Ladies and gentlemen, good day, and welcome to Dr. Reddy's Laboratories Limited Q3 FY 2023 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal. Thank you and over to you, ma'am.

Thank you. A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter ended December 31, 2022. Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded and the playback and transcript shall be made available on our website soon. All the discussion and analysis of this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; and the Investor Relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlets without the company's express written consent. Before I proceed with the call, I would like to remind everyone that the Safe Harbor contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Parag Agarwal. Over to you, Parag.

Thank you, Richa, and greetings to all, wishing you a very happy new year. I'm pleased to take you through our financial performance for the quarter. For this section, all amounts are translated into US dollars at a convenience translation rate of INR82.72 which is the rate as of December 30th, 2022. This is yet another quarter with a strong financial performance reflected in higher sales and profits and strong free cash flow. Consolidated revenue for the quarter stood at INR6,770 crores, which is $880 million and grew by 27% year-on-year and by 7% on a sequential quarter basis. The performance was supported by healthy growth across our businesses, with contributions from both base business and new product launches. Consolidated gross profit margin for this quarter stood at 59.2%, an increase of 545 basis points over the previous year and 15 basis points sequentially. On a year-on-year basis, the gross margins were mainly aided by an increase in contributions from new products and a favorable product mix. Gross margin for the global generics and the PSAI business were at 64.6% and 18.2% respectively for the quarter. In line with our expectations, PSAI gross margins have rebounded compared to the last quarter. The SG&A spend for the quarter is INR1,798 crores, which is $217 million, an increase of 17% year-on-year and 9% quarter-on-quarter. The expense in the current quarter reflects an increase in investment, certain one-off expenses, and an impact of the Forex rate. As a percentage of sales, our SG&A has been at 26.6%, which is lower by 240 basis points year-on-year and marginally higher by 30 basis points sequentially. The R&D spend for the quarter is INR482 crores, which is $58 million and is at 7.1% of sales. We have been making good progress on our R&D pipeline in line with our business strategy. We continue to drive productivity across our businesses while also making investments to strengthen the product pipeline and capability development in marketing, digitalization, and people, including for Horizon 2 initiatives. The next finance expense for the quarter is INR14 crores, which is $2 million. The EBITDA for the quarter is INR1,966 crores, which is $238 million, and the EBITDA margin is strong at 29%. Our profit before tax stood at INR1,635 crores, which is $198 million, a growth of 68% year-on-year and a growth of 1% quarter-on-quarter. The effective tax rate for the quarter has been at 23.7%. We expect our normal effective tax rate to be in the range of 25% to 26%. Profit after tax for the quarter stood at INR1,247 crores, which is $151 million. The EPS for the quarter is INR74.95. Operating working capital decreased by INR490 crores, which is $59 million against that on September 30th, 2022. The decrease is majorly due to higher collection of receivables and some increase in payables. Our capital investment during the quarter stood at INR292 crores, which is $35 million. We generated healthy free cash flow during the quarter of INR1,975 crores, which is $239 million. Consequently, we had a net cash surplus of INR3,401 crores, which is $411 million, as at the end of the quarter. As of 31st December, 2022, foreign currency cash flow hedges in the form of derivatives for the US dollar are approximately $51 million, largely hedged around the range of INR80.3 to INR83.3 to the dollar; RUB2,975 million at the rate of 0.9661 to the ruble; AUD1.8 million at the rate of rupees 56.20 to Australian dollar; and ZAR34 million at the rate of rupees 4.812 to South African rand maturing in the next 12 months. With this, I now request Erez to take us through the key business highlights.

Thank you, Parag. Good morning and good evening to everyone. I hope you and your loved ones are keeping well. I'm glad to report that we continue to disclose strong financial performance in the current quarter as well as with record sales, profit, and cash flow generation. We made good progress in our productivity journey, which allows us to remain competitive and grow in our markets. We have been able to identify several new business opportunities referred to as Horizon 2 business and have started building this. We have also made good progress against most of our ESG goals. Let me share with you some of the key highlights of the current quarter. One, strong revenue growth driven by continued traction in the US and Russian markets; two, high cash generation leading to a net cash surplus of more than $400 million at the end of the quarter; three, significant progress made for biosimilars, including the completion of Phase III clinical study with rituximab and completion of Phase I clinical studies for tocilizumab. Let me cover the business-wise key highlights in a bit more detail. Please note that all references to the numbers in this section are in representative local currencies. Our North America generics business recorded sales of $375 million for the quarter with a strong growth of 51% year-over-year and 7% on a sequential basis. Sequentially, the sales continue to grow in the US market with positive traction seen in both the base business and recent launches, including sorafenib. Contributions from existing capsules may fluctuate from quarter-to-quarter; we expect them to remain meaningful over the next few quarters. In this quarter, we launched five new products and expect the launch momentum to continue during the balance of the year. Our European business recorded sales of €51 million this quarter with year-on-year growth of 8% and sequential quarter decline of 2%. During the quarter, we launched 11 new products across various countries within Europe. We expect to continue with the growth momentum in the rest of FY 2023. Our emerging market business recorded sales of INR1,310 crores with year-on-year growth of 14% and sequential growth of 7%. Within the emerging market segment, the Russia business grew by 29% on a year-to-year basis and 8% to quarter-to-quarter basis in constant currency. This strong growth was supported by higher sales of biosimilar products in Russia. During the quarter, we launched 29 products across various countries in the emerging markets. We expect these businesses to continue their growth momentum during the balance of the year. Our India business recorded sales of INR1,127 crores with year-on-year growth of 10% and sequential decline of 2%. During the quarter, we launched two new products in the Indian markets. We are creating several growth engines for the India business for Horizon 1 and Horizon 2, which includes ramping up the internal portfolio, collaborations, innovation, and inorganic opportunities. Our PSAI business recorded sales of $95 million with an innovative decline of 2%; however, it showed strong growth of 18% on a sequential quarter basis, contributed by an improvement in the volume pick-up. This business is starting to show signs of recovery and we expect this momentum to continue in the coming quarters as well. We are progressing well on our pipeline products. The number of filings in several of our key markets has been improving. The ANDA and drug master filings are expected to significantly improve during Q4. We are evaluating several inorganic opportunities across businesses in line with our strategy. We believe all of these will lead to several growth opportunities for us both in the short term as well as in the long term. I'm confident that we'll be able to continue the growth momentum supported by our strong cash position, focused management team, and robust governance and processes. With this, I would like to open the floor for questions-and-answers.

Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Kunal Dhamesha from Macquarie Group. Please go ahead.

Yes, good evening, and congratulations on the great set of numbers. So, the first question on REVLIMID, I think I missed your comment, while you said the REVLIMID revenue could fluctuate on a quarter-to-quarter basis. But is there any kind of outlook that you are providing for, let's say, quarter four and FY 2024 in terms of the quantum relative quantum vis-à-vis quarter two and quarter three, what we are seeing?

So, we cannot share as a part of the agreements that we have. But that's what I said, it's what will determine the size of the opportunities, of course, the timing of the orders that will come from the customers that may vary from month-to-month or quarter-to-quarter. But overall, the product will continue to meaningfully contribute to our business and we are very confident about it.

Okay. And is it kind of fair enough to assume that the contribution is expected to increase next year?

We cannot share guidance in this respect because it's part of the agreement. That's why I'm sharing what I'm able to share at this stage.

Sure. And second question on capital deployment priority, we have shared that our capital deployment priority is kind of India followed by the branded market and likewise, but I think we are generating significant cash flow and we are not seeing any activity on that front. So, is there a basic timeline you are looking at to deploy this cash or elsewhere considering any other option to know about returning this to shareholders?

We are exploring various business opportunities and will share more details once the deals are finalized. As we mentioned before, we anticipated this development and understood the type of capital we would generate. This aligns with our strategic plans. Our priorities will remain consistent with our previous discussions. We aim to engage in development that involves compatible deals, rather than pursuing large acquisitions. These deals will help us implement our strategy and enhance our capabilities or brands that we currently lack, allowing us to make more significant contributions to our stakeholders, customers, and shareholders. Additionally, we will continue to invest in both Horizon 1 and Horizon 2, as well as in capital expenditures and research and development. This is how we plan to allocate our funds, and we believe we will receive strong support.

Sure. I'll join back the queue. Thank you.

Thank you very much. Next question is from the line of Damayanti Kerai from HSBC. Please go ahead.

Hi, thank you for the opportunity. My question is regarding the India business. So, although on year-on basis you have seen good growth, healthy growth, but sequentially it has declined. And what we have seen in some market databases is that Dr. Reddy's growth has been lagging behind the broader market growth. So, how should we see growth outlook for your India piece, given it's the most important segment for you and what will be the key growth drivers going forward?

The main growth will come from investment in differentiated products and the specialty products and collaborations that we are working on. So, we are planning to introduce a lot of innovation in India, and we are building it. In addition to that, we will continue to focus on the brands that we believe can contribute in the short term, but much more in the long term. And we will also continue to invest in the capabilities to market in the most productive manner using all the relevant digital tools and the ability to maximize the return on the investment. We are also going to see in India, continued divestitures of the brands that we are not planning to invest behind. If we believe that the returns that will come from those divestitures will be more than what we will get if we continue to market it. So, in that respect, we are well aligned with our strategy. And maybe the results here and there will fluctuate because of brands, but overall, I'm very confident that we will be in the top five as per the targets that we shared.

Sure. And in the earlier portfolio, which you have done some time back, are the results in line with your initial expectations, or do you think you have further headroom to see better sales for some of the top brands?

The earlier product sales, they are serving us very well. I'm very happy with these acquisitions; they have already exceeded expectations.

My last question is on Russia. Besides a very strong quarter which you mentioned there were biosimilars, which contributed, do we assume it to be sustainable sales or this is driven by some one-time pickup and we might see moderation from here on?

Russia will continue to be strong for us. Quarter-wise, it will fluctuate. This quarter, it's a timing of the bids with the government on biosimilars, for example. So, it's unlikely that we will see that in the other quarter. So, it will fluctuate, but overall, we are going to see local currency growth, and as related to the protection of the ruble, I think we have fared well this year. We have very good protection on the ruble itself. So, I am optimistic from both inside and even with the scenarios that there will be a significant devaluation of the ruble.

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

Thank you. Next question is from the line of Surya Patra from Philip Capital. Please go ahead.

Thank you for the positive numbers. Regarding REVLIMID, could you provide more insight into the visibility we have? It appears that over the last two quarters, we have achieved around mid-single-digit volume for the product. Given this, is it reasonable to expect that the fourth quarter and first quarter may show relatively low numbers for REVLIMID?

I cannot share any numbers about that.

Okay. But could you give some sense about, let's say, in terms of the volume set, whatever that is fixed for the first year, how different the volume share number would be for the second year? Ballpark indicate.

Again, it's not because I would love to share, but I can't. We have an agreement and I have to honor that agreement. So, please bear with me on that.

Sure. Given the cash flow generation we are observing, what are your near-term priorities? You have already mentioned that you plan to focus on inorganic growth. Additionally, I have noticed that your R&D spending has increased alongside revenue growth. Considering these two aspects, what priorities do you have for the next 12 to 18 months?

So, as we discussed in the past, our priority is productivity in the short term. So, it needs to grow what we call Horizon 1, which is meaning the current business that we have, including investment in those productivity investments in our portfolio, in the ability to get some of those complex generics faster to the market, some of those biosimilars faster to the market. As well as in Horizon 2, building those new businesses that will give us the growth in the future. As we showed in the past, we assume that we will be able to generate enough cash and enough profit to finance those activities, and so far, it is going well for us. The extra cash that we will have, we will use for business development and for investment in capabilities in the business, especially digital mechanization, automation, and artificial intelligence. According to what we have discussed, the old guidance remains the same; we are comfortable on a long-term basis with 25% EBITDA and 25% ROCE, double-digit growth and no debt. This continues to be the guidance that from time-to-time will be above it like this; from time-to-time, we will be below it like some couple of quarters ago. But overall, I think it allows us to be both a very healthy company and to grow very, very well, and we have potential upside even to exceed these numbers. But so far, we are very much into that, that makes up for the quarter, but if you see record for the last few years, we are very much where we said we are going to be.

Certainly. The revenue in the US, excluding REVLIMID, has maintained its run rate this year. However, we have faced challenges as some of our key products encountered competition, primarily from Indian competitors. Looking ahead to next year, could you share what visibility you have on this revenue segment? Do you expect ongoing competition to affect the business, and what insights can you provide regarding growth for the US market, excluding REVLIMID?

In fiscal year 2024, we plan to launch at least 30 products. We aim to continue the growth we have experienced over the past few years. We expect a baseline of single-digit growth and potentially more. Occasionally, there will be products that generate significantly higher growth. As we mentioned over the last few months, those products may eventually decline. Overall, the trend is upward. Moreover, we believe that once Horizon 2 begins, the U.S. will achieve double-digit growth, but this will be several years down the line. For now, growth may fluctuate due to various pressures, and predicting market share is challenging, so I cannot provide quarter-on-quarter estimates. However, we are definitely planning to grow in the United States.

Okay. Is it reasonable to expect that next year we will experience a significant increase in spending on Horizon 2 growth plans compared to the current year?

We prefer not to increase spending significantly; instead, we plan to spend in a careful manner that aligns with our growth. Previously, we mentioned that we expect higher expenses in both selling, general and administrative expenses and research and development, but these will remain within the profitability range I discussed earlier. Our growth and cash flow will enable us to fund this investment without additional costs, thanks to our profits.

Sure sir. Okay. Thank you. Wish you all the best.

Thank you. Next question is from Prakash Agarwal from Axis Capital. Please go ahead.

Yeah hi. Thanks for the opportunity. Good evening. Just wanted to understand one is the industry-level question. So, we've been seeing a lot of USFDA issues going to the next level and we've been hearing that there's a volume distribution that is happening to the large Indian and global players in the US generic side; are we seeing that happening to us also? Are we getting some volumes for our base business, would that be correct understanding?

We too have a growth in volumes. I cannot attribute this necessarily for the growth at least we are facing is from activities that were initiated primarily. Naturally, we are watching carefully all the results of all the inspections that are happening in India and outside of India. So far for us, knock on wood, all of our plants are operating in full compliance.

Okay, okay. And with that kind of volume gain, etc. do you think there is some improvement in pricing on base business, or it still remains mid to high single-digit for the base portfolio?

I'm not aware of any special phenomena that can indicate both on price or quantities related to that.

It remains similar to the current situation.

Maybe marginal. Maybe.

Okay, okay. Fair enough. So, would it be fair to say that the incremental growth, you had some approvals and launches for sure. But with the price erosion, it nets off and the incremental sales momentum is coming from this product itself?

I believe that growth is coming because we are providing better service to our customers and they appreciate it.

Okay, and for the last question on capital allocation, we've noticed that some companies have had success with late-stage innovator-led programs; are we considering this? In the past, we pursued a 505(b)(2) route and then transitioned to self-sustaining by selling those assets. What is the current plan for both of these strategies?

We are not planning to come back to the 505(b)(2); we worked hard to get out. Horizon 2 contains activities that are differentiated by design. So, we are talking about the 11 spaces in India and a couple of spaces outside of India, in markets like Australia, Europe, as well as the United States. We do have NCE as part of our origin discovery, especially in the area of cancer. We do have activities in cell gene therapy, in therapeutic management, in pharmaceuticals, as well as in other innovation in go-to-market; this is part of the Horizon two that we have, but not 505(b)(2).

Okay, lovely. Thank you, sir. Thank you and all the best.

Thank you. Next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Thank you very much and good evening, everyone. The first question is on government grant looks like in 3Q, you did INR43 crores; in the first half, some INR240 crore odd. So, I guess your product mix is not changing that much. So, what's driving this?

The grants are filed according to the government's scheme, and their recognition depends on the eligibility of the products and the scales we are producing. Therefore, based on the relevant numbers, the grant is recognized. This process will continue; however, it will vary from one quarter to the next.

Okay, no fair enough, I get that. But is the product mix changed so much? The products which were eligible you didn't do those sales in three?

Yes, product mix changes and the sales level of various products also changes, so that determines the incentive.

Okay, okay. Cool. And the second question is on biosimilars; you clearly are focused on that, but if I look at your pipeline, I mean, first of all, good job on Rituxan for Phase III. But to succeed in this market, you need good five, 10 products, or fairly vibrant pipeline, several products in Phase III type of situations. So, can you talk a bit about it, how will you make a mark in this space?

If you recall, we decided at the time to skip the products that will be with the product expiration until 2027 because we felt that we'll be late to the market. And we have a diverse portfolio for the patent cliff that is after that, even larger number of molecules than what you've just said. We kept rituximab as it was already there. We're already selling in 27 countries. By having the USFDA approved, it will allow us to sell it in many more countries and we have also agreement with the third-party in the US market. Rituximab also will be with USFDA approval, and we will be able to prove the relevant facts from a GMP perspective. To your question, we are committed. We are committed to a larger number of molecules than that and at other times we are going to sit and in accordance with the relevant data that we need to launch the product. But we are absolutely going to play a significant role in biosimilars, especially in emerging markets.

Okay, got it. And one final question is about our market share, which has remained stable at 14% to 15%. What is the outlook on this?

And we'll continue to try our best to gain as much market share as possible. It's fluctuated in accordance with customer decisions.

It's not about supply chain or raw material issue?

No, no issues. This was resolved years ago.

Okay, got it. Thank you so much.

Thank you. The next question is from Kunal Dhamesha from Macquarie Group. Please go ahead.

Thank you for the follow-up. Regarding the biosimilar products, whenever we have strong trial data, do we have the existing capacity to support a fair market share for this product, or will we need to invest more? If investment is necessary, would we expand the same facility or consider a new one?

We are investing in capacity for the last five years and continue to invest; we likely will see our facilities investment growing every year. Yes, we have enough capacity to capture market share globally.

What is our current total biologics reactor capacity in kilo-liters, and how does it relate to the gross block?

I don't remember the kilo-liters, but we can produce, let's say, many, many hundreds of kilos.

And in terms of our cost structure, would you have benchmarked that cost of production versus, let's say, Korean and Chinese players? And where do we stand there versus NIM?

We believe that we're very competitive in terms of the cost structure, part of it is because of the technology we are using, part of it is the calculation that we have on the product, and part of it is the fact that we are in India, leveraging the economy of India.

Sure. Thank you.

Thank you. Next question is from the line of Prashant Nair from Ambit Capital. Please go ahead.

Thank you for taking my question. I would like to ask about the PSAI business. We've observed a recovery here; can we assume that the disruption in this area is behind us? Will this continue to normalize moving forward? Also, regarding gross margins, this business previously had mid-20 percentage gross margins. Is it possible for it to return to those levels, or is it likely to settle at a lower point?

I believe that it should go there, and we are in the right direction. I also believe that the challenges that we faced in the last 18 months or so are behind us. And like I mentioned, we do see very good signs of recovery, and there is still room for improvement on that side, which I believe that we will achieve.

Yes, thank you. That’s it from me.

Thank you. Next question is from the line of Saion Mukherjee from Nomura. Please go ahead.

Yes. Thanks and good evening. Erez, can you update us on China filings and how the business is doing? And when do you expect meaningful traction in revenues?

So, we continue with the process. It's going well. Amit can help me, but I think we are talking about 14 or 15 products that we are working on.

Every year now, Saion, we have started filing more than double digits; filings have started. As we speak, we have about 20 filings pending approval and in the next few years. So, going by this run rate, obviously, there will be 40, 50 filings over the next three to four years. So typically, after filing, it takes 18 to 24 months for a product to get approved. Last year, we got approval for four products. This year, we expect a similar run rate, and going forward, even it to become better and better. All statistics are working as we expected, and the sales also should start picking up faster. We are already growing in double digits, but that can start growing faster, maybe somewhere in the second half of 2024, 2025 onwards.

Second half FY 2024.

In FY 2024, we should see growth. FY 2025 even more.

Okay. And is this also on the Russia? I know this quarter is good; you had biosimilar contract, but in general, the market dynamics are you seeing more traction for Indian companies in terms of procurement by the government, or market demand in general? I'm just looking at how should we think about constant currency growth in Russia from a slightly longer-term perspective maybe for the next couple of years?

I don't see anything particularly noteworthy about companies or countries; everyone seems to be waiting to see how events unfold in the country. From my perspective, it appears that people have not exited the market yet, so the growth we anticipate isn’t driven by external factors but rather by the real growth stemming from product consumption. We view our products, especially our OTC offerings, as having seasonal aspects, while biologics experience different seasonality based on government fulfillment timing, which has shown consistent demand over the years. Overall, the current behavior aligns with our expectations, and the growth we are seeing is primarily due to our productivity rather than external influences.

Okay. And one last question, if I can for India, adjusted for the acquisitions, Cidmus, etc., can you share how the organic growth has been? I think a couple of quarters back, you indicated Cidmus to be a big drag on your gross margins; now with the patent, how should we think about the situation on that product?

This product will be profitable for us; the cost structure will be better in the future, and the brand is well accepted by the community; it's actually number one in the future as we speak. We're going to continue to see growth in India in all the places we are focusing. The like we indicate, I'm expecting India to continue to be double-digit growth also in the future and on top of it, we will see both inorganic moves, investments in collaborations, and divergences. All of these movements will happen in India also in the near future as well as the longer term.

Okay. And can you share the growth number adjusted for acquisition and divestments just to understand the organic growth in India this quarter?

Saion, we look at the entire business as a portfolio. So, we don't analyze including and excluding acquisitions. I think overall, we reported a growth of 10%. And as Erez said, we are confident that we'll be able to continue to drive growth in India given the growth levers.

Okay. Thank you.

Thank you. Next question is from the line of Sumit from RDA. Please go ahead.

Thank you for the opportunity. Is AMITIZA still a meaningful opportunity for us as sales are declining and few companies have already discontinued the product?

Which product?

AMITIZA?

Yes, so we launched this product in the US I think in quarter one. I think there are significant number of players if I'm not wrong, about eight to 10 players have launched. With price erosion, I think has been fairly decent, so we are having a decent pace, but it's not a very large product for us.

Okay.

Market share we are doing good.

Okay. So, my other question is on AMITIZA?

Okay. So, my other question is on AMITIZA?

Sorry to interrupt you. Sumit, may I request you to speak with the handset please, your voice is not coming clear.

Okay. I will turn back in queue.

Thank you. Next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Yes, just a quick follow-up just trying to understand the smaller strengths where we had exclusivity, when is the competition expected to come for REVLIMID?

We have exclusivity for 180 days. Therefore, it's a 181, probably it will come.

Okay. Would that be a meaningful contributor to the run rate we are experiencing on REVLIMID sales, or are these just the smaller shares?

Your voice is breaking; could we just repeat the question again please?

I'm asking would that be a meaningful contribution to the overall sales of REVLIMID or US sales or is it just a small share?

I cannot share the information on that SKU. Like I mentioned before, indeed exclusivity will go in that period of time and for that will continue to be meaningful to us. Sorry that I cannot share; I understand.

Sure. No, if you can repeat what you said, it will continue to grow?

It will continue to be meaningful for us, that's what I said.

Okay, lovely. Thank you so much.

Thank you. Next question is from the line of Rahul from IIFL Securities. Please go ahead.

Yes. Hi. Sir, can you provide an update on some of these complex US generic assets which you had disclosed during your analyst meet last year? When do we expect launches for these complex assets to begin for us in the US market? Given one of your peers recently indicated that market formation has begun for a product regarding?

Yes, Rahul, so, we also have approval of this product. I think it is linked to the IP. So, as it allows us, we have a settlement also with the innovator. So, as per the settlement terms, we will be able to launch.

For your broader questions, we are very much on track of what we shared then; we are planning to launch complex products that were not shared in the investor meeting. The pipeline of complex product is robust and getting better.

Sure sir. So, any timelines which you can share in terms of products like Octreotide or liraglutide or teriparatide, when do you expect these launches to begin? Would these launches be over the next 12 to 18-month period or beyond that?

No, so specific timelines, we're not sharing, Rahul. Some of these products we have filed, some of these products are under development. Obviously, the launch is linked to both IP scenario as well as we being able to secure the approval. Some of these should start coming to the market maybe FY 2025, FY 2026 onwards, but that is what we believe. We do not have any firm timeline because all these are linked to both approval and IP.

Okay, sir. And this mid-single-digit growth, which you're talking about the US portfolio on an ex-REVLIMID basis. So, that essentially will be driven by these 25, 30 launches, which we are talking about?

Again, I know you're putting with and without the product; we are not looking at it this way. By the time that the price of origins will come to this product, which will be naturally part of today's. We are not looking at the market with and without. And absolutely these products that we mentioned will be part of the growth in the United States, and from time to time because of the nature of such a product we will see links that will be much more than the single-digit which we discussed. Overall, we are on a continuous basis; we will see growth.

Sure sir. Thank you. That's it from my side.

Thank you. Next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Yes. Thank you for taking my question. Just the first one is on this recent launch by Amazon in the US for this RX pass. Right. They have started a subscription-based $5 per month for the most common like 60 odd generic medicines. I know it was launched only yesterday; but it isn't team any early thoughts on how the supply chain could potentially change? Given that if they start making meaningful progress, is the insured or the out-of-pocket population, is it significant? You think, because it seems doesn't to seem to include Medicaid, Medicare. So that's one your initial thoughts just on the industry development.

Initial it's definitely a channel that was not there before and then there will be an impact, I believe. All the time, whatever is not covered, will likely be covered. So, it will make retail more competitive, and it will present both opportunities as well as trips to the industry. We also saw this kind of stuff happening in other countries. But let's say as initial so primarily, I see it as another channel that we can use.

Got it. I understand that Amazon doesn't interact directly with manufacturers and probably relies on the existing supply chain. Do you anticipate or have you observed any examples globally where a company like that engages directly with manufacturers? Do you believe these types of business models can develop?

I believe this wind will also be direct interactions with the manufacturer.

Thank you. My second question is regarding the commentary on SG&A. In your press release, you mentioned one-off expenses in SG&A for both sequential and year-over-year comparisons. Can you provide details on what these are and if you could quantify or qualify them, please? Thank you.

The SG&A expenses are aimed at supporting our brands and enhancing our capabilities, particularly in the US concerning technology and digital initiatives, as well as enabling the launch of new products. We expect SG&A to increase in relation to both Horizon 1 and Horizon 2, but the primary growth will come from sales supporting these efforts. That’s why I emphasize that it’s all about the mountains we continue to commit to.

And I was just referring to just the one-off expenses, just a one-off expenses, is what I'm wondering what it is?

Yes, approximately, it would be less than 100 basis points of sales approximately. And what is it for? I don't think we can disclose the nature of this. This is something normal to the business, but it's not likely to recur.

Got it. Thank you and all the best.

Thank you. The next question is from Saion Mukherjee from Nomura. Please go ahead.

Yes. Thanks for the follow-up. Just one clarification as on the commentary on the US business when you talk about single-digit growth. What I understand is you've been talking about this even without REVLIMID before. So, let's say before REVLIMID kicked in, you were doing, let's say, $250 million a quarter, $1 billion a year. So, is that the base we should take for the next three, four years to see single-digit growth, and there will be volatility at around that due to REVLIMID. Is that what you meant? Or you're saying that on this larger base that you have used, you can grow single-digit in the US?

I believe that we can grow on the cover base over time.

Okay. And just to follow-up on you talking about 30 odd product launches. How many of them do you think would be complex? And is there any improved visibility over the past year or so based on your FDA interaction, that you're more clarity on these launches next year? And basically, if you can give some color on the quality of launches versus the CRU, is it going to improve or remain the same if you can give some color on that?

If I'm not taking into account the complexity, the quality of the launches will be better. Some of them will be bigger quarters; some of them smaller. In terms of the pipeline of complex products or products that can be very big, this pipeline is going up as we speak, and we are working very hard on it. I believe that we'll have a very interesting pipeline in the next few years for complex products. I don't know exactly what will be the onset of which one of them, but it's a very interesting portfolio.

Okay. Thank you. That’s helpful. Thank you.

I now hand the confidence over to Ms. Richa Periwal for closing comments.

Thank you, everyone, for joining us today. If you have any follow-up questions, please reach out to the Investor Relations team. Thank you.

Thank you very much. On behalf of Dr. Reddy's Laboratories Limited that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.