacturing facility continues to operate in compliance with applicable cGMP and global regulatory requirements. So obviously, we are meeting and we will continue to meet all those requirements. There is no impact on the product existing, not global regulatory filings, whether approved or currently under review, there are no changes to that.

Based on the assessment conducted to date, we believe that there is no patient safety impact associated with the product already to supply to the market. So the people that took the product or customers, the product are safe. The issue is nothing to do with whatever we sent to the market. It was in a scale-up batch. And there is no impact on the supply of semaglutide oral tablets, which is utilized different APIs, so it's not relevant to it.

While this may result in temporary delay to the commercial supply, we believe that we take the right course of actions to ensure consistent product quality as we scale. We remain committed to resolving the issue with urgency and supporting our partners and patients through a reliable long-term supply of this important metabolic therapy.

And with that, I'm happy to take any questions.

Thanks, Erez. The first question is from the line of Damayanti Kerai from HSBC.

Erez, just want to understand in your initial assessment, how long it will take for resolving this issue? You mentioned you are still confident about supplying 6 million to 7 million pens between 3Q and 4Q. So time line for resolution, if it gets extended, how should we see the supply situation? If you can clarify on that, please?

Sure. So we will make now the necessary adjustments to that and tweak the process of the API. Then we need to take 3 validation batches in the -- again, we need to send them to OneSource for the drug products, and then we need to test. All these activities should -- right now with our current time lines, should take us somewhere around September.

If this will happen, I will tell you after that the risk of that. But if this will happen, it means that commercial API scale can come to OneSource during October and then made the product, which means that the actual supply to the market can resume, let's say, late October, early November, something like that.

Is there a risk that we can fail again? Always. There is a confidence, but naturally, there is a risk that a further delay. Right now, this is -- the 6 million to 7 million is based on the assessment that we can supply from November onwards. And this is from the 6 million to 7 million pens. OneSource we have and we are entering into long-term arrangement with them that we discussed unrelated to the current issue. And they -- with them, we agree on the new slotting, which will result to 6 million to 7 million pens from November to March.

Sure. And my last question is, when you observed this out of specification issue, so was it contained within a few batches? So do you have to do some product recall or it has impacted just a few batches, then other batches are ongoing normally? So I just want to understand -- yes, I just want to understand when you say commercial supply will be delayed, so it will be complete halt or it will be partial for the impacted batch?

Sure. So the plan was to send the API out of that facility with the process. And if the process is not validated, we cannot send quantities to OneSource, and therefore, that's what creates a halt of supply. So there will be halt of supply between now and September. And that's why I said basically, this is the delay of few months.

There is no recall concern. Whatever was sent, was not sent from that scale up. So anything that was sent to the market is safe, is released, and there is no concern about recalls or patient safety as related to this validation. Because these were 3 validation batches, you have to repeat validation. Otherwise, you cannot send from the new scale.

[Operator Instructions] The next question is from the line of Neha Manpuria from Bank of America.

A quick question from my side. So when you say we need to complete validation before we can start scaling up again, this would not require any further submission to either the Canadian authorities or any authorities where we get approval for in the interim. Would that be a right assessment?

Yes, that's correct. The validation is the scale up. So the idea is to validate the product in the new scale to allow us to go and to make the product in higher volume also at OneSource. So that's required more API. So it was more of the scale-up of API, but there is no change to specification or to the submission, doesn't require any prior approval from any agency.

Understood. And my second question is, given that we have an alternate supply for OSD, do you think there is a possibility -- I mean, how soon can we add this alternate supply for the injectables, if required, as a backup plan?

So we do have a backup. It's not the same supplier, but it will take -- this will require a pre-approval supplement. It means that we are about 1 year away, give or take, because you normally need to submit it as a pre-approval supplement, and therefore, it will not help us in the next couple of months. Next couple of months, we unfortunately have what we have.

Okay. And sorry, one last question. The -- just to be clear, the inventory that is there in the market, we do not need to recall any of that. What is already supplied to OneSource and the inventory that is already there in the market?

First of all, correct. I just want to make sure because you may get that information. There was a recall of one batch in India. It's nothing to do with the issue we are discussing, okay? But there is one recall in India that we initiated, and it may come because of timing, but it's nothing to do with the scale-up. The scale-up batches never went to the market. Therefore, there was no recall or anything like that associated with that.

Neha, just the -- what the inventory we have at OneSource is our inventory only. It is not commercially sold.

Okay. So that will also need to be recalled?

No, that is our inventory, part of our inventory. I'm just...

Okay. Alright, got it.

Not recall, but we may need to provide for it. That's what we...

The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

First question, would we have to write down any inventory lying in with OneSource?

We may need to write down the batches that were associated with that. Yes, probably, yes.

Got it. Any indication about the value of that?

The value will come just for -- to make everybody is honest, we are in the silent period, as you know, and we are not out of the ordinary, but I want to also be sincere. So likely. And obviously, these details you'll see in 2 weeks' time.

Got it. And sir, I know it's a silent period, so not about this quarter. But going forward, how does that impact your targeted 20% plus EBITDA margin target?

So we are on the same pace. Nothing has changed beside this event. So all the stuff that we have discussed during our MDR as well as with you guys, remain the same. Obviously, we will miss to sell certain quantities in this period of time. So obviously, this will be a downside of what we have discussed to -- in May and June when we met you guys.

The next question is from the line of Surya Patra from PhillipCapital.

I just wanted to check whether this has impacted, in any manner, our supply to the Canadian market or because of this rather whether so far we have seen any kind of impact? Or the lot that we have supplied already to the Canadian market, whether that will be having any implication because of the impurity issue that we have detected now?

So the answer is no. Whatever we sent to the Canadian market will not get impacted. It was done with a different scale. This was, as I mentioned before, a validation of a new scale-up that we made. So no impact of whatever we sent to Canada until now. The impact to the Canadian market will be because we will not be able to supply in the next couple of months. So there will be future impact on that.

The next question is from the line of Tushar Manudhane from Motilal Oswal.

Sir, just one question to ask. This impurity is because of any -- coming from the raw material side or because of the reaction? Or is it to do with equipment-related issue, if you could highlight?

It's impurity that comes from the API that degraded in the formulation. So you detect it when you do the testing to release the batching formulation, it was detected and it was out of spec.

No, no, I understand, sir. But within the API, again, is it to do with the raw material that was received for manufacturing API? Or is it to do with the process or the reaction of manufacturing the API?

It is to do with the process and the reaction of the API.

So effectively, does it require the equipment change to address this issue? I understand it's too early in terms of root cause analysis, but prima facie, whatever you could share.

To the best of my understanding, no, it will not require that. It's required to tweak the parameters to control that impurity.

Got it, sir. And just lastly, while the scale-up batches have an issue, so probably the relatively lower scale batches that at least offtake might continue or that also we'll have to stop to understand the root cause of this impurity.

So naturally, right now, we are investigating because also the small scale was moved into that process. So right now, it will be halt until we validate and feel comfortable that it works. That's why we had to do that. There is some small scales that are underway. This will continue to be produced, but it's not much quantities.

So once you solve the problem, the validation batches manufacturing will take like a month or 2? Is that a safe understanding?

Again, sorry.

So once the root cause analysis is done probably that if you could just break the time line from here until, let's say, November in terms of the root cause analysis and subsequently taking up the validation batches in terms of manufacturing?

Yes. I mentioned to Damayanti when she answered. I'm assuming that it will take us from days to a week or two to find exactly what we need to correct. And then we need to start to make those batches and to release them. Upon successful production of those batches, we need to send them to OneSource. And then we need to make the batches and test them. Some of the tests takes up to 3 weeks because of sterility.

All of that process will take us as early as end of September. If everything will be successful, and of course, it can also be different. But assuming success, we can resume commercial supply at October to OneSource and then move from them. The 6 million to 7 million pens that I mentioned is assuming supply of commercial quantities to the market from November onwards, could be an upside of a week or 2, but this is the, give or take, the time lines that we are discussing.

The next question is from the line of Kartik Mehta from ICICI Securities.

So what is the milestone that we should track in terms of you being able to reach this by September? And when you say it is an unknown impurity, are we using external consultants here in terms of this? And isn't there a regulatory sort of an approval or a communication also which will be required while you have done it actually voluntarily, which is what is the right way to do.

But I'm just trying to understand when you say it will happen by September end and this issue was known to us, let's say, yesterday or -- so what is it that you guys have drawn? And how should we track this?

So first, there is no need to inform any agency. There is no change of specs or change of regulatory filing. So this is one of your questions. When you get the result out of spec, you have to stop and to see what needs to be changed because obviously, you cannot continue, especially on validation, you need to take the process, tweak it again and validate it again. Once it's validated, only then you can use the scale up, and that's what we plan to do.

What went wrong in this batch, I don't know, but we got the results, and that's what we [ aim ] to investigate. It's a process issue, like I mentioned before. And we'll have to tweak it and scale it again. The time lines I already mentioned. And I'm 35 years in this industry. It's happened before, unfortunately. But right now, the way I see it is that we have our R&D people that can take care of that. They are using also external people that can help them. But by and large, it's something that it's in our capability to deal with to fix it and to scale it.

It was very important for us because we communicated in length and in details with the shareholders and with the markets, all that it was, [indiscernible] try to make sure that you are aware that we have now a supply issue for the next 3 months.

So is the time alternatively to do this with another supplier? Do you feel confident that to -- I mean, I'm sure you guys would have thought over it. Is that more time and to reach that commercial scale with an alternate supplier would not be the correct option and hence, to try this?

And also that do we need external consultants to resolve this because this is an unknown impurity if that is what I heard correctly?

So first, we are qualifying another supplier, but the time lines, as I mentioned to Neha, I believe it was her question, it will take time. It's about a year away. So we are going to do it unrelated, but this part that we want to resolve in like 3 months, it will have to be with the current process and the current API source. Our team also using external, but we don't need external for that. There are some help and knowledge that we receive. We always use external help when needed. But there is no need of external help or anything like that. It's a product that was developed by us and the people should resolve it and they are using also help if needed.

So to your question, we are using parallel. We are also qualifying another supplier as a backup, but it will come later as a pre-approval supplement.

And there is no product recall here for this batch because this batch never went into the market. Is that understanding correct?

That understanding is correct. I mentioned it again. No recall, it's a batch. We tested it. We found it, one of the impurity out of specs and this batch never shipped to a market and never shipped to any customer. Therefore, no recall is needed.

The next question is from the line of Dr. Kunal Dhamesha from Macquarie.

Just one question on the impurity being part of API. My understanding, and I may be wrong here, but API as a cost of overall manufacturing of this pen is very low. So why not keep on manufacturing the API in batches and whichever batch succeeds, keep supplying that. There might be some incremental cost of API, maybe one or more batches we'll have to kind of discard, but we can continue with the production, right? So why this decision of stopping the API manufacturing altogether when API cost is a very minuscule part of overall manufacturing cost?

There is nothing to do with the cost here. It's about GMP. If you are failing a validation, you cannot continue. So you have to control the process as per GMP and commitment to GMP and quality. So because the product showed degradation in the scale-up batch -- in scale-up validated -- scale-up batch for validation, you have to repeat validation. We cannot supply to the market a product that is not validated. It's GMP. It's safety of people. Cost is not relevant.

Okay. And second aspect on this, let's say, the entire batch, which basically showed the issue and the earlier batches would not have shown such issue, right? So how much time does it take to manufacture one batch for us?

So we will have to -- it's not just to make, it's also the testing, and then we need to give it to the filling of the cartridge and then we need to do the sterility test. So all of that together will take something like 2 months. So the production plus -- that's how I kind of gave you the time lines of end of September. Of course, there is always a way to squeeze here and there, but I wanted to be on a safe side and to give you a reliable assessment of the situation. That's where it came from.

The next question is from the line of Kartick Bane from Bajaj Life.

Can you all hear me?

Yes.

Yes.

So my question is to do with more respect to the kind of impurity that we are talking about. Is it related to the addition, deletion or substitution of any amino acids, which are in the peptide? Or is it to do with some change in the excipients because of which the physical characteristics of the final formulation is getting affected? Or is it the degradation and because of which there is a concentration less into the vial that needs to be, go into the vial. So what kind of technical issue is here, if you can enlighten me on that?

So it's the first one. And it's a degradation of that impurity that was detected in the final product. What caused the degradation? I don't know.

Okay. And has any of the other companies like Eli Lilly or Novo Nordisk or other peptide companies have faced a similar issue that has come into the public domain?

Not that I'm aware. I'm not aware. Maybe, but I'm not aware.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first one on the guidance for 6 million to 7 million in Q3, Q4. Erez, I just want to understand from a demand perspective, we are not sure yet. So I just want to understand how is demand panning out? What has given us the comfort that we'll still be able to do that with a quarter delay, let's assume, of your guidance, which was the earlier guidance, right? So just from a demand, anything has changed? Or what gives us that comfort?

Nothing has changed. There is -- unfortunately, if we had 15 million, we could supply that also. So the demand, there is no shortage of demand, and I don't see shortage of demand also going forward. Yes. So I'm pretty confident about the demand going forward.

But it is from a time line perspective, competitive intensity can increase, right? So we could have Sandoz and others come through, right, as many other companies. So -- but you still think demand is outstripping supply?

Yes, yes. And some of the names are being supplied by us as you know.

Got it. And just the last question on the -- for us to move away from OneSource to our own fill finish, does this change the plans? Is there any time line on when that switch can also happen?

We are committed to be with OneSource actually for long term. We will have also our backup facilities. But we are committed to a relationship with OneSource and they are committed to our relationship. I believe that we are going to be important partner for them for many years and so they for us. So there is no plan to leave them in that respect, but we are building our facility, and we also use that for our product.

So I thought we had like a large capacity like 25 million, 30 million perhaps, right? So that's not for ourselves. Why will we still need OneSource, say, 12, 18 months later? I'm just curious, sorry.

We -- I'm reiterating just to make sure. First of all, you are right, we will have a large capacity. It will be used for semaglutide as well as for other products. And we have a good use of that line as well. I just want to make sure people will not misunderstand and we are planning and we plan to enter to a long-term relationship with OneSource on semaglutide injection.

We also have some media colleagues on the line, Erez. I hope it's okay for us to take some questions from the media as well.

Go ahead. Go ahead.

All right. So we have the next question from the line of Rishika Sadam from Reuters.

My question is, does this mean that Reddy's is still on target to achieve its annual target that it has set earlier of 12 million pens in the first year of launch, and you talked about 6 million to 7 million between Q3 and Q4. So how does it sit with the annual target that the company has set earlier? And I have a follow-up question.

Yes. So naturally, because we are going to lose these months, that's why I mentioned instead of what we could sell in this period of time, we will sell 6 million to 7 million in addition to what we sold already until now. So the range is between 6 million to 7 million for fiscal '27.

Right. Will that be short of what you predicted earlier? I'm just trying to get the numbers in line here, sorry for the confusion.

Yes, because before that, we assumed that we will sell during July, August and September and October. And now unlikely that we'll do that. That's why we initiated that clarification to the market and update to the market.

Right. And just a clarification on the issue and impurity you talked about. This was -- I just wanted to get this right. This was part of the scale-up process and it was identified in a new batch of API. That's correct. That would be said...

That's correct. Yes, that's correct. It's a scale up. There is no concern of anything that was sent to the market until now.

The next question is from the line of Satviki Sanjay from Bloomberg.

Am I audible?

Yes, please.

Just checking how this changes your partnership to supply APIs and semaglutide, say, with companies in India as well as some of the companies in Canada that we talked about, Sandoz, Torrent, if you can share that?

Yes. So obviously, we updated all of them today, the same as we are updating you. They will have to -- some of them have alternative, some of them don't. We obviously wish and agree with them that they need to do whatever is good for them, but we are committed to resolve it and to resume partnership. If they will choose to do -- to have different partnership or to go [ elsewhere ], we'll obviously respect it.

But we communicate to all of them, and they all understand the situation, and we'll take it from there. Obviously, in the next coming months, we will not be able to supply as was communicated to them before that.

We factored in about 30 minutes for this call. We've gone over, but we'll probably take one last question before we close from the line of Abdulkader Puranwala from ICICI again.

Hope I'm audible. Just on taking the previous participant's question ahead in terms of our supplies to our partner. So will the duration in which we are not able to supply, does that attract any failure to supply kind of a fee?

And likewise for OneSource where we earlier talked about taking out close to 12 million pens for them. So is there any payment we will have to make for the entire supplies as against what we are budgeting now for the second half?

So there are no penalties as such, potentially, and it was not under discussion. I just want to give you my assessment. Naturally, some of the arrangements that we made with some of the customers that involved down payments and stuff like that, we may need to renegotiate that, but there is no penalty as such, and I'm not anticipating those.

And not just that, I'm hopeful that it's a product for many, many years, and we'll continue the relationship with them for many, many years. But there are no penalties as such.

Okay. Okay. And just last one, I may, and this is again a follow-up of what you have spoken previously. So in terms of your plans to captively manufacture the product in-house, is there any delay you now sense and when you talk about OneSource being a long-term partner, is there any delay you're now factoring in your captive manufacturing for this product as compared to what you were thinking, say, a month or a quarter ago?

No. We -- all the plans stay valid, and we just have to move. So naturally, also our facility needs to be supplemented with our API. This API will come only after validation. So the plans will just have to shift for the time of duration that will resolve this issue. But we will stay with OneSource and we'll have also our facility. It just will take a few more months later than we originally communicated and anticipated.

All right. That was the last question. Thank you so much for joining us today. Once again, a very short notice. We value your time and participation on the call. If you have any further questions, please feel free to reach out to me or to the corporate communications team if you're representing media.

And with that, we end today's call. Thank you, everyone. Have a good day.

Thank you.

Good day, everyone and welcome to the Quarter 4 and Full Year FY '26 Earnings Call of Dr. Reddy's Laboratories Limited. I'm Aishwarya Sitharam, Head of Investor Relations of Dr. Reddy's. Joining us today are members of leadership team, Mr. Erez Israeli, our Chief Executive Officer; and Mr. M.V. Narasimham, 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 as well as the year. 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. [Operator Instructions] The session is being recorded, and both the audio and transcript will be made available on our website. Please note that this call is the proprietary material of Dr. Reddy's Laboratories Limited 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 the call over to MVN to present the financial highlights for the quarter.

Over to you, MVN.

Thank you, Aishwarya. Greetings to everyone on the call. It is my pleasure to walk you through our financial performance for the fourth quarter and full year FY '26. FY '26 reflected a resilient operating performance, delivering highest ever annual revenues amid product-specific headwinds and certain onetime impacts. The underlying base business continued to deliver double-digit growth for the quarter as well as for the full year FY '26. At the outset, I would like to highlight a few items impacting the quarter.

Number one, a shelf-stock adjustment or SSA related to lenalidomide of INR 453 crores taken as a reduction in revenue. Number two, an additional provision of INR 114 crores related to potential VAT liability in one of our subsidiaries included in SG&A expenses. impairment of INR 135 crores, including an R&D charge of INR 6 crores on account of discontinuation of R&D programs related to CAR-T therapy as part of the portfolio prioritization. Impairment of INR 93 crores on account of discontinuation of a trial by our partner, Immutep of an in-licensed asset following an interim futility analysis. The full year performance was further impacted by provisions related to potential VAT liability of INR 70 crores as well as the impact of new labor law code in India of INR 117 crores.

After factoring these items, the adjusted profit before tax was INR 994 crores for the quarter versus the reported number of INR 199 crores and for the full year, INR 6,463 crores versus the reported PBT of INR 5,482 crores. Now I would like to discuss the underlying performance in detail. Margins in this section are expressed as a percentage of the revenues before the impact of SSA, unless otherwise stated. For the reported figures, please refer to the respective earnings releases. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 93.83, the exchange rate prevailing as of March 31, 2026.

Excluding SSA, the adjusted revenue stood at INR 7,969 crores, which is USD 849 million for the quarter, a decline of 6% year-over-year and 9% on Q-o-Q and at INR 34,046 crores, which is USD 3.63 billion for the full year, representing a growth of 4.6%. The decline was primarily on account of lower lenalidomide sales, while the base business, excluding lenalidomide, delivered double-digit growth on a year-over-year basis. We expect the base business to sustain its growth momentum in the year ahead. The gross margin on the adjusted revenue base after excluding the one-offs for the quarter was at 48%, lower by 760 basis points on year-over-year and 615 basis points on sequentially and at 53.5% for the year, lower by 498 basis points on year-on-year.

The decline in margins was largely on account of lower lenalidomide sales and price erosion in our unbranded generics businesses. The gross margin for Global Generics was at 51.7% for the quarter and 57.4% for the year as a percentage of its adjusted revenues, while for PSAI stood at 19.9% for the quarter and 17.2% for the PSAI for the fiscal on its reported revenues. Given our focus on the cost efficiencies and productivity improvement, we expect the margins to improve and be above 50% in FY '27. Excluding one-off provisions mentioned earlier, SG&A spends were at INR 2,662 crores for the quarter, an increase of 11% on year-over-year and 1% sequentially and 33% of the adjusted revenue base and INR 10,435 crores for the year, an increase of 11% on year-over-year and 31% of the adjusted revenues.

The increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchise, namely the acquired NRT Consumer Healthcare business and branded generics. We expect the spend to be around the same level as FY '26 for the year ahead. The adjusted R&D spend for the quarter was INR 541 crores, a decrease of 26% year-over-year and 12% on sequential and a margin of [ 6% ] of adjusted revenue. For the year, the spend, excluding onetime labor court-related provision was INR 2,385 crores for FY '26, a decrease of 13% and 7% adjusted revenues. The decrease reflects reduced biosimilars developmental expenditure as a significant portion of investments related to Abatacept has been completed. We expect the spend to be in the range of 7% to 8% in the fiscal ahead.

The increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchise, namely the acquired NRT Consumer Healthcare business and branded generics. We expect the spend to be around the same level as FY '26 for the year ahead. The adjusted R&D spend for the quarter was INR 541 crores, a decrease of 26% year-over-year and 12% on sequential and a margin of [ 6% ] of adjusted revenue. For the year, the spend, excluding onetime labor court-related provision was INR 2,385 crores for FY '26, a decrease of 13% and 7% adjusted revenues. The decrease reflects reduced biosimilars developmental expenditure as a significant portion of investments related to Abatacept has been completed. We expect the spend to be in the range of 7% to 8% in the fiscal ahead.

Other operating income for the quarter was INR 344 crores as against INR 247 crores in the corresponding quarter last year and INR 763 crores in FY '26 as against INR 436 crores in FY '25. The increase during the quarter was largely on account of divestment of noncore brands in India business for net of INR 189 crores. The underlying EBITDA, including other income, stood at INR 1,554 crores for the quarter which is USD 166 million, a decline of 37% on a year-over-year basis and 28% sequentially and reflecting a margin of 19.5% of the adjusted revenues. For FY '26, the EBITDA adjusted one-off was at INR 8,419 crores, which is $897 million that is like 24.7% on the adjusted revenue base. Impairment charge for the quarter was INR 259 crores as compared to INR 77 crores during the same quarter last year.

The higher charge this quarter was largely on account of discontinuation of [ CAR-T ] assets and partnered product Eftilagimod Alfa, as mentioned earlier. Impairment charge for the year, INR 352 crores as compared to INR 169 crores last year. The net finance income for the quarter was INR 62 crores versus INR 235 crores during the same quarter last year and INR 413 crores for FY '26 versus INR 472 crores for FY '25. The decrease was primarily on account of lower foreign exchange gain in comparison to the corresponding period last year. As a result, the underlying profit before tax was at INR 994 crores, that is USD 106 million, representing a margin of 12.5% and for FY '26 at INR 6,463 crores, that is USD 689 million, a margin of 19%.

Effective tax rate for the quarter was negative of 10.8% compared to 20.8% in the corresponding period last year. While for FY '26 ETR was at 22.5% versus 25.4% in FY '25, the ETR for Q4 FY '26 was lower, primarily due to recognition of a deferred tax asset on carryforward losses in one of our subsidiaries and a favorable jurisdictional mix for the quarter in comparison to the same period in the previous year. We expect the ETR to be 24% to 25% for fiscal FY '27. Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 220 crores, which is USD 23 million, a margin of 2.9% on the reported revenues and for the year, INR 4,285 crores, which is USD 457 million, a margin of 13% before adjusting for one-off items mentioned earlier.

Based on the company performance, the Board recommended payment of dividend INR 8 per equity share of face value of INR 1 each. This is equivalent to 800% of the face value for the year ended March 31, 2026, subject to approval of the shareholders of the company. Diluted EPS for the quarter, INR 2.64 and INR 51.42 for FY '26. Operating working capital as of 31st March 2026 was INR 14,434 crores, which is USD 1.54 billion, an increase of INR 2,920 crores, which is [ USD 311 million ] over 31st December 2025. CapEx cash outflow for the quarter stood at INR 438 crores, which is USD [ 47 ] million and INR 2,302 crores, which is USD 245 million for FY -- free cash flow generated during the quarter before acquisitions related payout was INR 600 crores, which is USD 64 million and INR 2,004 crores, which is USD 214 million for FY '26. As of March 31, 2026, we have a net cash surplus of INR 3,271 crores, which is USD 349 million.

Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 462 million hedged using a combination of forwards and risk reversal options scheduled to mature by March. These contracts are hedged at rate of [indiscernible] per U.S. dollar, RUB 1.6 billion hedged at a fixed rate of RUB 1.12 for Russian ruble with maturity falling within the next 3 months. With this, now I request Erez to take us through the key business highlights.

Thank you, MVN, and good day, everyone. We appreciate your participation on this call today and value your continued interest in our company. During the year, we remain focused on advancing our 2-pronged strategy of strengthening the base business while investing in our future growth drivers across peptides, biosimilars, consumer health and innovation.

Our FY '26 performance reflected consistent disciplined execution of our strategic priority, namely scaling the base business, advancing our key pipeline programs, semaglutide and abatacept and targeted business development efforts to support our growth ambitions while continuing to enhance efficiency across operation. I'm pleased to report that the first quarter -- in this first quarter without one of our key products, lenalidomide, the company delivered an EBITDA margin of around 20% after adjusting for certain items indicated by MVN earlier. Launches of products offering meaningful opportunity, [ BD ] and continued cost optimization efforts will take us closer to our aspirational 25%. For FY '26, the adjusted EBITDA margin was in the neighborhood of 20%, consistent with our stated aspirations.

Further, the underlying base business delivered double-digit growth in Q4 as well as for the full year of FY '26. All geographies besides North America recorded double-digit growth, while performance in North America was impacted due to lenalidomide sales and onetime shelf stock adjustment related to this product. Let me now walk you through some of the key highlights of the quarter. In line of our strategic priorities, we made progress on our key pipeline assets, semaglutide and abatacept during the quarter. We are pleased to announce that Dr. Reddy's became the first company to secure regulatory approval of semaglutide injection for type 2 diabetes in Canada, reinforcing our in-house expertise in peptide science and complex product development.

Likewise, as the first company to receive approval in India for the same product in November last year, we successfully launched our brand Obeda on day 1 of market formation about patent expiry in India. Our oral version of semaglutide has been approved by the CDSCO in India. We continue to engage with ANVISA in Brazil to address its concern related to our generic semaglutide filing and remain committed to making this important therapy available to patients across several markets, subject to approvals. Further, in February 2026, the U.S. FDA accepted for review our BLA for the intravenous IV presentation of abatacept biosimilar candidate following its filing in December 2025.

Aligned with our strategic focus to bring innovation to patients in India, we already in hormone replacement therapy segment with the acquisition of Progynova and Cyclo-Progynova in India. Our partner product, COYA 302 received fast track review status. In addition, the operational integration of our acquired consumer health care business in nicotine replacement therapy is now largely complete. On the regulatory front, in March 2026, the U.S. provided the VAI classification for our formulation facility, FTO-SEZ in Srikakulam, Andhra Pradesh following a GMP and pre-approval inspection, PAI in December 2025. We continue to build on our leadership in sustainability. Dr. Reddy's was awarded the gold medal for EcoVadis for FY '26, achieving its highest ever score of 80, placing us among the top 5% companies assessed globally.

During the quarter, we were named by the Business World among India Top 5 sustainable company, ranking first in the Indian health care and pharmaceutical industry for '24 and '25. We've been recognized in the leadership category of 2025 Indian Corporate Governance Card for the third consecutive year. Let me now take you through the key business highlights for the quarter and the full year. Please note that all financial figures mentioned are reported in their respective local currencies. Our North America generic business reported revenue of $199 million for the quarter and $1.3 billion for FY '26. Excluding onetime shelf stock adjustment, revenue were $251 million for the quarter, a decline of 40% and 26% sequentially at $1.36 billion, a decline of 21% year-over-year.

The decline was primarily on account lenalidomide. During the quarter, we added 7 new products to our portfolio, taking the annual of total 25 products. We aim to continue to launch momentum in the fiscal ahead. Our emerging markets reported revenue of INR 1,806 crores in Q4 FY '26, reflecting a robust growth of 29% year-over-year and a decline of 5% sequentially and INR 6,761 crores in FY '26, a growth of 23% year-over-year. The growth was led by new product launches across markets and higher volume particularly in rest of the world, further aided by favorable currency movements. During the quarter, we introduced 49 new products across countries, taking the FY '26 total to 129. Within this segment, our Russia business reported a growth of 8% year-over-year and a decline of 23% sequentially in constant currency terms.

Our India business posted revenue of INR 1,566 crores in Q4 '26, delivering a robust double-digit year-over-year growth of 20% and a decline of 2% sequentially, while the full year revenues were at INR 6,219 crores, year-over-year growth of 16%. This performance was largely driven by revenues from our innovation franchise, new brand launches, price increase and volume growth. IQVIA data as of March 31, 2026, shows that we continue to outperform in the Indian pharmaceutical market, IPM, with a moving quarterly total growth of 15.2% compared to IPM growth of 11.6% and moving annual total MAT growth of 12.1% compared to IPM growth of 9.9%. Our IPM rank stood at 9 for the quarter and 10 for the year.

We launched 10 new brands during the quarter and 28 over FY '26, reflecting our continued focus on strengthening our domestic market presence. Our European business, which includes our acquired consumer health business in nicotine replacement therapy, posted revenue of $136 million for the quarter, a decline of 3% on a year-on-year basis as well as sequentially and $542 million for FY '26, reflecting an acquisition-led growth of 37% year-over-year. The decline this quarter was primarily on account of price erosion in generics. During the quarter, we launched 7 new generics products across market, taking the full year total to 38, further expanding our European product portfolio.

Our PSAI business reported revenue of USD 101 million in Q4 FY '26, resulting in a decline of 10% year-over-year and a growth of 10% sequentially. The decline was primarily on account of lower API volume uptake during the quarter. During the quarter, we filed 48 Drug Master Files globally, taking the total number of filings to 128 for the year. Looking ahead, we remain focused on delivering on our strategic agenda of strengthening our core business while building future growth drivers. Underpinning this strategy is future-ready organization structure aligned to our business model with dedicated leadership across global generics, biologics, consumer health and innovation, enabling sharper focus, relevant capabilities and more effective execution across each growth pillar.

Within this framework, we will continue to advance our differentiated pipeline programs such as semaglutide and abatacept, drive operational efficiency and pursue value-accretive inorganic opportunities that support sustainable long-term stakeholder value.

With that, I invite your questions as we move into the Q&A sessions.

Thank you very much, Erez. [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.

Just wondering on the shelf stock adjustment that we had in the quarter, a $50 million number for a product like REVLIMID where we knew that the patent cliff is coming seems very large. So if you could just give us some color in terms of why the shelf stock adjustment was so large, given that we knew we're expecting competition in Jan.

We were also surprised by that. It was not part of any arrangement or anything like that. I cannot speak on the details on the relationship with the customers, but it came from them, I guess, certain planning issues or mistake at their end, and that's the outcome of it.

Okay. Understood. And my second question is on semaglutide. Now that we have Canada approval, I think we had mentioned a 12 million unit sales across markets in FY '27. Erez, in your view, what could be the competitive landscape now that Reddy's and the second player have gotten approval? When do you expect more players? And out of the 12 million, based on your assessment, what would be the rough breakup between, let's say, Canada and [ EMs ]?

So I believe that -- so the current landscape of basically Novo Nordisk as well as the two of us will stay there probably for several months. And then likely that others will come. I believe that the market in Canada is give or take. It's about 1/3 in -- for what we call public, 1/3 cash and 1/3 what they call private. So it's a kind of public, private cash. So what I believe will happen is that the reimbursement price will go over time as expected. The launch quantities at least in a couple of years, we should be very, very healthy. Obviously, I cannot say, but it should be very, very healthy.

And given that we have had a setback in Brazil, are we still confident of the 12 million units sale for sema in fiscal '27? Or do you think that would depend on us getting approval in Brazil as well?

So Brazil will be -- is part of it. I believe it's still in that number, but the number moved by several months. So if -- we are still -- I'm still with the same number, but probably it will have like 12 months that will probably result in somewhere in the beginning of FY '28 as well. Specifically, for the next, let's say, until the end of calendar '26, I believe that the number is somewhere between 6 million to 7 million units.

This is for calendar '26?

No, this is for the markets that will get approval and Canada will be obviously a big part of it. But it will be -- this is give or take the numbers.

The next question is from the line of Damayanti Kerai from HSBC.

Continuing on semaglutide. So Erez, just to clear, the 6 million to 7 million units, which you expect to market, it's by end of this calendar year, right, by '26?

Correct.

Okay. So can you talk a little bit about your pricing strategy in the market where you'll be coming in, say, another 12 months? And specifically in Canada, after entry of second generic, how do you position yourself versus Novo Nordisk pricing?

So our list price will be give or take, about half of what Novo Nordisk will be. So that can be shared because it will be listed. Obviously, the rest is arrangement that we have with the customer that we will not be able to disclose, but let's say, it will be the normal arrangement that you normally have. The -- in terms of I'm not sure I captured -- sorry, the rest of the question, sorry, I lost it. Can you remind me?

Yes. I was asking about the pricing strategy in all the market, where do you intend to come in, say, another 12 months or so, 12 to 15 months.

Sure. So we believe that the -- all the prices will be let's say, in the neighborhood of, let's say, $30 plus. Why I'm saying that number also is because in some markets, we are going to work with the partner and that reflect the net price that we have for them. Obviously, they will have their margins. And these numbers may go down if the competition intensified, but I don't envision it to -- at any case to be below $25.

Okay. So somewhere $25 to $30 per unit is the price you are working with?

And there will be market obviously, that it will be much more than that. But I just wanted to share with you the kind of the neighborhood of the floor area. Obviously, we are planning to have in markets also prices that are much higher than that.

Okay. That's helpful. My second question is on SG&A spend. So you mentioned next year -- sorry, this year, FY '27, it could be similar to what we had in FY '26. So just wanted to understand in NRT or some of the initiatives which you had started a few years back, you have been spending for last few years, if I may say. So where you are looking for investing more? And this number, do we have any room to take a cut or see any reduction there? So if you can just talk a bit on that part.

Sure.

So we will have absolutely places that will have less and we'll have places that will have more. But just to address, the NRT is a place in which we will have more. At the same time, the growth will more than finance it. So the level of profitability of the asset will stay the same and even maybe grow. But in terms of SG&A per se, we will have more. In the -- we are also launching innovative products in India and in certain emerging markets. And naturally, we are investing in the marketing of those new products.

At the same time, we are putting a lot of productivity activity, sales force excellence as well as additional marketing excellence program and this will go up. So that's why we said that give or take, in terms of nominal value, it should be the same level as sales will go by in percentage-wise, it will go down. But in terms of -- to understand the range of the spend, it will be about, give or take, the same range that we have now.

In nominal terms, right? Yes.

While, of course, the sales will go double digit up.

The next question is from the line of Tushar Manudhane from Motilal Oswal.

Firstly, on gross margins, even after adjusting the shelf stock for the quarter, it is 48%. While ex lenalidomide also we have talked in the past that the gross margin has been 50% plus. So is there anything which I've missed as far as gross margin for the fourth quarter is concerned?

So this quarter is -- there is a product mix impact. That's why it is at 48%. We believe our gross margin range is in the range of 50% to 55%.

So what will drive this in the subsequent quarters? And are you including semaglutide sales for this gross margin?

Yes, semaglutide sales, of course. And then there is a cost improvement -- product cost improvement programs also are on considering what the new products we are going to launch in FY '27, including semaglutide plus product mix. Considering all these things, I think certainly our gross margin will be 50% or above.

I just want to make sure that we are planning to launch also products like semaglutide, tofacitinib, sitagliptin, [indiscernible], sorry for my reading. And -- yes. So in addition to that, there are additional key products to do. So the mix of the product, the mix of the market as well activities that we are taking now on our APIs, we are very confident about our ability to manage the gross margins.

And just on these products, which you mentioned, sir, so currently, U.S. revenue even after including the shelf stock adjustment, it is $236 million. So effectively, maybe $944 million, if I normalize that. So will we sort of grow over and above this ex semaglutide in FY '27?

We will absolutely grow in North America, ex lenalidomide in double digits.

Got it, sir. And just lastly, for India market, if you could just share what has been organic and inorganic growth for the quarter?

It's organic. What do you mean inorganic? We did not -- licensing and consider organic or inorganic...

Brands, what we acquired is not a significant impact in this quarter -- just recently acquired brands.

Just to clarify, we consider if we license a product from China, and we are launching it in India as organic. In this terminology, it's mostly organic. It's let's say, the inorganic is neglectable.

The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

Could you give an update on the status of denosumab and Orencia, abatacept?

So denosumab will launch in Europe, and we are waiting for approval in the United States. Our partner has a deficiency letter that they need to address for the United States. Abatacept, the IV was approved for review. So it was accepted. And so it's going after the time lines. And we are also awaiting an FDA inspection in Bachupally, Hyderabad for the same. So the abatacept so far in the right direction. And then, of course, we are working on the subcu that will be submitted later and also will be launched later as we discussed in the past.

Got it. So the IV is online for potential launch this calendar year?

IV will be likely at the beginning of calendar '27. Hopefully, this fiscal -- only hopefully in this fiscal, that's the plan. But of course, we need to see the approval for that. But right now, that's the plan.

Got it. And do you expect denosumab in the U.S. before that?

I don't know. It depends on the ability of [ Alvotech ] to get approval.

Got it. Second on -- you said that you have wound down your CAR-T-related investments and taken a write-down. Could you just tell us a bit about what your investment was and why it failed in that area?

No, the investment, give or take, is what we -- MVN guided it's INR 150 crores...

INR 135 crores...

INR 135 crores. That's what we took down. We saw that we have issues with the clinic and we decided to kind of deprioritize it at this stage. And we just impair it as per appropriate accounting. But this is, give or take, what we invested.

Sorry, I got the figures, but my question was more technical. Do you -- is it something wrong with the specific product you used or with the technology itself?

I'm not sure I understand the question. It's what we invested in the clinical trials and getting the products. Yes.

But products, okay. So your product doesn't work, but CAR-T technology as such is...

I don't know what is -- the product is the CAR-T, sorry. So -- yes.

The next question is from the line of Surya Patra from PhillipCapital.

So my first question is on the biosimilar business. So what is -- since it is a closure of the -- I mean the fourth quarter of the year and full year data is there. So just wanted to have a sense what is the size of the biosimilar right now? And whether it is already broken even or it is loss-making? If not, then what is the time line for the breakeven for this business?

So overall, our global biologics sales is about -- it is not very high. This is above 100 million sales. So at this sales, certainly, whatever investments we are doing for the development of abatacept, other products, pembro also we are with [ Alvotech. ] So definitely, it's not a breakeven. Once we launch abatacept, certainly, I think post that, I think certainly we can see the breakeven.

FY '29, sir?

It is in -- certainly it could be in -- like I said, if abatacept, everything goes well, our inspection, everything, and we'll be launching in calendar year 2027. That would be like FY '28.

Okay. Second question was on the NRT. Two things here, observation-wise. So last two quarters -- since last two quarters, we have been seeing a strong growth. Last quarter, it was 25% Y-o-Y growth. This quarter, it is around 16%, so what is driving this growth and whether this is sustainable one? And secondly, fourth quarter, is there any seasonality? Because last year also, there was a kind of a sequential decline that we had witnessed for NRT?

So the NRT business is indeed growing more than we expected it to be. So we expect it to be kind of mid-single digit is certainly more than that. Specifically for the 16%, so there is some impact of the fact that in the transition, some customers take more stock. So it's not fully, let's say, in that respect, sustainable. But I believe that the right place for it is either high single digit or even low double digit, we will be somewhere in this neighborhood.

Okay. Just last one point, sir. What is your experience about the semaglutide penetration here in India? Because generally, it is understood that of the target patient population for weight loss application, let's say, the penetration is very low. It is around 2% or even less than 2%. So what is the trend that you are witnessing here in India in terms of the penetration of semaglutide?

Yes. So I don't recall exactly the market share, but so far, it's a great launch.

So we -- I think our market share is about 10%, more than 10% on a stand-alone basis.

Okay. In that light, are we talking anything about the growth for the domestic business?

I believe that it will grow plus in the next coming days, we will launch also the oral product. So the combination of both should be -- should give us a very healthy growth.

The next question is from the line of Lavanya Tottala from UBS.

Just one question from my side. So even after adjusting for SSA in U.S.A., sequential decline of 25% Q-o-Q despite having limited REVLIMID in Q3 seems quite high. So am I missing something? Is there anything other which is one-off here?

In Q3, we had a little bit sales, right? This little bit sales. Yes. Hence, I think definitely from Q3 to Q4, there will be a natural decline.

So I don't think -- we don't see a pattern of a loss of market share or price erosion or anything like that. There is -- there could be that there were certain buying patterns by some customers. But overall, it's very consistent the way we see it. So the primary difference between the quarters is linear.

Okay. So the one which is adjusted for SSA in Q4, one can consider this as base sales for U.S. from here on. Is that the right way to look at it?

Yes. I will not come because I don't know exactly the origin of the SSA specifically. But let's say that if you look, there might be some customers that bought a little bit more as per their patterns of acquiring products in terms of dates and stuff like that. But overall, if you look at market share prices, this kind of stuff, it should be about the same.

And also, this is -- one, we will be also going to new launches. Today, this is from the existing products and then going for the rest of the year, we'll be launching like 27 new launches overall for the full year.

The next question is from the line of Saion Mukherjee from Nomura.

Sir, just one question on [ SEMA. ] If you can indicate when you expect approval in Brazil? And what are the key market approvals that you're looking at? And you mentioned, I think, 6 million or 7 million units for this calendar year. What's your expectation for the full fiscal year FY '27?

Yes. So the additional markets besides, of course, first of all, we are expecting to get approval also in Brazil. We have a partner in Brazil that is also there, and we got also [indiscernible]. So we hope to get approval to our clone product that is there. And in parallel to that, of course, we are seeing approval for our initial submissions. So we will be in Brazil. Probably, I don't know if it will be 3 months delay or 4 months delay, but that's still the expectations. In addition to that, you have markets like Turkey. And then you have a bunch of relatively high number of smaller markets that we have a partner that will probably serve like in Latin America or in Southeast of Asia because altogether, we are planning in this calendar to launch in more than 50 and 12 months in more than 80.

So in terms of number of markets, but many of them, we will do it with a partner that will do it for us. So between the -- what we call the B2B in which we are selling to the partners or selling ourselves directly, we probably will be in a pace of 3 million or 4 million pens per quarter. So if you add to that, it will come to around 10 or 11, close to the 12 that we discussed last time, give or take one month. So we are still in the same neighborhood, but with the delay of the few months that took those approvals.

Understood. And just one question on U.S. generics. I think if I heard you right, are you expecting 27 launches? And you actually mentioned a few of those products. It looks like most of them are very competitive. Are there any chunky large product opportunity in the U.S. outside of abatacept that you expect in fiscal '27?

I believe that Bosutinib can be a nice product. And I agree with you about that most of them will be competitive. I fully agree with that. But overall, it should give us a double-digit growth without lena.

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

In the interest of time, we will move on to our next participant, and we'll come back to Abdul, once he's able to unmute. The next question is from the line of Vivek Agrawal from Citi.

I just want to understand, out of this 3 million, 4 million pens per quarter, how much of this capacity that you are going to sell directly? And how much of the sales you are expecting through partners, et cetera? If you can help us understand.

It's -- if I need to guess, and I must admit that I did not do kind of calculation. So top of my head, I will say 50-50, give or take, in the neighborhood.

Understood, sir. And one question on North America. If you look at in this quarter, we have done close to $250 million kind of revenues. And it is again close to pre-Revlimid levels, right? So in the last 3 years, we have launched many products, but the U.S. revenues haven't moved up much. So is it fair to assume that there is a price erosion in some of the major baseline products in the U.S.? And how to look at overall profitability of the U.S. business? Is it still lower than pre-development levels? Or is it basically almost similar?

Yes. So first, obviously, there was -- in this period of time, there was price erosion. And what it tells is that market share and new products, give or take, covered, I see it as a kind of very low single-digit growth, not flat. But I mean in agreement with you that market is not growing as the other markets that we have that are all growing in double digit. Moving forward, this year, again, without Lena, we will see double-digit growth. And going forward, the main growth in the United States will come from biosimilars, consumer health as well as certain 505(b)(2). So over time, the business will diversify itself. But right now, it's mostly generic products.

Understood. So the double-digit growth that you are highlighting for this year, that includes Sema in Canada, right? So I'm just trying to understand how to look at only the U.S. sales. So what kind of the growth you are expecting in the U.S. business ex Lena this year?

Yes. So it's ex Sema. It's not with Sema. Sema is on top.

Vivek. The next question is from the line of [indiscernible].

I had two questions. Number one, sir, when you look at the next year, I think you have given the breakup of the costs by line items. But given that the base business right now is at, call it, 19%, 20% margin, where do you see the overall margin for the business with Sema, et cetera, in the next year and the year after versus our target of 25%.

Yes. So we are planning to maintain the base without Sema at around 20%. So this is the plan. And then the Sema is supposed to help us to get more than that. Now it obviously depends how much we will be able to sell and what price and what will be the mix because I shared already that it will be a range of price that can go, let's say, between, let's say, 30 or 25 to 30 all the way to 70. So obviously, there will be a range of prices. But let's say, with Sema, it should be close to the 25%, but maybe a bit less, depends on how much Sema we will sell.

Understood. And sir, any thoughts on the number of pens that you can possibly sell in F '28?

FY '28 potentially, we will have a lot of capacity because we will be able to qualify in addition to the current cartridge suppliers that we have today, we will be able to qualify also our capacity of [ FQ11. ] So to the -- so it will -- it can be any number. Let's say it can be north of $40 million or so. But right now, I don't see a demand for this hopefully...

The next question is from the line of Alok Dalal from Jefferies.

One quick clarification. It is on semaglutide in Canada, has the innovator Novo already introduced an [ AG ] in the market?

Sorry, can you repeat?

In Canada, has Novo already introduced an [ AG ] in the market?

So I know that they are offering. I don't know if it was already sold. I don't know you -- personally. I don't have a knowledge for that. But we are assuming that they will have. That's my assumption.

All right. So in that scenario, will it be a 3-player market and lead to 75% discount to the innovator product? Is that the way to think?

I don't think so in that way because the market is divided to public cash and private. And what you're discussing is absolutely public. So yes, likely that this will happen to the public eventually. But I do see it as a mix of market. So we are not planning right now our assumption based on the number that you mentioned.

The next question is from the line of Vishal Manchanda from Systematix.

Could you outline how much would you expect in annual biosimilar sales by FY '29?

I wish I could.

A broad number, broad guidance.

Hopefully, it will be in the range of $0.5 billion, $600 million, $700 million. Sorry that it -- but it very much depends, of course, of how abatacept will perform. It will be the lion's share of those sales.

And would this have margins above company margins? Like can this be at the entire biosimilar portfolio, can it give you 25% plus margins?

In the case that there will be no competition or low competition, absolutely, it will be above the average margin that we have.

Right. And we are on track to file the subcutaneous version this year in Europe and U.S.

Yes, we are in the U.S., for sure. In the Europe, there might be some delay.

Okay. Okay. And just if you could give the split of sales between IV and subcutaneous in the U.S. by value?

It is 50-50 in U.S. is -- but whereas in Europe, IV is very less and [ SC ] is high.

Got it. Got it. And your CapEx plans for the next two years, annual CapEx plan?

So next year would be in the range of INR 2,000 crores -- around INR 2,000 crores.

And would this largely be on biosimilars or you have other areas?

So biosimilars, certain like a product-specific investments, I think, are there and then general CapEx.

So in the interest of time, we'll take one last question from Siddharth Negandhi from CWC.

On biosimilars, you had mentioned that your R&D spends will reduce given that the spends towards abatacept have been completed. Going forward, given the draft U.S. FDA guidelines, how do you expect your cost per molecule to behave? How do you see competitive intensity playing out? And given that you're guiding for a lower R&D spend, should we assume this is because of those draft FDA guidelines? Or is it because the new set of launches post-abatacept and denosumab will be much later and therefore, the spend will be lower. Yes. That's one question.

On semaglutide, just wanted to get your perspective on how you see dosage forms playing out given that you're also launching oral in India? Do you see oral being unique to India? Or do you see that having a play in other emerging markets too? And between the 3 dosage forms, how do you see the likely salience, say, 2, 3 years out? Those were my 2 questions.

Sure. So the R&D, naturally, we -- abatacept we paid for Phase III trial. And going forward, we don't anticipate Phase III. So obviously, the level of R&D in this area will not be the same. In addition to that, the products that will come in the next coming years in biologics for us will come primarily with partners and less something that will come in-house. So obviously, then we share the R&D cost as part of that. And number three, we are becoming more productive. One day will discuss it, but we have AI and we have this kind of stuff. And the overall, the R&D will have less cost and more output. So this is on the R&D question. On the semaglutide question, definitely, we believe that the oral will grow not just in India, for sure, in India, but also in other places. It depends, of course, on how people appreciate the compliance of the oral product.

So and as time will go by, also the oral will have probably additional -- because that's what the innovator is doing, additional forms, and we will have all of them. So there is a life cycle management that we are looking. And obviously, we are following as well, and we will launch the same as IP will allow us to do that.

Sure. And any thoughts around how do you see the salience between pens, vials and orals in emerging markets for semaglutide?

I believe that in the places that in the emerging market, you have countries in which there is a full use of the pens and the innovator fully launched the product in a place that it was done partially and also markets that not at all. And obviously, the price point for each one of the market is a bit different. In the places with the lower prices, we believe that the oral will be more successful than in the lucrative markets, at least the way we look at it now.

Thanks, Siddharth. That was the last question. Thank you for joining us today. We value your time and participation on the call. If you have any further questions or need additional information, please feel free to reach out to me. With that, we conclude today's earnings call. Thank you, everyone. Have a good evening.

Good day, everyone, and welcome to the Quarter 3 FY '26 Earnings Call of Dr. Reddy's Laboratories Limited. We appreciate your continued interest in our company. I'm Aishwarya Sitharam, Head of Investor Relations at Dr. Reddy's.

Joining us today are members of the leadership team. Mr. Erez Israeli, our Chief Executive Officer; and Mr. M.V. Narasimham, 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 our press release today apply to all forward-looking statements made during this call.

Before we proceed, I would like to call out a few housekeeping points. [Operator Instructions]. This session is being recorded, and both the audio and transcript will be made available on our website.

Please note that this call is the proprietary material of Dr. Reddy's Laboratories Limited and may not be rebroadcasted or quoted in any media or public forum without prior written permission from the company.

With that, let me hand the call over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Thank you, Aishwarya. A warm welcome to all. Thank you for joining us on our Q3 FY '26 earnings call. It is my pleasure to take you through our financial performance for the quarter.

The business delivered a resilient performance in Q3 FY '26, reporting a 4.4% revenue growth and steady profitability despite product-specific headwinds. The performance reported this quarter was largely attributable to the double-digit growth delivered by our underlying base businesses, excluding Lenalidomide aided by favorable Forex.

Reported EBITDA margin, which stood at 23.5% included a onetime provision related to impact of changes in the implied benefit obligations under the new labor law codes in India. Adjusting for this onetime provision, the EBITDA margin was 24.8%.

All financial figures in this section are translated into U.S. dollars using convenience translation rate of INR 89.84, the exchange rate prevailing as of December 31, 2025. Consolidated revenues for the quarter stood at INR 8,727 crores, which is USD 971 million, a growth of 4.4% year-over-year and a decline of 0.9% on a sequential basis. Strong performance across our branded businesses, namely India, emerging markets and the acquired consumer health care business in Nicotine Replacement Therapy.

Further supported by favorable currency exchange rate movements was partially offset by lower Lenalidomide sales and continued pricing pressure in the U.S. and Europe Generics.

Consolidated gross profit margin for the quarter was 53.6%, a decrease of 505 basis points year-over-year and 104 basis points sequentially. The decline in margins during the quarter was largely on account of lower Lenalidomide sales, price erosion in our unbranded generic businesses. Adverse product mix in PSA and the onetime provision related to new labor law codes mentioned earlier.

Adjusting for this one-off, the margin was at 54.1%. The reported gross margin was 57.4% for global generics and 17.3% for PSA. The SG&A spend for the quarter was INR 2,692 crores, which is USD 300 million, an increase of 12% on year-over-year and 2% on Q-o-Q. The year-over-year increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchises, namely the acquired NRT Consumer Healthcare business and branded generics. Adverse Forex impact as well as the onetime provision related to the new labor law codes. SG&A spend accounted for around 31% of the revenue during the quarter was higher by 199 basis points year-over-year and 82 basis points on a sequential basis. Excluding the one-off provision, SG&A spend as a percentage to the revenue was around 30% in Q3 FY '26.

The R&D spend for the quarter was INR 615 crores, which is USD 68 million, a decline of 8% year-over-year and largely flat sequentially. The decrease reflected lower development spends in biosimilars given that large part of investment related to abatacept have been completed, the spend this quarter also included onetime new labor law codes related to the provision.

The R&D spend was 7% of revenues for Q3 FY '26, lower by 92 basis points on year-over-year and the same level as the previous quarter. Excluding the on-off R&D spend was at 6.8% of Q3 revenues. Other operating income for the quarter was INR 77 crores as against INR 44 crores in the corresponding quarter last year. EBITDA for the quarter, including other income stood INR 2,049 crores, which is USD 228 million, a decline of 11% on year-over-year basis and 13% sequentially.

The EBITDA margin stood at 23.5%, lower by 401 basis points on year-over-year and 322 basis points Q-o-Q. Adjusting for onetime new labor law codes related to the provision, the underlying EBITDA margin was at 24.8%. The net finance income for the quarter was higher at INR 117 crores as compared to net finance expenses of INR 2 crores during the same quarter last year.

The increased net finance was primarily on account of higher foreign exchange gain this quarter in comparison to foreign exchange loss reported in the corresponding quarter last year.

As a result, profit before tax for the quarter stood at INR 1,543 crores, that is USD 172 million. PBT as a percentage of revenue was at 17.7%. Excluding the onetime new labor law code-related provision, the PBT margin was at 19%. Effective tax rate for the quarter was at 22.9% compared to 25.1% in the corresponding period last year. The ETR for Q3 FY '26 was lower primarily due to favorable durational mix for the quarter in comparison to the same period in the previous year.

Profit after tax attributable to equity holders of the period for the quarter stood at INR 1,210 crores, which is USD 135 million, a decline of 14% year-over-year and 16% on Q-o-Q. This is at 13.9% of revenue before adjusting the one-off provision related to a new labor law codes.

The diluted EPS for the quarter is INR 14.52. Operating working capital as of 31st December 2025 was INR 14,142 crores, which is a USD 1.57 billion, an increase of INR 811 crores, which is USD 90 million over 30th September 2025. CapEx cash outflow for the quarter stood at INR 669 crores, which is [ $75 million ].

Free cash flow generated during the quarter was INR 374 crores, which is $42 million. As of December 31, 2025, we have a net cash surplus of INR 3,069 crores which is equivalent to USD 342 million. Foreign currency cash flow hedges executed through derivative instrument during the period are as follows: USD 481 million hedged using a combination of forwards and structured derivative contracts scheduled to mature through March 2027. The contracts are hedged at the rate of [ INR 89.1 to USD 90.3 ]. RUB 2.93 billion hedge at a fixed rate of [ RUB 1.06 ] with a maturity falling within next 3 months.

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

Thank you so much, MVN. Good day, everyone, and thank you for joining us today. We really appreciate your continued engagement and interest in our company. Thank you all for joining our meeting.

Our overall performance in Q3 FY '26 remain consistent with our strategy. And we continue to deliver on our strategic priorities during the quarter, namely growing the base business, driving gross efficiencies across operations, advising our key pipeline programs, semaglutide and abatacept as well as pursuing selective business development video opportunities to augment our organic growth efforts.

In line with our stated aspirations our underlying base business delivered overall a double-digit growth this quarter. The company EBITDA margin was about 25%. And this is adjusted for onetime provision related to the new labor codes in India.

Let me now walk you through some of the key highlights of the quarter. Revenue grew by 4.4% year-on-year despite lower contribution from linadolomide. Our base business, excluding linadolomide, delivered double-digit growth. The overall growth for the quarter was also aided by favorable Forex. EBITDA margin stood at 23.5%, which included a onetime provision related to the new labor codes mentioned earlier, excluding this onetime provision, EBITDA margin is at 24.8%, like I mentioned, about 25%.

Annualized ROCE was at 20.4%. Net cash surplus at the end of the quarter was $342 million. In alignment with our strategic focus to deliver a first-in-class and innovative therapies in India and emerging market, we entered into a strategic collaboration with Immutep for commercialization of a novel immunotherapy oncology drug, Eftilagimod Alfa, a key global market outside of North America, Europe and Japan and Greater China with an upfront of $20 million potential regulatory and commercial milestones of up to $350 million as well as royalties.

Further, we recently launched Hevaxin, a novel, recombinant vaccine for the prevention of Hepatitis-E virus infection in India. We are pleased that the integration of the acquired Nicotine Replacement Therapy business is progressing as per plan. 85% of the business by value is now under operational controls.

The next phase of integration will include selected countries, Asia Pacific, Middle East and Latin America. We expect integration largely to be completed by the end of this fiscal. We continue to make progress on our key pipeline products. During the quarter, we received a marketing authorization for semaglutide injection in India from DCGI following the recommendation of subject to expert committee in the SEC under Central Drug Standard Control Organization.

Further, necessary local manufacturing license have been secured. We have also started filing in various emerging markets through the COPP route. In October 2025, we received a notice of noncompliance from the Canadian pharmaceutical drug [ directory ] for our semaglutide injection, which outlined a request for additional information and clarification on the specific aspect of the submission. We promptly submitted our response by mid-November 2025, well within the stipulated time and now we are awaiting a response from the regulatory agency in Canada.

On the biologics front, we have completed the filing of the biologics license application, the BLA, for the IV presentation of abatacept biosimilar candidate in December 2025 as per the schedule. Following the positive opinion for CHMP, we received European Commission approval for denosumab biosimilar in Q3 FY '26. Likewise, we have received the approval from MHRA in the U.K. Our in-house commercial team has launched the product in Germany in December and launched a preparation are underway for the U.K. and other European countries. We received a complete response letter from the USFDA for denosumab biosimilar BLA, which is -- was developed by our partner, Alvotech.

The CRL refers to the observation from a pre-license inspection of Alvotech, Reykjavík manufacturing facility.

On the regulatory front, in November 2025, the USFDA conducted GMP inspection of API facility CTO-SEZ in Srikakulam, Andhra Pradesh with 0 observations. In December 2025, the USFDA completed a GMPand a preapproval inspection of our facility FTO-SEZ PU-01 in Srikakulam, Andhra Pradesh and issued Form 483 with 5 observations. We have responded already to the agencies within the stipulated times.

Recently, the USFDA issued a post application action letter in relation to the response submitted to the observation received post the PI conducted at our Bachupally biologics facility in September 2025 for our rituximab biosimilars. We are actively working to resolve the outstanding observations. Our CDMO business, Aurigene Pharmaceutical Services Limited served as an exclusive API manufacturer for 2 of the 46 novel drug approved by the USFDA in 2025.

Further, APSL delivered 3 discovery programs through it's in-house AI-assisted discovery platform called Aurigene.Ai. We continued progress on our industry-leading sustainability practices, during the quarter, we announced a science-based net zero climate target, making us the only Indian pharmaceutical company to commit to such a target by FY '24 -- FY2045. We are in the leadership position in CDP Water Security & Climate Change categories for 2025.

Let me take you to the key business highlights for the quarter. Please note that all financial figures mentioned are reported in the respective local currencies. Our North America Generics business generated revenues of $338 million for the quarter, a decline of 16% year-on-year and 9% sequentially.

The decline was primarily on the account of level in Lenalidomide sales and price erosion in certain key products. During the quarter, we continued to launch momentum, adding 6 new products to our portfolio. Our European generic business reported revenue of $140 million for the quarter, a growth of 4% on a year-to-year basis as well as sequentially. The acquired Nicotine Replacement Therapy portfolio, which is now also in the base has been performing well.

Further, new product launches helped offset the impact of price erosion in generics. During the quarter, we launched 10 new generics products across markets, further strengthening our product portfolio. Our emerging market business delivered revenue of INR1,896 crores in Q3 FY '26, reflecting a robust growth of 32% year-on-year and 15% sequentially. Growth was primarily driven by new product launches across various markets and favorable Forex.

During the quarter, we introduced 30 new products across countries in line with our commitment to improving access and further deepening our market presence. Within this segment, our Russia business delivered growth of 21% year-on-year and 16% sequentially in constant currency terms amid continued adverse macroeconomic conditions.

Our India business reported revenue of INR 1,603 crores in Q3 FY '26, delivering a healthy double-digit year-on-year growth of 19% and 2% increase sequentially. This performance was attributable to revenues from our innovation franchise, new brand launches price increases and higher volumes as well as contribution from recently acquired Stugeron portfolio.

According to IQVIA, we continue to outperform the Indian pharmaceutical market, IPM, with a moving quarterly total mass quarterly, MQT, growth of 12.3% compared to the IPM growth of 11.8% and moving annual total, MAT, growth of 9.7% compared to IPM of 8.9% growth.

Our IPM rank is 10 for the quarter and 9 for the month of December 2025. During the quarter, we launched 2 new brands as we continue to enhance our domestic market presence. Our PSAI business reported revenue of $92 million in Q3 FY '26, resulting in a decline of 5% year-on-year and 15% sequentially.

During the quarter, we filed 31 Drug Master Files globally. In line with our strategic priorities, we remain committed to investing in differentiated R&D programs, especially peptides and biosimilars that offer meaningful commercial opportunities. In addition to our enhanced development efforts, we also -- we will also continue to strategically collaborate to build our innovation portfolio for India and emerging markets.

During the quarter, we completed 28 global generic filings. As we look forward, our focus remains on effective execution to deliver on our strategic priorities improving base business both advancing differentiated pipeline products like semaglutide, abatacept, driving operational efficiencies and pursuing value-accretive acquisition and partnership aimed at creating long-term value for our stakeholders.

Before we move to the Q&A session, I would like to announce that Aishwarya Sitharam has recently taken over as the Head of Investor Relationship from Richa Periwal. I wish both Aishwarya and Richa which stayed with our organization success in their respective new promoted roles.

With that, I welcome your thoughts and questions as we move into the Q&A sessions.

Thank you very much, Erez. [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.

I have 2 questions from me. First, on the India business growth. The 19% growth, how should I think about organic growth for the India business because we did have the Stugeron acquisition in this quarter. Was that a meaningful contributor to this 19% growth? If I were to strip that out, would that growth still be, let's say, north of 15%? Would that be a fair assumption?

So it's somewhere between 17% and 18%, if I calculate, I'm not sure exactly where it is. But let's say, it's more than 17% organic without acquisitions.

That's right, Erez.

And what is driving this strong growth? It is because we've been doing -- I know we've been moving in the double-digit category for a few quarters now, but to step up to 17%, 18%, does seem very large in a quarter's time. What's changed in this quarter? And how sustainable is this growth trajectory, particularly this, let's say, mid-teens sort of growth trajectory as we look through the next few quarters?

So it's primarily the performance of the innovative product. So normally, and there are actually very good products that are being really appreciated by the market. So normally, when you produce a brand that is not known, there is a period of time in which you have a cycle of physicians that recognize this product and then recommend it.

So there is a certain gross pattern like introduction of any brand. And I think what happens to us is actually the strategy is working. We are in some of these brands in the third year since launch and some of them in the second year. And you will start to see the move of that.

So the -- in addition to the brand didn't perform in a similar manner, meaning that we are increasing the prices, we have the support of those, but it's primarily the -- what we called at the time of Horizon 2 into testing of innovation to India, this is the primary move that it's actually working.

Understood. Sorry, one last question on India. The innovative portfolio would be what portion of our sales roughly today if you were to quantify it?

15% to 20%...

No, it should be less.

It should be less.

If I need to, it's somewhere between 10% to 15%, but I'm not sure, Neha.

All right. No problem. And my second question is on sema. I think you mentioned that we have submitted the response, and we are waiting -- sorry, we are awaiting response from the agency. So have we not got a follow-up goal date as well? And according to you, what would be the next time line that we should look at for some approval in Canada?

Yes. So we do have a goal date because it's come automatically 6 months from the response time. So it takes us to May. But it doesn't mean that we need to get approval by that date, it can be any time between now and May, and hopefully, in May, no additional question. So I'm -- I don't know when we will get a response.

We are preparing for a launch even in Q4 and there is scenarios like that. And if not, it will be in Q1. But let's say, any time between end of February to May, we should expect to launch in Canada.

The next question is from the line of Damayanti Kerai from HSBC.

My question is again on India business. So you mentioned the innovation -- innovative products, et cetera, is helping you to achieve such strong number. So 2 things. Again, I think what is the sustainability of these numbers -- growth numbers in India? And also if you can clarify if the December quarter has some spillover benefit from the prior quarter where we had seen the GST disruption?

So it's absolutely sustainable. I don't know if it's 90%, which could be also 15%. So it's absolutely sustainable in this range. And I don't think that we had a major spillover.

There are no spill like on account of GST implementation. This is a clear quarter.

Got it. My second question is on semaglutide. Again, I guess we are awaiting for Health Canada to revert. But meanwhile, what are your expectations in terms of pricing compared to, say, a few months back, given now most of the companies are, I guess, gearing up for these opportunities? And what's your broader expectation on the pricing and competition in the key markets where you are looking to launch semaglutide.

So expectations did not change much from our recent discussions. We know that eventually, there will be a competition in Canada. We also know that Novo Nordisk announced that they want also to participate, and they even started to offer certain organization in Canada, their -- what they call their own generic brands, if you wish, in Canada as well. We have made arrangements like that.

I still believe that if we will get the approval, we have a good chance to be alone or even with a low level of numbers of players that will compete. And over time, they will accumulate the opportunity to my opinion, is still there.

Sure. And earlier, I guess, your expectation for pricing across different markets where some were say $20 to $70 per unit. So are you still expecting the similar range in terms of pricing in different markets?

Yes, yes. The -- most of the markets will be on the lower end of the spectrum. But yes, the spectrum is still there. We did not get yet indications that it will be lower. So over time, when people will get approval, we are expecting to be very competitive markets. There will be a short period of time that can be from weeks to months. It depends on the market, in which we can have healthier prices. But then we are preparing ourselves for another very competitive markets.

So somewhere closer to the lower end of the range, right? That's the expectation.

Yes, yes, yes. I think this is a fair assumption for your analysis.

The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

A couple of questions. One, how much has generic Lenalidomide still contributed to the EBITDA margins in the quarter? And now that we have a visibility of our expense levels, et cetera. What shall we look forward to in terms of EBITDA margins in Q4 and FY '27?

Four years, I did not answer this question. And this is the last quarter that I need to answer this question. So I will not be able to tell you the amount, and this is because of the confidentiality agreement that we have with the innovator. It's not because I don't want. But what we can say that the decline that you see in America is primarily a Lina. And actually, without Lina, we've even grew. So you can you can take it from there.

Got it. When you say decline in the U.S., it's Y-o-Y or Q-o-Q?

Both.

And second, can I also understand the time lines now, latest time lines for denosumab and rituximab in the U.S.?

Yes. So the denosumab, Alvotech needs to answer the deficiency letter. And then, of course, it depends on how the USFDA will address the response. So the answer is I don't know, but it is likely that will be in the second quarter of -- and maybe even after, of FY '27. So I'm not expecting it. The normal time that they evaluate the efficiency letter, a new goal date, likely that you take us to this time frame.

But I really don't know because it's on biologics, you don't always end up with 1 deficiency letter. So we need to see. [indiscernible] answered on denosumab. On rituximab, I think you asked for both unless I...

Yes. Yes, correct.

On Rituximab, we have 1 -- out of the 2 comments that I gave, which is repeated to our response, it is primarily related to one of the lines of the fill and finish. And on that, we will answer in the next 2 weeks, give or take.

And then the expectation that they will come to visit us again and reinspect us. So the approval likely. It's not official, but I'll give you my best assessment that likely that we'll get reinspection on that specific line. And I'm ready preempting one of the next question. There is no impact on abatacept because abatacept is not on the same lines. But this is the task of rituximab.

So right now, it will be a response, then they will decide when they want to come to visit, and it will come for there. So unlikely, let's say, in the next 6 months and maybe more than that.

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

So just firstly, on semaglutide, so I heard your comments about Canada entry Feb to May where you expect. I mean, how about the other countries in which the patent expires in March, including India? And in terms of -- we previously talked about having a capacity of 12 million cartridges.

So I mean, is there any increase to that? And by when we should see a meaningful traction coming from this product?

So the starting point is India, we will launch on time. The date is March 21. It happened to be my birthday for everybody. So this is one. In Canada, like I mentioned, it can be any time from now until the goal end of May, that's what I answered Neha, I don't know exactly in what in that spectrum when exactly it's going to be. But the expectation is that we have an approvable product and we will launch at this time frame.

In addition to that, we are using our COPP that we got already for media to register in other markets. Altogether like I mentioned in the past, it's much more than 80 markets. I think it's 84 or 80-something markets altogether. But the most meaningful will be Brazil, somewhere around July, as well as Turkey, give or take the same time frame.

In addition to that, we have partners both in India as well as outside of India that wants the right for our semaglutide for their market. And we are obtaining also licensing fee for these kind of activities, not just for this product but also for other products. So that's overall.

So the 12 million pens remains the same for that period of time. For the period after, we can have more than that. Right now, as you know, we are using primarily the fill and finish from Stelis. But as time will go by, we have additional capacity and we continue to use our partner as well as our internal facilities.

Got it. And just to follow up on the biosimilars as well. So what we're having now a CRL for denosumab and rituximab, so internally, how is that impacting our estimates for your entire biosimilar time lines -- launch time lines?

And secondly, with abata, is there any time line for launch we are planning internally?

Sure. So on rituximab, the main the launch -- delay of the launch is to our partner Fresenius. As you recall, rituximab was a product we primarily used to qualify Bachupally. It's actually served the purpose well. Maybe even too much engagement with the authorities. It's actually serves the purpose really, really well. in that respect.

So the launch -- overall delay in the launch versus the regional plan is probably a year plus. In Europe, we already launched. So Europe is good, and we are progressing there. They're also about the same. We launched in Europe, and we are going to launch in additional markets. It's a very competitive market over there. The denosumab right now because of the efficiency letter, I don't know exactly when it will answer. So I don't know how is the delay, but it is at least 6 months, if not more than that, for this particular product.

I don't see an impact of abatacept. The denosumab is made by a partner, Alvotech in Reykjavík, Iceland, abatacept make on different lines in Bachupally, India. Obviously, we need to get approval for abatacept in the stipulated time. We submitted it on time. So the first expectation is that we'll get somewhere towards the end of the calendar of '26, the approval for the IV product and then we can launch it. The approval for the subcu should be by January or February of 2028.

We believe that we are still on time for that. Of course, we need to see that we are actually making it happen. But abatacept so far looks in the right direction, especially in the United States.

The next question is from the line of Kunal Dhamesha from Macquarie.

Yes. Just one on the sema Canada. Is there a requirement of plant inspection from Health Canada before approval or all those things are already done from our side as well as from our partners side?

So no inspections are expected or needed. We just hope for approval. Of course, Kunal, can give us additional queries like a normal regulatory process but we are expecting approval.

But normal regulatory process does not do all plant inspection from Health Canada, like the USFDA has.

No, no inspection.

Sure, sure. And secondly, no, I think in one of the media articles, the Health Canada spokesperson has kind of mentioned that the manufacturing of the API is different between generic players as well as the -- versus the innovator and hence, substitutable status whether the generics would be substitutable as kind of questionable. So if you could provide any color on this, how much confident we are that our generic would be substitutable at the pharmacy level.

No, it's absolutely substitutable. And by the way, what we said is not correct, which actually also the innovator is using synthetic API for the injectables and recombinant products for the oral. And we are planning to do the same for the generics.

So in that respect, I don't see a merit to that statement. I believe the product is absolutely going to be substitutable. So there is no need for a prescription or special processor branding or any branded generic activity. It's a normal retail products once we'll get approval.

Sure. And my second question is on the new labor code related provision that we have basically provided some INR 117 crores, so how should we think of this? Is it some bit of retrospective cost also baked into this INR 117 crores or it's just a prospective cost? And is it recurring in nature that structurally, our employee expenses would be a little higher now? How should we think about this?

Kunal, as per the new labor law codes now, which definition is being revised in line with the new labor law court. It's like a [ our ] employees on the payroll optic company as of December 31, we are recomputed retrospectively. It is not like a prospective.

So that's where this entire gratuity leave catchment proportion has been made. And going forward, in line with this may not be this extent, but that would be like my view, less than, I think, 50 basis points, would be the impact, but that's not very significant.

The next question is from the line of Madhav Marda from Fidelity International.

Could you talk a little bit about biosimilar abatacept launch in the European markets as well. Is that something that we are planning to target in the next couple of years? And also, if you could talk about the addressable market in Europe as well? That's my first question.

So yes, sure. So yes, Europe is a very important market for abatacept, we are going to do it by ourselves as well as with partners. The -- and we had to cover all the markets because in some of the markets, we don't have the ability to go to physicians. And so we are trying to cover as much as possible.

Obviously, the markets that are tender markets we can cover easily by ourselves. Likely, that the launch is July.

July, we have filed submitting July 2026 and expecting approved by 12 months.

Yes. So July 2027, you should expect a launch in Europe.

For both IV and SV.

For both IV and subcu.

And how large is the addressable market in Europe for abatacept today?

About $2 billion, maybe a little bit more.

And is this also in terms of the competitive landscape, given an abatacept, seems like we're the only 1 who's completed Phase III, maybe 1 more person is starting off. I don't know where they are right now. But even in Europe, similar competitive landscape, like we'll probably be the first only company at launch?

Yes. And by the way, the idea is to launch abatacept in every country that has a demand for this product, either by ourselves or with a partner. So the -- we are planning to launch at this time frame in Europe, in the United States, in Japan, in Canada and in every market that there is a demand for this product.

The next question is from the line of Shyam Srinivasan from Goldman Sachs..

Just the first 1 on the NRT, the disclosure you have shared around the growth there, right, is about 25% Y-o-Y. Can you split it out into like constant currency and what the growth was, I remember, and we had about [ 6 billion ] to INR 600 crores last year same time when we had [ 1 million ] pretax profits. So how has that evolved even for at these levels now?

So Shyam on the constant currency is year-over-year 8% growth.

Okay. So the rest is all coming from currency [indiscernible]?

Yes.

Okay. So how should we look at the steady-state growth for this? Is there something that has changed? Because I remember single-digit growth was what we guided to. So that continues, right, in constant currency?

Yes, Shyam. First, yes. It can be -- right now, we have -- we see upside to the model. It's not a significant asset. But let's say, instead of -- we always said single digit. But right now, it looks like on the upper side of the single digit. And it may go to double-digit depends because we are also participating in certain tenders like Brazil, and other stuff.

So if you win this tender, it gives you a chunk of sales in a particular situation. Overall, it looks good. It looks that we are exceeding the expectations that we had internally. And actually, the demand from this product is higher than what we thought.

Helpful. So just a subpart of the question was on the profitability as well. As we have -- I know we have done additional brand building access, but has the profitability materially changed.

Yes. Because of like sales are also higher and then it is like here, the A&P investments overall. If you remember, like at the business case level we said EBITDA is around 25%. But now since we are doing well, the EBITDA percentage is higher than 25% currently.

Going forward, right now, it looks really well above expectations. But let's say, I think fair assumption will be that we'll stay with 25%.

Yes.

Got it. And just the last question to some of the opening remarks you made, Erez, on Novo strategy in Canada. Just curious why would they want to tie up with some local organization didn't file, they didn't defend their patents originally. Is there a chance that slippage happens across the border into the U.S. for the lower-priced version. Any philosophy or thought process, you're able to understand why they're doing it.

It's beyond my paycheck. I'm not managing Novo Nordisk, I hardly -- read this with a lot of difficulties. I'm assuming that they want to protect their market share. They understand what will happen when a company like us, we launched and other companies we launch.

Apparently, it's important for them to keep the relationship. They also said it, so I'm kind of that. About over the border, probably, but I have no data or indications about it. We are not building on that. Let's say, we are building on selling to Canadian. And if it will be more, it will be bought.

The next question is from the line of Tushar Manudhane from Motilal Oswal.

Thanks for the opportunity. First question on India, semaglutide opportunity. Just would like to understand the approval which we have got is for diabetes and weight management or only diabetes?

We got it for the diabetic product. And we are planning to launch eventually all products in India. Also the other part of the products are in the queue to get approval. But what we will launch in March is the generic version of Ozempic, if you wish.

Got it. And so effectively, if at all for weight management, it would not be in March, but subsequently, as and when you get the approval from the regulatory authority.

The physicians will prescribe the way they believe they should. But the indication of the product launch is for diabetic...

Because the concentration of the product would be relatively -- or the strength of the product is relatively low for weight management, that way?

Also, many, many people use the Ozempic for the same. But yes, for the second, the equivalent of Wegovy will come later. In March, we will launch. But in India, we are going to have all strengths. We will have the -- both the indication as well as the oral.

Got it. Sir, secondly, just on this rituximab, let's say, if at all that reinspection happens post your response. In your experience, has it happened like USFDA accounts only for a particular line for inspection and doesn't inspect the entire site as such?

No, absolutely. It's this is what PI, pre-approval inspection is all about. So they are coming for a specific line. They can extend it if they wish. It's up to them. But it's very, very common, especially on sterile product.

Got it. And on the same thing, what would be the tentative time line for submitting the subcutaneous version filing for USFDA?

Filing time, you guys remember? The subcu for the US.

It's July.

July.

July 2026.

In July, we will submit, and we hope to get the approval and the patent date, which is January or February 2028.

Got it. And just one more from my side. R&D spend guidance, if you could share?

Sorry, what to share?

R&D guidance.

R&D guidance...

Is in the range of, Tushar, is 7% to 8%, what we have guided earlier. That is -- remains same.

But sir, now that major product, I guess, it was with respect to is largely done. So you think that we will be still on the higher side of this guidance, at least for FY '27?

So because like pembro also, we have just started the collaboration with Alvotech. I think there's new molecules also we'll continue to introduce. That's why we are saying 7% to 8% range.

When we have -- we finish a budget of products, we obviously want to develop more products. We have aspiration to launch hundreds of products in the next 15 years. So there is enough products to develop. So it's more how much we can afford in a particular time in our capacity in R&D.

The next question is from the line of Vivek Agrawal from Citi.

My question is related to SG&A spend. That continues to remain high. And this is against the company's guidance of some moderation ahead of Revlimid cliff. I just want to understand the outlook here. Are we expecting any kind of decline in SG&A spend next year in FY '27? Or is it or it can still grow Y-o-Y maybe at a lower rate. So if you can help us understand.

Well, Vivek, if you see like at lower Lina sales for the quarter and our -- as a percentage to the sales is SG&A still is like without this level of ports impact at 30%. And then in this 30% also the win which like Forex has given the favorable impact on the top line, here also like where our SG&A spend also there in Russia, in Europe for the NRT, there is a -- like a ForEx impact also is the SG&A. So considering and also we are continuing to invest. I think if you look at like how our branded business as growth be it India, emerging markets, NRT, all around the solid part of growth -- and despite we have continued to invest and then a 30% of the sales, we believe I think we are in the control of the overall SG&A.

Understood. And that makes sense. But just want to understand an absolute level, right? So in absolute terms, are we expecting any kind of moderation or decline in next year? Or it can still grow from here on?

So you'll see that it will be -- it will grow less to moderation of the growth, the reason for that, as -- and we discussed it in the past, we want -- and we obviously prepared for the post Lina era for quite some time. We knew it is coming. We are aware of the implications -- it's not -- it did not come as a surprise to us. And part of our cost containment, which is one of the key principles that I mentioned is that we want to control the cost.

So also the SG&A, the idea is that, overall, the discretionary costs we are controlling very much like we discussed in the past. And the pace of the growth of the cost will be less than half of the growth of the top line.

The next question is from the line of Kunal Lakhan from CLSA.

My question was on the emerging markets, especially Russia, we saw some good growth numbers this quarter. And I do read your commentary that it's primarily driven by new product launches. Just wanted to understand how much of this growth was because of the new products and how much was the base business growth here?

It is both. It is both. And then -- so we have growth in all 3 segments in Russia, meaning the retail, the hospitals and retail both on the Rx and OTC. So it's both the old product as well as new products.

And also in terms of pipeline of new products, if you can give some color on the -- in the coming quarters and years, how does the pipeline look like? And is there this growth is sustainable once the current high base is actually in the base?

So the growth in Russia is sustainable. Not always, you'll see a 21% growth every quarter, but double digit, healthy double digit in Russia is absolutely sustainable.

The next question is from the line of Shashank Krishnakumar from Emkay Global.

Just one question on our sema tablets filing in India. I think the SEC has asked for some on-site verification of a Phase III trial data. Now is it something that could, does it typically meaningfully impact approval time lines? Or is it sort of relatively easier to address? I just wanted to understand that.

I don't have any concerns on this one.

Got it. That's -- and just a related question. So post-March, subject to an approval, there's no litigation overhang even for the launch of tablets, right, in India?

Correct.

The next question is from the line of Surya Patra from PhilipCapital.

Yes. My first question is on the Aurigene CDMO opportunity that in the opening remarks, you have mentioned that it has been qualified as an exclusive supplier of 2 innovative APIs. So how important this opportunity be for us? And when of that we fortifying? And how important or in terms of the revenue contribution that we should be seeing out of it?

So as we speak, this is still a small business. We -- as I'm sure you all recall, we started the CDMO efforts in a more, let's say, with -- let's say, more emphasis on this activity for the last 2 years. What we try to do is to engage meaningful products and get Initially, we started with Phase I, Phase II. And we are very happy that effort has started about 2 years ago and now started yield.

How significant it is now. It's not that significant, but we should absolutely see, I believe, $100-plus million coming to us as a growth in the next 2 to 3 years from that. From the overall scheme, it's not big for, but for the CDMO business, it is an important place because it will allow them to have sustainable capabilities over time.

Sure. My second question is on the Lenalidomide, so knowing the fact that we are an integrated player means having our own API also for that. So given that situation, what is the kind of tail end opportunities in the Lenalidomide that we should be seeing?

We'll continue to be in the product. But given the fact that we are comparing it to the period of time which we had this agreement, I always advise the people not to give a value to it. So it will not confuse all of you. So you should assume that the old arrangements from Q4 is 0. Doesn't mean that we will not sell, but let's say, just for...

Another generic, another molecule...

As for clarity, just it will help everybody.

Sure, sure. Just one booking question. We have talked about the Forex element in the couple of line items this quarter. So whether there is a kind of a net positive impact that we have seen in what are the kind of a net Forex loss or gain that we have seen in the financials for the quarter? And the same number if you can give for the corresponding previous quarter also?

Erez -- sorry, if you see that, I think for each of the sales we have called out, especially in the Europe and EM. Definitely, there's a Forex element. At the same time, in the SG&A as well as COGS, whether we import also we ought to account at a higher price. There is a net-net if you ask and then there's a positive impact on the EBITDA margins.

Sure. Are we quantifying, sir?

I think we haven't. Not that it's significant, I think, because I don't know if there were several...

It is not that significant. I don't remember exactly the numbers, but it is not -- like it's not very significant for the second. It's -- I don't remember exactly the percentage, but it's not huge.

Yes.

In the interest of time, we will take one last question from Foram Parekh from Bank of Baroda Capital Markets.

My question is on the India market. So with the new acquisition that we have done, we have seen growth expanding to 19%. So in FY '27, can be assumed with sema launch and as the new acquisition scales up, would it be wise to assume a growth rate higher than the current growth rate of 19%?

I will not -- I think you should -- we feel very, very comfortable with 15% plus. Can it be more than 19% it can, but I don't recommend to use it for now.

What we can say that the 15%, 16% is very sustainable. The rest is depending on certain scenarios, but it might. Plus, we are not done with BD. So likely the things will come, but of course, we cannot guide for it.

Okay. That's helpful. My second question is on the European side, ex of NRT of where we have seen sales mellowing down to 15% growth even with the launch of biosimilars. So again, the question is, as these biosimilars scales up and probably with the launch of abatacept in the European market. So can European region, ex of NRT, scale or north of 20% or so?

Again, it can, but it depends on the scenarios. So the I think what I can say about Europe, and this is something that we are very proud of in 2018, we had less than 100 million above sales in Europe. And in the future, in the next 2 or 3 years, we will see 10x this number. So it's emphasized the importance of euro for us. Europe is not only what we do in Europe, so what we do with partners in Europe.

So it's very, very important for us because we will not have capability in all the markets. So the answer is it's possible if it is possible. We are not guiding for that. What we are saying is that all markets should grow double digit besides the United States that will grow single digit, and this is without taking the impact of Lina. Like I mentioned from next quarter, this arrangement is done and that's how we should see.

Sure. And last question is on the Global Generics gross margin. As Revlimid sales have come down, we're seeing gross margins also coming down to 57%, so from next quarter onwards, with 0 Revlimid sales, can the gross margin territory scale down further?

So we can expect without a Lenalidomide scenario from Q4 onwards. Our gross margin of both Global Generics and PSA in the range of 50% to 55% because some quarters depends upon the products and business mix, it vary, but the range is like 50% to 55% is the range.

And that was the last question for the call today. Thank you all for joining us. We value your time and participation on the call. If you have any further questions or need additional information, please do feel free to reach out to me.

With that, we conclude today's earnings call. Thank you, everybody.

Thank you.

Thank you, guys.

Good day, and welcome our quarter 2 fiscal year 2026 [indiscernible] Limited. I'm Aishwarya Sitharam and I'm part of the Dr. Reddy's Investor Relations team. [Operator Instructions] I now hand over the conference to Richa Periwal.

Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebrations with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY '26 Earnings Conference Call. We truly value your time and participation.

Joining us today are members of the leadership team. Mr. Erez Israeli, CEO; Mr. MVN, our CFO; and the Investor Relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with MVN providing an overview of our financial performance for the quarter.

Following that, Erez will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded, and both the audio and the transcript will be made available on our website shortly. 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.

Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during the call.

With that, let me now hand it over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Thank you, Richa, and Aishwarya, good evening, and a warm welcome to all. Thank you for joining us on our Q2 FY '26 earnings call. I'm delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower Lenalidomide renamed sales. The acquired consumer health care business supported the top line momentum. EBITDA margin stood at 26.7% for the quarter. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 88.78, the exchange rate prevailing as of September 30, 2025.

Consolidated revenue for the quarter stood at INR 8,805 crores which is USD 992 million, a growth of 9.8% year-over-year and 3% on sequential basis. While U.S generics faced product specific price erosion and lower Lenalidomide sales, overall growth was supported by the integration of consumer health care business and double-digit growth delivery across other markets aided by favorable ForEx. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points year-over-year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower Lenalidomide sales and product-specific price erosion in the U.S. generics. Onetime inventory provisions from the discontinuation of the certain pipeline products due to technical challenges in the lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The SG&A spend for the quarter was INR 2,644 crores, which is USD 298 million, an increase of 15% on year-over-year and 3% on a sequential basis.

The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. SG&A for the quarter includes a onetime provision of INR 70 crores for a VAT liability in one of our subsidiaries and charges related to a discontinued pipeline product. SG&A spend accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis.

Excluding the one-offs related to VAT provision, SG&A expense as a percentage of revenues was at 29.2% in Q2 FY '26. The R&D spend for the quarter was INR 620 crores, which is USD 70 million, a decline of 15% year-over-year. And broadly, flat sequentially. The decrease was due to reduced development spend on biosimilars during the quarter as major investments for abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategic collaborations to bring innovative assets that support sustainable long-term growth.

The R&D spend was 7% of revenues for the quarter, lower by 203 basis points year-over-year and 26 basis points on a sequential basis. Other operating income for the quarter was INR 267 crores, higher than INR 98 crores in the corresponding quarter last year. This was mainly on account of product-related IP settlement income in the United States and onetime reversal of INR 88 crores in liabilities related to discontinuation of the pipeline product.

EBITDA for the quarter, inclusive of other income, stood at INR 2,351 crores which is USD 265 million, an increase of 3% on year-over-year and a sequential basis. The EBITDA margin stood at 26.7%, lowered by 174 basis points on year-over-year and flat sequentially. Adjusting for the onetime VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Impairment charge was INR 66 crores, including INR 54 crores for property, plant and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at INR 77 crores as compared to INR 156 crores for the same quarter last year. The decline in net finance income reflects lower returns from financial investment following the deployment of cash reserves towards acquisition of consumer health care business and other intangible assets in line with our capital allocation strategy.

As a result, profit before tax for the quarter stood at INR 1,835 crores, that is USD 207 million. PBT as a percentage revenues was at 20.8% on an adjusted basis, excluding the onetime VAT provision, the PBT margin was at 21.6%. The effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2 FY '26 was lower primarily due to favorable jurisdictional mix for the quarter. The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax assets related to land indexation following amendments introduced through the Finance Act 2024 to Income-Tax Act 1961.

Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 1,437 crores, which is USD 162 million, a growth of 14% on a year-over-year, flat on Q-o-Q basis. This is at 16.3% of revenues, Diluted EPS for the quarter is INR 17.25. Operating working capital as of 30th September 2025 was INR 13,331 crores, which is in USD 1.5 billion, an increase of INR 3 crores, which is like USD 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at INR 511 crores, which is INR 58 million. Free cash flow generated during the quarter was INR 1,046 crores, which is USD 118 million.

As of September 30, we have a net cash surplus of INR 2,751 crores which is like USD 310 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 502 million hedged using combination of forward structured derivative contracts scheduled to mature through December 2026. These contracts are hedged at the rate of INR 86.9 per U.S. dollar, RUB 4.28 billion hedged at a fixed rate of 1.03 per Russian ruble with maturity falling within next 4 months.

With this, I request Erez to take us through the...

Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY '26, marked by a double-digit growth and steady profitability.

This performance was driven by contributions across all key markets except for the U.S. generic business. During the quarter, we continued to make a meaningful progress across our strategic priorities namely growing the base, scaling our presence in consumer health care, innovative therapies and biosimilars. We advanced our key pipeline programs, including semaglutide and abatacept.

In addition, we have been driving initiatives to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter. Revenue grew by 10% year-on-year driven by broad-based growth across businesses, benefiting from acquired consumer health care and supported by a favorable ForEx. Growth was partially offset by lower contribution from Lenalidomide and some price erosion in the U.S. in some select products. The EBITDA margin stood at 26.7%. The ROCE for the quarter was around 22%. The cash flow from operation was utilized to our plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets.

We closed the quarter with net cash surplus of $310 million reinforcing the strength of our balance sheet. We strengthened our innovation-led portfolio to strategic collaboration and launches. We entered the anti-vertigo segment with the acquisition of Stugeron and related brands across 18 markets in APAC and EMEA from Janssen Pharmaceutica.

In India, we strengthened our gastrointestinal portfolio with the launch of 2 novel drugs Tegoprazan under the brand name of PCAB and Linaclotide under the brand name of Colozo. In partnership with Unitaid, Clinton Health Access Initiative & Wits RHI, we are working to make Lenacapavir, a long-acting HIV prevention tool accessible and affordable in low and middle-income countries. We continue to make progress on our key pipeline products. The subject expert committee, the SEC under Central Drug Standard Control Organization has recommended approval for semaglutide injection in India. We received a positive opinion from European Medicines Agency Committee for medicinal products for human use for denosumab biosimilar candidate.

The U.S. FDA accepted our investigational new drug's IND application for COYA 302, a partner novel drug for the treatment patients with ALS. We also made a steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated 2/3 of the business by value, including Canada, Australia and selected key Western European markets. The next phase will include Southern Europe, Israel and Taiwan.

On the regulatory front, several inspections were completed across our global facilities. In September 2025, the U.S. FDA conducted a pre-approval inspection on our Bachupally biologics facility and issued a Form 483 with 5 observations. The agency recently issued a complete response letter in reference to the ongoing resolution of observation pertaining to the biologic license application, the BLA of our rituximab biosimilar candidate. We are actively working to address these observations.

The U.S. FDA conclude a GMP inspection at our Mirfield API facility in the U.K., resulting in issuing a Form 483 containing 7 observations. Additionally, our API site CTO-5 in Miryalaguda, in Telangana as well as our Middleburgh facility in New York were classified as VAI following successful GMP inspection by the U.S. FDA. The GMP and pre-approval inspection PAI conducted by the U.S. FDA in July 2025, at our formulation manufacturing facility, FTO-11 has been formally closed. We have received the EIR establishment inspection report with the inspection outcome categorized as VAI. We continue to be recognized for our industry-leading performance in sustainability.

We retained our MSCI ESG Rating for A for the second consecutive year. Our ESG Risk Rating from Morningstar Sustainalytics improved from 23.6% to 18.4%, representing a lower ESG risk profile. Our waste management practices were recognized with the Diamond Standard for achieving 99.9% of waste diversion from landfills. Further our formulation facilities at Srikakulam FTO-11 became India's first pharmaceutical facility to receive a Leadership in Energy and Environmental Design, Platinum Certification for existing buildings from U.S. Green Building Council.

Let me take -- let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North American generic business generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially. The performance was impacted by price erosion in selected key products, primarily Lenalidomide. During the quarter, we launched 7 new products and expect launch momentum to continue in the second half of the fiscal.

Our European business reported revenue of $135 million for the quarter, growth of 150% on a year-to-year basis and 3% on quarter-on-quarter. The year-on-year performance was primarily driven by contribution from the acquired nicotine replacement therapy portfolio and new product launches, which offset the price erosion pressure -- the pricing pressure. Excluding the NRT, the growth was 6% year-on-year and quarter-on-quarter. During the quarter, we launched 8 new generic products across European markets, further strengthening our portfolio.

Our emerging market business delivered revenue of INR 1,655 crores in Q2 reflecting a growth of 14% year-on-year and 18% sequentially. Growth was primarily driven by new product launches across markets and aided by favorable ForEx. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year-on-year and 18% sequentially in constant currency terms despite prevailing macroeconomic challenges.

Our India business reported revenues of INR 1,578 crores in Q2, delivering a double-digit year-on-year growth of 13% and 7% increase sequentially. This performance was driven by contribution from new product launches, improved pricing and higher volumes. According to IQVIA, we have moved up one place to the 9th position in India pharmaceutical market for the month of September and continued to outpace market growth.

With moving annual total MAT growth of 9.4% compared to IPM 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stugeron portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108 million in Q2 FY '26, registering growth of 8% year-over-year and 13% sequentially. During the quarter, we filed 37 Drug Master Files globally. We have further sharpened our R&D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized few pipeline products that face extended regulatory uncertainty limited market opportunity or increasing competitive intensity.

Our focus is anchored around company generic GLP-1 molecules and biosimilar. In addition, we are actively pursuing strategic collaboration and partnership to enhance our innovation ecosystem, accelerate development time lines and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic filings. For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning grow our base business, focus on our key pipeline assets like semaglutide and abatacept improving operational efficiency and productivity across the value chain. And we continue to actively explore partnership and value-accretive acquisitions that support our strategic vision and innovation momentum while enhancing our capabilities.

These efforts are aimed to driving sustainable growth and delivering long-term value for our stakeholders. And with that, I will welcome your thoughts and questions as we move into the QA session.

[Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.

My first question is on the U.S. business. While I know you talked about product specific erosion and REVLIMID quarter-on-quarter. One, should we expect any REVLIMID all in the third quarter? And second question on the U.S. business. You've seen a product discontinuation this year. Last year, we saw NuvaRing being discontinued. You continue to spend a fair bit on R&D. How should we think about the U.S. product pipeline? Because if I look at Reddy's approval history while we have got a fair bit of approvals, we haven't really got any meaningful large launch approval outside of REVLIMID and probably Vascepa was the last one that I can think about. So I just wanted your thoughts on how we should look at some of these more meaningful launches coming through now that conjugated estrogen has been discontinued. How do you think about the U.S. growth.

So just, Neha, I think there was some thing with the voice. Just the beginning of your question, I got the rest of it. Since the beginning of the question, I could not hear it sorry about it.

Yes. No problem. I was asking that, is it fair to assume that there would be no REVLIMID limit in the third quarter? Or would we still see some bits of REVLIMID as a part of the settlement in the third quarter?

So we should assume that we will have and -- but less than what was in this quarter. So -- and likely that it's either going to be the last quarter or maybe some tail that will go into Q4. But by and large, Q3 will still have REVLIMID in it. On the R&D question, first, I agree with you. We -- there were certain products that we tried for a while to get an approval. And as we did not get, we kind of pull the trigger on them. We kind of gave ourselves a certain time lines that if we don't we just move on. As we speak, the main products in the United States as related to R&D will be the biosimilars I think the main products in terms of significant growth in the United, which will be abatacept.

On the small molecules, we do have meaningful products that are coming primarily peptides, long-acting peptides. Some of them we missed the first to file, but they are still meaningful. The overall pipeline is about 100 products as we speak, we will tick in the pipeline. And out of that about, I would say, around 20 that will be considered what we call the complex generics. But as we discussed many times in the past, it's hard to predict on this product. So your observation is correct. What we absolutely did is that we're relooking our portfolio, and we are focusing on products that we believe that we have a good chance to be first to market as time will come.

Understood, Erez. Erez, if I were to just extend this question then to, let's say, a sema filing or abatacept filing. What gives you confidence on getting approvals on those filings? Even in case of abatacept, now that Bachupally, we have got a CRL on rituximab. I'm just wondering if -- I know there's always risk to approval, but how should we think about management's confidence in getting approval for sema in Canada or next year as we think about the abatacept?

So on abatacept, let's go with abatacept and I'll go to sema after. On abatacept, we are supposed to submit the BLA, and I'm very confident about it in the end of December of this year -- calendar year, end of end of December 2025, which is exactly the date that we aim to. Here, I have a high level of confidence. It's also important to us because it will open the door for us to launch also the subcu, which is the more important SKU at the beginning of 2028, subject to settlement, of course, of the IP. The confidence comes that we are not doing only with Bachupally, but we increased the chance because we will have also for the United States, CMO that will make it, the product. I'm less concerned about the European approval because Bachupally was already approved by European, but not yet by the U.S. FDA.

And also, in the case of the U.S., we don't yet know what will happen with the tariff on biologics, while we feel now more comfortable giving all the press that likely there will be no tariff. We need to see when the guidelines will come. But as a balance sheet, we don't know, and we felt the need to have a backup also there. So we will -- if we will not be able to launch from Bachupally we'll be able to launch from the United States. And this will enable us also a potential challenge, if will happen on tariff.

On the sema, we are expecting the feedback from Health Canada in the next few weeks. It can be any day, but it can be within the next few weeks. And we know if we get that efficiency or not. I'm certain that we will launch all the 12 million pens that I discussed with you last time, obviously, if it will not be in Canada, it will be in other places. So the launch is going to happen. The question, of course, if we get a CRL or we'll get something in Canada, obviously, the pricing may be different. But I'm confident that we will sell the product. The question is which market they would come. Can I guarantee that we'll not get the CRL, though I cannot, I wish.

The next question is from the line of Damayanti Kerai from HSBC.

My first question is again on semaglutide. So Erez, can you remind us the legal status, which was underway in India, litigation with Novo on semaglutide?

Sure. We are challenging the patents in India. And it's in the -- currently in the high court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decisions. And likely that we ever will not like the decision will appeal. So likely that it will continue after but at this stage, the hearing are done, and we are waiting for the outcome of the decision of the judge.

Sure. And just to clarify, this outcome should not be impacting your plans in the ex-India market, right? The markets outside of India?

Depends what will be the decision of the judge. What we are seeking, we believe that the patent is invalid. And in any case, as we speak today, by the decision that was done in May, we are -- we can produce an export, not to do it in India, but the court in the decision back in May on the -- allowed us to continue to make the product and to export it. In terms of -- in the current state, we can launch in India only at patent expiration, which is right now dated to March '26.

Okay. That's clear. My second question is going back to abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupally takes some time to get the clearance from the FDA? Or what is the arrangement? Like what kind of risk mitigation strategies are in place?

Sure, correct. So we will have -- I did mention that we will have a CMO in the United States to produce abatacept, in addition to our capacity that is built in Bachupally, India and it's mitigating 3 risks.

Hello.

Can you hear me now?

Yes, I can hear you now.

So it's addressing 3 risks. One is in a case that it will be again, CRL or any regulatory challenges that we will be able to launch from already approved FDA sites in America. Second, if there will be any tariff or any other potential restriction or regulatory burden assets related to make or sell biosimilar in the United States. And number three, to increase capacity. It's allowing us more capacity in the case that we will get nice market share. So we're absolutely going with the CMO option in the United States.

Okay. That's helpful. And my last question is for semaglutide, I understand you're working on your in-house fill and finish capacity. So can you share the update on that project?

It's going on. It will not impact the launches in the next 12 months because by the time that we will have to submit and qualify it, it will be post approval in all the countries. So the -- working with the partner that we have today. This is the famous 12 million units that we discussed in the past. This is still relevant and maybe with some upside. But right now, I think we are about the same range. And this will happen with the current partners, but we will have two cartridge lines in FTO-11. And this will be significantly expanded capacity to many, many more millions. But let's see that we let's say, in that respect, it can go to even up to $50 million, but it's all theoretical at this stage. It will be relevant not for the next 12 months, but for the period after that.

The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

First question on the India market, India business had a strong growth in the quarter. Is there anything in particular that helped you? And was there any impact related to the GST disruption in the quarter?

Yes. So we manage well the GST. So the GST was not a significant obstacle for us. We manage that well. It's just execution of our strategy, the way we discussed it for many quarters. We identify the therapeutic areas that we want to focus on. And we made several inorganic moves to buy brands that allow us relevant access. So as well as licensing of innovative products. and just working well and it's likely to continue. We said all along that we believe that innovation will allow us to outpace the market, and we feel very, very comfortable now about that strategy. I think more and more people see that now.

Understood. You have recently done this acquisition of the Stugeron brand from Janssen. Can you give some idea about what sort of revenues does that business have in its acquired form.

So it's 100 plus in terms of size, something like that.

$100 million?

No, INR 100 Cr, this is in India.

In Delhi, in India.

Yes, India.

That is India.

Bino, India and emerging markets put together.

Is INR 100 Cr. And for that, if I'm right, you paid USD 15 million.

Correct.

Okay. Understood. And any benefit of that in the growth for the quarter is some 20 days of that part of India business?

Not much.

No, no, it was very...

Insignificant.

Yes. You can take it as no real impact.

Got it. And my last question on the margin outlook beyond REVLIMID. Of course, we keep asking this every quarter. But if you look at current quarter, even with Lenalidomide, if we remove the other income from the EBITDA margin, it is below 23% and with Lenalidomide further coming down in the next quarters, it may fall even further. So do you still fully stick that for full year FY '27, you will get back to 25% EBITDA margin?

I'm not sure how did you get to the 23%. I'm aware of 26.7%. But nevermind. Yes, absolutely. Lenalidomide is with higher margin, everybody knows that. And naturally, it's impacting and anticipating that we are discussing for 4 years. We knew exactly when Lena is going to go. And it's happening exactly as we discussed. We are addressing it with a lever that I mentioned, growing the base, contain the cost of BD and focus on these key products. I absolutely believe and I'm maintaining it that in the next 2 years we will absolutely get back to the growth and to the margins.

The question is, what will be the journey in this point of time. The more sema we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster.

So we are maintaining our commitment for the margins, we are maintaining our commitment for growth. The question is what will be the scenarios between sema, abatacept and BD primarily. And of course, because on the levers that we can control better, we are very confident that this is the base and the cost.

The next question is from the line of Saion Mukherjee from Nomura.

My first question is on the U.S.-based business. There has been a lot of price erosion over the last 3, 4 years since you have launched REVLIMID how is the base today versus, let's say, before REVLIMID? Is it up, down? If you can give some color so that we get a sense where we should assume the number post-REVLIMID?

Sure. So it went down. It went down primarily not so much on volume. There were some products, about I think 5 that faced competition and price erosion, and that's what took it down. It's not significantly down. Most of the decline that you see is Lena, Lenalidomide but if you want to compare, it is done.

And do you see it sort of stabilizing now from the current level? Or do you think there is scope for further price erosion. And if you can just give some color on the pricing dynamics in the U.S. at this point? Anything has changed?

No, no change. I think it's stabilized. And I believe that it stabilized also for a while. We saw the products here and there but yes, I don't foresee additional trends like that in the coming quarters. On the base products. The erosion that will be will be on some of the launch products, the products that we launched, those can still face erosion because not all of them, what we call exhausted their potential erosion but it's insignificant as we speak.

Okay. My second question is on sema, this $12 million that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view, which market.

Sure. So we are going to either directly or to partners going to obtain approval in the next, let's say, 12 to 15 months in 87 countries, most of them are very small. The notable countries besides Canada will be India, Brazil, Turkey. And then we have partners that are selling in several countries of Latin America. So I cannot highlight a particular market and also in Asia. We have also B2B partners that also preparing their own launches, and we have partners on both the API as well as [indiscernible]. So I believe that the main markets that I mentioned can take, let's say, the lion's share of this quantity. Depends, of course, on the success and how -- and the date that we will actually launch. And the rest will be taken by the B2B parties. Also, the markets that I mentioned are divided to 2 types of countries. The COPP countries and the non-COPP countries. So it will be a certain sequence in which it will come to play. So far, and the demands that we have, we have already just the orders that we are discussing and gives me confidence that if the approvals will come that we'll be able to sell that, yes.

Erez, if I can just add, like this is for 2026. Now what about 2027, how does this 12 million move up in 2027 in your estimate?

So it can move up even to -- for sure to 15, but it can move up even further than that. It depends on the evolution of the product. and the qualification of FTO-11, which will significantly ramp up the capacity will be towards the second half of 2027. I'm talking about calendar not FY.

The next question is from the line of Madhav Marda from Fidelity International.

I wanted to understand a bit on the -- I think we've delivered double-digit growth in the ex-U.S. markets. Are we confident of maintaining this trajectory over the next 1 or 2 years? That's my first question.

Yes, very much.

Okay. And could you highlight any key drivers? Like do we have like new launches lined up, what can help that steady growth? Because India especially 13% was quite a good number, so ahead of market. So just wanted to understand what could drive it.

So each one of the markets, we have different drivers. So if you want, I can highlight the markets for you the main markets. In Europe, it's primarily a combination of the NRT business, the leverage of the U.S. portfolio in which the pipeline is coming up and the launch of biosimilar rituximab, denosumab and bevacizumab that we had in the U.K. In the case of India, it's obviously the -- it's primarily our inorganic move that we made on innovation and the acquisitions of brands that we did in addition to a normal growth that we had on the legacy pipeline.

So I always mentioned that in India, our legacy pipeline will be like the market and what we are adding value is in the places in which we are bringing products better than the standard of care. This is the strategy and now that we are accumulating enough of those is starting to be shown. It took us, I say, I'm sure we all remember quite a few years to build that. In the emerging markets, it's primarily again leverage of the generic business, especially on injectable and oncology as well as biologics, all of our biologics is going to emerging markets. And in each one of them, we have SLA depends on the market, selective innovation that we also licensed as part of our deal with India. In the case of Russia, it's primarily our legacy brands as well as some licensing and acquisition that we made in Russia on both the OTC as well as the as the Rx. API is primarily the focus on peptides. And on both -- there is also a lot of demand for the peptides on the API side. I hope I covered the markets for you if I forgot something, please...

Make sense, and my second question is just on abatacept, you said we can submit the BLA by end of calendar year '25. So the Phase III trial, I'm assuming is complete now, and we're expecting sort of an update on that in terms of whether that's completed successfully? Or how should we think about the progress on the trial itself.

It should be completed very, very soon and so far so good.

Okay. Okay. Understood. Got it. And if you file on time and so basically, the approval will be in line with the expiry in early calendar year '27. That's how we should think about it.

That's the idea, yes.

The next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital.

Just the first one on abatacept. So basically, the first filing that we'll do would be for IB version, right?

Correct.

And what kind of the further development, the subcutaneous version would require?

Can you repeat, sorry?

For the subcutaneous version what further developments...

There is another set of tests that allow us to submit the subcu, but it doesn't require additional study.

Okay. So no Phase III, but some form of characterization, et cetera.

Correct.

And the first filing that we'll do by December 2025. Would that include Bachupally as a manufacturing source or the CMO as a manufacturing source?

Bachupally will start. And the CMO will be a tech transfer from Bachupally.

Okay. So then it might -- so Bachupally would be still the keystone for us in a way.

Yes. But in the United States, I absolutely building that we will be able to be, especially for the subcu, the CMO will be enabled as day 1 launch. The mitigation that we discussed before.

Sure. And the second one on semaglutide Canada. So basically, let's say, over the last -- since we talked in the earlier Q1 earnings call. Your expectation about the market formation has that changed now on the day of patent expiry? Or how should we think about it given that there are more filers whose filings have been accepted by the regulatory authority in Canada?

No. So nothing changed, at least in my perspective, just to make sure that, that we are expecting in the market to be competitive. There will be multiple players. The question is just the day they will get approval. So it's all about that. That did not change. I believe that the market formation will be as expected. Will -- once there is an approval, there is an application for reimbursement. And according to the rules in Canada of the pricing, that's how the market will play. So nothing changed in the way I think the game will be played is now it's about obtaining approval and obtaining a good outcome from the litigation in India.

Sure. And lastly, on India for sema, when I look at -- we have basically conducted trial for Ozempic and Rybelsus. So does that enable us to launch the weight loss version, which is Wegovy generic as well?

For Wegovy we'll have to have an application by itself. We'll have to...

It would be a separate application?

It will be a separate.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on a steady, robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologic sales across different markets on an annualized basis to date.

I'm sorry, It's something and your voices is too low. Just to make sure you asked how our sales evolve in India and Europe, that's what they asked, the question is.

Biologic sales, cumulative biologic sales across different markets.

The market or us, I'm sorry.[indiscernible] so we launched in Europe Hopefully, I'm answering it correctly. We launched in the Europe bevacizumab and recently rituximab in multiple countries, and we will increase the numbers of the countries as time goes by. And this is after we got the approval, the recent approval for rituximab for Europe. In India and emerging markets, we were always there. So it is going well. In the main program that we will launch in Europe will be denosumab and abatacept. This is the main pipeline. The same product, obviously, will be launched in India and emerging markets. But in India, we'll also have pembro as well as nivo. So that's right now the plans in those countries.

And sir, with respect to rituximab, now that we are thinking of having a CMO, will that require let's say, at least the stability data from CMO side and hence maybe more time to sort of get through the regulatory process.

The CMO that I mentioned is for abatacept, primarily for the subcu and it will require a tech transfer as well as stability. But we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar '28. So we should be good by then.

Understood. And just lastly, on the PSAI segment, where there has been improvement in the gross margin quarter-over-quarter, while we are still lower than the historical gross margin but if you can just help understand in terms of the current gross margin and how to think about it over the next 1 to 2 years?

So we expect, I think, going forward, PSA gross margin range of 20% to 25%.

Compared to 15% currently, right?

No, this quarter is at 18%. And because I think here, based on the product mix and then I think leverage of the all the overheads and everywhere. I think the range you can expect then going forward, 20%, 25% PSA gross margin.

Got it. And you -- there was an earlier comment of peptide sales within PSA. So if you could quantify how much has that been?

We build a capacity of up to 800 kg. Naturally, we are not even close right now to this level and right now, it's very small, but it will grow as it will come it.

The next question is from the Kunal Randeria from Axis Capital.

So firstly, I would like to understand how your R&D will take shape given that you're developing a few biosimilars like pembrolizumab and daratumumab and of your R&D budget, how much you would be earmarking for biosimilars and Aurigene. So basically, your non-generic business.

So just to clarify, daratumumab, we are now developing. It's a product that we license from Helios from a Chinese company. Denosumab was developed by Alvotech, and we have a partnership with them. And so in that respect, the main products that are done internally is still abatacept that we basically finished the clinic of it. As you can see, the R&D is about 7% right now of the sales and likely that it will stay in this range for now.

Sure, sure. And secondly, again on semaglutide. So do you foresee a situation where the market may not turn out to be as favorable as you think in Canada because besides the number of filers, which are increasing by the day, there are perhaps risks. Let's say, from a compounding pharmacy, which is intending to enter Canada and even the innovator has seen volume pressure in several markets. So there might be a situation where they are aggressive on pricing. So -- is there a risk of the market deterioration?

First of all, I mentioned all along, I think that Canada market will be competitive with multiple players. So I also now in 33 years within pharmaceuticals, I learned not to forecast launch. I always mentioned that it can range from 0 to many, many millions of dollars. So -- but yes, the answer is I anticipate that Canada is going to be very, very competitive.

I anticipate that Canada will be very, very competitive. As players will get an approval.

Right. And if I can, if you don't mind, ask is there -- I mean, any particular price erosion that we can see from the current levels, maybe 80%, 85% kind of price erosion that will eventually settle down to?

I have no clue. I wish I do.

[Operator Instructions] The next question is from the line of Vivek Agrawal from Citi.

My question is related to NRT and branded markets like India, EM. So the growth was quite decent across the board and really a commendable job. So just want to understand how to look at the investment that you are making behind these markets? Or are these are sustainable investments or, let's say, it can be cut down in future?

First of all, I don't think you see the investment in emerging markets. As we speak, we got the market in certain waves. And the markets that we did not get, we are still managed by Haleon, and we are paying them a fee for doing that for us. So naturally, as market is coming to us, the fee for Haleon is going. And therefore, it's -- the margins are going up because we don't need to pay them. And we are starting to invest in the market that we invest are the only markets that we've got the beginning, meaning U.K. and Scandinavia.

So that's -- so we -- right now, my base is not yet -- it's absolutely not a steady state. We have 2 more waves to go and before we go. What I can tell that so far, it's exceeding our expectation both on the pace of growth as well as on the margin. In both cases, it's much better than what we presented internally when we approved the project. So it's a kind of a good start, I would call it.

I understand, Erez. And just a related question here. It's on OpEx basically. So on absolute basis, how we should look at the OpEx in FY '27. So can it continue to increase, let's say, from '26 level, maybe relatively at a lower pace? Or is there any possibility of absolute decline in OpEx, let's say, in '27 compared to FY '26.

So Vivek, if you look this quarter, we have at 30%. And then if you adjust the one-off, I think we are close to 29.1% at somewhere and then for any modeling, I think we'll be in the zone of like 28% to 30%.

The next question is from the line of Dr. Harith Ahamed from Avendus Spark.

Just on rituximab again. So given this is the second successful PAI and CRL that we've had, are there any specific challenges related to the speciality? I'm asking also because this is a biologics facility and our track record, otherwise on compliance has been quite excellent in recent years.

So there is nothing specific per se. We -- it's all obviously, as this is a sterile plant, we have -- we've got queries that are related to the nature of the site. We believe it's addressable. In a case that they will come with another set of questions. What we will do is that we will submit. We have an alternate line as a backup, which is FFF 2 that we feel that FFF 2 is a fill and finish or for those that are on the line.

So we may need to move the product from 1 line to another in a case that it will not come well on the first one. So it's primarily related to the fact that the first line that we have FFF 1 is some of the design of it raised those queries and also last time we are addressing it. But if it will not work, we'll have to move to FFM 2. I'm not worried on the not getting approval. I'm certain that we get approval. Just to remind all of us, rituximab for us was deliberately chosen in order to start the regulatory process on time to make sure that by the time that abatacept will come, Bachupally will face those kind of stuff. And this is -- it's serving its purpose and hopefully, we can absorb it soon.

Okay. A quick one on tocilizumab biosimilar. It's been a while since we got an update on that one. Can you share the status of that program?

We don't -- we are not planning to have it as a global product. We will have it only for India.

Yes. And then one quick follow-up on the previous question. The cost reductions that we have alluded to in the past, 500, 600 basis points of reductions. Are these reflecting to a small extent in the first half numbers? Or should we wait for the coming quarters for this to actually the numbers.

Yes, I believe so. You can see that despite the fact that Lena is going down. We are maintaining our reasonable numbers. So it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come. And we have also shared the numbers. So we believe that with SG&A of around 28% and R&D of around 7%. It comes to the famous 5% to 7% that we set, and there is even opportunity for more if we need to. So we maintain that we will -- we are very, very sensitive to the margins. And naturally, we're discussing it every time, and we will absolutely be really disciplined on those.

[Operator Instructions] Next is Gautam from Leo Capital.

My question was on the GLP-1. Do you only plan to do fill and finish or do you also manufacture API drug substances. How much manufacturing capacity do you have? And which markets are we targeting for this?

So we have CTO-6 making the API. I mentioned that the overall potential of all the investments that we put can reach even 800 Kg, but we are very, very far from this output at this stage. We've don't need also. Just that -- but we are preparing it not just for semaglutide, liraglutide, but also for 40-something peptides that we identified and we are going to develop either by ourself or with the partners in the next coming years.

So right now, we will have sufficient capacity for the demand that we'll have for the liraglutide semaglutide in the submissions to the relevant authorities of all the peptides that will be of patents, including tirzepatide that will be obviously an R&D project, but it's very important to submit it in relevant markets. And we are also making the product, we are planning to make it in FTO-11 and also with the partners.

In general, the approach will be that we will have for every important product in-house capabilities as well as partnership capabilities for all kinds of risk mitigations.

Okay. So can you just like expand on the fill and finish also what's the capacity we have and the status on that and the markets we are supplying for that?

I think we discussed it. We have 12 million pens for the semaglutide with the partner. We can -- and we have 2 lines of cartridge that will be an FTO-11, they can reach even 50 million, but right now it's Theoretical. The cartridge lines are on the way and they will be assembled and will be ready, not for these 12 months, but after.

The last question for today comes from Sumit Gupta from Centrum Capital. Suma, please go ahead.

Yes. So just one question on the Indian business. So sir, can you segregate the volume and price growth?

The volume and the price.

So Sumit, the price is like in the range of normal 5%, and then the balance growth is like mainly from the new products and volumes.

Okay. So going forward, like should we expect this to continue? Or can we expect any significant growth in volumes also?

You should expect to continue, we will have new products volume, and the price will be in that range that MVN shared with you.

We reached the end of the call. I now hand the call over to Richa for the closing comments.

Thank you all for joining us today. We truly appreciate your continued interest in Dr. Reddy's Laboratories and the time you've taken to engage with our Q2 FY '26 results. If you have any further questions or need any additional information, please do not hesitate to contact the Investor Relations team. Have a great day. Stay safe and take care.

Thank you.