Earnings Call Transcript - RDY Q4 2024

Operator, Operator

Ladies and gentlemen, good day, and welcome to the Q4 and Full-Year FY2024 Earnings Conference Call of Dr. Reddy's Laboratories Limited. As a reminder, all participant lines will be in listen-only mode. 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.

Richa Periwal, Investor Relations

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 and full-year ended March 31, 2024. Earlier during the day, we released our results, and the same was also posted on our website. This call is being recorded and the playback and transcript shall be made available on our website soon. All discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have the leadership of Dr. Reddy's comprising Mr. GV Prasad, our Co-Chairman and Managing Director; Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; and the entire Investor Relations team. Please note that today's call is copyrighted material of Dr. Reddy's, and cannot be rebroadcasted or attributed in press or media outlets without the Company's expressed 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. GV Prasad. Over to you, sir.

GV Prasad, Co-Chairman and Managing Director

Thank you, Richa. Good morning and good evening to all the participants here. Welcome to the annual earnings call of Dr. Reddy's. I am delighted to be here today along with the members of the management team and the IR team. As many of you know, I joined the earnings call each year at the end of the financial year. FY2024 marks our 40th year of serving patients with the legacy of innovation, affordability, and sustainability. Guided by our purpose of accelerating access to affordable and innovative medicines for our patients, over the last four decades, we have moved from our beginnings as an API business to generic and OTC medicines, biosimilars, drug discovery, and services. As we bring to life our credo of 'Good Health Can't Wait', we have accelerated our journey through licensing and collaboration in the areas of novel medicines and consumer health. We delivered strong financial results in FY2024. Our growth and profitability this year have been driven by our performance in the U.S. We also made significant progress on future growth drivers through licensing, collaboration, and pipeline building. Our focus in 2025 will be to further strengthen our core businesses through superior execution as we invest and build future growth drivers. I am grateful to our people, the healthcare community, partners, and stakeholders for the trust placed in us. We are committed to increasing the number of patients we serve worldwide through our exciting pipeline of products and services. As we do this, we remain committed to sustainability, preserving the environment, ensuring a positive social impact, and good governance. With this, I'd like to hand over the call to Parag to take you through the financial performance of the company.

Parag Agarwal, CFO

Thank you, Prasad. Greetings to everyone, and I hope you are doing well. I'm pleased to take you through our financial performance for quarter four as well as for the full-year of fiscal 2024. As indicated earlier by Prasad, FY2024 has been yet another year of outstanding financial performance with all-time high revenues of over US$3.3 billion and highest ever profits. This fiscal, we recorded a double-digit growth in revenue, EBITDA, as well as PAT. For this section, all amounts have been translated into U.S. dollars at a convenience translation rate of INR83.34, which is the rate as of March 31, 2024. Consolidated revenues for the fourth quarter stood at INR7,083 crores, which is US$850 million, and grew by 12% on a year-on-year basis with a sequential decline of 2%. Adjusted for brand divestment income in India, on a re-based comparator, the underlying overall growth was higher at 17% on a year-on-year basis. The underlying year-on-year growth is largely driven by the Generics business in the U.S. and emerging markets. The Q-o-Q decline is mostly on account of the decline in revenues from Russia, the U.S., and India. The revenues for the financial year 2024 stood at INR27,916 crores, which is US$3.35 billion and grew by 14%. The growth was primarily driven by the improvement in base business volumes across several geographies. Consolidated gross profit margin stood at 58.6% for the quarter, an increase of 140 basis points over the previous year and 7 basis points sequentially. The year-on-year increase was due to the improvement in product mix and productivity-linked cost savings partially offset by brand divestment income during the previous period. The margins for Global Generics and PSAI were 52% and 28.6% respectively. Consolidated gross margin for FY2024 stood at 58.6%, an increase of 193 basis points over FY2023. Gross margin for the Global Generics and PSAI business were 62.9% and 23.2% respectively for full fiscal FY2024. The SG&A expense for the quarter is INR2,048 crores, which is US$246 million, an increase of 14% year-on-year and 1% quarter-on-quarter. The year-on-year increase is primarily due to investment in sales and marketing activities and new business initiatives. Overall, the SG&A cost as a percentage to sales was 28.9% and is higher by 34 basis points year-on-year and 87 basis points quarter-on-quarter. The SG&A spend for the year is INR7,720 crores, which is US$926 million and has grown by 13%, largely in line with business growth. While we continue to invest in strengthening our existing brands in digitalization initiatives, expanding into new businesses to create future growth platforms and developing our talent, we are focused on operational excellence and productivity improvement across all aspects of our operations. We continue to invest in R&D to support future business growth. The R&D expense for the quarter is INR688 crores, which is US$83 million, an increase of 28% year-on-year and 24% quarter-on-quarter. The R&D spend is at 9.7% of sales and is higher by 119 basis points year-on-year and 200 basis points quarter-on-quarter. The R&D spend for FY2024 is INR2,287 crores, which is US$274 million and has grown by 18%. R&D percentage to sales for the year stood at 8.2%, as against 7.9% during the last fiscal. The increase is primarily on account of higher number of filings and our developmental efforts to build a healthy pipeline of complex products across our market for both small molecules and biosimilars. The other operating income for the quarter is INR66 crores as compared to INR28 crores for the same quarter last year. The other operating income for the fiscal is INR420 crores as compared to INR591 crores last year. The other operating income was lower on account of a one-time settlement income reported in the previous year. The EBITDA for the quarter is INR1,872 crores, which is US$225 million, a growth of 15% year-on-year and a decline of 11% quarter-on-quarter. The EBITDA margin stood at 26.4% and is higher by 53 basis points year-on-year but lower by 283 basis points quarter-on-quarter. The EBITDA for the year is INR8,301 crores, which is US$996 million, recording a growth of 14%. EBITDA margin for the year is at 29.7%, which is largely in line with the previous year. The net finance income for the quarter is INR102 crores as compared to INR80 crores for the same quarter last year. The net finance income for FY2024 stood at INR399 crores as compared to INR285 crores last year. Profit before tax for the quarter stood at INR1,602 crores, which is US$192 million, a growth of 21% year-on-year and a decline of 12% over the previous quarter. Profit before tax for the year stood at INR7,187 crores, which is US$862 million, recording a year-on-year growth of 19%. Effective tax rate for the quarter has been lower at 18.4% and therefore the year has been at 22.5%. The ETR during the quarter is lower due to a one-time benefit occurring on account of the reversal of a tax provision, re-measurement of deferred tax assets owing to an increase in U.S. state tax liability and adoption of the corporate tax rate under section 115BAA of the Income Tax Act. The ETR was lower for full fiscal FY2024 mainly due to the adoption of the corporate tax rate under section 115BAA of the Income Tax Act of India. We expect our normal ETR to be in the range of 24% to 25%. Profit after tax for the quarter stood at INR1,307 crores, which is US$157 million, posting a growth of 36% year-on-year and a decline of 5% over the previous quarter. Profit after tax for the year stood at INR5,569 crores, which is US$668 million, a year-on-year growth of 24%. Reported EPS for the quarter is INR78.4 and that for the year is INR334. Operating working capital as of March 31, 2024, was INR11,293 crores, which is US$1,355 million, an increase of INR42 crores, which is US$58 million over December 31, 2023. The increase is mainly driven by higher inventory and receivables. Our capital investments in this quarter stood at INR503 crores, which is US$60 million, and INR1,518 crores, which is US$192 million during the year. The free cash flow generated during this quarter was INR529 crores, which is US$63 million. The free cash flow generated during this year before acquisition-related payout was at INR2,672 crores, which is US$321 million. Consequently, we now have a net surplus cash of INR6,459 crores, which is US$775 million, as on March 31, 2024. Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar are US$903 million at around a rate of 83.6 and 84.20 to the dollar maturing over the next 12 months with knocking available, which allows participation when the USD strengthens. And for the ruble, our 2,550 million at a rate of INR0.882 to the Ruble maturing in the next three months. With this, I now request Erez to take us through the key business highlights.

Erez Israeli, CEO

Thank you, Parag. Very good morning or good evening to everyone on the line. FY2024 has been a year of progress across our businesses. We focus on our strengths while also identifying and maximizing opportunities to diversify and differentiate our business. Leveraging new technologies and driving efficiencies, Dr. Reddy's delivered a strong full-year performance with the highest level of revenue and EBITDA. Let me take you through some key highlights of the year as well as most recent quarter. First, we've seen double-digit revenue growth in Q4 at 12%, and for the full year, it’s 14%. Our reported EBITDA margin stood at over 26% for the quarter, whereas we ended the full-year at a robust over 30%. We delivered higher returns with our annualized ROCE at 35.5%. Net cash surplus was $775 million as we exited the year. We have consistently maintained strategic collaborations that play an important role in our growth story. Apart from growing our core business of Generics, we invested in businesses of the future under three pillars: consumer health, digital therapeutics, and access to novel molecules. Recently, we partnered with FMCG giant Nestle to form a joint venture to bring nutraceuticals to consumers in India. The JV will leverage Nestle's healthcare science global brands and Dr. Reddy's well-established commercial capabilities in India. In Q4, we entered an exclusive partnership with Sanofi to market and distribute its vaccine brands in India. This has taken us to the second position among vaccine players. Our partnership with Bayer in India for the second brands of the molecules, Vericiguat, introduces this new class of drugs in heart failure management to patients in India, including in Tier 1 and Tier 2 towns and addressing gaps in the chronic segment. Our collaboration with Pharmazz enables us to market Centhaquine in India, which demonstrates significantly better and promising outcomes in managing hypovolemic shock. Our long-standing strategic collaboration with Amgen has been recently strengthened with an agreement to bring romosozumab injection under the brand EVENITY to India, used to treat osteoporosis in women after menopause at high risk of fracture. As part of our self-care and wellness business in the United States, we acquired MenoLabs, a portfolio of women's dietary supplement brands from Amyris Inc. We entered the UK consumer health market with the launch of allergy medication, Histallay. We launched bevacizumab, our first biosimilar in the UK. In the digital therapeutic space, following the successful launch in India, the drug-free migraine management device Nerivio has now been extended to Europe, starting with Germany, and also to South Africa. Furthermore, we have launched a condition management program in India called DailyBloom IBS, India's first-ever digital integrated care plan to manage irritable bowel syndrome. In 2023, we had undertaken a pilot launch of direct-to-consumer e-commerce website Celevida Wellness for diabetes nutrition. We have decided to wind down the pilot to repurpose our resources to other initiatives. On the regulatory front, the U.S. FDA has provided VAI status of two of our facilities in Bachupally, Hyderabad—our formulation manufacturing facility at FTO-3 following the routine cGMP inspection in October 2023, as well as our R&D facility following the GMP and Pre-Approval inspection in December 2023. The U.S. FDA has issued a Complete Response Letter concerning our Biologics License Application. This has no impact on the development or manufacturing of any current product pipeline. We will continue to work closely with the U.S. FDA to address and resolve all concerns within stipulated timelines. We have delivered consistent industry-leading performance across ESG ratings. We have been included in the S&P Global Sustainability Yearbook 2024 for the fourth consecutive year, making it to the top 10% score category for the first time. We received an ‘A’ rating in CDP Supplier Engagement, which is in the Leadership Band. Additionally, we are the only Indian pharma company to receive an ‘A-’ rating in Climate Change and Water Security for our 2023 CDP disclosures. To all these efforts, including the learnings from the challenges, we remain committed to meeting the unmet needs of patients and enhancing the standard of care. We continue to be a partner of choice. Given our commercial strengths and footprint, strong governance, ESG, progressive people practices, and of course, our financial discipline. Now let me take you through the key business highlights for the quarter and the full year. Please note that all references to the numbers in this section are in respective local currencies. Our North America Generics business recorded revenue of $392 million for the quarter, with growth of 26% year-over-year and a sequential decrease of 3%. On a full-year basis, we recorded revenues of approximately $1,506 million, with growth of 24% over the previous year. The increase was largely on account of market share expansion in certain key products, integration of the acquired bank portfolio, and Forex gains, partially offset by price erosion. We launched five new products during the quarter and a total of 21 products this fiscal. We expect this momentum to continue in FY2025. Our European Generics business recorded revenues of $58 million this quarter, with year-on-year growth of 3% and a sequential growth of 4%. On a full-year basis, the revenues were $228 million, recording growth of 9%. The improvement in business volume and contribution from new product launches helped offset price erosion. During the quarter, we launched a total of six products across markets, taking the aggregate launch in Europe for the fiscal year to 22. Our emerging market generic business recorded revenues of INR1,209 crores in Q4, showing year-over-year growth of 9% and a sequential decline of 6%. On a full-year basis, emerging market revenue was INR4,864 crores, reflecting growth of 7% on a year-on-year basis, driven by market share expansion and revenue from new products, which more than offset the unfavorable currency impact. We launched 70 new products during the quarter across various emerging market countries, totaling 106 products in FY2024. Within the segment, the Russian business grew by 9% year-on-year but declined 13% sequentially in constant currency. Similarly, on a full-year basis, Russia grew 16%. Excluding income from divestments last year, our Indian business recorded a double-digit year-on-year growth of 11% in Q4, showing a sequential decline of 5%, and 5.5% growth for the fiscal year. As per the latest report, our IPM rank for the quarter was 10 and 11 for FY2024. Including the divestment income, our Indian business recorded revenue of INR1,127 crores in Q4, reflecting a year-on-year decline of 12%. On a full-year basis, revenue was INR4,641 crores, a decline of 5% over the previous year. Our focused brand approach has led to steady improvement in our performance during the quarter, with three new brands launched in this quarter, bringing the total to 13 for the year. Our PCI business recorded revenues of $99 million in Q4 FY2024, with year-over-year growth of 4% and sequential growth of 5%. On a full-year basis, revenues were $359 million, which shows a marginal decline of 1% over the previous year. We filed 48 Drug Master Files this quarter, taking the annual total to 133. We continue to focus on research and development to create a robust product portfolio that will drive future growth. Our R&D investment this quarter stood at INR688 crores, up 28% year-over-year, driven by our biosimilar product pipeline as well as the development efforts across generics and our novel oncology assets in Origin. Furthermore, we will complement our in-house efforts with partnerships and collaborations to develop innovative solutions. We made 21 global generic filings, including 9 ANDAs and 1 NDA in the U.S. during Q4 FY2024. The total number of global filings included 7 ANDAs and 2 NDAs in the U.S. Our capital allocation priorities remain unchanged, with our number one priority being to reinvest in our business, both in the pipeline and building businesses of the future. Our strong balance sheet provides financial flexibility, and we remain committed to pursuing value-enhancing business development transactions to augment our organic growth efforts. As we exit the fiscal year on a positive note with robust financial performance and strategic moves that bring us closer to medium to long-term growth. I look forward to sustaining growth momentum in the base business and a seamless integration of acquired assets in the next fiscal. With this, I would like to open the floor to questions and answers.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The first question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria, Analyst

Yes. Thanks for my question. My question is on the Nestle joint venture that we announced last month. Could you give us some insight on when we should start seeing the rollout of these brands? How should we think about the ramp-up of revenue flowing through the entire joint venture? Will it take a couple of years before it starts contributing to margins, or will there be some incremental investments required? Just a follow-up on that—will the joint venture contribution be in addition to the double-digit growth in India that we have talked about in the past? Is that how we should consider it?

Erez Israeli, CEO

Yes, that's correct; it's going to be above that. At the same time, it will take time to bring the brands that are currently outside of India to register them, adjust them to the Indian regulatory needs or the preferences of people, and obviously to build the brands in India. The way the joint venture works is that both parties contribute their current nutraceuticals to the JV. Then, there's a certain sequence to bring primarily Nestle Health Science's brands to India, register them, qualify them, and build them. Given the timeline, I would suggest that in the first three years, there will be some level of investment. It's not going to be a material investment in terms of total efforts, but the revenues will come only in the following years.

Neha Manpuria, Analyst

Essentially, should I assume that this starts contributing to the India business probably post FY2026?

Erez Israeli, CEO

Yes, it will be post FY2026, slightly even post FY2027. The first couple of years will be focused on bringing those products and building the brands in a certain order. So, typically, people will start seeing the growth, but this has the potential to be a meaningful business, but it will take time to build.

Neha Manpuria, Analyst

Got it. My second question is on the R&D spend. We've seen quite a high R&D spend this quarter. You talked about it in your opening remarks. When can we start seeing the complex product pipeline that you are referring to or the biosimilars contribute to earnings, particularly in the U.S. market? Should we start seeing contributions from some areas you could elaborate on and what the guidance for next year for R&D looks like?

Erez Israeli, CEO

Yes. In terms of contribution to the growth, for small molecules, we will start to see that already in FY2025, with more expected in FY2026 and some in FY2027 and 2028. This is the pipeline that we have discussed. In terms of the biosimilars, we anticipate seeing products coming from internal activities likely in FY2027. The level of R&D for next year will be around 8.5% to 9%. This is the range we are likely to have.

Neha Manpuria, Analyst

Thank you so much.

Operator, Operator

Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.

Kunal Dhamesha, Analyst

Yes, good evening. Thank you for the opportunity. The first one on the U.S. business: just a clarity—you mentioned that there was significant erosion on a quarter-on-quarter basis. Does the base include generic REVLIMID contributions as well when you mention base erosion?

Erez Israeli, CEO

You're asking about North America, Kunal? I did not catch the question. Are you referring to America?

Kunal Dhamesha, Analyst

Yes, yes. In North America, you mentioned that the quarter-on-quarter decline is due to erosion in the base business. So my question is, does this base business terminology include revenue from generic REVLIMID?

Erez Israeli, CEO

Yes, the quarter obviously includes the sales of Lenalidomide. The decline is a combination of the service sequence. It's not a market share loss. It's more of a sequence of supply, as well as some price erosion unrelated to Lenalidomide.

Kunal Dhamesha, Analyst

Sure. In terms of U.S. price erosion, while it continues, have you seen any changes in recent trends, particularly if it's accelerating at a higher pace in recent months?

Erez Israeli, CEO

So the overall sentiment is unchanged. The main concern is still the sustainability of service and supply, and this remains the case. At the same time, we did face competition in some of our key products, leading to price erosion, which was partially compensated by growth of other products. For those specific products, we observed price erosion.

Kunal Dhamesha, Analyst

Sure. For next year, how many product launches do you have planned for the U.S. market?

Erez Israeli, CEO

So, we are planning for 20 plus launches.

Kunal Dhamesha, Analyst

20 plus. Perfect. Thank you, and all the best.

Operator, Operator

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

Saion Mukherjee, Analyst

Yes. Thanks for taking my question. Just one question on R&D. We have seen a significant step up in R&D spend, and as you mentioned, your guidance looks to exceed $300 million for R&D next year. Could you provide clarity on where this money is being allocated in terms of biosimilars or NCE research and other generic activities?

Erez Israeli, CEO

The R&D spend is focused, of course, on both small molecules and large molecules. The main contribution to growth is due to the timing of clinical trials for the biosimilars, which account for about 20% of the R&D spend. Therefore, between small and large molecules, about 60% goes to small molecules, about 20% to biosimilars, and the remaining 20% to API or other initiatives like licensing.

Saion Mukherjee, Analyst

Okay, thanks. My second question would be regarding growth in emerging markets in the upcoming years, particularly in key markets like China and Brazil. Could you share your outlook for 2025 and 2026?

Erez Israeli, CEO

It will continue to grow, remaining in double digits. China looks promising; we are presently submitting 14 to 15 products per year. This trend is likely to continue, and we have gained some interesting approvals. Overall, in constant currency, we are in a good position. There is always foreign exchange risk involved, which may offset it, but overall, it looks favorable.

Saion Mukherjee, Analyst

Okay, thank you.

Operator, Operator

Thank you. The next question is from the line of Balaji Prasad from Barclays. Please go ahead.

Unidentified Analyst, Analyst

Hi everyone. This is on for Balaji. Thanks for taking our questions. Can you hear me?

Erez Israeli, CEO

Yes, please.

Unidentified Analyst, Analyst

Okay, great. So I see you launched four new products in the U.S. during the quarter. Could you provide a bit more detail on these launches? And my second question is if you could provide a bit more detail on the CRL issue regarding the BLA for biosimilar rituximab. What are the next steps, and what does this entail? Thank you so much.

Erez Israeli, CEO

On the previous launches, we indeed launched five products during the quarter. We shared the names during the call and can provide more details afterward. Regarding the CRL, we received certain queries primarily about the CMC of the product, which we plan to address around the September timeframe. We expect a six-month timeline thereafter.

Operator, Operator

Thank you. The next question is from the line of Tarang from Old Bridge. Please go ahead.

Tarang Agrawal, Analyst

Hi. Congratulations on the extremely strong set of numbers for FY2024. Just a couple of questions. Capital expenditure stepped up quite a lot from FY2023 to FY2024. If I look at 2024 alone, roughly INR 2,700 crores of CapEx. If you could provide some insights into the broader categories where this INR 2,700 crores has been deployed?

Erez Israeli, CEO

Most of our CapEx is going towards expansion; around 75% of it is allocated for expansions, while the rest is for maintenance purposes. Maintenance includes investments related to compliance or digital initiatives. In terms of future, next year, we are investing primarily in products that we want to launch, focusing on capacity in both APIs and our injectable facilities. More than 50% of the CapEx will go in that direction. Additionally, we are building further capacity in our biologics plant in Bachupally as well as in our APSL services for both biologics and small molecules.

Tarang Agrawal, Analyst

If you could provide an update on your biosimilar business and the cumulative investments in this sector?

Erez Israeli, CEO

In terms of the biosimilars strategy, we are focused on products with a strong chance of being first to market. Our first meaningful products will launch in 2027, with additional products following. Currently, we are evaluating the cumulative spend on biosimilars, which aligns with the proportion of our R&D budget directed towards it. Consequently, you could estimate our annual investment in biosimilars to be around $50 to $60 million.

Tarang Agrawal, Analyst

Thank you.

Operator, Operator

Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane, Analyst

Thanks for the opportunity. Could you please clarify on rituximab for Europe, and your current plan regarding its launch?

Erez Israeli, CEO

We are planning to launch rituximab in the U.K. As we speak, we have not executed it yet. We believe the approval should come soon as we're after the qualifications in the U.K. and awaiting inspection by the EMA.

Tushar Manudhane, Analyst

Understood. Additionally, I noticed a reasonable increase in inventory on a quarter-on-quarter basis. Could you explain the reasons behind that?

Erez Israeli, CEO

The increase in inventory primarily stems from some geopolitical risks affecting supply routes. Accordingly, we have proactively built inventory to mitigate the risk of lost sales, which is the main reason behind the surge.

Parag Agarwal, CFO

Yes, the increase in inventory is primarily because of some geopolitical risks, which affect supply routes. So we proactively built inventory to ensure there's no loss of sales.

Tushar Manudhane, Analyst

Understood. Regarding the SG&A expense, we've seen an increase over the past few quarters. Should we consider this as a run rate for FY2025, or do you anticipate further increases?

Parag Agarwal, CFO

Overall, if you look at the SG&A expenses this year for the full fiscal year as a percentage of sales, it's about 27.7%, which is the same as last year. You may see fluctuations on a quarter-to-quarter basis. Broadly, we anticipate that over the next 12 months, SG&A as a percentage of sales will remain in that similar range.

Tushar Manudhane, Analyst

Got it. Thanks for the opportunity.

Operator, Operator

Thank you. The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.

Ankush Mahajan, Analyst

Thanks for the opportunity. We have observed that U.S. sales of $390 million have seen a sequential decrease. How do you explain this decrease regarding the base business or the REVLIMID business?

Erez Israeli, CEO

The decline is partly due to the normal ordering pattern of the product and some price erosion on a few products. It’s a combination of both factors.

Ankush Mahajan, Analyst

What is the full-year guidance for EBITDA margins for FY2025?

Erez Israeli, CEO

As you know, we are not issuing specific guidance. Nevertheless, we consistently aim for a long-term target of 25% EBITDA margins with 25% ROCE and double-digit growth. We broadly feel comfortable maintaining this range, although some fluctuations may occur. This year, we performed better than that, but there will inevitably be times when performance might dip below that threshold. We’re focusing on being within this overall framework.

Ankush Mahajan, Analyst

So when you say 25% EBITDA margins, does that include revenue from generic REVLIMID as well?

Erez Israeli, CEO

As previously mentioned, this is our overall guidance, not specifically for a single product. With the product's launch, our margins were higher, so you can calculate accordingly.

Ankush Mahajan, Analyst

Thank you, sir. Thank you very much.

Operator, Operator

Thank you. The next question is from the line of Surya Patra from Phillip Capital. Please go ahead.

Surya Patra, Analyst

Thanks for the opportunity. My first question is on the pricing trend you're seeing for Revlimid. How sustainable is the pricing trend we're currently experiencing considering the multiple new entrants?

Erez Israeli, CEO

I'm not going to discuss specifics about this product's pricing or quantities, as you know. What I can affirm is that it's expected to continue being a meaningful product for us throughout the period of the agreement.

Surya Patra, Analyst

That's fair; my next question is about the domestic formulation business. As you've indicated, you've taken multiple initiatives to introduce branded products or sustainably grow your domestic formulation business even though it might not contribute much initially. Could you give some insight into what sort of revenue mix we might see for your domestic formulation business over the next three years?

Erez Israeli, CEO

You can see that we have a flow of agreements coming through. What we've indicated is that the branded generic business we have in India is poised to grow. This quarter, it had double-digit growth, excluding divestments from the same quarter last year. This trend is anticipated to continue. We also initiated product launches like Nerivio and others that will complement previous growths. Therefore, the prospect for the India business is to exceed growth expectations for the branded generics, and we aim to rank among the top five in India, forecasting revenue around INR 12,000 crores by FY2030.

Surya Patra, Analyst

Is it fair to say that the domestic formulation business will be the growth leader for Dr. Reddy's in upcoming years?

Erez Israeli, CEO

Absolutely. India is a very important market for us; we are committed to growing our rank. It serves as our growth engine and innovation hub, providing value given our partnerships and reputational strength.

Surya Patra, Analyst

On R&D, I noticed a significant step-up. You mentioned guidance looks like 9% for the next year. Is this kind of sustainable?

Erez Israeli, CEO

Yes, we believe that maintaining 8.5% to 9% is sustainable for us, though there might be some fluctuations depending on the timing of Phase III trials. Overall, we think this range is doable.

Surya Patra, Analyst

Thanks, and finally, given the challenges in biosimilar success in the U.S. market due to significant upfront investments, what's your assessment of the likelihood of success for your biosimilar strategy?

Erez Israeli, CEO

We outlined the timelines earlier. We remain committed to products that present a strong chance of being first to market. We're also developing products for broader markets, not just the U.S. Our strategy encompasses global development, with significant focus on each market where we are aiming to compete meaningfully.

Surya Patra, Analyst

Thank you, sir.

Operator, Operator

Thank you. The next question is from the line of Madhav Marda from FIL. Please go ahead.

Madhav Marda, Analyst

Given that India is a core focus market, I wanted your thoughts on the potential risks arising from the rise of organized pharmacy retailing in the country, with trends we've seen in developed markets in recent years, and the push for generic drugs by the government.

Parag Agarwal, CFO

There have been several attempts to enhance the generic business, but due to enforcement gaps in quality perception, we feel the branded generics business will remain relevant for quite some time ahead.

Madhav Marda, Analyst

Given that organized pharmacies are starting to contribute in terms of addressing quality concerns in this industry, what are your insights?

Parag Agarwal, CFO

Organized pharmacies still represent a small fraction of overall sales, estimated between 12% to 15% at most.

Erez Israeli, CEO

While it is true that various localizations and eventual conversions will happen, we also recognize that growth in the market is projected. Our focus on true innovation will continue as we concentrate on maintaining existing brands and expanding into new territories.

Madhav Marda, Analyst

Thank you, sir.

Operator, Operator

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

Bino Pathiparampil, Analyst

Good evening. I have a couple of questions about a few products in the U.S.—first, you had acquired the ANDA for the generic character of Lumify from Slayback Pharma. What's the status? When do you expect approval?

Erez Israeli, CEO

To the best of my knowledge, it's currently approved.

Bino Pathiparampil, Analyst

What about the timelines for the launch?

Richa Periwal, Investor Relations

We expect the launch to take place in this quarter.

Bino Pathiparampil, Analyst

I also understand you're working on peptides. Do you have an update on how you foresee the liraglutide opportunity shaping up over the next two to three years?

Erez Israeli, CEO

Yes, this segment is very crucial for us; we're intensifying our efforts in both APIs and finished goods globally. Each product's timing will vary, but we commit to entering when feasible.

Richa Periwal, Investor Relations

Thank you for joining us for today's earnings call. For any further queries, please connect with the Investor Relations team. Thank you once again on behalf of Dr. Reddy's Laboratories Limited. This concludes our conference call. You may now disconnect your lines.

Operator, Operator

Thank you. On behalf of Dr. Reddy's Laboratories Limited, that concludes this conference. Ladies and gentlemen, we thank you all for joining us. You may now disconnect.