Ladies and gentlemen, good day, and welcome to Q1 FY '26 Earnings Conference Call of Dr. Reddy's Laboratories Limited. Please note that the chat will not be monitored for any questions to the management. I now hand the conference over to Richa Periwal. Thank you.

Thank you, Aishwarya. Good morning, good evening, and a warm welcome to all. Thank you for joining us for Dr. Reddy's Q1 FY '26 earnings conference call. We truly appreciate your time and participation. Joining us today are members of the leadership team, Mr. Erez Israeli, our CEO; Mr. MV Narasimham, our CFO; and the IR team. Earlier today, we released our quarterly financial results. These are now available on our website for your reference. We'll begin the session with MVN presenting an overview of the financial performance for the quarter. Following that, Erez will provide his perspective on the business highlights and the strategic outlook. We will then move to the Q&A segment as mentioned by Aishwarya. Before we proceed, please note that today's call is the proprietary material of Dr. Reddy's Laboratories and cannot be rebroadcasted or attributed in any media or press outlet without prior written consent from the company. This session is being recorded, and both the replay 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. In addition, the discussion may refer to certain non-GAAP financial measures. A reconciliation to the GAAP measures is provided in our press release. We would also like to remind you that the safe harbor provisions as detailed in today's press release apply to all forward-looking statements made during this conference call. With that, let me now hand it over to MVN to present the financial highlights for the quarter.

Thank you, Richa. A very warm welcome to all. Thank you for taking the time to join us today. I'm pleased to walk you through our financial results for the first quarter of FY '26. The quarter began on a positive note, marked by steady double-digit revenue growth. We delivered an EBITDA margin of 26.7%, modestly ahead of our aspiration of 25%. The inclusion of our consumer healthcare business contributed positively to top line momentum. All financial figures in this section are translated into U.S. dollars using a convenience translation of INR 85.74, the exchange rate prevailing as of June 30, 2025. Consolidated revenues for the quarter stood at INR 8,545 crores, which is USD 997 million, a growth of 11% on a year-over-year basis and remaining flat on a sequential basis. This performance was driven by steady performance across most markets with the exception of our U.S. generics business. Consolidated gross profit margin for the quarter was 56.9%, a decrease of 350 basis points year-on-year and an improvement of 134 basis points sequentially. The year-over-year decrease in margins was largely attributable to price erosion in the generic segment, particularly in lenalidomide, and lower operating leverage, partly balanced by a better product mix. Gross margin for Global Generics and PSAI were at 60.9% and 13.2%, respectively. Lower business margins in PSAI reflect seasonal weakness and under-recovery of overheads. The SG&A spend for the quarter was INR 2,565 crores, which is USD 299 million, an increase of 13% year-over-year and 7% on a sequential basis. The year-over-year increase was primarily driven by strategic growth-oriented investments in consumer healthcare business of NRT and the Nestle, a JV for nutraceuticals portfolio. Both businesses represent strategic growth drivers, necessitating focused investment to unlock and sustain their long-term potential. Other SG&A expenses remain well managed and broadly flat on a year-on-year basis, reflecting discipline in cost control across core operations. Consequently, SG&A expense accounted for 30% of the sales during the quarter, was higher by 44 basis points year-on-year and 173 basis points on quarter-on-quarter. The R&D spend for the quarter was INR 624 crores, which is USD 73 million, remaining broadly flat on a year-over-year basis and declined by 14% sequentially. We continue to make targeted investments in our complex generics, API, and biosimilars pipeline to support long-term growth. The R&D spend was at 7.3% of the sales for the quarter, lower by 76 basis points year-on-year and 123 basis points quarter-on-quarter. For the full fiscal, we expect the R&D investments to be in the range of 7% to 7.5% of the sales. EBITDA for the quarter, inclusive of other income stood at INR 2,278 crores, which is USD 266 million, an increase of 5% on year-over-year and a decline of 8% on a Q-o-Q basis. The Q-o-Q decline was primarily driven by higher revenue and lower other income on a relatively flat revenue base. EBITDA margin stood at 26.7%, was lower by 149 basis points year-on-year and 243 basis points on a Q-o-Q basis. The net finance income for the quarter is around INR 157 crores as compared to INR 84 crores for the same quarter last year. As a result, the profit before tax for the quarter stood at INR 1,905 crores, which is USD 222 million. PBT as a percentage of revenue was at 22.3%. Effective tax rate for the quarter was at 25.9% compared to 26.04% in the corresponding period last year. We expect the normalized ETR to remain around 25% for the full fiscal year. Profit after tax attributable to equity holders of the parent for the quarter stood at INR 1,419 crores, which is USD 166 million, a growth of 2% on year-over-year and a decline of 11% on a Q-o-Q basis. This is at 16.6% of revenues. Diluted EPS for the quarter is INR 17.04. Operating working capital as of June 30, 2025 was INR 13,320 crores, which is USD 1.55 billion, an increase of INR 722 crores, which is $84 million over March 31, 2025. CapEx cash outflow for the quarter stood at INR 683 crores, which is $18 million. Free cash flow generated during the quarter was INR 433 crores, which is $51 million. As of June 30, 2025, we have a net cash surplus of INR 2,922 crores, which is USD 341 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 648 million has been hedged using structured derivative contracts scheduled to mature over the next financial year. These contracts provide a minimum production rate of INR 86.13 per dollar while also allowing participation in the event of dollar appreciation. RUB 3.7 billion hedged at a fixed rate of INR 1 per Russian ruble with maturity falling within the next 4 months. With this, now I request Erez Israeli to take us through the key business highlights.

Thank you, MVN. Good morning and good evening to everyone attending today. We appreciate your time and interest. Our performance in Q1 demonstrates consistent results and steady progress regarding our strategic agenda. We achieved double-digit growth in our core business and made advances in critical pipeline programs, including semaglutide and abatacept. We remain dedicated to optimizing structural costs and enhancing operational efficiencies. Our strategic priorities also continue to guide us as we expand our presence in consumer health, innovative therapies, and biosimilars. Overall, our results were broadly positive, with some softness noted in the U.S. generic market. Now, let me highlight some key points from the first quarter. Revenue grew by 11%, indicating sustained business momentum and consistent execution. We reported an EBITDA margin of 27%, and our return on capital employed for the quarter stood at 22%. We concluded the quarter with a net cash surplus of $341 million, strengthening our balance sheet position. The biosimilar business gained traction this quarter due to a strategic collaboration with Alvotech for the co-development, manufacturing, and commercialization of pembrolizumab, a biosimilar to Keytruda. The phased integration of the Nicotine Replacement Therapy business is on track. Following a successful integration in the U.K. and Nordics, we're now preparing to onboard additional markets, including Canada, Australia, and other selected countries in Western Europe during the next phase. During the quarter, the USFDA inspected our Middleburg API facility in New York and issued a Form 483 with observations. After our response, the site classification has been updated. The agency also inspected our API facility in Miryalaguda, Telangana, issuing a Form 483 with observations; we have submitted a timely response as required. Last week, the USFDA conducted a GMP entry approval inspection at our formulation facility in Srikakulam, Andhra Pradesh, resulting in a Form 483 with seven observations. We plan to respond within the required timelines. Our commitment to sustainability was recognized when our Carbon Disclosure Project rating for 2024 was elevated to an A in the climate category, making us the only Indian pharmaceutical company with this score and placing us in the top 2% of companies globally. We also maintained our leadership in the Water and Supplier Engagement categories, reflecting our consistent performance across key environmental metrics. Now let me present the key business highlights for the quarter. Please note that all financial figures are reported in their respective local currencies. Our North American business generated revenue of $400 million for the quarter, a decline of 17% year-on-year and a 4% decrease sequentially. The market softness was mainly due to price erosion in selected products, particularly lenalidomide, along with the timing of procurement by certain customers. We launched five new products during the quarter and anticipate regaining momentum for the remainder of the fiscal year, which is expected to support recovery and drive growth in this segment. Our European generic business reported revenue of $131 million for the quarter, representing a 124% year-on-year growth and a 6% sequential decline. The year-on-year growth was largely attributed to contributions from the Nicotine Replacement Therapy portfolio and new product launches, which helped offset some pricing erosion. In the quarter, we produced 13 new generic products across European markets, further solidifying our portfolio and growth trajectory. Our emerging market business reported revenue of INR 1,404 crores in Q1, reflecting a 10% year-on-year growth and remained flat sequentially. Growth was driven by higher volumes, complemented by new product launches. During the quarter, we introduced 26 new products in various countries, emphasizing our commitment to expanding access and deepening our market presence. Notably, our Russia business achieved a 17% year-on-year growth and a 2% sequential increase in constant currency, showcasing its resilience amidst macroeconomic challenges. Our India business generated revenue of INR 1,471 crores in Q1, achieving double-digit year-on-year growth of 11% and a sequential increase of 13%. This performance was mainly driven by contributions from new products and pricing strategies. According to IQVIA, we continue to hold our standing as the 10th largest player in the Indian pharmaceutical market and have surpassed market growth with a moving annual total growth of 9.2%, compared to IPM growth of 8% and MQT growth of 11.2%. During the quarter, we launched five new brands, including two innovative assets, Beyfortus, an RSV vaccine, and Sensimmune, further enhancing our domestic portfolio and growth momentum. Our PSAI business reported revenue of $95 million in Q1 FY '26, achieving 4% year-on-year growth while experiencing a 14% sequential decline. We anticipate business momentum to accelerate in the forthcoming quarters, steering us back to a double-digit growth trajectory for the fiscal year. During the quarter, we filed 12 Drug Master Files. We remain committed to strengthening our pipeline as a vital factor for future growth while actively seeking strategic collaborations to drive innovation and enhance our capabilities. Our R&D efforts are focused on complex generics and high-impact biosimilars, which are crucial for our long-term value creation strategy. During the quarter, we completed 11 Global Generic filings. As we proceed through the fiscal year, our focus is on bolstering our core business, advancing key pipeline assets like semaglutide and abatacept, enhancing our commercial strength in regulated markets, and improving efficiency and cost structures. We are actively exploring strategic partnerships and acquisitions to diversify and enhance our portfolio. These initiatives reflect our commitment to agility and disciplined execution in a dynamic market environment aimed at delivering sustainable value for our stakeholders. I now welcome your thoughts and questions as we transition into the Q&A session.

Thank you, Erez. We will now begin the question-and-answer session. I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please feel free to use the chat option to reach out to us. The first question is from the line of Amey Chalke from JM Financial.

The first question I have is on the U.S. based business. Is it possible to give some guidance on how it has performed quarter-on-quarter, whether it has improved or gone in the opposite direction? And how the base business is expected for FY '26 as well for the U.S.?

Amey, there was maybe something with the mute button or something. Can you just repeat your question, please?

I was inquiring about the performance of the U.S. based business on a quarter-on-quarter basis, asking if it has increased or decreased. Additionally, what is our outlook for the U.S. based business for FY '26?

Yes, the base business in the U.S. decreased. It's primarily timing so I will say I don't see anything particularly special. There were some key products, especially Suboxone, where there were orders that moved from quarter to quarter. I wouldn't give too much importance to it. Overall, the way I see it, the base business is expected to experience flat to single-digit growth that we normally discuss, which, of course, depends on the success of some product launches that we are going to be undertaking. Most of the decline that you see quarter-on-quarter was attributed to lenalidomide.

And the second question I have is on the REVLIMID. So going ahead, do you expect some pickup in the coming quarters before going down from Q3? Or do you expect the similar trajectory for REVLIMID for the upcoming quarters as well?

So we are not discussing specific numbers on this product, but it is important people know that we are trying to avoid shelf price adjustments. So what you should anticipate is one more quarter, give or take, in the range of what you have today and relatively much less in Q3. After that, there will be some leftovers, and that's it.

Just one last question if I can squeeze in. On semaglutide launches in the ROW nonregulated market, when should we expect that to happen?

In the ROW, most of these launches are prioritized based on our capacity to launch in Canada. Assuming that this will happen, the launch in the rest of the countries is anticipated during calendar '26, with 87 markets overall, most of them being small. The key markets will be India, Brazil, Turkey, and products like that will be after March of '26. Canada has an opportunity, as we have discussed many times, to launch before that.

The next question is from the line of Neha Manpuria from Bank of America.

My first question is on the U.S. pipeline, North America. Obviously, we have semaglutide that we'll probably know in the near term. One, if you could tell us what timelines we need to watch for semaglutide and for Canada, particularly? And second, other than that, the single-digit growth that you're talking about, does that include any high-value launches in the second half that we should watch out for? And I'm asking this because we also saw a VAI inspection for the Srikakulam facility recently.

Yes, I'll address the last part first. I believe we will receive a VAI. The observations we've received can be addressed, and we should expect a VAI as a result. Regarding the timing of semaglutide, we are still preparing for product approval around late October to early November. If that occurs, we plan to launch the product when exclusivity expires in early January 2026, which is our target. Concerning the other products, based on our analysis, I've shared how I view the year's trajectory. We are planning to launch about 20 products in the U.S., but none of the complex products, as per our experience, and I prefer to view them as potential upside. Additionally, on semaglutide, to provide complete clarity, we have two assumptions regarding Canada: first, that we can produce and ship the product there since it has no patent, and second, that we will receive approval during that timeframe. If either of these assumptions does not hold, it could alter the trajectory for semaglutide.

Another question for you. Just looking at the gross margin trend for this quarter, given a quarter where we've seen a fair bit of erosion in REVLIMID, they still managed to improve gross margins. If I were to think about the full year, how should we think about gross margins, particularly going into fiscal '27? And historically, you've also mentioned that SG&A costs will be in the 28% of sales range, but obviously, it's tracking higher. So is it fair to assume that this is the new range for the SG&A cost, close to the 30% mark that we have reported in this quarter?

So let me first, thanks, Neha. As far as gross margin is concerned, I think for this year, it would be in similar levels as there could be higher sales from the base businesses in the branded markets and other BUs. And that's where I think for this year and next year is like clearly, I just don't want to give you any number at this point of time. Definitely, once we launch semaglutide, we can model it. As far as SG&A is concerned, I think for the full year basis, it should be in the zone of like 28% to 29% range, not at 30%.

I just want to make sure, Neha, if we successfully launch semaglutide, we should be absolutely good in all the parameters that we are familiar with, meaning the EBITDA as well. So we are aiming that the base business will be always north of 50%, and in semaglutide, it should be even more than that on the gross margins and EBITDA, obviously, like always, 25% or north of it. During the time when we don't have lenalidomide and we're not launching semaglutide, likely that these parameters will be lower than that.

The next question will be from the line of Damayanti Kerai from HSBC.

My first question is again on lenalidomide. So Erez, for Q2, you have mentioned that the levels should be similar to what you booked in the June quarter? Or is there still some room to book higher sales, given you want to book most of the sales intended for FY '26 in the first half itself?

In order, not too much because there are also moving parts on prices. The price went down in this fiscal versus last fiscal. But overall, let's call it similar magnitude. I will not say the same but similar magnitudes.

So on the pricing pressure part, is there a possibility you will be facing higher magnitude compared to the current level? Because I understand your competitors are also trying to maximize volume possible in the first half itself. So in view of that, will price erosion intensify possibly from here?

We hope not. I believe not because most of the booking was done already. In general, when more companies can sell this year, they had bigger quotas and they try to sell in the last quarter. So by design, it creates certain density versus the year before. It is all well anticipated. Honestly, I don't see any surprise. In my discussions over the last couple of weeks, I met quite a few people during this period, and we cannot explain it. So I believe that what you should see from us is, give or take, similar magnitude of pricing as well as quantities. After that, there will be a sharp decline in the other quarter.

My second question is on semaglutide regarding your preparation. So can you update us on your capacity expansion at Vizag and when do you expect that capacity to come on board?

Yes, the launches that will happen in FY '26 and FY '27 will not be out of Vizag; it will be with our partner, using our API. This means that the capacity for FY '27 will come from FY '28 onward. We will likely have, in the beginning with our partner, about 12 million pens in FY '27. If you look at calendar '26, because it's very relevant for the potential Canadian launch, it's about 10 million pens. This is what we are planning to have.

So for '26 and '27 fiscal year, you are good to go with 12 million pen capacity from your partners. Do you think that will be sufficient to gain meaningful market share in the market which you are targeting?

We believe so. We would love to have more, but we feel very confident about this magnitude. There may be potential upside to it, but we feel comfortable about this magnitude. Now it's a matter of what mix of market we will get overall and then what will be the average price for those. That, of course, is unknown. But yes, I feel very comfortable about this magnitude.

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

First question was if you could just give us an update on the biosimilar abatacept Phase III trials, how that is progressing? And by when do we expect outcome for the Phase III trial? That's my first question.

So far, so good. The readout is in November '25, which is as expected in accordance with the timelines. Following the readout, which I hope will be positive, we are planning to submit a BLA in order to be on time for market formation, which is December '26 or January '27, let's say, if we look for the realistic launch because there are some registration post-approval. Just to make sure that you have the full picture, the launch at the beginning of calendar '27 can be for the IV formulation. The subcutaneous formulation will be a year later due to IP.

And the second question is on the cost-saving measures. So would you give us some sense in terms of the extent of cost savings that we can drive? And if you could give us some sense in terms of R&D spending, given we have a Phase III trial of biosimilar abatacept ongoing, what's the quantum of that spending? And I'm assuming that spending should not recur next year, so the extent of cost savings that we can drive for the organization next year?

You got it right. We used the time when we enjoyed the backing from the tailwind that came with lenalidomide, and we boosted some investment in the future, including abatacept, including the creation of the franchise for GLP-1, including the buildup of the facility for that, including the acquisition of the NRT business. So all of that was done because we had access to more financial capacity, and we used it. As you said rightly, some investments we don't need anymore. Post, for example, November '25, we will not have to pay for the clinical trial of abatacept. We also feel that there are discretionary costs between R&D and SG&A that can be reduced by 500 to 600 basis points that we are planning to adjust in accordance with the motion. We need to remember that we also have some question marks surrounding how the future will hold between tariff and semaglutide, the magnitude. Accordingly, we are preparing a scenario. The idea is between growing the base semaglutide and the expenses, as well as a success, we will manage to ensure that growth is coming in the right way.

Sir, just to clarify, when you say 500 to 600 basis points, given Dr. Reddy's sales are at about INR 30,000 crores plus top line, so are you saying that potentially to save INR 1,500 crores to INR 1,800 crores on cost? Is that the right way to think? Of course, like you said, it depends on how the business shapes up, but is that the potential?

The potential is like that, but it doesn't mean we are going to save all of this. I'm not recommending you to put that much in your model. But absolutely, that is the game that we play. We prepared it in advance naturally. The lenalidomide was a known factor. We have been preparing for it since we signed the deal. That's part of the idea. Hopefully, we don't need it because if the growth will allow us to invest more, we want to create additional future and be a growing company for many years. We are trying to manage the famous 25%, 25% double-digit growth as well into the future. It's not going to be necessarily every quarter due to the timing of some big products, as you can appreciate. But I'm confident that on the large scheme, we will be there.

And if I can ask one last question. When you said that we have 12 million pens available in FY '27, do you think we can sell the entire volume at least, given we plan to launch in more than 80 countries, potentially some of which can be small as well?

I believe so for two reasons. One, in all these markets, we are aiming to be first or among the first. Second, the demand for this product looks promising. So far, the indications in the places that we started to discuss with people can confirm this demand exists. Yes, I believe it's absolutely possible.

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

So a couple of questions related to your U.S. pipeline. The first one is on generic liraglutide, which you had filed sometime in 2023, and I see that there are quite a few generics already in the market. And it's a fairly decent opportunity. So what are the status of our filing and what are the timelines you are looking at?

It's a product that we obviously have and we are planning to launch it also in the upcoming quarters. In some markets, we may be late. In some markets, we will be first to market. Liraglutide is Victoza and Saxenda. We believe that with Saxenda, we are going to be first to market or among the first to market in semaglutide. It's a product in the mix; it's not as significant as semaglutide, that's why we aren't discussing it much. But if you recall, we have about 25 products as we call them, peptides with bigger potential. I'm not guiding on those products before they are coming, but liraglutide is definitely one of them, and we are planning to launch it.

On semaglutide in Canada, you said earlier that you're making two assumptions. One of them is that there won't be any patent protection for the brand in Canada. So is there a risk to that assumption? Or is there any scenario where there could be a patent-related hurdle to your launch?

To clarify, there is no patent in Canada. What might keep the product from being launched is the exclusivity that will expire in January '26. There is a patent in India that we are now litigating in the Delhi High Court. So we are following the instruction of the court and are preparing for that. We need to get approval; if both happen, we will be good. I don't foresee any IP situation in Canada that will stop us from launching.

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

Most questions got answered. Just a couple of them. On the PSAI gross margins, it has been very weak this quarter. I think your press release talks about some operating leverage issues. But if I look at the top line in PSAI, it has not changed materially year-on-year or quarter-on-quarter. So why then the gross margin decline from mid-20s to low teens?

Actually, the API business is healthy. The reason for that is some of the demand products for the U.S. are also being back integrated, and the way we build the inventory comes into play. This causes a cost allocation that affects accounting, and that's what created it. It's actually a very healthy business, and it's growing. You'll see that it will correct itself in the next quarters.

In others, I see about INR 165 crores, which is more than the usual quarterly run rate. Is there any onetime operating income there?

We have out-licensing income from our origin, which is always part of our regular business. This quarter, we have generated that income.

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

Sir, can you share the PLI income or the government grant that you generally share for the quarter?

Here, if you remember, overall INR 1,000 crores for a period of 6 years. I think for the first 4 years, we have already accounted for this in the previous quarters. Now we have just taken additional approvals and then we accounted for FY '26 PLI, which is not much. I can say almost zero. Then once again, you will see the PLI income in FY '27 and '28.

So there is not much in this quarter is what you're referring?

Not this quarter and for the full year, the value is very small, not significant.

And on the PSAI front, regarding Origin Pharma Services, if you can throw some light on how you see the CDMO business scaling up? And what kind of customer profile and kind of products or services you're offering?

It is growing. I don't remember how much we sold, but I think it was $17 million or $18 million this quarter or something like that. We are gearing up for about $100 million of sales for the full fiscal. It's a combination of small molecule CDMO as well as biologic CDMO, primarily ADC. It's a combination of both. It is growing nicely. It is not that we are going to be a CDMO company, but it's a nice growing business as we speak. We see enough traction for those that want kind of business like ours and that creates synergy with Dr. Reddy's, especially related to collaboration on clinical trials, R&D activities, and even marketing rights in emerging markets.

But it is like do you have, from $100 million this year, I mean, what should we expect, let's say, 3, 5 years down the line? Do you have some line of sight for growth in this business?

Yes, it should be between $250 million to $300 million by 2030.

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

So just on this Keytruda biosimilar, if you could share some insights in terms of the kind of spend that will be done on the clinical trial on a combined basis, Dr. Reddy's as well as the partner.

If you recall, we are targeting biosimilars, being a relatively young organization in that space, to bring products that want to do ourselves or products with relatively less competition. This is how we target abatacept. Pembro is a molecule that many markets want, being a very important molecule in this space. But we felt that it is likely to be crowded. So the exemption of Phase III, no Phase III plus collaboration, plus the ability to license create a equation in which the level of net investment is not much. It can create a very good ROI, especially when we enter the relevant markets. The intent is to launch it in many markets, including the United States, including in Europe, but with much less burden of prior investment to develop it.

And the trials, given that this molecule has been there for multiple indications, what is the thought process like? Will we be progressing with certain indications to start with, or will the clinical trials for the biosimilar version be as good as the innovator molecule?

You don't need to do it for multiple indications. The type of trial we conduct allows you to get the same indications that are approved for Keytruda in each market. You can have one trial and get all the relevant indications for an interchangeable product.

And just one more on the R&D spend, like this year, it's relatively less as a percentage of sales, like almost 7%, summing up to, let's say, compared to FY '25, which was almost 8.5% to 9%. Given we have such complex assets in the pipeline, what is the sort of strategy to reduce the R&D spend, both as a percentage of sales, as well as maybe on the absolute amount this year?

As I mentioned before, we have a certain level of 500 to 600 basis points that we can manage in order to match sales growth as well as expenses. R&D is part of this flexibility, so right now, think about 7%. We have enough projects to spend more than that. If P&L and the numbers allow us, we will do that. If not, we can go down to 6%. We have that flexibility. The profitability of the company is very important for us. This is the level of flexibility we have with R&D. Right now, we are somewhat in the middle, waiting to see how the next quarter evolves.

And just one last one if I may. While there are many questions about semaglutide, broadly, do you see this as a 2-year opportunity, 1-year opportunity, or much more than that?

I see it as many years of opportunity as we enter a decade focused on GLP-1 products. Clearly, this landscape will change and evolve over time. Initially, establishing a presence in key markets will be essential to capture a premium. We believe this segment will experience significant growth. We plan to increase capacity, which will lead to higher volumes and, consequently, lower prices. We anticipate a strong branded approach with consumer care and unique devices. This marks just the beginning of our journey, and we will be introducing more products. The full portfolio of GLP-1 offerings consists of 26 products, with semaglutide and other key items being the most prominent. We aim to achieve first-to-market advantages with these, creating differentiation, and this will continue to evolve. The year 2026 marks the start of a significant focus on these products.

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

We completed capital expenditures of $80 million and currently have around $350 million in cash. I would like to know the outlook on capital expenditures for the year, particularly where the funds are being allocated. Additionally, what other revenue opportunities are we considering for deploying this cash?

CapEx this year is expected to be more or less at last year's level. For the full year, we expect cash outflow to be in the range of INR 2,500 crores to INR 2,700 crores. This entire CapEx will go towards large investments in peptides and biosimilars.

As you know, we are looking for business development opportunities. We have four levers of growth: baseline growth, special products, cost optimization, and BD. We believe that not just this cash, we have the ability to borrow, with $2 billion to $2.5 billion of financial capacity. We are actively engaging with BD opportunities and hope that something will come from it. In business development, you can never guide, but we are definitely working on it and see growth opportunities.

What is the net debt to EBITDA or what is the leverage you have in mind?

This is going to be a maximum of $2.5 billion.

Just a second question on the India business. We have outgrown IPM. I just want to understand, I know you talked about the top 10. But what can help us sustain double-digit or even outperforming the market? If you could also give us some data points around what our field force is and what our expansion plan in terms of distribution in India.

Sure. The growth in India will primarily come from producing innovative products, which are better than the standard of care in the market. The growth you see now reflects that strategy. We are launching innovative products in addition to generics. The branded generics will involve normal price adjustments with some minor volume growth. We are committed to outpacing the market and growing organically, and should see consistent double-digit growth in India in the coming quarters and years.

Just the data point on the field force, what's the size as we expand?

Yes, we have about 10,000 people in 50 teams.

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

My first question is about biosimilars. It seems that we are busy in licensing, doing deals for biosimilars to expand our portfolio. Could you provide some pipeline visibility for the U.S. market, starting from FY '27 or '28? Which are the key product opportunities that we are targeting for the U.S. market?

The key products will be abatacept, as I mentioned before. Abatacept is expected to be ready for launch in late December '26 or January '27. After that, we will have launches of smaller products. We plan to launch denosumab as well as pembro, daratumumab, and more products will be targeting the U.S. Right now, these are the key names we have.

My second question is about the Russia business or particularly the secondary tariff emerging from the European sanction or the U.S. sanction. Is this a factor of worry for us?

No, if anything, it's an opportunity. We are working freely in Russia, have great relationships there, and a fantastic team. If others impose sanctions, that doesn’t concern us. This could present an opportunity for us.

Sure, sir. Just last point on the NRT. We have reported a Q-on-Q growth of around 12-odd percentage. Is there any seasonality in that NRT portfolio? And what growth likely would that portfolio have seen on a Y-o-Y basis?

First, no seasonality. This is a smoking cessation brand. Second, it typically grows in single digits. We are currently accelerating it. In our business model, we anticipate a mid-single-digit growth. So far, this acquisition is exceeding our expectations.

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

My first question is with regards to semaglutide. We spoke a lot on the call in perspective of the launch timing. But in terms of pricing, if you could provide some color on tentatively indicating at what price point you may want to introduce this product in Canada and other markets?

As high as we can. Honestly, I wish I could give you a much better answer. It very much depends on how many competitors will be in the market and what the reimbursement conditions will be. The scenarios are very wide, so it will be dictated by what the market will allow us to take.

Sure, sir. And just next one question on the expenses, what you would have incurred on NRT and nutraceutical. So when you talk about 500 to 600 bps of cost savings, would it be safe to assume that a lot of that is currently getting anchored towards these two products, which may not happen in the near future once REVLIMID goes off?

No, we are talking about discretionary costs that you can save at the time you need to but which do not support sales, like marketing. Obviously, we are just entering the product; we want to grow it, and we will invest in it. We are talking about types of discretionary costs that are not contributing to sales. We are not desperate and actually feel very comfortable with what we are doing. We knew lenalidomide would come. But no, we're not planning to cut expenses that support company growth. Our priorities are to grow the company.

The next question is from the line of Foram Parekh from Bank of Baroda Capital Markets.

Most of my questions are answered. Just on the NRT front, should we still assume the EBITDA margin to be 25%? Or would it be in the neighborhood, if you can just throw some light on that?

Yes, that's about right.

And on the Europe front, excluding NRT, the growth has come down to 15%. So going forward, do we expect it to bounce back to about 20% growth as we have new product launches and biosimilar launches? Or can we work out with 15% growth kind of figure?

First of all, to grow double digits in the generic business is not bad. Once we launch the biosimilars, it will accelerate this growth. It's hard for me to calculate the percentage right now because we are launching each of them in 10 countries; it's pretty complicated. But let's say we should expect double digits from Europe. Whether it’s 15% or 20%, it is hard to predict. The important part about Europe is the leverage activity. These are products we have across markets, which adds to the economy of scale. So far, so good. So it’s in the neighborhood of what you mentioned, maybe plus, but I need to disclaim that I don’t know the timing of the biosimilar launches and how they will contribute.

Could you provide some insight on how you see the obesity market developing in India following the semaglutide launch, considering that the market is currently quite small with only one or two innovative products? Specifically, how do you anticipate the market will grow after the introduction of generics?

I believe that it's going to be significant. The unmet need is very, very clear, especially for people that live here in India. Therefore, I believe it's a big opportunity.

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

My first question was on the out-licensing income, which we booked this quarter. Is it possible to quantify that?

It's INR 120 crores.

Got it, sir. Sir, my second question was more from a medium-term strategy standpoint. We have technically relied on high-value complex generic launches in the U.S. How do we reconcile that with the fact we are also looking to moderate our R&D spend? I think you mentioned we might reduce it to 6% going forward. Can we still keep pace with the complex generic launches we typically do in the U.S. if we moderate R&D spend?

Yes. Just to remind you, R&D spend is relevant for products that will be launched in the United States 10 to 12 years from now. Yes, we can decide how much we spend for the future and how much to keep in accordance to performance. I don't see any effect in the immediate terms because all those products either have committed development or we already have the files.

The next question is from the line of Aman Vij from Astute Investment Management.

Sir, first question is on the semaglutide API side. Can you talk about our yields currently and the quality and pricing compared to Chinese API players? We are planning to set up a big capacity in India, which is much more than the guidance of 10 million to 12 million pens you talked about for 2 years. Can you share your insights?

Sure. Just first calibrate, the 12 million pens is the launch for '26. Obviously, only a small portion of the capacity will be used for that. We are also in this capacity going to do products for third parties as well as for the future, such as other peptides. So just to clarify that we are meeting competitive numbers. In terms of cost, we believe that once we finish the scale-up, our products will be competitive with other competitors, including those from China.

That’s heartening to hear, sir. Second question is on the Delhi High Court patent challenge, which I think by next week, we will get an answer. But in my understanding, even if it goes against us, it means we will be able to launch only 2 months later because the India patent expires in March versus Canada in January. Is that correct?

Yes, your understanding is correct regarding the timing of the launch in India. For us, it is key to enable the launch in Canada. Therefore, the Canadian launch would then also be delayed by more than two months. If it doesn't go our way, obviously, I can't react since laws in India aren’t reactive to any pre-judicial situation. But we believe it will go in a favorable manner.

Sure, sir. Just one final question. You’ve mentioned 10 million to 12 million kind of capacity tied up with the fill-finish players and pen manufacturers. If good demand is two times our initial assumption, do we have arrangements with both parties to achieve that?

Two times for calendar '26 will not happen.

For '27, sir. You said that it would be similar numbers for '26 and '27, right, so I was rather wondering on '27, not on '26.

Yes, I'm just not sure you got it right. Calendar '26, which is FY '27, will have about 10 million. If you take FY '27, it could be 12 million. There is some upside to that, but normally when I give guidance, I need to be very accurate and reliable. It will not be in that period.

Okay. But slight increases, we’ll manage with the arrangements, say 30%, 40% more than we predict?

It depends on the definition of slight increases.

We will take the last question from Kunal Dhamesha from Macquarie.

Just one on semaglutide Canada. So, because there are two brands, one for type 2 diabetes, which is Ozempic, and one for weight loss, Wegovy. Currently, Canadian authorities are not reimbursing Wegovy, for the weight loss indication. How are we planning to tackle this issue when we launch our product?

We are going to launch only Ozempic, generic Ozempic. The submission of generic Wegovy will happen throughout the year, but the launch we are discussing is only for Ozempic. I do not anticipate any issues with it.

Sure, sure. And can you help us also understand the split of this 10 million pen capacity we have between single-use pens versus multi-use pens? Since semaglutide in Canada is available in both versions.

The quantity I mentioned is single-use pens.

Yes, it will entail 1 pen a week.

Thank you. With that, I will hand the call over to Richa for the closing comments.

Thank you, all, for joining us today. We appreciate your continued interest in Dr. Reddy's and the time that you've taken to engage with our Q1 FY '26 results. If you have any further questions or require additional information, please feel free to reach out to Aishwarya or myself. With that, this concludes today's earnings conference call. Stay safe, and take care.