Ladies and gentlemen, good day, and welcome to Q1 FY '25 Earnings Conference Call of Dr. Reddy's Laboratories Limited. Please note that this conference is being recorded. I now hand the conference over to Mr. Richa Periwal. Thank you, and over to you.

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 Quarter 1 FY '25 Earnings Conference Call. We have with us the leadership team of Dr. Reddy's comprising Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; Mr. MV Narasimham, our Deputy CFO; MV Ramana, our CEO for Branded Markets; and the entire Investor Relations team. Earlier during the day, we have released our results, and the same is also posted on our website. We begin the call with opening remarks from the management, following which we'll have the forum open for Q&A session. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlet without the company's expressed written consent. This call is being recorded, and the playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statement. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. Before I proceed with the call, I'd 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 Parag.

Thank you, Richa, and greetings to everyone. Thank you for joining the call today. I hope you have received a copy of our earnings release documents and press presentation uploaded on our website. It's my pleasure to present results for the first quarter of 2025. We recorded a steady performance during quarter 1 FY '25 with a double-digit revenue growth and stable EBITDA margins and return on capital employed. For this section, all amounts have been translated into U.S. dollars at a convenience translation rate of INR 83.33, which is the rate as of June 30, 2024. Consolidated revenue for the quarter stood at INR 7,673 crores, which is USD 921 million and grew by 14% on a year-on-year basis and 8% on a sequential basis. The growth is mostly driven by the generic business in the U.S. and the recent in-licensing of the Sanofi vaccine portfolio in India. Consolidated gross profit margin stood at 60.4% for the quarter, an increase of 170 basis points over the same quarter in the previous year and 183 basis points sequentially. The year-on-year increase is on account of favorable product mix and overall leverage, partially offset by price erosion in generics markets. Gross margin for Global Generics and PSAI were at 64.7% and 23.1%, respectively. The SG&A spend for the quarter is INR 2,269 crores, which is USD 272 million, an increase of 28% year-on-year and 11% quarter-on-quarter. The year-on-year increase is primarily on account of continued investments in new business initiatives, increase in freight rates, annual merit increases, and building capabilities to enhance operational efficiency. The SG&A cost as a percentage to sales were 29.6% and is higher by 330 basis points year-on-year and 57 basis points quarter-on-quarter. We expect our SG&A to be in the range of 27.5% to 28% for the full fiscal. Our in-house R&D efforts are further supplemented with collaborations to create a robust product pipeline for small molecules, novel oncology assets as well as biosimilars to drive future growth. The R&D spend for the quarter is INR 619 crores, which is USD 74 million, an increase of 24% year-on-year and a decrease of 10% quarter-on-quarter. The R&D percentage of sales is at 8.1%, which is higher by 68 basis points year-on-year and lower by 164 basis points quarter-on-quarter. Overall, R&D continues to be a cornerstone of our growth strategy, and we expect the investment to be in the range of 8.5% to 9% for the full fiscal. The other operating income for the quarter is INR 47 crores, lower versus last year because of one-time settlement income in the base period. The EBITDA for the quarter is INR 2,160 crores, that is USD 259 million, a growth of 15% quarter-on-quarter and 1% on a year-on-year basis. The EBITDA margin stood at 28.2% and is higher by 172 basis points quarter-on-quarter and lower by 357 basis points year-on-year. The net finance income for the quarter is INR 84 crores as compared to INR 78 crores for the same quarter last year. Profit before tax for the quarter stood at INR 1,882 crores, that is USD 226 million. The PBT stood at 24.5% of sales. Effective tax rate for the quarter is at 26%. We expect our normal ETR to be in the range of 24% to 25% for the fiscal. Profit after tax for the quarter stood at INR 1,392 crores, which is USD 167 million. The PAT percentage stood at 15.1% of sales. Reported EPS for the quarter is INR 83.5. Operating working capital as of June 30, 2024, was INR 11,555 crores, which is USD 1,387 million, an increase of INR 262 crores, which is USD 31 million over March 31, 2024. Our capital investment in this quarter stood at INR 491 crores, which is USD 59 million. The free cash flow generated during this quarter was INR 227 crores, which is USD 27 million. Consequently, we now have a net surplus cash of INR 6,731 crores, that is USD 808 million as of June 30, 2024. Foreign currency cash flow hedges in the form of derivatives are as follows: USD 858 million hedged around a rate of INR 83.7 and INR 84.1 to the dollar, maturing over the next 12 months with knock-in be available, which allows participation when USD strengthens. RUB 6,175 million with minimum protection rate of INR 0.899 to the ruble maturing in the next 6 months. AUD 5.5 million at the rate of INR 56.1 to Australian dollar maturing in the next 9 months and GBP 458 million at the rate of INR 1.267 against dollar. With this, I now request Erez to take us through the key business highlights.

Thank you, Parag. Good morning and good evening to everyone. Continuing the momentum of the previous fiscal, we have commenced FY '25 on a positive note. We get another quarter of highest ever revenues and stable margins. Our approach to growth continues to include both seeding new businesses and strengthening our presence within existing spaces in line with our stated strategy. Let me take you through some of the key highlights for the quarter. One, double-digit growth in revenues in Q1 at 14%. Reported EBITDA margin stood at 28% and annualized ROCE stood at 33%. Net cash surplus was $808 million. This quarter witnessed a significant milestone in building the global consumer healthcare business with acquisition of Nicotinell, the second largest brand as well as related market-leading brands in the Nicotine Replacement Therapy category in markets outside of the U.S. The transaction is expected to close in early Q4 of the calendar year 2024, and operations will transition to us in a phased approach. You may remember that another step taken towards building a robust consumer healthcare business in India was the nutraceutical joint venture with the global FMCG giant Nestlé, the JV operation is expected to go live soon. Strategic collaborations are an important part of our growth story. We have recently signed the following deals: We licensed Takeda's novel gastrointestinal drug, vonoprazan for commercialization in India. We partnered with Novartis Pharma to distribute 2 of their leading antidiabetic brands, Galvus and Galvus Met in the Russian retail market, received exclusive rights from Ingenus Pharmaceuticals to commercialize a cyclophosphamide injection in the U.S., collaborated with Alvotech for commercialization of their denosumab biosimilar candidate in the U.S. on an exclusive basis as well as in Europe and the U.K. Nerivio, the drug-free migraine management device is now available in 5 countries, namely India, Germany, Spain, the U.K., and South Africa. Our CDMO Aurigene Pharmaceutical Services inaugurated the 70,000 square feet state-of-the-art CDMO biologics facility in Genome Valley, Hyderabad, India. On the regulatory front, in May, the U.S. FDA completed a routine GMP inspection of 2 of our formulation manufacturing facilities in Duvvada, Vizag, and issued a Form 483 with 2 observations. In June, the U.S. FDA completed GMP inspection of our API manufacturing facility in Srikakulam, Andhra Pradesh, and issued Form 483 with 4 observations. We will address and resolve the issues within the stipulated timelines. We continue to be recognized for our focused effort in ESG. We were the only Indian company to be featured in the 2024 list of Global 500 Most Sustainable Companies by Time Magazine and Statista. For the second consecutive year, we were named Asia-Pacific Climate Leader in 2024 by Financial Times, scoring the highest among India pharma peers. We won the Master of Risk Award for Healthcare and Pharma at the India Risk Management Awards. Through these efforts towards sustainability, we endeavor to contribute to the well-being of our patients, our people, and our planet. Now let me take you through the key business highlights for the quarter. Please note that all references to the numbers in this section are in respective local currencies. Our North America Generics business recorded revenues of $463 million for the quarter with a year-over-year growth of 19% and sequential growth of 18%. The increase was largely volume-led coupled with higher market share in certain products, partially offset by pricing pressure in some key products. We launched 3 new products during the quarter, and we expect the launch momentum to continue in the balance of the year. Our European generic business recorded revenues of $59 million for this quarter with a year-over-year growth of 4% and a sequential growth of 1%. The increase in base business volume and contribution from new product launches during the quarter helped offset price erosion. During the quarter, we launched a total of 12 products across markets. Our emerging market generic business recorded revenues of INR 1,188 crores in Q1, a year-over-year growth of 3% and a sequential decline of 2%. On a year-on-year basis, market share expansion and revenue from new products more than offset the unfavorable forex. In constant currency, the emerging market grew at 9.8% on overall business. We launched 17 new products during the quarter across various countries of emerging markets. Within the segment, the Russia business grew by 12% year-on-year and 10% sequentially in constant currency. The India business recorded revenue of INR 1,325 crores in Q1, a double-digit year-over-year growth of 15% and sequential growth of 18%. The growth was primarily on account of additional revenues from the recently licensed vaccine portfolio from Sanofi and new launches. As per IQVIA, our IPM rank is 10. We have launched 13 brands this quarter in addition to integrating Sanofi's vaccine portfolio. Our PSAI business recorded revenue of $92 million in Q1 of FY '25, a year-overgrowth of 12% and a sequential decline of 7%. The year-over-year growth was primarily on account of improvement in volume as well as new product launches. We filed 11 Drug Master Files this quarter. Our R&D investment this quarter stood at INR 619 crores, up 24% on a year-to-year basis, driven by our biosimilar products pipeline. Development efforts across generics as well as novel oncology assets in Aurigene. Further, we continue to complement our in-house efforts with partnership and collaboration to develop innovative solutions. We have done 22 global generic filings, including 1 ANDA in the U.S. during Q1 of FY '25. We continue to focus our core business on generics, biosimilars, and APIs while investing growth drivers of the future in 3 areas: consumer healthcare, access to novel molecules, and digital therapeutics. We are confident that this strategic growth initiative, coupled with our disciplined financial management investment in our people and driving operational efficiency will enable us to deliver sustainable growth in the coming years. As you may all be aware, Parag Agarwal will be retiring effectively on August 31, 2024, and would like to devote his time to making a meaningful difference to the lives of voiceless animals. I want to thank Parag for his 4 years of service to Dr. Reddy's as the CFO and for the impact he has had on the company as well as our stakeholders. Parag is leaving a strategic vision for the company, which has placed Dr. Reddy's in a strong position for future growth. I am pleased to announce that MV Narasimham, also popularly known as MVN, who is currently serving as Deputy CFO, will take over as the CFO from August 1, 2024. MVN has been associated with Dr. Reddy's since fiscal 2000. He's already a member of our Management Council and a seasoned strategic and financial leader. Please join us in wishing both Parag and MVN the very best in their new journeys ahead. And with this, I would like to request MVN to say a few words, and then we'll open the floor for questions and answers.

Thank you, Erez, and greetings to everyone. I would like to thank Parag for his invaluable leadership and mentorship. He has been instrumental in Dr. Reddy's financial success, and I look forward to building on the strong foundation that he has created. I also look forward to meaningful engagement with all of you and the analyst community going forward. Thank you.

Yes, we can open the floor for Q&A now.

We have our first question from Kunal Dhamesha from Macquarie Capital.

Congratulations on a good set of numbers. First one on the cash flow from operations, which seems to have come down meaningfully despite our working capital being largely similar to the last quarter. So what is driving the sequential moderation in cash flow generation?

Kunal, thanks for that question. The reason the free cash flow is a bit on the lower side is because of fluctuations in factoring. We do the factoring in various markets, largely in the U.S., depending on the interest rates and the benefit we get. Because of that, we have rolled back factoring a little bit in this quarter. But overall, the operational cash flow generated from the business is in line with the normal trends.

Sure. So it should pick up going forward, right?

Yes. Absolutely, yes.

Sure. And the second question, on the SG&A expense, while you have highlighted that we are incrementally investing in the new horizon growth levers, et cetera, there is a step jump in SG&A expense. So is there any one-off included in this quarter's SG&A expense?

So I said that in my opening comments, Kunal, that in this quarter, as usual, we are investing in new business initiatives. There are also some one-offs like increase in freight rates because of some route issues in the Red Sea, also a few one-offs and so on. And this is the normal fluctuation that happens from one quarter to another depending on the sales and the level and the phasing of investments. Overall, we are confident that our SG&A percentage is going to be within the range of 27% to 28% for the full year. So yes, this is pretty much normal. It's just quarter-on-quarter fluctuation.

And the percentage you described is including the amortization, right?

No, that's not material. That's normal amortization of intangibles that we always have; the normal level of amortization is included. What is one-off, I would say, is a spike in the freight cost, as I said, and a few other one-offs.

Amortization, Kunal, will be primarily after we close Northstar. It will not be relevant before we close the deal.

Sure, sure. And one for Erez, on the launch momentum in the U.S. I think you have launched 3 products in this quarter. And I think that the usual guidance is around 20-plus products, right? So are we on track to achieve that? And secondly, you also mentioned that we have roughly 25 first-to-file filings according to us, right? So out of this 25, how many of these are expected to be launched in, let's say, the next 2 to 3 years?

So the answer to the first part, yes, we are on track. How many exact first-to-file, anybody knows? I don't know exactly to tell you, Kunal. We will come back to you. I don't recall the number on top of my head, but naturally, a few of them will be there. But I don't remember how many exactly.

We have our next question from the line of Neha Manpuria from Bank of America.

So, Erez, my first question is on the OTC piece. Now, with the acquisition of the NRT portfolio, the Nestlé JV going online, how should we think about the potential size of the OTC business, let's say, in fiscal '27-'28? How big do you think this business can be? And are there any more acquisitions or capital allocation that you see in the consumer healthcare business to make it larger?

Yes. The over-the-counter and consumer care segments are a key focus for us. To expand on your questions, we are primarily targeting four areas: B2B generics, branded generics and innovation, consumer care, and biologics. Currently, this segment is generating a little over $320 million, distributed across North America, Europe, India, Russia, and others. We expect that new acquisitions will typically be around $300 million, bringing the total to over $600 million and continuing to grow. Therefore, it will be a significant part of our business. We aim to develop our Northstar platform and incorporate additional assets in the future. We envision this as a business that could eventually reach billions, although the growth will depend on our success in acquiring more assets as well.

Do you think we can get to that $1 billion mark with the existing asset with the Nestlé JV, with the NRT assets, and with MenoLabs, the existing base by fiscal '27-'28? Would that be a fair assumption? Or do you think you need more to get to that $1 billion number?

For the $1 billion, we will need to buy more.

Okay. Got it. And my second question is on the fourth growth lever that you mentioned, biologics. I think you've mentioned denosumab is a near-term opportunity, we also have abatacept. If you could give us some color on the timelines for filing of these assets, and therefore, when should we expect the launch of both these products?

You are talking about denosumab?

Deno and abatacept, both of them.

So denosumab is next year. And what are the other products that you asked, sorry?

Abatacept.

Abatacept should be December '26, hopefully, and depends on the approvals or max beginning of '27 calendar.

Abatacept should be filed in December 2026, hopefully, depending on the approvals, or at the latest, the beginning of 2027.

Sorry, filing should be at least a year before that.

Sorry, Erez, I missed that. So you said abatacept filing should be in '25.

Abatacept filing should be in the end of calendar '25. The launch should be at the end of calendar '26, assuming approval of that.

We have our next question from the line of Amey Chalke from JM Financial.

Congrats on a good set of numbers. The first question I have on the U.S. business for the quarter, we have seen a good quarter-on-quarter jump, almost $50 million to $60 million. Is it possible for the management to give some breakup? How much would be contributing from the new product launches, which we have recently done? And how much would be from the base business improvement?

So most of it is from the base business. Most of it is the products that we had before, and the contribution of the 3 products helped the growth, but the lion's share of the growth came from products that we had before.

So going ahead, how should we think of the quarterly U.S. run rate? Is it normalized from here? Or do you expect it to maintain at $450 million?

No, what I'm expecting from the U.S. is to continue to grow. So I maintain the discussions that we had in the past. We have the capability, and I'm excluding even lenalidomide in this kind of discussion, to grow in single digits, while compensating for any price erosion on a year-to-year basis. That's what we did in the last 6 years, and this is what we are going to do. And from time to time, we have those upsides that come from first-to-market or specific situations. Right now, it looks like that the North America activity should continue to grow throughout the year. Quarter-to-quarter, it's hard to tell. It's always fluctuating. So I cannot guide on quarters, but I can absolutely say that we are going to continue to grow throughout the years.

Sure. The second question I have on the India business growth, which is around 15%. In the opening remarks, we said that some of it is coming from the vaccine business, which we acquired. Is it possible to quantify how much will be the base business growth?

Yes. Without the vaccine, it would likely be in the mid-single digits.

We have our next question from the line of Damayanti Kerai from HSBC.

Continuing on India. So I just want to understand now Sanofi vaccines contributing meaningfully in your India numbers. Is this the current base, which we should assume, like you will be going from the base of Q1 in the coming quarters? Or how should we look at India growth in the near term as well as medium term?

The baseline of India without acquisition will be double digits this year.

Okay. And this base business, you said it grew in single digits during the quarter excluding Sanofi vaccine.

It was mid-single digits, and it will be double digits for the year for sure and for the next quarters.

Sure. And can you update us on the Nestlé JV, how that is progressing?

Progressing very nicely, and we hope that in the beginning of August, we can announce day 1. Likely August 1, but we will announce when it will come.

In August?

August 1.

And my second question is on your biologics effort. So can you let us know what is the kind of spend you are doing for this line of business? And you earlier mentioned meaningful sales could be starting from '27, right? So between now and '27, if you could just talk on the cost part for your biologics effort.

Yes. To clarify what we mean by biologics in the company, we have biosimilars, which account for about 20% of our R&D and around 10% of our capital expenditures. Additionally, we are prepared to scale up our CAR-T for launch in India and are actively working on that. While we don't usually categorize our efforts, I assume your inquiry was about the biosimilars, which is a crucial focus for us. Furthermore, we are involved in licensing products for various markets. We have already mentioned denosumab, and we are pursuing local licensing opportunities in emerging markets. By the end of the decade, we expect to secure a significant number of deals in those markets. Following denosumab, our next global product will be rituximab, which recently received approval in Europe. We anticipate receiving approval for abatacept in the U.S. later this year, likely around the end of 2026 to the beginning of 2027.

Okay. And all these products which are coming, say, in '26 and beyond, you will be marketing on your own, right? The way the previous 2 products had gone through partners.

Besides rituximab, there's this partnership with Fresenius. The rest, we will do by ourselves, including the United States.

We have our next question from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Just again on the North America sales on the base portfolio maybe like ex REVLIMID as you highlighted, the price erosion is in the range of high single digits. And despite that, the sales have seen a very reasonable jump year-on-year or even quarter-on-quarter. So just to understand if there was any specific product opportunity, which would have because of the product shortage or some competitor going away? Or how to think about the base business and the sustainability of the run rate?

So first, I did not mention the number that you are saying. So please don't quote me because I did not say it. Second, yes, it is going to be consistent, and we see that this growth is not a particular product. It's actually multiple products, primarily because of great service that we are giving in the United States to customers.

Got it, sir. Yes, yes. Got it, sir. And on the India base, Erez sir, the growth has been quite moderate excluding Sanofi. So how do you think of scaling up this growth?

As I mentioned, the growth will be double digits even without the inorganic, and the inorganic will be on top of it.

We have our next question from the line of Surya Patra from PhillipCapital India Private Limited.

Congratulations on the impressive results. My first question is regarding the Aurigene biologics facility that we recently inaugurated. What is the scale of the investment there? Additionally, I would like to know if this facility is intended for the biosimilar pipeline developed by Dr. Reddy's or if it is aimed at the CDMO opportunities we have discussed. Could you please provide some clarity on this?

Yes, that specific investment is for the contract development and manufacturing organization activity related to biologics for Aurigene. The primary purpose of this investment is centered on that. The level of investment is a few hundred crores, though I don't recall the exact amount.

Few hundred crores, you said, sir?

Yes, in terms of CapEx.

Okay. Is it currently supported by any contract, association, or collaboration with our target party? And when should we expect regulatory clearance for this plant?

We do have contracts that finance this investment. These are all early-stage projects originating from innovators, so there is currently no need for specific regulatory activity. If this momentum continues, we will need to scale up and engage in discussions, which will likely occur in the coming years. At this point, it's mainly focused on R&D activities, emphasizing the development aspect rather than manufacturing.

Okay. Okay. And my second question is on the volume share rise as per the settlement in case of lenalidomide, whether you have seen that volume share rise, which was indicated as part of the contract, sir?

The product is growing in line with the contract. The volume is mostly influenced by the type of agreement rather than capturing market share. So far, we are selling the product as stipulated in the contract.

Sure, sir. Just one small clarification. With regards to the freight cost in what you have mentioned Parag sir, so how serious and critical is this cost issue? Did it affect for the quarter? And is it fair to believe that this is likely to continue at least in the next couple of quarters the way the trade is happening in U.S. and China?

Most of the situation is obviously related to the conflict in the Middle East. We need to look to Africa, and in some cases, due to the timeline, we have to transport materials by air instead of shipping them by sea. This is the main issue. I wish I could predict when this conflict will end; hopefully, it will resolve soon. The impact amounts to a few tens of crores. I don't recall the exact figure, but that's the effect.

Is it fair to believe that the less than 1% sequential change we have seen in SG&A is largely due to the freight cost?

I will not specify a large portion. It should be around INR 50 crores to INR 60 crores or something similar. So I don’t think it’s a significant portion. The key focus is on investing in capabilities, new products, and business initiatives. We are taking advantage of our position to deliver for shareholders while also investing for the future. We are definitely using this opportunity to increase investment in the business, including R&D, CapEx, and new ventures. The majority of the SG&A relates to that, but there are also costs associated with freight and other one-time expenses, as Parag mentioned.

We have our next question from the line of Shyam Srinivasan from Goldman Sachs.

Well, we are generating about 220 million, 230 million, 240 million per quarter in terms of cash flow quarter. We have a considerable cash equivalent. We're going to pay for this NRT, which I think the upfront payment will likely be happening. But even after that, we seem to have lots of cash and cash flow generation. So I just want to understand our capital allocation and the next 2 to 3 years which areas will likely be focused on.

Yes. So thank you for the question. Indeed, a very important strategic question. First, we believe that we have about $2.5 billion that we can invest inorganically. That depends, of course, on the time and on time, but we have enough financial capacity without even changing dramatically ratings or anything like that, actually should not impact the rating at all. We want to invest in each one of the 4 spaces that I mentioned. We do want to invest in our B2B generics, in our innovation, in our consumer care as well as in biologics. The primary way to use it is less of mergers and acquisitions and more about collaborations, licensing, and from time to time, we will buy also assets or rights to the assets. So our preference is to have access to products, product or products that are complementary to our portfolio that allow us to be in a very comfortable strategic position in each one of the segments, in each one of the geographies. Largely, we are aiming for a high level of IRR and for sure, better than the cost of capital that we have for the company. In addition to that, we are using the cash flow internal activities. So we are investing in CapEx, especially in the category like biologics and CDMO and our injectables. We believe that we have a very interesting pipeline for the future, primarily containing of injectables and primarily many peptide products. So this is where the capital allocation will go. And we are building the growth of the next 5 years, '26, '27, et cetera, as we speak, and we are using the relatively comfortable financial positions that we have now in order to invest and to build this position into the future. Hopefully, it addressed your question.

Just 1 follow-up. In the past, in terms of deals in India, valuations have been a hurdle, do you think our philosophy will likely change now if you were to look at transactions in India? Recently, many of your peers have done, can I say, high valuation acquisitions. Is it something that Dr. Reddy's will be also willing to look at?

We are looking at all the deals in India. India was, is and will be forever a very important market for us and for sure, a very important country for all the activities of Dr. Reddy's. India is absolutely a focus and we are going to invest in India. We feel that the fact that the branded generics market is now single digit, plus the cost of capital went up over the years, presenting the situation that if you have a cash transaction, at least we don't see a reason to buy EBITDA in which only the interest that we'll pay to the banks will be more than the EBITDA that we'll get. So for this kind of transaction, we will not do. If the deal is better than our cost of capital, absolutely, we'll do it. And India will be absolutely a priority.

We'll take our next question from the line of Abdulkader Puranwala from ICICI Securities.

My first question is pertaining to the vaccine business, what we have in-licensed from Sanofi. So could you help us understand how the growth profile has been in this particular segment? And what are the kind of investments you will have to do to grow this business?

We acquired this business from Sanofi as what we call the bridge. It's an anchor product, will allow us to bring to the segments in the future additional products. So when we identify a space that we want to claim, we are trying to build what we call the anchor activities that will allow us the capability, whether it's product management, whether sales force, whether know-how of the product, etc. So the intent is to buy, to grow it in the best way we can, the current business, but to add on it over the period of time additional products that will come from licensing in from other companies.

Okay. So I mean, have we also taken some MRs, which are obviously will be pertaining to Sanofi who would now be in our payrolls? Or how is that arrangement here?

We got also the salespeople from Sanofi.

We have our next question from the line of Jainil Shah from JM Financial.

So my question is related to the NRT acquisition. So Haleon in their press release have mentioned that the gross assets related to the acquisition of GBP 413 million. So if you can explain why is it so high? And is it fair to assume that a large part of this would be goodwill?

Shah, I did not personally see Haleon's balance sheet. So you probably need to ask them. I'm assuming that it's mostly intangible.

We have our next question from the line of Kunal Dhamesha from Macquarie Capital.

I just wanted to understand, has there been any business impact from the Microsoft outage that was there last week for us?

No, 0 effect on us.

Sure. And secondly, on the Nestlé JV, I didn't understand what will start from August 1, I think we have incorporated JV as of now. But you are saying the operational activity will start from August 1?

Yes. Day 1 marks the beginning of joint operations for the JV. We will report our current results along with what Nestlé contributed prior to this.

Okay. So it's basically adding our current products like Celevida, etc. into the JV, is the way to understand it, right? And then yes, so Nestlé's product.

Yes.

Sure. And then I think the initial activities is to kind of customize the product, Nestlé's products, global products for Indian market, etc. right? For that, we'll have to invest. So this investment will be part of P&L investment, or would this be more like balance sheet investment, which will capitalize till we commercialize those products?

So let me clarify, maybe. First to your first part, yes, the product activities and the other products that we have, we will add to it the Nestlé activities, and both of them will be part of the JV starting from August 1. As related to investments and all the stuff, the intent is over time to bring additional brands primarily from Nestlé to the JV and to introduce them to India and to grow them. Specifically, at the very beginning, I don't anticipate the impact on the P&L, for sure, not in a significant way.

Sure. That's very helpful. And the last one from my side. I believe we also undertook the expansion of our biologics facility, right? So is that complete now? And with that completion, if you can help with the current capacities? Is it more than enough to cover us for the next 2, 3 biologics or biosimilar that we have in the pipeline?

We are still investing in our Bachupally facility. The intent is to become something like 50 kiloliters in that facility, this probably will take us an additional 2 years to reach that level. So you want to see additional CapEx in Bachupally at least for the next 2 years.

Sure. And 50 kl is the aspiration, like the future capacity? What is the current capacity?

I think it's 15, if I remember, 15 kl.

15 kl to 50 kl. Perfect, thank you, and all the best.

As there are no further questions, I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you.

Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with the Investor Relations team. Thank you once again on behalf of Dr. Reddy's.

Thank you, members of the management team. On behalf of Dr. Reddy's Laboratories Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.